Child Benefit and Guardian's Allowance Up-rating Order 2004

HL Deb 26 March 2004 vol 659 cc1007-11

3.11 p.m.

The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey) rose to move, That the draft order laid before the House on 23 February be approved [10th Report from the Joint Committee].

The noble Lord said: My Lords, in moving this order, with the leave of the House, I should like to speak also to the Child Benefit and Guardian's Allowance Up-rating (Northern Ireland) Order 2004 and the Tax Credits Up-rating Regulations 2004. I am satisfied that the orders and regulations are compatible with the European Convention on Human Rights.

Tax credits and child benefit together deliver support to virtually all families with children in the United Kingdom. The regulations and order before the House put into effect the next stage of our commitment to tackle child poverty, in particular, through increases in child tax credit. So I am pleased to introduce these regulations, which follow our first annual review of the rates and thresholds of tax credits, introduced in April last year, and to introduce the order, which raises the rates for child benefit and guardian's allowance.

From 12 April, child benefit will be worth £16.50 per week for the first child and £11.05 for subsequent children. For the first child this represents a 25 per cent increase in real terms since 1997. The Government had previously undertaken to up-rate the child element of child tax credit by earnings for the rest of this Parliament. That would require an increase of £50 a year from this April. The House will wish to note that we are exceeding our commitment. The regulations increase the child element of child tax credit by £180 per year to £1,625 per child per year, equivalent to a weekly increase of £3.50 benefiting 7.2 million children. In addition, the regulations also increase the disabled child elements of child tax credit in line with inflation for 2004–05.

The regulations increase the elements of the working tax credit in line with inflation for 2004–05. Also in line with the Government's commitments, the child benefit and guardian's allowance order will increase rates in line with inflation for 2004–05 from 12 April 2004.

We estimate that the full year cost of up-rating the tax credits, rates and thresholds alone to be £1.5 billion. The cost of increasing child benefit and guardian's allowance is £250 million. As a result of that new investment, this Government are on track to meet or exceed their PSA target to reduce by a quarter the number of children in low-income households by 2004–05 on a before housing costs basis.

A total of 3.7 million families and 7.2 million children will benefit from the increases in the child element of child tax credit, approximately half of all families with children in the United Kingdom. Seven million families will benefit from the increases in child benefit.

Overall, 6 million families are benefiting from tax credits in their first year. Alongside the child tax credit, working tax credit is providing support to working families, helping disabled workers and low-income families in work who do not have children. The take-up of tax credits is a huge success, and they are reaching the families that they are meant to help. By the end of January we had reached all of those whom we expected to have in the system this year.

With the increases effected by the instruments that we are now considering, we will be delivering even more support next year. I beg to move.

Moved, That the draft order laid before the House on 23 February be approved [10th Report from the Joint Committee].—(Lord McIntosh of Haringey.)

Baroness Wilcox

My Lords, I have no particular axe to grind with the Child Benefit and Guardian's Allowance Up-rating Order 2004 and The Child Benefit and Guardian's Allowance Up-rating (Northern Ireland) Order 2004. They up-rate child benefits and guardians' allowances in line with the retail prices index inflation measure of 2.8 per cent. However, I would be grateful if the Minister would answer one quick question. While child benefits and guardians' allowances are being up-rated, I would be grateful for an explanation of why benefits for the eldest, or only, child living with a single parent are being frozen. I am sure that there is a simple explanation, but why are those benefits not being up-rated in line with inflation?

I note that the Tax Credits Up-rating Regulations 2004 were discussed with some rancour in another place. Although I have some reservations about the order, I am sure that we will be able to establish a constructive tone. My principal concern is this: the order up-rates child tax credit, working tax credit and the first income threshold for the first time in two years for those entitled to child tax credit; however, certain key elements—the family elements—of the tax credits and certain thresholds are to be frozen. I would be grateful if the Minister would explain why those elements are to be frozen. The Institute for Fiscal Studies—which I am sure the Minister recognises has a high degree of expertise in such matters—states that the Government will save £240 million through the freeze in 2004–05. By 2008–09, the Government will have benefited by an extra £1.2 billion. Is that correct? Was that the Government's reason for freezing the family elements of the credit?

Perhaps the Minister will be kind enough to address a related concern. In the Pre-Budget Report, the Chancellor of the Exchequer said that, at a cost of El billion a year—we will increase, from April, the child element not just by inflation or earnings, but by 13 per cent".—[Official Report, Commons, 10/12/03; col. 1069.] Yet the IFS has concluded that, while giving £1 billion with one hand, the Chancellor is taking away £240 million with the other. Was not the Chancellor's statement somewhat disingenuous to speak of a cost of £1 billion? Why were the changes announced in that way? Was it to hide the Government's real agenda—their re-distributive agenda? The IFS states that the overall effect of the Government's measure will be to, redistribute money within families with children, with 2.9 million middle-and high-income families with children losing in real terms from the freezes". Will the Minister admit that the Government's agenda is redistributive?

I wish to make one further point. So far as I am aware, this order represents the first up-rates in the elements of working tax credits for two years. Yet the up-rates—of between 2.9 per cent and 3.2 per cent—are to the value of little more than one year's growth in prices. Why is that? Has the value of those elements of working tax credits decreased in real terms?

Lord Newby

My Lords, I have just two questions for the Minister. The first echoes the question raised by the noble Baroness, Lady Wilcox: why have certain elements of the child tax credit been frozen when others have not? The surprising thing is that this is not a longstanding policy that must be changed significantly because, after years of consideration, the Government decided that it is not working as intended. The policy has been in full operation for only a year; therefore, it seems odd to treat elements of it differently within such a short period.

My second question relates to a point made by the Minister. I think he said that the take-up was on target or in line with the Government's targets. What is the percentage take-up of child tax credit? What is the target this year? What are the targets for the forthcoming couple of years?

The Earl of Erroll

My Lords, if child benefit has been frozen for the eldest child of a single parent, that sounds like a good idea. There is a small advantage to being married, and I thoroughly approve of keeping the stable relationship of marriage.

Lord McIntosh of Haringey

My Lords, I am most grateful for the implicit welcome for these orders and regulations. It was expressed in the form of a number of questions, which I will try to answer. The first question asked by the noble Baroness, Lady Wilcox, was why lone parents had received no increase for a further year. We have believed for a number of years that support for families should be based on the needs of children rather than on family structure. Legislation introduced in 1998 ended the higher rate for lone parents, which provided lone parents with a higher rate of child benefit for their children than that of couples. All families making new claims since July 1998—whether lone parents or couples—receive the same rate of benefit. That has been the policy for virtually six years, and it is reasonably well accepted that it has been successful.

The noble Baroness then asked me whether the Government were saving £240 million from freezing the family element of the thresholds. We are not. The Government will spend £1.5 billion on up-rating the tax credit in 2004–05, which is new money, specifically focused on the child poverty targets. The Government have honoured all their commitments by up-rating the single person, couple, lone parent, and disabled worker elements of the working tax credit. On the child element, we have gone beyond our commitment to up-rate it in line with earnings. There has been no saving compared with what we were committed to in Budget 2003. In fact, by increasing the child element by such a large amount, we are spending about £900 million a year more than was envisaged even at that time. Increasing the child element by £180, an increase that is significantly larger than an increase in line with average earnings, will benefit the very poorest families that need it most. That means that an estimated 7.2 million children live in families that will benefit.

The noble Baroness, Lady Wilcox, quoted the IFS about freezing the family element and the thresholds, saying that that will increase the number of families in poverty by 25,000. She will find that the IFS made two statements on that. After the first statement, which she quoted, and which was quoted by Mr Mark Prisk in another place, it published a more detailed briefing note. It now takes the view that the Government should comfortably meet our target, measuring incomes before housing costs, and are on course to just hit our target measuring incomes after housing costs. That means that the Institute for Fiscal Studies is slightly more optimistic than the Government.

The noble Lord, Lord Newby, asked two questions. First, he asked whether I would now admit that these changes were redistributive. I do so with great pleasure. Secondly, he pointed out that I had said that we had take-up from as many people in January as we expected by the end of the financial year. He asked me how many people were not taking up these credits. That statistic does not appear straight away, in the sense that it is calculated from survey work that we carry out over the period of the year. During the course of this year, probably towards the end of the coming financial year, we will know from survey work—because we do not know it in any other way—how many people are taking up these credits, and we will be able to report to the House on that.

I was also asked why we were up-rating only by an amount that appeared to be related to one year's inflation, when the credits had been going on for two years. They have not; they have been going on since April 2003. I hope that I have got that right. I may not have read my notes adequately. I think that the question was asked by the noble Baroness, Lady Wilcox. I hope that I have covered all the points.

On Question, Motion agreed to.