HL Deb 28 February 2005 vol 670 cc98-104

8.21 p.m.

The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey) rose to move, That the draft regulations laid before the House on 31 January be approved [8th report from the Joint Committee].

The noble Lord said: My Lords, with the universal agreement of the hordes of noble Lords present on this occasion, I shall speak to the two subsequent orders on the Order Paper. In my view, the regulations and order are compatible with the European Convention on Human Rights.

Tax credits, together with child benefit, deliver support to virtually all families with children in the UK. The regulations and the order put into effect the next stage of our commitment to tackle child poverty, in particular through increases in the child tax credit. So I am pleased to introduce these regulations which increase certain elements and thresholds of tax credits and to introduce the order, which raises the main rates of child benefit and guardian's allowance.

From 6 April 2005, the child element of child tax credit will rise to £1,690 a year, an increase of £65 in line with earnings. That represents an increase of £245 since its introduction in April 2003, benefiting 6.65 million children. In addition, the regulations increase the disabled child elements of child tax credit in line with inflation. From 6 April 2005, the regulations increase the elements of working tax credit in line with inflation.

Alongside the child tax credit, the working tax credit provides support to low income working people including people who do not have children. The Child Benefit and Guardian's Allowance Up-rating Order 2005 will increase rates in line with inflation for 2005–06. From 11 April 2005, child benefit will be worth?£17 a week for the first child and £11.40 for subsequent children. For the first child, that represents a 25 per cent increase in real terms since 1997.

We estimate that the full-year cost of up-rating child tax credits alone to be £700 million; the full-year cost of up-rating child benefit and guardian's allowance is in the region of £304 million. As a result of this new investment, the Government are on track to meet 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. Some 3.5 million families and 6.65 million children will benefit from the increases in the child element of child tax credit—approximately half of all families with children in the UK. Some 7 million families will benefit from the increases in child benefit.

Overall, 5.9 million families are benefiting from tax credits; the take-up of tax credits is a great success, and they are reaching the families whom they are meant to help. With the increases affected by the instruments that we are now considering, we will be delivering more support next year. I commend the tax credits regulations to the House. I beg to move.

Moved, That the draft regulations laid before the House on 31 January be approved [8th report from the Joint Committee].—(Lord McIntosh of Haringey.)

Lord Higgins

My Lords, although effectively the regulations deal with what are really social security problems, we have a change of batting. The noble Baroness, Lady Hollis of Heigham, retired on 100 not out. There was rather a bad referee's decision earlier, after the Division, but other than that she did admirably throughout a very long session. That change of batting reflects the extent to which, since 1997, the Chancellor of the Exchequer and the Treasury have taken over many aspects of social security under the Chancellor's obsession with tax credits of various kinds.

Many people are now extremely confused about what is happening on tax credits. In his opening remarks, the noble Lord seemed to underestimate the amount of confusion about tax credits and overestimate the extent to which the credits are taken up. Since 1999—this is all related to the child credit or the tax credit regulations that we are debating—we have seen the abolition of the family credit; the introduction of the working families tax credit; the introduction of the disabled person's tax credit; the introduction of the child care tax credit; the introduction of an employment credit; the introduction of a children's tax credit; and the introduction of a baby tax credit. Then the Government abolished the working families tax credit; the disabled person's tax credit; the children's tax credit; and the baby tax credit. They introduced a child tax credit; abolished the employment tax credit; they introduced the working tax credit; and finally they introduced a pensions credit. It is not surprising that people are a little confused, and it is not surprising that many people do not take up the benefits to which they are entitled.

Under these orders, they will be up-rated. To what extent does the Minister expect that this increased amount will be taken up, together with the amount that was previously being paid? It seems that a high percentage of people are not claiming the benefits to which they are entitled. As the noble Lord will know, the Government assume to a large extent that many of those benefits will not be taken up.

It is worth mentioning that we are concerned here with the child tax credit. Part of the problem with the administration of the child tax credit is that the Chancellor has tended to take over one aspect after another of the social security framework, with very little resistance from the three Secretaries of State who one after another did not really fight their corner on this. At least the new Secretary of State seems to he taking a more abrasive attitude, which suggests that the obsession with tax credits might be open to some qualification at present.

The other problem is that the administration of the child tax credit was taken over by the Inland Revenue. The Inland Revenue is, on the whole, remarkably efficient at collecting money. It came as no great surprise that it turned out to be rather inefficient at disbursing money, something for which historically it has not been renowned. The result is that the Revenue has allegedly disbursed a considerable amount of child tax credit to people who, after the event, it has decided are not entitled to it. What is the Revenue now going to do? It is going to collect it back. That is having a serious effect on a significant number of people.

As the noble Lord rightly pointed out, the child tax credit is designed to help many people on low incomes. If the Revenue suddenly pays out money to which it subsequently decides the recipients are not entitled. and then in its usual rather draconian way tries to get it back, a considerable amount of hardship may be caused to a significant number of people. Having no doubt spent the money, because they are hard up, there is little action that people can take to put the matter right. That is why my right honourable friend the shadow Secretary of State announced a little while ago that as far as the Conservative Party is concerned there should be an amnesty, unless it can be shown that the overpayment was caused by fraud on the part of the claimant.

This is a serious problem that affects individuals. While the increases under this order will be welcomed, the take-up and the problems faced by those who have suffered from the way in which tax credits have been administered by the Inland Revenue are very significant matters for concern. We do not wish to oppose the order, but these are serious issues that reflect the complexity produced by the Chancellor's obsession with every conceivable tax credit and that give us considerable disquiet. No doubt that is something that we will have to tackle when we come into government.

8.30 p.m.

Lord Oakeshott of Seagrove Bay

My Lords, I shall follow the noble Lord's cricketing analogy and am happy to come on to bowl from the other Opposition end. again unchanged from the previous match.

I do not propose to follow my friend in the other place, the Member for Northavon, who, I believe, used the opportunity of these orders to go into some detail about the principles of how social security benefits should be fixed or paid. We support the uprating, but what was the take-up, on the most recent figures available, for each of the benefits that is now being uprated? I quite understand that the Minister may not have the figures at his fingertips, but if he does not, can he please write to me and not refer me to a website, which may or may not be decipherable?

Lord McIntosh of Haringey

My Lords, I have to start by apologising that an Answer I gave to the noble Lord, Lord Oakeshott, at the beginning of the month gave the wrong website. I have asked him to apologise to his researcher, who had particular difficulty finding it, as did the noble Lord. I hope that it has now been corrected and I apologise to the noble Lord, Lord Oakeshott, and to his researcher.

Lord Oakeshott of Seagrove Bay

My Lords, as that point has been raised, it is a totally unacceptable way to answer a parliamentary Question, whether or not the website is accessible. That is being taken up and I hope that we will get a proper Written Answer on that point, which is why I made it.

Lord McIntosh of Haringey

My Lords, I shall look at that Question with due care when it comes to me. I understand the point. When matters are on the website, it is very convenient to hope that that is an acceptable way of answering. My position is that if it is not acceptable, we must print it out. Most people receiving Answers that refer to websites do not have the same difficulty as the noble Lord, Lord Oakeshott.

The noble Lord, Lord Higgins, raised three issues. First, the issue of the complexity of tax credits; secondly, the issue of take-up; and thirdly, what he described as the inefficient way that the Inland Revenue disburses money.

I do not accept that tax credits are complex. I accept that the history of tax credits over the past eight years has involved a number of introductions, and relaunches, so to speak, with the consequent abolition of some credits. But the movement has been in the direction of simplicity rather than greater complexity. We now have a system that replaces several earlier strands of support with different rules. Tax credits now are designed to be responsive to the changes that families experience as they happen: changes in the number of children in the family, in working hours, in child costs and family income. Now an annual assessment is made, which can be corrected by the recipient if it is clear that one or more of the bases of the assessment is wrong, and can be altered if the recipient notifies during the year that there has been a change in one of the bases for the assessment. There is no longer a compulsory requirement, as there used to be in some cases, for continual reassessment and substantial bureaucracy. If there have been changes during the year, the amount the family will receive should change to reflect that. At year end, we balance the books and pay out any extra amount due, or say how we propose to recover any amount that is overpaid. That, of course, was another complaint of the noble Lord, Lord Higgins—the "draconian" way we approach overpayment.

I contest that claim as well. Tax credit award notices show claimants the amount of tax credit they are due, together with the basic information. They are asked to check that the information is correct, and to call the helpline if the details are wrong. Overpayments from 2003–04 will be recovered from continuing 2004–05 payments wherever possible. To prevent hardship, there are limits on the amounts that will be corrected from payments. Code of practice No. 26 concerns recovery of overpayments, and is available both on the website and as a leaflet. A copy has also been placed in the Library.

People should get the tax credits they are entitled to and no more, but tax credits are designed so that the firs[...] 2,500 of a rise in income in the current year does not affect the tax credits to which families are entitled for that year. That helps to prevent people being overpaid, and reduces any overpayment they may receive. The scales are clearly tipped in the recipients' favour.

There are two kinds of overpayment. The first kind is because of a mistake by the Revenue, where the recipient could reasonably have thought their payments were correct. Under those circumstances, the Revenue will not pursue the debt. The second kind, however, is an overpayment that could have been identified, or is a result of a mistake by the recipient, and in those cases the code of practice applies. An amnesty on overpayments would not therefore be right. We would be failing to protect the public purse, and it would be unfair on those families who did notify their changes in time, or who had their award adjusted during the year to avoid overpayment at year end.

The second point the noble Lord, Lord Higgins, made was on the subject of take-up. We do not have the take-up rates for 2003–04 because we do not have the survey data for that period. They will not be available until spring of this year, which, I guess, is some time after today. I certainly would not wish, however, to be challenged on when spring ends. This question arises annually, and it is unfortunate that we happen to be debating it.

Some 5.9 million families benefit from the scheme when, if we take the likelihood that nine out of 10 families with children are eligible, 6.5 million families should be doing so. The comparison is misleading, though, as it would be unrealistic to expect 100 per cent take-up. Even child benefit, which has been in existence for decades, does not achieve that. We have far higher take-up levels than were anticipated when these credits were first introduced. To conclude on the points made by the noble Lord, Lord Higgins, I cannot accept that the Inland Revenue is inefficient at disbursing money. There are clearly bad cases; I have read about them in the paper, as the noble Lord has. However, we have a system that is as light on requirements for reporting as it conceivably can be, and that is humane in dealing with any of the rough edges that are inevitable if you have an annual assessment rather than a more frequent one.

Lord Higgins

My Lords, apparently even the Revenue admits that 455,000 families were overpaid in 2003–04, to the tune of £93 million. That is not a very efficient way of going on. Is that figure correct? What is the overall scale of the extent to which the Revenue has overpaid?

Lord McIntosh of Haringey

My Lords, I am not in a position to deny that figure by searching through my papers at the moment, so I will not deny it. However, we are talking about 10 per cent of claims involving overpayments. That is not a very surprising figure if you take account of the fact that the assessment is made only once a year, and that quite a number of the things that I detailed are capable of change in the course of the year. It clearly is undesirable to have that level of overpayment, but it is the price that we pay for putting less of a burden on claimants.

I am now able to say that the 455,000 cases of people who received excess payments of tax credits were specifically due to a computer error in April and May 2003. It is a small figure compared to the number of families benefiting from tax credits, and is the result of a particular glitch or series of glitches in those two months. It should not be taken as a permanent feature of tax credits.

The noble Lord, Lord Oakeshott, joined in some of the comments of the noble Lord, Lord Higgins, so my response to him would be similar—apart from my apologies for our disagreement about websites.

On Question, Motion agreed to.