Tax Credits Bill

Public Bill Committee, 17 January 2002.

Standing Committee A

Clause 7 - Income test

Paul Boateng (Labour, Brent South)

I welcome you back to the Chair, Mr. Hood.

We were debating the amendment when the Committee rose on Tuesday. Its effect would be to reduce the flexibility that clause 7 provides for handling fluctuations in claimants' income. I understand the concerns of the hon. Member for Northavon (Mr. Webb) about simplicity, which we discussed during Tuesday's sitting and I hope that my explanation of how we intend the system to work under clause 7 will provide some reassurance.

The aim of the new tax credit is to combine continuity of support, where appropriate, with the flexibility to respond to changes in claimants' lives. In particular, it is important that tax credits should be able to intervene to provide extra support when claimants experience a significant fall in their income, thereby helping them to stay in work. The thrust of tax credits is to reaward work and to encourage and sustain it.

Although that flexibility is important, we are aware that people need as much certainty as possible about their tax credits. Clause 7(3) enables thresholds to be set for a change in income between one year and the next, so that only changes greater than the threshold will make any difference to entitlement.

Depending on what is set out in regulations, clause 7(3) will enable tax credits to be based on: current year income in all cases; current year income only if that is higher or lower, by a set amount, than last year's; current year income ignoring the first slice of a change by comparison with last year; or, in effect, previous year income.

James Clappison (Conservative, Hertsmere)

That sounds very straightforward.

Paul Boateng (Labour, Brent South)

I am glad that the hon. Gentleman thinks so.

The clause must create a context for the regulations that come later, which must have the capacity to meet all eventualities if they are to be fit for the purpose.

A tax credit system that responds to falls in income and provides extra support at the point of need must

be counterbalanced by the scope to adjust the amount of tax credits payable when people have had a significant rise in their income. That would entail setting thresholds under clause 7(3)(a) or 7(3)(a) and (b) together. If thresholds are set under both paragraphs, it is possible to allow people room for their income to rise by a certain amount without it affecting their tax credits for that year, so that their incentives to work and to increase their earnings are maintained.

The same sort of flexibility is available where people have falls in income. Thresholds can be set under clause 7(3)(c) and (d), so that people stay on previous year income unless they experience a significant fall in their income.

Because of the way in which clause 7(3) is structured, it would be possible to take a different approach to the treatment of falls and rises in income, and to respond to smaller falls in income than to rises. I see from the silent indication of assent from the hon. Member for Arundel and South Downs (Mr. Flight) that he understands and approves of that point.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for his clear explanation. He says that last year's income may be used as the basis, provided that this year's income is only modestly different, but last year's income is income as defined under subsection (3), so it includes that distortion. No comparison is made with actual cash income; rather, last year's income is income as defined for the purposes of the clause. Might there not be a compounding of the variance from this year's income?

Paul Boateng (Labour, Brent South)

No. It will be reconciled at the end of the year, but I shall deal with that point, if I may, in due course.

As I said, because of the way in which clause 7(3) is structured, it is possible to take different approaches to the treatment of falls and rises, and it is designed to respond to smaller falls in income than to rises. Last year's consultation exercise revealed a consensus that tax credits should be able to be adjusted in this way. It also became clear, however, that interest groups and other respondents were concerned about how the provision would work in practice—a point that the hon. Member for Northavon is trying to tease out through his amendment.

One reason for providing flexibility through clause 7(3) is to allow further discussions before regulations are made. As I said, such discussions provide a context for the formulation of regulations that fit the purpose. My hon. Friend the Paymaster General has asked officials to take forward those discussions, and she is keeping in close contact with them.

I turn to the points that the hon. Gentlemen made when speaking to the amendment. It was asked why it is not possible to have a system based entirely on the income of the previous year. In one sense, that has a superficial attractiveness, in that it would offer certainty about the level of tax credits that people would get, subject to changes in circumstances that might affect their award. Our concern, however, is that there will be some who experience a drop in income in the current year, and if we use the previous year's

income such changes could not be picked up for 12 months. The attractive point about the system proposed in the clause is that will help us to get over that problem.

Steve Webb (Liberal Democrat, Northavon)

I do not think that a decision on whether one uses the previous year's income or an estimate of the current year's income second guesses the separate issue of whether there can be within-year reassessment in the light of dramatic changes. The amendment, which presupposes using the previous year's income unless there is a major change in circumstances, would also allow for within-year reassessment where such change occurs. Indeed, I listed some of the changes that might apply. I doubt whether there is a tie-in, therefore, with an inability to detect major changes for 12 months.

Paul Boateng (Labour, Brent South)

The jury is out on that one. The hon. Gentleman will recall that his earlier amendments would have established a period of six months. The issue was discussed in relation to clause 5, and there is no need to rerun that debate. I understand the approach, but we rejected it. Our view is that people who become entitled to income support or jobseeker's allowance would at that point move on to their full entitlement to child tax credit. We believe that we should go further than providing a basic safety net and have the scope to respond to falls in income while people continue in work. For example, someone might experience loss of regular overtime, which could have a significant impact on a family with a modest income. The framework provides us with the capacity to respond to that through regulations. Our fear is that without flexibility people will be forced to give up work to obtain extra support.

I assure the hon. Gentleman that clause 7 will enable thresholds to be set, which will result in virtually all claims being based on the previous year's income. I do not think that there will be a problem, but it is necessary for the clause to be framed as it is and the context to be set for the regulations to maintain that flexibility. One reason for taking such a flexible approach is to enable the system to be refined in the light of experience and we shall monitor it closely. I have no doubt that my hon. Friend the Paymaster General will address the issue in more detail when we consider the amendment tabled by my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck).

It may be helpful if I address the problem raised by the hon. Member for Arundel and South Downs and explain how the process will work. We intend claimants to start their awards on the basis of their previous year's income. That will generally be known. When thresholds have been set under clause 7(3), the Inland Revenue will advise people about the size of the change that should trigger a request for their award to be adjusted during the year. There will be a degree of certainty and people will be advised accordingly. At the end of the year, the amount of the tax benefit will be finalised when the actual income for the year just gone is known. There will be a reconciliation at the end of the year when the actual income becomes clear.

The aim of setting thresholds under clause 7(3) is to enable claimants to remain on the previous-year basis unless they experience a significant change in the current year. As some hon. Members have said, and as many of those who responded to the consultation exercise said, the level of the threshold is crucial. The hon. Member for Northavon tried to tease that out on Tuesday and he will not have much more success today because we need to do further work on that before a firm decision can be made.

The hon. Gentleman also referred on Tuesday to the effect of a threshold under clause 7(3) that disregards the first slice of a change in income. He wondered whether such a threshold should be carried forward to the next year so that the reduced amount of income taken into account in the current year should be also be taken as the previous year's income for the year just starting. A threshold that ignores the first slice of income change in a year only affects tax credit entitlement for that year. In the following year entitlement would again be governed by the difference between actual previous year income and actual current year income. Otherwise the effect would be to increase the chance of a move to current year income in the following year by magnifying the gap, a point that the hon. Member for Arundel and South Downs made on a number of occasions. The situation would become increasingly distorted over time. Our approach would enable a catching up with actual income at the start of each year, similar to the way in which working families tax credit picks up changes after six months.

I want to reassure the hon. Member for Northavon that the Inland Revenue is conscious of the need to provide guidance to claimants. We discussed this matter at some length on Tuesday. The content of that guidance and its clarity will be important, particularly in this part of the system, and there will be opportunities to contact claimants and offer them advice and support. As we have discussed, claimants will not be subject to requirements to notify changes in income during the year, although they will have to provide that information at year end. The Revenue will be able to check the information provided during the year or at the end of the year.

Mark Hoban (Conservative, Fareham)

May I clarify the process in my own mind? The thresholds will not require people to notify changes in their income during the year, and at the end of the year there will be accounts. When the reconciliation is done, a claimant will be required either to repay excess tax credit received or to receive a top-up tax credit for the amount that he has not claimed. That is what I believe will happen in the year-end procedure.

I should have thought that a claimant whose income varied significantly during the course of the year—perhaps somebody in seasonal work—would be well advised to submit a reassessment of their tax credit during the year, so that they did not have to make a significant repayment at the end of the year.

Is there scope in the guidance to encourage claimants to submit regular reassessments of their

need for tax credits where their earnings are seasonal or uncertain as a result of moving in or out of work? I am perhaps more concerned with the seasonal point than with people moving in and out of work.

Paul Boateng (Labour, Brent South)

That would certainly be an issue for seasonal workers. In the discussion and the conveying of information between the Revenue and the claimant of the tax credit at the time of the application it would be advisable to point out, ''It may suit you to do this.'' There is no compulsion to follow that advice, but good sense would dictate that one should, in order to receive a steady, regular benefit as opposed to a hike at a time when it might not be so useful. The whole point, as we have said on a number of occasions, is to provide the income when it is needed. That is the advantage of the proposed system.

I know that this is not intended, but the amendment would make the system less flexible by restricting the scope of the regulations that could be made under clause 7(3), which I do not believe would be helpful. I hope that, in the light of my explanation, in which I have sought to address in some detail the points that have been made, hon. Members will not press the amendment to a vote.

Howard Flight (Conservative, Arundel and South Downs)

Again I thank the Minister for a lucid explanation. I cannot help feeling that here we have an experienced counsel who has probably just about enabled all members of the Committee to understand how the provision will work. I think of myself sitting in a surgery trying to explain it to an average member of society and of the prospects of them understanding it. I am always uncomfortable with tax arrangements that people cannot understand, because if they cannot understand them, they may not know what they are entitled to, there is scope for error and so on. Although I appreciate why the clause has been so drafted and what it is designed to achieve, I warn the Government that proposing measures that ordinary people do not have a hope of understanding is an undesirable practice that invites trouble.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister for putting on the record some matters that were not clear to me. He said that the majority—he may even have said the vast majority—of claims would be assessed on the basis of previous year's income. That is a significant statement, which offers some reassurance in respect of our concern about expecting people to forecast.

I should point out to members of the Committee that despite what the amendment paper says, my amendment is not about the funding of strategic health authorities and health authorities.

During Tuesday's proceedings I asked the Minister what happens when income changes exceed a particular threshold. That evening I found in my pigeonhole a written answer from the Paymaster General, which, he will be relieved to know, was consistent with the answer that he just gave.

I remain concerned about one aspect of the process. I shall give a simple numerical example. Let us say that a person's income is £100 one year, £130 the next, and the threshold is £20 a week. In these terms, that is a big change. The system will choose to ignore the £20, because that is the threshold, and assess only on the

basis of the £10, knocking off 35 per cent. or whatever the taper is. In that year, there will be a £3.50 or £4 adjustment. Suppose that in the following year the person's income does not change and stays at £130. His income has not changed between the two years but he will be assessed on a different income because in the second year the Treasury will again take account of the £20 width of the threshold, to stop the endless rolling over.

I know that there is a trade-off involved. However, I would find it difficult to explain to someone whose income had not changed between two years why their tax credit had fallen. One would have to say, ''That is because we disregarded it in the first year, but we have stopped disregarding it in the second year.'' That is quite a hard story to sell.

Mark Hoban (Conservative, Fareham)

The hon. Gentleman raises an important point. I should have thought that if a person's income exceeds the threshold—£20, in his example of £100 and £130—the end-yearly assessment should be on the £30, not on the £10.

Steve Webb (Liberal Democrat, Northavon)

My understanding of clause 7(3) is that one of the paragraphs stipulates that the bit that will be taken account of in the assessment is only the excess over the threshold, not the whole increase. There is no easy answer to this. If one says that small amounts will be ignored—there is a lot to be said for that in terms of administrative convenience—one cannot then, as soon as someone goes a penny over the threshold, take the whole lot, because that will create a huge discontinuity.

If the thresholds are big—again, that is advantageous in terms of administrative convenience—the jump in the following year for someone whose income has not changed at all will be that much bigger, because the whole width of the threshold will be taken into account, and the bigger the threshold, the bigger the jump the following year.

The amendment is not as rigid as the Minister suggests. We are trying to get at the fact that the presumption is the previous year's income and the circumstances in which one can choose the current year's income, including within-year reassessment for big changes. There is no mention in the amendment of those disregard concepts. I do not want to rehash a previous debate, but another reason why a 12-month assessment might be problem is that in 12 months there could be bigger changes, bigger jumps and one must worry more about thresholds, which would have to be bigger. However, we have tortured the point as much as we dare and I am reassured by the Minister saying that the vast majority of people will be on the previous year's income.

My only other worry is that the tax mentality system has been applied. There may be overpayment or under payment recovery the following year—perhaps through adjustment to the tax credit—and those of us who are used to PAYE income, income tax returns and catching up on previous years are familiar with that system. However, it is different for the claimants that we are talking about. Because the amount could be so great, they may have two years' worth of underpayments or overpayments to recover

and have to take in account further adjustments. I worry that things will get fiendishly complicated.

The amendment was getting at the simple point that trade-offs must happen. I remain concerned about the complexity of the proposals as they will affect the claimant. However, at least if most people are on the previous year's income, that offers certainty for advisers and claimants. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Karen Buck (Labour, Regent's Park and Kensington North)

I beg to move amendment No. 86, in page 5, line 23, at end insert—

'(3A) The amounts prescribed under paragraphs (a) and (b) of subsection (3) above must not be less than £2,000.

(3B) The amount prescribed under paragraph (c) of subsection (3) above must not exceed £500.'.

Much of what we have discussed is germane to this amendment. Although I congratulate my hon. Friend the Minister on the clarity with which he explained the intention of clauses, I too found my ears gently seeping blood by the end of it. I do not encourage hon. Members to stray into naming a figure, but can we receive models, using a range of variations, of what the taper and threshold might be? We could then see examples of how the proposals might work in practice. I would then find it easier to understand and explain the implications of what is being said. I am sure that when we are in surgery and dealing with claimants the available briefing will include examples, but it would be helpful to the Committee, and on Report, to have such modelling now.

This is a probing amendment. We have already heard that Ministers will not be persuaded into naming a figure today and I am not expecting that. I am also conscious of the dangers of my amendment. There is a real risk that the more generous the amendment, the steeper the cliff edge when the calculation is made at the end of the year. I want to encourage Ministers in their representations to the Chancellor to be as generous as possible in securing a threshold. I also want to tease out a few more questions, some of which will be fiendishly technical and I am sure that I will not understand them. If we cannot have responses now, perhaps the Committee could be given written answers.

The argument for having a generous threshold is three-fold. It will reduce the level of overpayments. That is valuable because the experience that is coming through from Australia, about the level at which people face significant overpayments, is slightly concerning. We in this country do not have a culture, as the Americans do, which is used to significant year-end changes and calculations, which people build into their financial planning. We must be aware of that. The more that we can do to reduce the number of people facing those overpayments, the better.

The measure will reduce anxiety about overpayments. We mentioned earlier that many people, especially those who have been out of work

for a long time, do not have skills of projection and calculation. I hope that I am not being patronising, because I am not very good at them either. Those people might be discouraged from taking a little bit of overtime or extra work, or picking up another week or two seasonally, because of the difficulty of making a plan and their worry that there could be an unknown bill dropping on their mat at the year end.

The measure would also reduce the administrative burden, which is very important. The Revenue will be expected to take on a whole new level of work to deal with inquiries. I am confident that it will rise to that, but there should be the least possible burden on it.

In an earlier debate, the Minister made the important point that the whole tax credits policy, as well as its aim of welfare to work, is aimed at encouraging people to take greater responsibility for their own financial planning. That is absolutely right. I have no problem with it, and it is a healthy and good thing, but we are dealing with many people who are risk averse. That is one reason why many people have found it difficult to go into work in the first place. The more that we can find ways to help people to overcome that anxiety about taking risks, the better.

I wanted to include a generous threshold, and have set the figure at £2,000. That is slightly arbitrary, which is why this is very much a probing amendment. I welcome the fact that, as has been stated already, the thresholds will be asymmetric. That is very important, because there is no reason why we should not be more generous to people facing overpayments, and build in as tight as possible a safety net for people who face a drop in income.

I have a few specific questions. Can the Minister share a little more about how the threshold level will be determined when the figure is assessed? What calculations will underpin it, other than the pot of money available? Is it intended that the prescribed amounts in clause 7(3)(a) and (b) will always be the same? Given the specificity built into clause 7(3)(a), (b), (c) and (d), under what circumstances could clause 7(3)(e) apply?

If an amount were prescribed under clause 7(3)(d), tax credit entitlement would be based on a higher level of income than the claimant actually had. Obviously, lone parents, for example, are used to being on a low income, but the measure could cause severe problems. Do the Government intend to prescribe an amount under clause 7(3)(d)?

Steve Webb (Liberal Democrat, Northavon)

I do not have much to add. I first welcome the fact that the hon. Lady has tabled this amendment. I hope that it is the first of several from Government Members, who have a lot of expertise to bring to this issue, which we are lacking in our discussions. I know that that is convention, but I very much welcome the modest breach in convention that we have had this morning and I hope that we will see more of that.

As the hon. Lady says, this is clearly a probing amendment and we would not want specific figures in the Bill, not least because we want to index them.

However, it would be tremendously helpful to get an idea of whether we are even in the right ballpark. I welcome the fact that we are discussing asymmetric thresholds. People who could gain a little bit ought to be able to get that, when it would cost more for the state to recover that little bit.

I am unclear on one issue, and would like the Minister's clarification on it. How many year-end reconciliations will there have to be? I presume that it will be one for every claimant, which will be something like 6 million. I suppose that makes me slightly nervous about the administrative burden. My point refers back partly to the hon. Lady's question about how the thresholds will be set. Can the Paymaster General produce any evidence from Treasury analysis based on panel data on fluctuations in people's incomes from one year to the next and the number of people on various thresholds? She is already indicating that she can, so I shall not elaborate further. Certainly these variations are helpful.

To return to my earlier point, £2,000 is the threshold where, if the income goes up a bit, we ignore it for tax credit purposes. If the income remains the same, the following year the whole £2,000 is counted in the calculation. Assuming that the taper is 35 per cent. the claimant will suddenly lose £700, even though his income has not changed. For those trying to budget on a relatively modest income, that is a hefty sum. There is a trade-off here: a big threshold means administrative convenience, but it also means big jumps the following year after when it drops out of the calculation. I am interested in the Minister's reflections on how that trade-off will apply.

Mark Hoban (Conservative, Fareham)

I have listened to the debate this morning and on Tuesday afternoon with growing concern about the complexity of the system of income assessment that we are putting in place. We have heard some clear explanations from the hon. Member for Northavon, who in a previous incarnation was a professor, and from a Minister who was a barrister—a distinguished barrister—and my own understanding of the Bill has been enormously enhanced by listening to their explanations.

However, I worry about how those who are being asked to advise claimants on the benefits will cope with the system. I think about my own surgery and about workers in citizens advice bureaux across the country. We are in danger of sucking claimants into a complex system if their income varies significantly from year to year, and we need more clarity. I welcome the suggestion of the hon. Member for Regent's Park and Kensington, North for some models, but I want to be sure that I understand the operation of the threshold.

When I intervened on the hon. Member for Northavon earlier, we agreed that the element above the threshold—in the hon. Gentleman's example it was £10 a week—would be assessed during the year. The change in tax credit would be implemented as a consequence of that £10 increase above the threshold—which in this case was assumed to be £20 a week. At the end of the year, when the reconciliation was done, would the calculation take into account the £20? In other words, if someone earns the £20

threshold, will they receive a reduction or will they be told to repay their tax credit to the extent of that £20? If over a year they received £1,000 extra compared with the previous year and the threshold was, say, £2,000, would that £1,000 be ignored at the year-end reconciliation or would they have to repay the tax credit that they had received, which they were not entitled to because they received that extra £1,000?

Steve Webb (Liberal Democrat, Northavon)

There are two issues here: there is the current year and there is another year hence. My understanding of the system is, as the hon. Gentleman says, that the £10 above the £20 would be tapered down within the year if necessary and also at the end of the year. Therefore, there would be no question of suddenly doing something different at the end of that year, but another year hence, if nothing has changed, the whole income will be assessed, as I understand it, and that is when the jump will take place. I am not talking about a jump occurring at the end of the year. If nothing changes, the disregard disappears a year later.

Mark Hoban (Conservative, Fareham)

In a way I am more concerned about the first point, because the second already occurs: the working families tax credit claim exists for six months regardless of a change of circumstances and is then reassessed at the end of six months, and may change then, regardless of the fact that the income has not changed. However, I am concerned about the treatment of the disregard as part of the year-end reconciliation. Perhaps the Minister will explain—I am not sure which one will reply to this debate—in the concluding remarks how that disregard is treated as part of the year-end reconciliation and whether people will have to repay any excess that they have received as a result of the threshold operating during a year.

Dawn Primarolo (Labour, Bristol South)

Good morning, Mr. Hood. As this morning's debate has shown, it is very important to ensure that the arrangements are correct. All members of the Committee will appreciate that it is important to set the figures in secondary legislation, so that we can return to the matter over the years. That is the quickest and most efficient way for Parliament to deal with the figures; indeed, that is how we deal with all rates and thresholds.

As my right hon. Friend the Financial Secretary explained in discussing the previous amendment, the clause seeks to provide maximum manoeuvrability in respect of the regulations. In drafting the provision, we have struggled with the question of what to say to constituents in our surgeries. Sometimes, simple matters that people understand clearly in terms of how to arrange their lives do not translate easily into legislation, but I should point out that it will not be necessary for claimants of the new tax credit, or their advisers, to read clause 7. We are trying to look sensibly at a series of principles and to strike a balance in legislation.

I should remind the Committee of the relevant arrangements. We want to move to a yearly assessment, so that we can offer certainty to those in receipt of the tax credit payment. Long-standing experience of family credit and the working families tax credit has shown that, although the six-month

renewal offers certainty during that period, it causes problems at the point of renewal, particularly in terms of families and household planning. A longer period is necessary to enable a move into the labour market, a change of job or the arranging of child care. Our aim is to establish certainty over a longer period.

We settled on using the previous year's income because we want to minimise the information that a claimant must submit by using information already in the tax system—the P60 and the P45—that can be suitably fine-tuned. No extra information need be collected at that point, because it will be flowing to the claimant. In respect of a claimant who is moving from benefit into work, all the relevant information will be in the system and easily obtainable.

We recognise the points made by my hon. Friend the Member for Regent's Park and Kensington, North and others, but what if something dramatic happens to the family income in the current year? In such a situation, it would be unreasonable not to move into current year, but doing so creates a problem, to which the hon. Member for Northavon has referred a number of times. Instead of knowing precisely how much they had earned and demonstrating that to us, they would have to assess their earnings for the rest of the year. We must show responsiveness, but we do not want them, or our officials, to be ensnared into having to decide every two weeks whether they want their new tax credit reassessed. There is a trade-off between certainty and responsiveness.

In keeping with the hon. Gentleman's suggestion, we looked at the income of families from year to year, which vary slightly, and the causes of the really dramatic changes that may result in a far greater or lower payment of tax credit. If somebody's tax credit is only going to pay them on reassessment another 70p a week, there will be administrative costs, and problems for them. We do not want to drag people into current year's assessment, and we do not want them to think that because their income has changed by a few quid a week they should automatically inform us. Although that approach works well for increases in income, in which case it is easier to set, it is more difficult to set for a fall.

As to what dramatically changes people's income, my hon. Friend the Member for Regent's Park and Kensington, North asked about the circumstances in which clause 7(3)(e) might operate. If a person became unemployed, which would be dramatic, they would move to current year assessment, they would fall back on to jobseeker's allowance or income support, and the system would kick in for child tax credit at the maximum amount. One point that is made about the working families tax credit is that it does not allow for flexibility because if a child joins a family, that will have a big impact. Other relevant examples include family break-up or incapacity through an accident at work. We can set those, but we must ask whether there are other circumstances in which income might change dramatically.

Let me return to the point about hon. Members in their surgeries. We will not have to explain clause 7(3)(a), (b), (c), (d) and (e) because the regulations would have settled the matter. People will be given advice, and, as my hon. Friend said, when they receive notification of their tax credit, it will be explained to them. As a caveat, we are working closely with all interested organisations and bodies which advise people such as citizens advice bureaux and the Child Poverty Action Group on the circumstances in which tax credits would be triggered.

That left us with the questions of whether there are any other circumstances in which income might change, and whether we should have the capacity to deal with them because it is a year's settlement. In the consultation, in which a vast array of organisations participated, the responses were balanced. Some said, ''Stick with previous year's income because it will iron out the following year when people are reassessed and at least they will know for 12 months.'' Others said, ''No. It is possible, although we cannot think of a scenario, and perhaps we should have that safety net.'' We are still having discussions because this is the insulation between the threshold and the tapers. We do not want to find at the end of the year that because people have been done in the current year's assessment, which they might have got wrong, they have been overpaid. Every member of the Committee can appreciate why we would want to avoid that.

Subsection (3)(a) to (e) allows every variation in rates and tapers to deliver what the Committee wants: certainty and a reasonable level of responsiveness that avoids the danger of people being paid too much. It is bad if they are underpaid, but at least they will receive a cash payment. If there is a huge overpayment, there will be difficulties and we do not want that. The arrangements allow us to make the final calculation.

A question then arises: if there are rises and falls, what do they need to be? We can be generous with a rise, because that will feed the work incentive and people will be better off for the yearthe hon. Member for Northavon is rightbut that will be included in the assessment when the next year comes. It will be a leg up for people in the year in which they make the transition. It will not be carried forward every year, but the Government are much more focused on ensuring that the fall is correctly balanced and that we do not bring people into the system for the sake of a few pence and do not leave them struggling when they should have had more credit. That is what we have provided, as my right hon. Friend the Financial Secretary said, in the arrangements under the clause.

I understand hon. Members' frustrations and that they would dearly love to know the thresholds and tapers, and some of the calculations. I am not in a position to provide the calculations for which my hon. Friend the Member for Regent's Park and Kensington, North and the hon. Member for Northavon have asked. We are extremely grateful for the continued advice and discussion to ensure that we address the point made by the hon. Gentleman about the experience of families and the rise and fall in their incomes.

I know that my hon. Friend accepts that the figures would not be in the Bill, but they are certainly interesting. I cannot tell her whether she is in the same game, ballpark or anything else without setting some hares running, but I hope that I have been able to explain how the system will work.

Subsection (3)(a) allows us to use current-year-only income. Subsection (3)(b) allows us to use current-year-only income if it is higher. Subsection (3)(c) allows us to use current-year-only income if it is lower. Subsection (3)(d) allows us to use previous-year income. Subsection (3)(e) covers an emergency situation and allows us to exit the system and go to automatic maximum support. I realise that the provision looks complex in the Bill, but Inland Revenue officials and the parliamentary draftsmen have done a brilliant job in putting such a hugely complex provision into the Bill so concisely.

The regulations will be available in draft for hon. Members to examine at some stage. I cannot say that that will be tomorrow or next week, but it will be before the Bill has completed all its stages. They will be subject to normal parliamentary scrutiny when we have heard the rates and tapers in the Budget.

I hope that I have dealt with the points raised and, because I do not have legal training, have explained in more basic language, such as I would use with my constituents, when a move to current-year-income should occur. I assure the Committee, as did my right hon. Friend the Financial Secretary when speaking to the previous amendment, that the advice, guidance, opportunities to discuss directly with an adviser in job centres and Inland Revenue advice centres, the work that we will do with the agencies that give advice, and the advice, support and information that we will give to Members of Parliament will clarify and simplify the provisions. I hope that that deals with the hon. Gentleman's point.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for an even more lucid explanation. Perhaps she, too, should have been a barrister.

May I make a point that I tried to make on Tuesday afternoon, when she was not here? To help people understand, could we not use coding for negative income tax, as we do for positive income tax? Would not that make the issue clear? People would be coded according to their circumstances; the code might or might not change, depending on the margin of change. The code would be corrected at the end of the year, when updated information was available. Such an approach would be easier to understand, because people are already familiar with the mechanism and language through tax liabilities, as opposed to tax credits.

Dawn Primarolo (Labour, Bristol South)

Although I understand the hon. Gentleman's point, my experience as a Minister and as an MP in my surgeries is that there is not a clear understanding of the tax code. It is always a challenge when people say, ''You're a Tax Minister, explain my tax code.'' The problem with the PAYE code is that many people interpret it as a value that they will receive. Instead, it is the rate of tax in a category.

That is particularly true of the groups that we are discussing. They are in the PAYE system—the self-employed would be able to decipher it—but a code would make the issue even more complex, because it would remove the statement that we will provide, which will show income and tax credits, and which will give information about notification of changes.

The Opposition have been attracted by the use of PAYE codes at different times; however, another advantage over PAYE codes is that tax credits will be clearly identified on the pay slip. The individual will receive a reconciliation of credits every pay period. If we were to show them as codes, how would people identify their tax credit, the change in the threshold or anything else? The Opposition's proposal would be more complicated than our approach. In a sense, we are using that method: people will apply, and we will provide a statement with everything clearly laid out so that they know where they stand.

The hon. Gentleman's final point was about end-of-year reconciliations. The P60, P45 and so on are used for the end of year reconciliation but are also needed for the following year. There is no additional burden; the tax credits are simply part of the process for the following year. The two are streamlined so that they are done at the same time: the first is closed off to determine the previous year's income, and that is moved forward into the calculations for the following year's tax credits.

The question of thresholds was raised by the hon. Member for Northavon. That happens now in the working families tax credit, and there are variations. There is no adjustment in WFTC, so people do not understand why incomes rising or dropping dramatically has no effect until they get the next renewal. In our view, it is more confusing to try to carry forward constantly artificial figures than to explain what is happening at that point. I have seen constituents who received WFTC not get it on renewal because shortly after they were first allocated it, their income increased beyond the threshold. Many felt that that was unfair and that we had taken it away from them, but there is no other way of working without doing what the hon. Gentleman wants to avoid and making the system horrendously complicated.

Mark Hoban (Conservative, Fareham)

I want to return to the year-in reconciliation procedure, because it bugs me somewhat. If someone's income increased below the threshold so that the in-year tax relief payment remained unchanged, would there be a clawback of the overpayment at the end of the year?

Dawn Primarolo (Labour, Bristol South)

If the rise were within the threshold, there would be no clawback. The increase would not be taken into the accounts, so the claimant would stay in the previous year's assessment. The reconciliation would see whether the claimant stayed in the previous year or came into the current year. If we set the threshold for a rise and the increase in income is within it, the increase is not taken into account at the reconciliation. The point made by the hon. Member for Northavon was that that would be seen as income in the next 12 months' assessment.

Steve Webb (Liberal Democrat, Northavon)

The Minister mentioned P60s. They do not become available until some point during the tax year, so will she clarify the timing? Will one know at the start of the tax year what one's tax credit will be for the whole of the year, before one receives a P60? How will that work?

Dawn Primarolo (Labour, Bristol South)

It will work much as PAYE codes work. The coding runs on until new coding notices appear. We set the thresholds in the Budget, which is in March, and then the tax year starts and the next coding notice comes out. Pensioners have often made that point, and I know that the hon. Gentleman too has made it repeatedly. Credits will be running on a tax year, but we need the information that becomes available. The hon. Gentleman asked whether there would be a period when people do not get anything. There will not be a break; one credit runs into the other, and the system irons everything out year on year.

The hon. Gentleman will see when we get to later debates that it is conceivable that other income will need to be taken into account. I do not want to run forward into that discussion and what information needs to be supplied, which might be about modest savings that none the less produce an income. It will be much like self-assessment. Clause 23 details the arrangements, which are that the payment will continue into the new year to give time for the P60 to arrive and a new reconciliation to be made. The essential point is that there is no break in the award. Once people have started, they do not stop unless they come out.

Karen Buck (Labour, Regent's Park and Kensington North)

I am grateful to the Minister for that reply. Not only did it add greater clarity, but it was sympathetic in spirit to some of the concerns that have been raised by child poverty groups, who rightly see the issue at the heart of making the Bill work. There was a helpful exchange about the treatment of excess income below the threshold, which is something that people are anxious to understand.

There is concern about people's comprehension of the different clauses and their interaction. When it comes to surgery this is key stage 1 compared to the A-level that is housing benefit. We do not need to be too anxious. As the Minister said, there is an inevitable trade-off between simplicity and responsiveness. There is no getting around that without unlimited resources. In its spirit, the Government's action is right in trying to find that balance.

I appreciate reluctantly that we shall not have figures to chew on. I urge the Minister, when the modelling is done, to press for the maximum generosity that is consistent with avoiding the problem that we have identified, which is a cliff edge for people who exceed the threshold, particularly in the following year. The Minister did not respond to one or two specific questions which it may be possible to answer without straining for the figures: whether the amount described under clause 7(3)(a) and (b) will always be the same and whether the Government intend to describe an amount in clause 7(3)(d). I am happy for those questions to be answered in a note. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 47, in page 5, line 26, leave out

', aggregate income of the persons'

and insert

'income of the higher earner'.

Jimmy Hood (Labour, Clydesdale)

With this it will be convenient to take amendment No. 48, in page 5, line 32, leave out

', aggregate income of the persons'

and insert

'income of the higher earner'.

Steve Webb (Liberal Democrat, Northavon)

I can explain what I am driving at simply and briefly. We are integrating what is essentially a social security benefit, the working families tax credit—a renamed version of family credit—and an element of the tax system, the children's tax credit. Decisions have had to be made throughout as to where the workings of the tax system and the benefit system are different, and which way to jump. The Bill provides for decisions on unit of assessment. Most Government rhetoric says that this is about the tax system and is to be run by the Inland Revenue, but such an assessment is to be made on family or household income.

The amendments proposed have a blunderbuss effect in that if we went all the way on the terms of our amendments, not only would we be going for individual assessment for the rich—I should not use that word—for higher earners, but also for those on low incomes. I do not want to go all that way. The amendments seek to probe the Government's thinking about one particular group—I am sure that the Minister knows precisely where I am heading—which is the people who for the last two years, including the current one, have been able to receive children's tax credit. Those are couples who are both on a middling to higher income who receive a full children's tax credit under the present regime because it is individually assessed, but who under joint assessment might lose some or all of their CTC.

In order to obtain some realistic figures, I tabled a couple of questions a week or two ago. I asked what an average teacher and an average nurse earned and I was slightly startled by the answers. An average full-time qualified nurse working in the national health service and receiving all additional payments and allowances earns £450 per week. An average qualified teacher in the maintained school sector earns £550 per week. Add those two together, so a teacher married to a nurse—on typical average figures; I am not trying to rig the figures—will earn £1,000. An average teacher married to an average nurse has a gross weekly income of £1,000, or £52,000 per year. As I understand the way that the tapers on CTC work, under the present thresholds that would entirely exhaust their entitlement to CTC. If it does not I will want to know why not, because my family's joint income is precisely that and we do not get any CTC. I am not trying to declare an interest here. Nor do I suggest that I should receive it. Can the Minister offer any reassurance to families in that situation?

I have should have checked this, but I recall that about 900,000 might lose everything and 500,000 might lose something. Those are people who have lost the value of the married couple's tax allowance, have had a year with nothing, then got £520 of CTC for two years and may be about to get nothing again if the Bill goes through unamended. Not all of them are in dire poverty, but we should remember that we are talking about an amount per family, not per child. It might be the couple I described: the nurse married to the teacher who have several children and an income of £52,000 in total. By the time they have catered for the children their income might be much lower, on an equivalent basis, than that of a childless couple who earn a lot less. Yes, there will be rich people to whom we would not want to give the tax credit, but I am not sure that a nurse who is married to a teacher and has received it for two years should expect it to be taken away overnight in 2003. What plans does the Minister have to protect such couples?

Howard Flight (Conservative, Arundel and South Downs)

The amendment simply asks the Government whether they are willing to confirm that nobody in receipt of CTC will be worse off when the new arrangements and amounts are introduced. We are well aware that that could happen, but it will depend on the levels that the Government intend to prescribe for benefit. The amendment would undo one of the improvements that we believe needs to be made. That is the obverse of the situation where a single earner whose spouse or partner is at home looking after several children is compared with two earners with older children. In each case the family depends on the one income or the combined income. At present many in the former category are disadvantaged against the latter category and the combined incomes are significantly larger than the single income. We welcome this as a probing amendment, but we would not support staying with the present arrangements.

Dawn Primarolo (Labour, Bristol South)

This is interesting. The hon. Member for Northavon tables an amendment that he does not really want to speak to, because he recognises that it is not a very good amendment. The hon. Member for Arundel and South Downs agrees that it is not a good amendment and he does not want to speak to it. They decide to ask me a question that they have asked me often which takes us straight to the thresholds, tapers and decisions for the Budget.

The hon. Member for Northavon asked about a specific group who are currently in receipt of CTC. He has done this a number of times on the Floor of the House. He has probably asked me in writing. I give him the same answer, which is that the rates and thresholds in the full range of the new tax credits are a matter for my right hon. Friend the Chancellor of the Exchequer in his Budget statement. I look forward to being able to answer his question at the appropriate time, in the appropriate place, when the Chancellor has made his announcement.

I congratulate the hon. Gentleman on his ingenuity. To him I say, nice try. I ask him to withdraw this amendment, as he recognises that it is not a terribly good one. If he does not, I will ask my hon. Friends to oppose it. In the debates on all the clauses between now and the passing of this Bill, I look forward to

being amused by the many varied and ingenious ways that the hon. Gentleman will find to ask me the same question. I hope that I can rise to the challenge in finding many ingenious ways to give him the same answer.

Steve Webb (Liberal Democrat, Northavon)

I think the Minister is mistaken, if I may be so bold. She mistakes as an attempt to probe for specific rates and balances for future claimants—it is not that at all—what is an attempt to probe an issue of principle for existing claimants.

Steve Webb (Liberal Democrat, Northavon)

That makes me nervous. Clearly, the Chancellor of the Exchequer will set the rates and balances that will apply to new claimants under the new system. That will have an impact on existing claimants—it must have an impact on existing claimants. Up, down or whichever way, it will have an impact. Naturally, I am not dreaming of suggesting that the Minister should tell us what that will be. There will be genuine concern. A million or more families in this situation stand to lose some or all of their £500 tax credit. It would have been helpful for the Minister to put on record an assurance that the Government understand and know that there are people in this situation, and that they would not want to create a windfall loss of £520 to a hardworking teacher and a nurse married to each other.

I am disappointed at the lack of assurance from the Minister, even on a matter of principle—without giving any figures—that the Government will seek to address transitional issues. There has not even been a hint of that, which disappoints me.

As I have indicated, this amendment is rather more sweeping than that specific point. Indeed, if the Minister encouraged her hon. Friends to oppose the amendment, I might do so myself. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 17, in page 5, line 43, leave out subsection (8).

This is a probing amendment into two areas in particular. First, what is income? There have been various rules and practices built up over the years on the DSS side, as to what additional money earnings count as income and what does not. In another sense it partly involves the treatment of perks, but it is also goes into the difficult territory of voluntary firemen, the Territorial Army service and so forth. The Revenue has a different but related body of doctrine as to which perks count as income, and which do not. There are different practices also in relation to people in receipt of charitable help.

In principle, it seems to me that if we are moving to a negative income tax and arrangements under the control of the Inland Revenue, it would be logical for the treatments in these areas to be in accordance with Inland Revenue treatments. But it has been suggested to me that subsection (8) exists in part to enable the transfer over of a lot of the old holy grail of the DSS, in terms of what is and is not to be treated as income. I

ask the Minister for clarification as to policy here. I am not asking for the umpteenth detail in these tricky areas, but for the Government's intent.

I now come to the second area of what is or is not termed as income. Although I searched for it, I could not find this reference in the Bill, but the National Association of Citizens Advice Bureaux briefing expressed support for the fact that maintenance payments would not be treated as income. I presume that that means periodic or maintenance payments made by agreement or by court order.

My brother-in-law, with whom I discussed the subject, is a defence divorce lawyer. He said, ''It is outrageous. I am doing settlements for people in fairly wealthy situations getting more than £3,000 a month and they are all aggressively applying for and getting maximum income children's tax credit.'' That seems unreasonable. Why should the rest of the citizenry pay for maximum children's tax credit in a divorce when the settlement on the divorced spouse and children is comfortably sufficient for them to live on? Although I appreciate the argument that at more modest income levels the proposal saves much complication and that bringing up children by oneself is bad enough without such difficulties, at higher income levels, if the situation I have described is correct, CTC is unnecessary and unfair.

Dawn Primarolo (Labour, Bristol South)

I am grateful to the hon. Gentleman for explaining what lies behind his amendment. I shall deal with its effect and then explain, in broad terms, as the hon. Gentleman, requested, our plans in respect of income.

The amendment would prevent income from being defined in secondary legislation, which I think was not what the hon. Gentleman intended. Such detail is better dealt with in secondary measures because it enables us to consider any changes that may be necessary without recourse to primary legislation.

We announced in response to our consultation on the new tax credits that child maintenance would not be taken into account for tax credit purposes; that also applies to working families tax credit. The hon. Gentleman mentioned his brother-in-law's huge success in a small number of cases, but for the vast majority of lone parents, who will be the major beneficiaries, the income that they are likely to receive is considerably smaller—perhaps tens of pounds. Recently published research shows that the presence of income disregard for maintenance payments to that group has been very successful in ensuring that they take up and stay in paid employment. We took the decision on child maintenance on that basis. I am a little surprised that people with such vast incomes bother with recourse to WFTC or CTC. I suppose it goes back to my scallywag point, regardless of gender.

By far the overwhelming number of beneficiaries of the proposal are on low incomes; it has exactly the effect that the Government intended. During the consultation, the 140 organisations were very clear indeed that in terms of work incentive, the continued disregard of maintenance was vital. We are firmly of

that view. I understand the hon. Gentleman's point, but I hope he will agree that the benefits to the vast majority outweigh that point.

Howard Flight (Conservative, Arundel and South Downs)

Indeed, I made that point. Some divorce practices act for well-off people, but my brother-in-law's is not one of them. There is an argument for a simple cap, because CTC amounts are likely to increase in some circumstances under the new legislation. Depending on the number of children, people will be motivated to apply for £500 or £1,000 a year free of tax if they are so entitled, even though their maintenance payments from a wealthy ex-spouse could be substantial. Why not add a cap to prevent that?

Dawn Primarolo (Labour, Bristol South)

To be honest, that returns us to the point that the hon. Gentleman made in previous debates. A cap would be an unnecessary complication for everyone claiming tax credits and in the legislation, in order to deal with a few exceptions. I would also hazard to suggest that an individual would have to be going some to spend £500,000 a year—that is a more lavish lifestyle than mine. Moreover, that income may be deposited somewhere, generating an income that would come into consideration, which leads me to his question of what the income tests would be.

The clause ensures against the anti-avoidance element in which people put income under the name of one of their children or a friend. We trace that money, which is a method used often in the tax system. The starting point is to bring tax credits in line with the tax rules. It would be right to depart from those rules for some types of income. During the current consultations, we are discussing exactly what they may be and whether it is necessary to exempt them. The income taken into account will be the annual taxable income from all sources, such as employment, self-employment, social security benefits, pensions, or other incomes: savings, trusts, overseas income and so on. Those rules come straight from the tax system, and we need to decide whether it would be right to include any other form of income. I hope that that explains the basic criteria. We are now deciding whether any other income should be identified. That would be implemented by regulations.

We will always make a judgment whether the income would be enough to merit its being drawn in, or whether that would complicate the system by dragging a large proportion of those claming tax credit into a burdensome submission of information.

At every point, we strike a balance and make a judgment. When that is finally made, I will be happy to go through it with the hon. Gentleman and to provide an explanation if the position is different from what I have said today. I appreciate that what regulations contain is a big issue for Committee members. I am trying to be as open as I can as well as to manage the final consultation to ensure that we get things right as much as possible. The Committee will receive the information as soon as possible.

I am sure that everyone appreciates that it is right to settle these matters in secondary legislation so that, once the tax credits are operational, we have the opportunity to learn from experience, to make

adjustments if necessary and to consider how people's income changes over time and whether other things need to be drawn in. On that basis, I hope that the hon. Gentleman will withdraw the amendment.

Howard Flight (Conservative, Arundel and South Downs)

I had hoped that the Minister would give some guidelines on the first part of my inquiry in the latter part of her response. I am talking about simple principles. First, if people are in receipt of charitable help that is definable, will that be treated as income? Secondly, will perks that relate to employment—whatever they may be—be treated in line with Revenue practice? Thirdly, are the Government willing to tidy up some of the hangovers from the past in relation to social security law in this area in line with Revenue practice?

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman has touched on precisely the points that I cannot answer now, although they are pertinent and I hear what he says. Benefits in kind, for instance, are very varied. Do we need to sweep them all across for the purposes of tax credits or will there be variation? That is one question. The hon. Gentleman's point about charitable payments is also important. There are quite a lot of complaints about the tax system. Indeed, the hon. Gentleman makes quite a lot of them. I am considering what is necessary and what materially changes the value of the tax credit paid, which I appreciate goes back to rates and tapers. I am also trying to balance the equity argument with the simplicity versus complexity argument.

I do not recollect the point about charitable payments being made before now, but I am more than happy to consider it. I hope that the hon. Gentleman accepts my assurance that, exactly as he implored me, I want to keep the system as simple and fair as possible without allowing any unreasonable levels of income to escape consideration and cause a schism between tax credits and the tax system as a whole.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for those comments. I want to return to one issue, because I think that she slightly misrepresented in terms of numbers the type of situation that I described. We are talking, of course, about a minority, but in settlements involving families—I am thinking particularly of London—maintenance agreements, by agreement with the court, of the order of £3,000 per month are not that rare. That is certainly not the average, but if the Minister considers remuneration levels in central London, she will understand my point. I am talking not about the tiny minority at the super-rich end of the scale, but about an affluent minority that is not tiny. My point applied in that context. I understand the argument that we should not clutter this up when we are trying to keep matters as uncluttered as possible. People other than myself are likely to find it objectionable if they know that people generously provided for in maintenance payments—of whatever sex, these days—were then able to secure £1,000 or more tax-free child tax credit.

The amendment is a probing one, which we shall not press to the vote. I am happy with part of the

Minister's response, although not all of it. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 ordered to stand part of the Bill.

Clause 8 - Entitlement

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 66, in page 6, line 19, leave out from 'who' to end of line 21 and insert

'either—

(a) has not attained such age (greater than sixteen) as is prescribed and satisfies prescribed conditions; or

(b) is aged less than 20 and is engaged in a course of full-time non-advanced education and began that course before the age of 18.'.

Clause 8 deals with entitlement to child tax credit, and that raises the question: What is a child? The amendment is designed to probe further the grey area of children who are past the end of compulsory schooling, but may be in full-time education. I should like to flag up for the Minister, in anticipation of our later debate on entitlement to working families tax credit, that I shall then deal with children at the other end of the age scale—the position of pregnant mothers, new-borns, maternity leave and that set of issues. The issues may be related as it could be argued that pregnant women should be brought into the scope of child tax credit. We have not tabled a specific amendment to that effect, so I shall deal with it when we debate clause 10. I just wanted to forewarn the Minister.

The current children's tax credit applies only to 16 and below. One cannot receive it in respect of a 17-year-old, whereas the working families tax credit provisions broadly mirror those for child benefit in applying up to the age of 18. In bringing the two systems together, which road should we go down? The Bill states that the money can be obtained in respect of a child—youngsters in school presumably fall into that category—but then refers to ''qualifying young persons''. What does that term mean? Is a 17-year-old at school a clear case of a qualifying young person? What about an 18-year-old or someone who takes two years resitting GCSEs? Those are grey areas. One wonders how far the tax credit system should be doing the job of educational maintenance, or do the Government believe that that should be dealt with through a separate system?

The amendment is designed to probe who precisely is covered by the clause and, in particular, by the term ''qualifying young persons''. Are 17 and 18-year-olds, and perhaps even 19-year-olds coming to the end of A-levels included? Will the Minister clarify the Government's intentions?

Dawn Primarolo (Labour, Bristol South)

The tax credit will run normally in the same way as working families tax credit and child benefit now—up to the year in which the child becomes 16, although slight variations in the rules obtain in Scotland, Wales and Northern Ireland. We are following the child benefit rules—with the exception that the child remains in full-time statutory education—and current WFTC rules.

The hon. Gentleman is right to point out the interaction with the educational maintenance grants that are still being piloted. He mentioned the scenario of someone who was 18 years old or nearly 18 who had left school without completing their GSCEs, and asked whether we could include them in the scope of eligibility. That is confusing, and we do not believe that we could do that. We would need to determine that that was what they were doing previously. The qualifying trigger would be 16. The pilot is still running and we are awaiting the results. When we drafted the legislation we wanted to state that this was currently the appropriate way to deliver support to this group. However, it may be necessary to reconsider the issue when we see the results of the educational maintenance grants pilot.

The hon. Gentleman also made a point about a young person who leaves full-time education for a year or more and then returns. That young person appears to fit squarely within what is currently happening with the educational maintenance grants. There is also an issue about the purpose of the two payments. The Bill continues the practice, but it would be wrong of me not to flag up that we are not seeking to anticipate the outcome of the results of the educational maintenance grants pilot. If it turned out that Government policy was that that way was more favourable, it might be necessary to reconsider the extent to which the tax credit was paid once we passed the September in the year in which the qualifying child was 16. So long as the young person is in full-time education, as is the case with child benefit and WFTC, they will receive the tax credit up to their 19th birthday. That is nice and simple. Parents understand that provision in child benefit and have got used to it in WFTC. Until a policy change is made, that is how the tax credits will work. I hope that that answers the hon. Gentleman's questions.

Steve Webb (Liberal Democrat, Northavon)

Am I right that a couple who earn £25,000, which is beyond the scope of WFTC, and have a 17-year-old sixth-former are not entitled to the children's tax credit because the child is 17?

Dawn Primarolo (Labour, Bristol South)

Yes.

Steve Webb (Liberal Democrat, Northavon)

But they will be brought within the scope of the new tax credit, as the Minister has just said that we will use the WFTC decision. Is that a category of gainers that I had not thought of?

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman is getting ingenious. In theory, the couple may qualify for the new tax credit, whereas the children's tax credit, which is essentially tax relief, ends at 16 regardless. They could have a child in full-time education and, depending on where the rates and tapers are set, could be entitled to some or all of the tax credit. An example was given of student nurses. We do not define eligibility on the basis of someone being in or out of work; we are looking at family circumstances. The hon. Gentleman identifies one group whom he fears will lose out, but many others are potential gainers. We need to see how that will map out.

That is a sensible way to draft the legislation, but whether we revisit it will be triggered by any decisions that are subsequently taken on educational maintenance grants. I cannot envisage a situation in which people will be entitled to both. The hon. Gentleman identified people who would not come under the new tax credit; they may be the specific people who will be covered by educational maintenance grants. However, I do not know how the evaluation is going; I know only that I must keep that in consideration.

I hope that the hon. Gentleman's probing amendment has delivered the clarification he wanted and that he will withdraw it. Otherwise, I will have to ask my hon. Friends to vote against it, which I would regret.

Steve Webb (Liberal Democrat, Northavon)

That has been helpful in clarifying my understanding of how the system works, and I have no problem with there being gainers. I take the point that the Government are considering support for this age group and how it interacts with policy about staying on at school and so on. My only plea would be for more joined-up government. The Minister clearly knows that studies are taking place; perhaps she could ask the relevant officials to keep her regularly informed on progress. We have established some useful information, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Howard Flight (Conservative, Arundel and South Downs)

I want to raise with the Minister a point of principle that was raised with me by the Child Poverty Action Group. Would it be either necessary or more appropriate for child tax credit to be paid on a pro rata basis where parents share responsibility for children? Even where the balance is not equal, both parents have considerable responsibilities. The consultation document assumes that there will be a main carer. Where responsibility is shared, only one parent will count and, if the parents cannot agree who that is, the Inland Revenue will make a judgment based on whether the child normally lives with one parent. It is unclear who receives the child benefits.

I do not know whether this is correct, but the Child Poverty Action Group told me that the restriction to one parent may arguably be in breach of the European convention on human rights and our Human Rights Act 1998. Treating the child as the sole responsibility of one parent to the exclusion of the other could be judged discriminatory unless there is a clear argument that the discrimination is objective. The Government appear to have considered that, given the reference in the consultation document, but I would appreciate an explanation of policy and whether it is likely to be reviewed.

Dawn Primarolo (Labour, Bristol South)

We considered whether the tax credit payment should be split. When working out the proposals for the Bill, we examined where practice was working clearly and parents were used to working with a particular system. I am uncomfortable about what

point we as legislators enter family arrangements to say what should happen, because that should be for the family to settle themselves.

In the vast majority of cases—someone is bound to describe different family circumstances—only one family could have the main responsibility. The award is then calculated on the family's circumstances and income and there is no provision for it to be split, because the principle behind the Bill is that it is conceivable that a family may receive less if we cannot determine the main carer. The family unit must decide, if, for example, the parents are separated. That applies now to child benefit, which is paid to the parent who has the main care responsibility; the parents must determine which of them has that responsibility. The same arrangements will apply to the new tax credits.

If the hon. Gentleman thought that clause 7 options (a) to (e) were complicated, I hesitate to think how complicated it would be if we tried to determine the arrangements for households with combinations of payments. We gave the matter careful thought, listened to what CPAG and others had to say, and decided that the proposal was too complicated and would not apply in the vast majority of cases anyway. Hon. Gentlemen may ask what happens if the matter cannot be settled. In such circumstances, the Inland Revenue would consider the facts of the case as it does now and determine who had the main responsibility. If that was challenged it could be settled at an independent tribunal.

When there is a family break-up there is often a great deal of contention and points of dispute become magnified. We want to ensure that the Bill does not inadvertently provide another point of contention because it would become a matter not only of whether the payment should be split, but by how much—would it be a third, two thirds, a tenth, 2s 6d and so on? It would become a nightmare. Nevertheless, this is an important point. As we learn and understand more about how households arrange their income, we will be seen to have taken the right decision. I hope that that deals with the hon.

Gentleman's point. As I said, we considered the proposal and its implications very carefully.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.

Clause 9 - Maximum rate

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 50, in page 6, line 32, at end insert

'and,

(c) an element in respect of any second adult in the benefit unit'.

Jimmy Hood (Labour, Clydesdale)

With this we may take amendment No. 51, in clause 24, page 16, line 30, at end insert

'except where an employee requests payment into an account notified to the Board or via a Post Office, in which case the employee shall be entitled to receive payment in this manner'.

Steve Webb (Liberal Democrat, Northavon)

Clause 9 refers to the maximum rate of child tax credit payable. At present it can increase in respect of an amount per family and an amount per child. Amendment No. 50 proposes a further element, which would apply to families in which there was a second adult in the benefit unit; essentially, that means couples, whether married or cohabiting. Conservative amendment No. 51 would have a broadly similar effect and raises the same issues.

The benefit system acknowledges second adults; income support and housing benefit recognise that if there is another mouth to feed in the household, it should be reflected in the amount of money to which people are entitled. However, the tax credit system and the working families tax credit have never operated on that basis. There is a danger of inequity between a lone-parent family and a two-parent family on the same given income, because the two-parent family—

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.

Standing Committee A

Clause 9 - Maximum rate

Nigel Beard (Labour, Bexleyheath and Crayford)

I remind the Committee that with this we are considering amendment No. 31, in page 6, line 40, after 'according', insert

'to the number of adults in the family and'.

Steve Webb (Liberal Democrat, Northavon)

Thank you, Mr. Beard. I cannot help noticing that we have already driven out two Chairmen, and I hope that that does not reflect anything about the quality of the debate.

Amendment No. 50 would remove a discrimination against two-parent families compared with one-parent families on the same income level. My argument is that the two-parent family on the same income level as the one-parent family has the added burden of an extra mouth to feed, to put it at its simplest. Most of the social security system, such as income support and housing benefit, recognises that fact through an amount for the second adult—it is not the same as that for the first adult, but perhaps a 60 per cent. addition—but tax credits will not do that, and working families tax credit does not currently do it. My question is, why not?

I guess that there could be two reasons. One might be about poverty, of which there is a far higher incidence among lone parents. However, we are talking about people on the same income. If there are two families, one with one parent and one with two, both on £150 a week, we cannot argue that we should give more to the one-parent than to the two-parent family because the one-parent family is somehow poorer. Their incomes are the same.

The second reason could be an argument of child care, and that the two-parent family has the advantage of ''free'' child care, but that does not really stack up either. First, there is substantial help available in the system with child care costs, and secondly, many lone parents rely on informal child care, for example from grandparents. It is far from universally true that lone parents do not have access to either free or subsidised child care. There are limits to that, but I am not sure that that is a good enough justification for the distinction. Without specifying any particular level—although the Minister will try, I shall not be drawn on specific figures—we want to establish the principle that there might be some allowance for a second adult.

I give one example, of a couple on £150 a week with a two-year-old child. The figure has been given to me that a one-parent family on that income, relative to the official poverty line of 60 per cent. median equivalent income, would be £35 above the poverty line. The two-parent family on the same income would be £20 below it, using equivalent income, which is what the Government tend to use when measuring poverty. The simple question is, as there is an extra mouth to feed, should not the tax credit system recognise it, as the social security system does?

Howard Flight (Conservative, Arundel and South Downs)

I welcome you to the Chair, Mr. Beard. I only miss the opportunity of debating with you.

Amendment No. 31 is in essence the same as amendment No. 50, but termed slightly differently. I have to confess that my hon. Friend—the hon. Gentleman, I should perhaps say—has stolen the example that I was going to raise. It is clear that there is a potential for unfair treatment of couples under the existing children's tax credit and working families tax credit. I hope that the Government do not intend to continue that under the new arrangements, especially, as has been pointed out, because that is not the case with social security benefits.

Couples in work are now less likely to get themselves and their children out of poverty than are single parents. Couples with children still form the largest group of families in poverty—about two thirds of the total.

Martin Wolfe made an in-depth analysis of the working families tax credit three or four years ago and found another aspect of the same point: that it was financially disadvantageous for a lone parent to acquire a partner or spouse with two children unless their income was below about £350 a week. That cannot be the intention of the support and help. The main issue is that the arrangements do not recognise the income needs of the other adult for straightforward maintenance, clothing, food and so on. The argument that that is matched by the saving in child care is not valid. The issue concerns not just informal care but the help with child care that is now available.

Amendment No. 31 would open the door to deal with that, but my main point is to ask the Minister not for the amount to be specified but whether the Government intend to address the point concerning the new child tax credit and the child element of the working tax credit.

Dawn Primarolo (Labour, Bristol South)

Good afternoon, Mr. Beard, and welcome to our proceedings. You have probably noticed that, unusually in a Standing Committee, thus far we have scrutinised the Bill in a civilised way, even to the extent that the hon. Member for Arundel and South Downs (Mr. Flight) referred to the hon. Member for Northavon (Mr. Webb), who is a member of a different political party, as his hon. Friend. I am in greatly in favour of the Tax Credits Bill and claim that it achieves a great deal, but I had no idea that I can now add the proper functioning of a Standing Committee in a friendly and civilised way. However,

perhaps that is more a reflection of the members of the Committee. The Government Whip is as delightful as ever; I am pleased to see him in his place and perhaps he could stay there.

There is a fundamental misunderstanding about what exactly the child tax credit will provide as opposed to the working families tax credit, income support and the jobseeker's allowance. That misunderstanding revolves around recognition of the second adult. Hon. Members' comments referred to the cost of the adult to the household budget. The child tax credit is and should be independent of the status of the adults in the family. We are trying to ensure that the calculation is based on the children in that household. The child tax credit focuses on the children regardless of the status of the parents or the number of parents in or out of work. The right place to look at the level of support available to the adults in the household is the working tax credit or the benefit system as a whole and it may be more appropriate to discuss the matter when we come to clause 11.

Currently, there is no support system for children that provides an additional element for a second adult in the family, and no such provision has been offered since about 1988. In looking at ways to design and develop rules for the child tax credit, we used child benefit as our starting point—I should point out that we excluded the principle of universality—because it is very popular and well understood and there is high take-up. The elements of child benefit apply to children, and adults are disregarded.

Income support and jobseeker's allowance currently consist of an adult element and child elements. We are removing the child elements and including them in the child tax credit, but the adult elements will remain. The adult elements contain an additional element where there is, and will remain, a second adult in the family. Working families tax credit and disabled person's tax credit provide support for working families with children. They have fulfilled more than one purpose, in that they contain a mix of child elements and adult elements, and we are taking steps to pull out the child elements. The clause deals with the child tax credit only.

On the adult additional payment, I should point out that the child tax credit is directed solely at the needs of children and does not relate to the circumstances of adults until the tapers—the basic qualification—start. It contains elements for each child, and for any associated responsibilities—I shall avoid using the word ''burden'', as I do not consider children a burden—that families must shoulder in caring for children.

The working tax credit, with which subsequent clauses deal, will support families in work, and is counterbalanced by the support provided to families not in paid work. The support recognises that element and will be directed at adults at the relevant point in the process. I should point out to the hon. Member for Northavon that the child tax credit does not need to take adults into account. It is clean, direct and for children, and it is very important that there be no

confusion about the way in which we expect families to spend that money. Adult support should be considered in the context of the working tax credit, income support and JSA.

I hope that that answers the question that the hon. Gentleman and the hon. Member for Teignbridge (Richard Younger-Ross) have asked through the amendment. Given that I have worked on the Bill for a long time, such matters seem straightforward to me, but for many they are not and I understand why they asked that question. I hope that they accept my clarification, and that the provision constitutes a better way of designing policy. As I have said, support for adults and families is dealt with through the working tax credit, income support and JSA. Although the hon. Member for Northavon might want to return to the matter another time, I hope that he is willing to withdraw the amendment in the light of my comments. If he is not, I must ask my hon. Friends to vote against it.

Howard Flight (Conservative, Arundel and South Downs)

I had thought that amendments Nos. 31 and 32 might be taken together, given that the latter deals with this issue in relation to the working tax credit under clause 11. The Paymaster General did not say whether the Government intend to address the issue in full through the child credit or the working tax credit. For example, it would seem quite wrong for a lone parent with an income of £150 a week to be considered significantly above the poverty line, while a two-parent family with two children on the same income is considered significantly below it.

It is fine to put the issue into the neat boxes that the Paymaster General has described, but that does not explain how it will be dealt with. In some senses, it could be addressed through not only the child tax credit but the working tax credit. I realise that she will not want to give the numbers, but can she say whether the issue has been recognised and quantified along the lines that we have described? Assuming that it will not be dealt with under the child tax credit, will it be dealt with under the working tax credit?

Dawn Primarolo (Labour, Bristol South)

Stepping back from the design of the tax credits, the issue is the Government's policy objectives of eradicating poverty, making work pay, encouraging people to move into paid work and attempting to remove the barriers to returning to work. As we know, those barriers are greatest for lone parents, who still face significant obstacles to work. Although the child care tax credit provides generous help with child care, like everyone else a lone parent must find 30 per cent. of the costs. The facts show that lone parents are still much less likely to move into work. Although there have been considerable improvements, some 50 per cent. of lone parents are still out of work.

We want to combine the provision with a work incentive, but it is not our intention to discriminate between families. We are addressing the drain on the family income through the moneys that are going in. Experience of working families tax credit in particular shows that such a measure is necessary to bring everybody up to the starting point, so that they can

move into work. Of course, the Government have other mechanisms for dealing with the barriers that lone parents face.

The question of how we will deal with the second adult is an important one, in that there must not be too great a distance between different household types. We must ensure that lone parents can move into work, but the distance must not be so great that the circumstances of two-parent households are worse. I hesitate to say it, but such factors must be taken into account in the final calculation, when all the thresholds, tapers and income disregards are put on the table, so that we can enter the income distributions and establish the effect on different household types.

I am afraid that I cannot give the hon. Member for Arundel and South Downs the confirmation that he seeks, but I see his point and it depends on settling the figures. We do not want inadvertently to increase the barriers to work for lone parents. The question of defining a household and recognising the number of adults therein is important.

I apologise to the hon. Member for Arundel and South Downs for not being able to be as clear and precise as he would have liked. However, it would have been easier for me to give any answer, knowing that it was not correct, and I have not done that. Rather, I have tried to be honest by saying that his point must be considered in the context of work incentives and of ensuring that we give help to lone parents, who suffer the greatest barriers to work and who, with their children, suffer the greatest concentration of poverty.

Steve Webb (Liberal Democrat, Northavon)

The Minister has been helpful in putting on record the Government approach, and I take her point on whether the issue should be dealt with under clause 11. Amendment No. 32 will take us on to that territory, so I will pursue it no longer.

The Minister described a neat separation between support for the child and for adults, but it is not that clear cut. There is also a family element—an amount per family. If that were not important, there would simply be an amount per child. The family element of the support for children attempts to reflect something—perhaps economies of scale—other than the number of children in the household. One could argue that economies of scale relate to multiple children and are nothing to do with adults, but it is not as clear cut as she suggests.

I accept the Minister's point about work incentives. It is true that lone parents have bigger barriers to work. It would be harder to argue a case for a lone parent with a 14-year-old, than for a lone parent with a one-year-old. For families with older children, a case for differentiating between one-parent and two-parent families is rather weaker. However, I take the point about finding the right place in the Bill so that we can address the issue in the context of the working tax credit. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 49, in page 7, line 7, at end insert—

'(d) must include provision for the combined value of the child tax credit for a benefit unit in receipt of Income Support or Jobseeker's Allowance and the value of Child Benefit for

such a family to be greater than or equal to the value of support in respect of dependent children available to a family of the same composition receiving Working Families Tax Credit, Children's Tax Credit and Child Benefit immediately prior to the coming into force of this Act.'.

The amendment is related to levelling up or down and we may not have not got it right. At present, there are two forms of support for the children of families out of work. There is child benefit, but that is netted off income support. Essentially, there are family premiums, child personal allowances and income support, which are received per child when a person is not working. If working, a person receives child benefit, children's tax credit and, potentially, an amount per child or family through the working families tax credit. Those amounts are similar, but not the same. There is a difference between the two of roughly £4 for the first child, and £3.50 for subsequent children.

Given that the Government want to streamline the system and give an amount per child whether the parents are working or not, they must clearly pick a single figure. Many families in low-paid work will want to be reassured that the Government do not plan to level down their incomes so that they are given the same as that given for children whose parents are out of work. They will want to know that levelling up is planned. Rates and thresholds are issues for the Chancellor, but the principle is whether there will be real-terms losers among low-paid families. Many will wait for the Minister's response with bated breath.

Dawn Primarolo (Labour, Bristol South)

I refer the hon. Gentleman to the remarks that I made previously. He wants me to state the absolute principle that there will be no losers or gainers. That principle is not linked to the Bill, but it is none the less a matter of great importance.

The amount of expenditure on the proposals relating to the new tax credit will depend on the overall policy package, the framework for which is provided in the Bill, and on the rates and thresholds of the tax credits, which will be based on the values for 2003.

On the hon. Gentleman's second point, the level of support that is available will be determined by the Chancellor when he makes his overall decisions in the course of the Budget process of 2002. The principle to which the hon. Gentleman referred is crucially linked to the rates and tapers, not to the framework of the Bill. The appropriate time to discuss the matter is therefore at the time of the 2002 Budget. I can see that he is revving up now, and I hope that he is not in overdrive by the time we reach that point. I understand the point that he is making, and I am not complaining about his continuing to raise it, but he knows in his heart of hearts that it goes beyond what I am able to say to the Committee, given that the Chancellor has not yet taken the necessary decisions.

If the hon. Gentleman really wants to press the amendment, I shall have to ask my hon. Friends to oppose it. I am gratified that Opposition Members feel that the Committee process is enabling them to understand much more clearly how the Bill will operate. That is how it should be. I am thankful for small mercies, although I am unable to respond to the hon. Gentleman's specific point.

Steve Webb (Liberal Democrat, Northavon)

I take it that that is a no, then.

Dawn Primarolo (Labour, Bristol South)

It is a nice no.

Steve Webb (Liberal Democrat, Northavon)

The serious point underlying the amendment is that more than 1 million, perhaps 1.5 million, families may feel some anxiety when they hear that everything is to be streamlined and that some people with similar family structures will get less than others.

It would have been welcome if the Paymaster General could have ended some of the uncertainty about whether the Government believe in taking money away from low-waged families. Given the spirit of their proposals, I hoped that that would require only a modest assurance from her, and it is alarming that she could not even go that far.

On reflection, this is a specific amendment about current rates and thresholds, so it probably does not belong in primary legislation. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 ordered to stand part of the Bill.

Clause 10 - Entitlement

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 78, in page 7, line 16, at end add

'and having one or more children or qualifying young persons in their direct care, in the case of the basic element as defined in section 11(4)'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take the following amendments: No. 79, in page 7, line 24, leave out from 'persons' to ', or' in line 25 and insert

'has one or more children or qualifying young persons in their direct care'.

No. 80, in clause 11, page 7, line 31, after 'persons', insert

'having one or more children or qualifying young persons in their direct care'.

Howard Flight (Conservative, Arundel and South Downs)

The amendment is a drafting amendment designed to help the Government. The clause uses the phrase:

''responsible for one or more children or qualifying young persons''.

We suggest a sharper definition. That relates back to the question of whether credits might be divided between two separated families who are responsible for more than one person in their direct care. However, that is not the main reason for the amendments, which deal primarily with one of the more important aspects of critiquing the Bill.

The Government will be well aware of the arguments advanced by the Institute for Fiscal Studies against extending working tax credits to couples without children. There is no established evidence that such an incentive to work is needed for that group of the population. A considerable number of people will be brought into the net of tax credits, yet there is no logic in doing so. When various parties asked, ''Why are the Government are doing this?'', the

only answer they received was, ''Well, the French do it.'' The Government have not in any way justified why they are extending the scope of tax credits to a component of the population for which the pricing people into work argument is not valid.

This is not a desirable measure. That goes right back to the main theoretical objections to tax credits that were raised 25 years ago, when I was standing as a candidate for Parliament. Help should be focused on those in need. Although it does not appear explicitly in the Bill, I understand that the Government do not intend to include parents under 25 in the working tax credit system, yet they are among the poorest, and perhaps the most deserving of help, in the population. What is the logic of adding to the benefits of those who do not really need them, while failing to address the situation of a group that does need assistance?

I hope that the Paymaster General will be able to respond to those points. We would need a great deal of persuasion as to the merits of supporting the principle of extending tax credits to couples without children.

Steve Webb (Liberal Democrat, Northavon)

This helpful group of amendments takes us to the nub of whether we need working tax credits as distinct from simply adding adult elements to the children's tax credit. I shall try to refine the arguments that I advanced on Second Reading, instead of blowing £15 billion as I did on that occasion. The objectives that the Government want to achieve through working tax credits could be achieved by other means that would be less burdensome on business, better for the Exchequer and more effective in tackling poverty.

The Government's proposals for working tax credits in respect of childless people will help only those who work for more than 30 hours a week and are aged over 25, with additional amounts for those aged over 50. The over-50s are a distinct group for whom there is a new deal programme because it is important to get them back into work. That alone does not, however, justify a tax credit for the whole population.

I cannot help noting in passing that the hon. Member for Arundel and South Downs stood for Parliament 25 years ago.

Howard Flight (Conservative, Arundel and South Downs)

It was 28 years ago.

Steve Webb (Liberal Democrat, Northavon)

I was at primary school at the time, which puts it in context.

What is the point of extending tax credits to a group of people who, with the exception of housing benefit, have not been in the means-tested benefits system since they began work? There could be an anti-poverty argument, but poverty rates are lower among childless people than among couples. The Government gave a figure—I cannot remember whether it is in the regulatory impact assessment or the summary of responses to the consultation—of 1 million childless families who are in work and in poverty. How many of those 1 million will fall within the scope of the working tax credit? Will it cover people who work more than 30 hours or the over-25s?

I am not being facetious, because if poverty is the issue and 1 million childless people are in work and in

poverty, one would hope that the mechanism designed to address that was catching most of them. My hunch is that the poor people in work are young people starting out on a career and people who are unable to do a full-time job, which means that they perhaps do a part-time job that they combine with caring. As the hon. Member for Arundel and South Downs pointed out, the Institute for Fiscal Studies states that cross-sectional poverty rates are higher among people who are unable to do a full-time job. There may be an issue about the dynamics of poverty and how long they stay poor, and I know that the Treasury has a view on that.

The question is whether this is an effective anti-poverty measure, and we have not had sufficient information from the Government about that. How many of the 1 million will it catch? If we are going to pay tax credits to everyone who is childless, but we are going to take all the family support away from the pay packet and deliver it to the mother, or whoever, through a bank account or direct payment, one is left with a rump of £15 a week, although sometimes it would be quite a lot more than that, and other times it would be next to nothing. Nevertheless, that is the average figure that I have in my head for the residual working credit. I hesitate to say, ''Is that all?'' because that is a lot of money to some people, but compared with the sums that families with children have been paid, it is radically smaller. However, we will need the whole bureaucratic infrastructure of payment through the pay packet to deliver payments of £15 a week.

The regulatory impact assessments suggest that we will pay fewer payments because some families with children will get no working tax credit. On the other hand, we are bringing in new people such as childless couples and single people, and those numbers roughly offset each other. The number of people receiving payment through the pay packet will be roughly the same although they will be different people. We shall have the same number of payments through the pay packet as we have at present, which is more than 1 million for each pay period, to deliver £15 a week. If we are worried about childless people and money for adults, we could tweak the tax system, although not in the crude way that I mentioned on Second Reading, by looking at the lower rate band and thresholds to get money to these people in a way that imposes no burden on business or the Inland Revenue in making those 1 million payments.

The amendment would stop working credits going to childless people. In many ways it does not go far enough, because if the working credits go only to families with children, one would not want a separate payment. All families with children are being paid a child credit, and one probably wants to lump it on the child credit and be done with it. The issues raised by the amendment are correct, and I should be grateful for clarification from the Minister as to how many of the 1 million childless families would get lifted out of poverty.

Dawn Primarolo (Labour, Bristol South)

Let me start by clearing up a point on which the hon. Member for Arundel and South Downs was not quite right. On the question of who would have access to the working tax credit, the age of 25 is the entry point for childless households, but

where there are children within the household, the same qualification as that for the children's tax credit applies. The age limit and the 30-hour rule for the working tax credit are specifically aimed at households in which there are no children.

Howard Flight (Conservative, Arundel and South Downs)

What is the age of access for younger people with children?

Dawn Primarolo (Labour, Bristol South)

It is 16. It is unlikely that we shall find many households with parents who are 16 with dependent children, but it is conceivable. [Laughter.] It has been a long day.

I want to address the point made by the hon. Member for Northavon—I am trying not to laugh at my faux pas—about why we settled on 25 given that the purpose of the two tax credits is to support children and to provide a work incentive. We recognise that in some cases they come together in one household, but in others they do not. If we return to our experience of the working families tax credit, given the criticism that it was too complicated and that people could not understand it because it combined those two activities, separating it into two credits makes sense. I get the feeling that the hon. Gentleman is not convinced on the working tax credit, but the Government are, which counts for something given our parliamentary majority, and I shall explain why.

The amendment's fundamental purpose is to exclude from entitlement those people in low-paid work who do not care for children. It would also provide an alternative test of whether a family cares for a child. Turning to the restriction of the entitlement to support to those without children, that entitlement is a fundamental part of the changes that we intend to make to improve support for those in low-paid work. There are several other initiatives such as the new deal 50-plus and the new deal for lone parents to move people into work. One objective of the working tax credit is to tackle the unemployment trap by increasing the gains from work for people on low wages who may otherwise face poor work incentives.

The hon. Member for Northavon suggested that the benefit might only be £15 a week, and I do not know what his constituents say to him, but my constituents consider their income in terms of 50p or £1 when they decide whether they are better off and how much better off they would need to be before they will move into paid work. We have been examining that range and whether it would be sufficient incentive to get people into work.

The unemployment trap is predominantly an issue for those with children and for older workers, who may have been made redundant and who are trying to return to the labour market, without children. It is also a problem for couples who face serious barriers moving into work because the gains can be very small indeed. A couple without children, of whom one earns £175 a week, are only £20 better off in work than on benefit. As the hon. Gentleman will know, people look at their entry wage. They know how much they need, and then look at the wage at which they can enter the labour market because of their qualifications and what is available.

We are looking to ensure that we can reduce that barrier as much as possible, so that such people get on the ladder of opportunity and start moving through the labour market. The hon. Gentleman rightly pointed to the figure of more than 1 million. There are more than 1 million people without children living in households in which someone is in work, but that have a household income below 60 per cent. of the median. The current in-work support, the working families tax credit and disabled person's tax credit, does not help those people.

The age is difficult to settle on—why 25? We are being cautious, but we are trying to help households that are moving into persistent poverty, if I can use that concept. Of course, there are other people in low-paid jobs not earning as much as they need, but they might be moving through that because of their age, or because they are new to the market. There are others, however, who have been in the labour market and, in that age range, are trapped in persistent poverty. The interaction with the minimum wage is also very important here. We have intervened for those people, in a similar way as with the new deal 50 plus.

The working tax credit will give us a broad-based system to enable us to identify problems in the labour market of persistent poverty and barriers to work and re-entry, so that we can intervene at those points. We have come to the conclusion that it is right to do that in households without children or disabled workers. Disabled workers are already in the scheme, outside the age range starting at 25.

James Clappison (Conservative, Hertsmere)

With statistics flying between the Paymaster General and the hon. Member for Northavon, I wonder if she can clarify the figure of 1 million? Does that include people working less than 35 hours a week and aged under 25?

Dawn Primarolo (Labour, Bristol South)

I do not have the exact point about the hours to hand, but I appreciate why the hon. Gentleman wants to know. I will do my best to tease that figure out and communicate with Committee members about it in the normal way.

We are putting in place the working tax credit to help bridge the gap of families with no children and no disabled members. We thought it right for there to be no barrier if those people were working 30 hours a week. For those reasons, we decided that intervention was important, but it comes down to a matter of judgment.

On the point that the hon. Member for Northavon made, the working tax credit is a work incentive measure. Everyone who receives it, whether or not they also receive the child tax credit, will see the rewards in working and will be better off. Again, all the information that we have today shows that that is working in narrowing gaps and helping people to move into work.

The hon. Gentleman went on to talk about payment by the employer. That is the simplest way, and it works. It reinforces the link with work, and he will see in the Bill that, because of the new design of the tax credits, we have been able to reduce

requirements on employers. Obviously, when the research under way is done, we will have much more detail on working tax credit, but again the information coming back to us from employers and workers is that, despite a tiny minority who do not like it, it is working very well and achieving many of its objectives. I think that the Government fully recognise the points that are being made about having a working tax credit and about the need to intervene cautiously. That is why we have set the age levels and hours test that we have.

Miraculously, I can now answer the question about the figure of 1 million. That figure does include under-25s and those working less than 30 hours.

James Clappison (Conservative, Hertsmere)

I am grateful to the Paymaster General for that speedy and helpful clarification, and I have another question following on from it. How many of the people in poverty fall into those two groups, the under-25s and those working less than 30 hours?

Dawn Primarolo (Labour, Bristol South)

At this rate, I will not need to write any letters, because the answers are coming very speedily.

Mark Hoban (Conservative, Fareham)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

I thank the hon. Gentleman.

Mark Hoban (Conservative, Fareham)

I shall give the Paymaster General a break, and give her officials another task to perform in the meantime. How many of those 1 million people, if they are in work, are paying income tax? It sounds to me as if we are in danger of simply recycling money. People are paying tax through their pay packets and getting it back, through the Government's generosity, by a different calculation.

Dawn Primarolo (Labour, Bristol South)

The calculation at employer level gives the tax credit. That will be named on the payslip as a payment of tax credit. Some people will still be paying some tax, but for those on the lowest incomes, the tax credit payment back is greater than if there had not been a tax credit and they had paid their tax.

It is odd that the hon. Member for Fareham (Mr. Hoban) should ask that question, given that his party, when in power, taxed people, sent them all the way through one Department, then made them apply separately to another Department—in fact, several other Departments—to receive back payments in recognition of their low income, such as family credit. We are streamlining the system into one place. This system is more efficient than interfering with the tax code. We have had all the discussions about why it would be inappropriate to use that and why this system is more targeted than using the allowances or rates to maximise income for those in the lowest income groups, whom we want to help in the greatest numbers.

We have accepted the principle that the Government should give a continuous stream of support for children through the children's tax credit, and that they should, through the working tax credit, tackle the barriers to work and the unemployment trap. We must do that if unemployment is to continue to fall, and if we are to tackle unemployment and the poverty trap, where

people want to work, and there are jobs for them, but it does not make economic sense in their family arrangements to make the transition to work. Tax credits are one way of breaking that cycle, and the minimum wage is another. The Government's strategy is working through that and has been very successful. Any policy can be pulled apart and questioned, but we have seen how the system worked in the past and our proposed system is the simplest, most direct and clearest.

Howard Flight (Conservative, Arundel and South Downs)

I have another question about the precise relevant number of people. We need to know how many fall into the category of the replacement for 50 plus. How many of the 1 million people are relevant to the point that we are discussing?

Dawn Primarolo (Labour, Bristol South)

I do not have that information with me. I really do not have it, and Committee members may keep me on my feet for as long as they wish, but I know that I shall not have the information immediately to hand. Hon. Gentlemen started asking for more information as soon as I put the figure of 1 million on the table. We are trying to deal with the problem in the labour market caused by persistent poverty that traps households of people aged 25 and over without children. There are plenty of indications that that needs to be dealt with, I shall be a little more careful when I cite figures in a certain area because they may be sliced in many ways. There is a problem in the labour market for that age range and we must approach it cautiously. Our objectives are correct, but we must be careful about the way in which they interact with the minimum wage and opportunities in the labour market.

We have taken the cautious approach of starting with 25 years, notwithstanding the exceptions, and the 30-hour rule. That will help people in that group to move on through the labour market and to improve their position and wages without the current stark comparisons between households with children and those without, even when compensation is available for the cost of children in those households.

On the alternative test and the definition of direct care, I do not understand why the hon. Member for Arundel and South Downs wants to use the concept. Clause 8 was the correct place in which to deal with responsibility and care, but I do not see what benefit would be gained from using a concept of direct care. The concept of the main carer having responsibility, as we discussed under clause 8, is well understood here and in other areas—for example, child benefit. I just cannot see what would be gained by using the concept of direct care. It would simply add another definition, but would in fact mean the same as the existing definition.

The hon. Member for Arundel and South Downs is trying to tighten the provision, but his amendments would not work and are unnecessary. I can see that I have not done so well this time in convincing him. Unless he stands up to voice blindingly obvious points that will make things clearer, and I do not see how he could, the question on direct care is not relevant. I ask him to withdraw the amendment.

I hope that I have clarified, in terms of age and household type, who would qualify for the working tax credit. I have also demonstrated the Government's thinking on how we will target a particular group, the age range of which starts at 25, by dealing with the restrictions in the working tax credit. The beauty of the tax credit is to allow for a foundation on which we can respond as the labour market changes. Pressures on work incentives and assistance, and on tackling poverty and unemployment traps, might change over time, so we have a framework. I hope that the hon. Gentleman will withdraw the amendment, and if he does not I will ask my colleagues to vote against it.

Steve Webb (Liberal Democrat, Northavon)

I am grateful for the Minister's response. When I say that £15 is not much, I mean that it is not enough to justify a separate administrative system—£15 could be delivered in another way. It is not a question of £15 or nothing, but one of £15 through the pay packet, a tax allowance increase or another mechanism such as reducing the lower-rate band. I want the low-paid to have the £15, but we must address how to deliver it effectively. Delivering the money through tax allowances and bands, rather than credits, still gets the money in the pay packet and people will be able to see the benefit of working. They will look at their pay packets, see what they are being given and judge whether it was worth working and whether they feel better off. That argument does not undermine the reward to work, but delivers the money in a cleaner fashion.

I will not stray on to the under-25 issue because it will be dealt with under the next amendment. A critical point is the unemployment trap and the fact that childless couples will find that the sorts of jobs that they can get will make them only £20 a week better off. There are two sorts of households: those who are renting and those who are buying. The figure of £20 will mean something different to different households. The reason why some childless couples are virtually no better off in work is because they have a socking great rent, which is covered almost in full when they are not working and almost not at all when they are in a job that puts them beyond the housing benefit taper. They really wonder about working. Someone with a mortgage that is not being covered by the income support system—that applies to a growing number—has a bigger incentive to return to work because they do not lose housing help.

The argument for the working tax credit and work incentives does not apply strongly to those with mortgages. The gap is bigger than £20 for people with mortgages and probably £20 or less for those renting. If the problem is rapid withdrawal of housing help and high rents, the answer must be to tackle that and not to invent a system that covers the entire working adult population over 25. We have not talked about housing, although it is central to the unemployment trap. I hope that the Government will continue to think about that.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for her comments but I fear that she is correct that we have not been persuaded of the Government's position. Even though the amendment may be in the wrong place, I will

briefly deal with a semantic point. It is fair to say that ''responsible for'' is slightly woolly, and although the Government have made their position clear on appointing a sole carer, our wording—''in their direct care''—is much sharper. That is not an issue of huge importance, but the more sharply legislation is drafted, the better.

It seems to us, however, that the Government have got main issue wrong. Of the group that they are targeting, on the figures from the Institute for Fiscal Studies, only 2.5 per cent. fall within the definition of poverty. The employment tax credit is available only to adults without children who work full-time for 30 hours a week. They are not the problem group in our society. Those under 25 are very different. Of those, some 21.5 per cent. fall into the poverty category. For better or worse, the measure is not fulfilling its main aim of alleviating poverty. If the Government's aim is to help those in need, they are tackling the wrong target.

As the Institute for Fiscal Studies points out, the only other case, which the Minister tried to put, is that the measure will be an incentive for couples without children over 25 to move from part-time working below the target of 30 hours a week to fuller-time working, and that the Government have introduced the measure because they want to encourage that. However, I see that as a little area in which Speenhamland disadvantages could operate, and if this could be an incentive to employers to let the state become a part of their wage costs, they will let it do that.

There is therefore an argument that the measure will depress remuneration for just the category of people on whom it will impact. Our position is that the Government have got the measure wrong, so I am not inclined to withdraw the amendment. The IFS paper has put the onus on the Government to make a case that is not there.

Question put, That the amendment be made:—

The Committee divided: Ayes 4, Noes 10.

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 62, in page 7, line 22, at end insert—

'except that the minimum age of entitlement shall not be less than that for the child tax credit.'.

I intend not to cover old ground again but to flesh out, on the issue of age, what we are trying to achieve here. It has been suggested, and it is apparent in clause 10, that the Government plan regulations about the age of relevant people, and that that age will be 25 in

the case of childless people. We are suggesting that that age should be no less than the minimum age of entitlement for the children's tax credit. We may have gone a bit far in that respect, given that, as the Paymaster General said, that age is 16. Someone who spent an awful lot of time doing paper rounds might be caught.

I want to flesh out the subject of age. It could be that 21 or 18 is the right age for the threshold. We made the assertion that poverty rates among young people, especially those who are not working full time, are higher than among older childless people, and the IFS figures bear that out on a cross-sectional basis. It is a question of persistent poverty. Will poor 21-year-olds always be poor, or is it so transitional that we do not need to worry about it? One could argue that any year spent in poverty is a year too many—the fact that those people are in poverty now is a problem, and the possibility that they might not be in poverty in three or four years' time is of little reassurance to them now. That alone would be a reason not to exclude them on poverty grounds.

How can a 21-year-old be in persistent poverty? If the Government's definition of persistent poverty relates to people who have been in poverty for the past three consecutive years, 21-year-olds may not count as poor because they were students resident with their parents for half the year, so cannot have been caught in the definition. I wonder whether we are comparing like with like. On poverty grounds, there are two good reasons for saying that we should not exclude 21 to 25-year-olds. First, any time spent in poverty should be dealt with, and secondly, they may be heading for persistent poverty but we do not yet know that.

The 25-year-old cut-off was invented by the Conservatives in 1988, when the system changed from one in which people got money through supplementary benefit for being a householder or a non-householder to one where people got some money for being 25 and less for being under 25. In effect, the Government of the day said, ''We don't want the state to support young people living away from their parents—they shouldn't be helped to do that.'' The benefits system switched from supporting householders, which would have helped young people who lived away from their parents, to supporting the over-25s, on the grounds that by that age they would be living independently anyway.

That system is hard for those who do not fit, especially for younger people who become householders under the age of 25, who fall foul of the working tax credit rules as well. Not only do householders under 25 who may have had to leave the family home through no fault of their own get less support through housing benefit merely by dint of their age, but if they can get a job they get less support through the working tax credit.

The threshold of 25 is utterly arbitrary and is being used because there is already such a threshold in the system. However, that threshold was itself introduced entirely arbitrarily. Obviously any threshold is arbitrary and one can ask why someone is different the day before or the day after. However, this

threshold requires justification. A threshold of 21 could perhaps be justified on the grounds that people will typically have gone through graduate education and will be starting in the work force, but the threshold of 25 seems to have no external justification other than that it is already in the system.

We wanted to ensure that the minimum threshold for the working tax credit could not be lower than the entitlement to the children's tax credit. As that is 16, we may have been going a bit far. Something between 16 and 25 might be appropriate.

Dawn Primarolo (Labour, Bristol South)

I make no apologies for the Government's being cautious in interpreting the data available to us on problems and barriers in the labour market and incentives to work, and in balancing the initiatives at the different points at which we are engaged throughout the age range. The hon. Gentleman does not want a wage subsidy, yet he proposes introducing one at 16. He understands the importance of the interaction with the minimum wage and the point made by the hon. Member for Arundel and South Downs about not putting in place something that inadvertently leads to a cap on the wages that employers would pay in that range. We are carefully and cautiously considering the issues surrounding the labour market. I am not persuaded by the suggestion to make the age 16, or any age other than 25. Caution is necessary.

For those under 25, other issues are involved, on which the hon. Gentleman touched. We are trying to identify persistent poverty—not when people might be in poverty but when a problem is definitely being experienced in the labour market. For the under-25s, not only is an age point involved, relating to how long people have been in the labour market—there may be lots of reasons why they have entered it only recently—but the proposal would cut across the Government programme to raise skill levels, improve training and encourage people to stay in education—and especially proposals such as the new deal for the 18-to-24s. That group is well covered by the new deal, and if a problem persists, the working tax credit would be introduced, as no child responsibility or disability is involved.

I hesitate to speak in these terms, but I cannot think how else to phrase my point. The hon. Gentleman is right to say that suffering poverty for any period is a dreadful experience for anyone, and best avoided. However, there may be reasons for it. People move quickly through the labour market, which is an unpleasant experience but one that is none the less short. We are trying to deal with circumstances in which the problem is much more deep-seated, according to our information.

We are not attracted to the proposal for a lower age. The concentration for those aged 25 and over who have no children and are in full-time work is greater than that for the under-24s. We shall start where we believe the maximum problem is, and we shall be careful, which is what the hon. Gentleman usually implores us to do. Ironically, we are following his usual caution, which is to recognise that an issue is

involved, that trends are emerging and that we have arrangements up to that point and should go steady, because we must watch the interaction with the minimum wage and what is happening to wage rates generally and to that age range. No one disputes that there is an issue for households without children in that age range in particular income ranges.

James Clappison (Conservative, Hertsmere)

I think that the Minister said that there was a greater concentration among over-25s working full-time. She did not say what it was that was concentrated. I would be grateful if she could clarify what the Government are saying on that subject.

Dawn Primarolo (Labour, Bristol South)

Among households without children but in full-time work, over-25s are five times more likely to be in poverty than 22 to 24-year-olds. Those are Government figures. That shows that there appears to be a particular problem for over-25s in terms of concentration.

We are making a simple policy choice. Either a political party accepts that it should intervene to eradicate poverty, and takes the necessary steps as gently as it can, or it does not. The Government take the view that they should intervene. Households with children were our first priority, but we have always known that there were issues for childless households, although they are affected to a lesser extent as they do not have the responsibilities and costs of raising children. None the less, such issues exist, and we are now tackling them.

I do not know whether the hon. Gentleman wants to press the amendment, which would take the minimum age down to 16. I could tell him how much that would cost—that might clarify his position. I am trying to explain to him that we have not simply put our finger in the air and decided that 25 seems a convenient age. We have tried to analyse the information available. It is the first time that such a measure has been introduced, and we should go cautiously. I hope that he will consider withdrawing the amendment.

Steve Webb (Liberal Democrat, Northavon)

The Minister raises the important issue of the new deal, which is a major program that coincides with the over-25 threshold. She made a fair point. The minimum wage changes when people reach 21 or 22 years of age. That is an argument for a different threshold, but I take her point.

The hon. Member for Hertsmere (Mr. Clappison) intervened on the subject of relative poverty rates. I presume that the Minister was referring to rates of persistence of poverty, rather than cross-sectional poverty. The incidence of cross-sectional poverty is much higher for the under-25s.

Under the amendment, we envisaged an age threshold of about 21 years. Clearly, it would be going too far to lower the age to 16. For that reason, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Steve Webb (Liberal Democrat, Northavon)

I should like to raise an issue that I told the Minister I would raise this morning. We have not yet covered it in our discussions on the amendments. It

is how the definition of ''remunerative work'' affects expectant mothers. Maternity Alliance raised the issue with me, and pointed out that under the proposed rules, when a woman shifts from paid to unpaid maternity leave, she could fall foul of the remunerative work rule as she had ceased to do remunerative work, and could lose the working tax credit. Under the existing working families tax credit, there would be no adjustment because of the fixed six-month rule, and once the money was awarded, the expectant mother would receive help. Will the Government consider whether, under the provisions for remunerative work, mothers whose maternity pay ceases after birth would still be entitled to the working tax credit?

The Government have an agenda for maternity and paternity leave. In general, it will not be paid by the state beyond statutory minimum levels. If the Government want to encourage parents to take that leave, making the working tax credit available would create more of an incentive for them to do so.

The final issue raised by Maternity Alliance is whether people come into eligibility only after the birth of the child. That relates to the clause, because whether one receives the working tax credit and is subject to the relevant hours threshold depends on whether one has children. The Government might consider whether a woman during her period of confinement, or in the latter stages of pregnancy, might start to come within the scope of the working tax credit or child tax credit, given the strong evidence that maternal welfare during pregnancy has a strong bearing on the welfare of the child and its subsequent development. Do the Government have any thoughts along those lines? The question of remunerative work and whether women receiving maternity pay would lose it under the new system should be addressed.

Peter Luff (Conservative, Mid Worcestershire)

One of the attractions of opposition—they are few—is that those who normally remain silent are occasionally allowed to give voice. In that, I have an advantage over the hon. Member for Bradford, South (Mr. Sutcliffe). I hope that he and the Minister will think that it is appropriate that I allow myself the luxury of a few words.

I am glad that the hon. Member for Northavon spoke first, as he highlighted the inadequacy of this and several other clauses in the Bill. In a sense, the Minister's response to what he just said is terribly easy. She can just say, ''We'll deal with that through regulations when they are drafted.''

My concern, which I have not expressed in previous debates—as I am a member of the usual channels, it is an especially lively concern—is the extent to which the Bill and the clause confer regulation-making powers on the Government. The Minister will be familiar with my concern, which she will have heard expressed in other Standing Committees, and which her Government colleagues will have heard from other Opposition Members on previous occasions. I am genuinely puzzled by the number of occasions on which, increasingly, Bills merely confer order-making powers on the Government. This Bill seems to be a

classic example. It provides the Government with permission to go away and do what they choose, how and when they choose to do it.

Arbitrarily, I have alighted on clause 10 as an opportunity to make that point. There are other clauses under which matters that could have been determined subsequently by regulation are spelled out in considerable detail. Clause 11 seems to be one such—the Minister may correct me on that—whereas clause 10, which contains important provisions in relation to the workings of the Bill, leaves it to regulation. The definition of work in relation to the working families tax credit is subject to regulations, whereas the next clause spells out a maximum rate in considerable detail. Why is that?

By my arbitrary calculation, I reckon that clause 10 represents the seventh occasion in the Bill on which we have been invited to confer on the Government the power to make regulations. In this instance, the regulation is rather straightforward. I chose not to speak on earlier clauses because they contained matters of substance that the Committee had debated, and I was anxious that we should make progress. I shall not labour this point, as you would rule me out of order if I did, Mr. Beard, but clause 4 is another example, and clause 6 in particular is merely a list of regulations that the Government could make. Arguably, a whole series of regulations could be made. By my calculation, power is conferred on the Government to make regulations on 19 separate occasions in the Bill. Clause 6 is one of the worst examples—

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. The hon. Gentleman should return to clause 10.

Peter Luff (Conservative, Mid Worcestershire)

I take your advice, Mr. Beard, and am grateful for it. I certainly will. However, I do not want to rise each time that a clause mentions a regulation-making power. The Government Whip would think that I wanted to delay the Bill unnecessarily, and I do not want to do that. If you could give me a modicum of indulgence, I will not refer to such issues again during our proceedings.

There are about 19 separate occasions that specify the way in which the regulations under clause 10—and most worryingly those under clauses 60 and 61—will be applied. I shall not refer in detail to clauses 60 and 61, because I do not wish to debate them now—

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. I have allowed the hon. Gentleman a modicum of latitude, but he should stick to clause 10.

Peter Luff (Conservative, Mid Worcestershire)

It is important to say that the clause relates strictly to clause 61, because that defines each regulation, including the one under discussion, as being implemented by the negative procedure. The hon. Member for Northavon raised an important point about the treatment of expectant women, but such regulations cannot be amended or even debated. That is a worry. I will not labour the point, Mr. Beard, because you have already chastised me on several occasions.

I read the explanatory notes to clause 10, to see why regulation-making powers are necessary. They are the most unilluminating notes I have ever seen. They simply repeat the clause using different words. In one sense, that is a tribute to the parliamentary draftsman, because clause 10 is easy to understand. One of the reasons why I did not speak to earlier clauses was the fear that I might get dragged by interventions into discussing the details, which, frankly, I have often not understood. Members of the Committee include a barrister, a professor of social policy and a distinguished figure in the City of London, all of whom have detailed understanding of such matters.

Clause 10 is the type of provision under which regulations are unnecessary. Clause 1 introduces the working tax credit, and surely it should define work without relying on a subsequent definition introduced under the negative procedure at a later date? That is a most unsatisfactory procedure.

Although there have been rulings that there be no stand part debate, there has, in fact, been no yearning for one, because members of the Committee take the Bill seriously and are anxious to make progress. In response to clause 10 stand part, will the Minister explain why clause 10 does not define work without relying on a regulation-making power at a subsequent date? Will she also say why the Bill relies so heavily on regulation-making powers at a later date with regard to almost everything of any importance that it wishes to do? That is a serious flaw. Perhaps the hon. Member for Bradford, South and I should be pleased about the negative procedure because it means that we spend little time discussing regulations in Committee.

The issues are important for the people that they will affect. The Government are rushing the Bill through—particularly clause 10—before they have finished thinking about what they want to be in it. Had they delayed for a month or two, they could have provided a definition of work. The issues—the number of hours worked, the age of the claimant, the disability, the responsibility for a child—are spelled out in both the clause and the explanatory notes. With a little more time and consideration, the Government could have paid members of the Committee the courtesy of a definition of work under the Bill.

Nigel Beard (Labour, Bexleyheath and Crayford)

I hope that the Minister will not accept the hon. Gentleman's invitation to go beyond clause 10.

Dawn Primarolo (Labour, Bristol South)

I would most certainly not accept such an invitation. I wish first to deal with the regulation-making powers. I remember making similar points to those made by the hon. Gentleman when I was a member of Her Majesty's Opposition before the general election in 1997. Under our parliamentary system, Opposition parties are duty bound to make such points. Government have also determined what is—and what is not—to be provided for under regulations for a considerable time. I remind the hon. Gentleman of when his party proposed similar legislation and the extensive regulation-making powers that they used. Certain Bills and regulations allow us to alter some of the variables according to changes in circumstances, without recourse to parliamentary time, because primary

legislation requires more time and is more difficult to programme.

For the record, I inform the Committee that the levels at which family credit—the system introduced by the Conservative party—was paid were set out in regulations and subject to the negative resolution procedure, and so was the mechanism by which family credit was withdrawn, although we have set that out clearly under the Bill. The definition of work in respect of family credit was determined under regulations and, guess what, they were negative resolutions.

I shall save the hon. Gentleman's blushes. Although I may damage his political career, I must say that I like him.

Peter Luff (Conservative, Mid Worcestershire)

That is reciprocated.

Dawn Primarolo (Labour, Bristol South)

None the less, he made an important point about how regulations are used. I have tried at every opportunity in Committee—as has my right hon. Friend the Financial Secretary—to spell out in great detail the Government's thinking in respect of the regulations. Those in the other place take great care in such matters and they will want to see the draft regulations. By the time the Bill returns to this House, members of the Committee will also have the opportunity to examine them.

I understand the hon. Gentleman's frustration. I assure him that I did not sit down and say, ''Goody, goody, let's have regulations four sentences long and, what is more, let's have them under the negative procedure''—much as I may have been tempted. These are procedural points, but the Bill will be doing nothing that does not follow a path well trodden by Conservative Governments. It is important that such points are on the record, and I am not complaining about them. I am grateful that he waited until clause 10 to advance such an argument and did not consider that he had to do so under each clause. I note the seriousness of the issue that he raised, which is that of enabling hon. Members to scrutinise proposed legislation properly.

Peter Luff (Conservative, Mid Worcestershire)

I am grateful to the Minister, particularly for her expression of an affection that I reciprocate. She gave us an assurance on draft regulations. I do not imagine that she meant that that would apply to every regulation in the Bill before Report, but if she did mean that, it is welcome. Will she clarify her exact undertaking? That is not a criticism, but a request for information.

On her broader point, the Minister is correct that two wrongs do not make a right. I was uncomfortable about some things that happened in the past. Will she look back through all the regulations and consider whether any could be introduced under the affirmative rather than the negative procedure? One of my hon. Friends may wish to examine that on Report.

Dawn Primarolo (Labour, Bristol South)

I hope that the hon. Gentleman will excuse me if I do not do that right now. After we have considered each clause and moved to the next, I have sighed with relief and tried to make my brain accelerate to the next points. It is difficult to go into reverse.

The hon. Gentleman's point referred to detail. I will try to make as many of the draft regulations available as possible. However, it is clear from the Committee's discussions that there are key sets of regulations in which hon. Members are particularly interested. They happen to be the regulations on which we are still consulting.

I intend to get as much information as possible before Report but if I do not achieve that, I do not want the roof to come down. If I get all the information, that will be fine. The regulations must come in, but the key regulations will appear toward the end of the process because consultation is still occurring. However, I understand clearly that members of the Committee will want to see them.

I hesitate to make my next point. The hon. Member for Northavon is correct to identify the example of a woman in receipt of statutory maternity pay or extended maternity leave from her employer. The question centres on the ability of a person who is in work, or not, to access the working tax credit, and also crosses over to other programmes that support parents, such as the sure start grant. We must address the matter following further decisions by other parts of Government. I will examine carefully the issues—forgive me for saying this—when we draft the regulations. None the less, returning to the hon. Gentleman's point, it would be difficult to put a provision in the Bill while another Department is finalising exact points during consultation on maternity and paternity leave. The matter will be dealt with when we have the information that we need.

I have covered the major points that were addressed in the debate, and I hope that members of the Committee will support the clause. I understand the frustration of the hon. Member for Mid-Worcestershire (Mr. Luff) about regulations and details. I hope that he accepts that I am doing my best to give as much information as possible without misleading the Committee by implying that a decision has been taken, when the matter may still be open for discussion.

Howard Flight (Conservative, Arundel and South Downs)

May I ask the Minister for clarification on the most important point under clause 10, which is the number of hours worked? As the explanatory notes point out, that will be the main definition of entitlement. The Institute for Fiscal Studies has raised questions about this matter. Given that we will be working on an annual—rather than six-monthly—basis, will we be dealing with the average for a year? As the mechanism of past year earnings will be used, how will that be interlaced with the future number of hours worked? I assume that the current number of hours worked will be the relevant criterion, but what is the principle behind the Government's approach with regard to the number of hours worked?

Dawn Primarolo (Labour, Bristol South)

The 16-hour rule will carry forward, with regard to the working families tax credit and disabled person's tax credit, and we are looking closely at how to measure that across the year,

so that people do not fall in and out of categories, which might happen in some cases.

During the consultation process, we received representations in favour of varying the 16-hour rule, but we are not prepared to do that. However, the annual assessment could be tailored to give some latitude, with regard to the calculation of hours.

It is important to get that matter right. With regard to the current tax credits, the calculation of hours is rigidly fixed. We do not think that that is appropriate. We are examining ways in which the new tax credits might address that calculation more flexibly, because—for example—people's hours could fall and then rise during the course of a year, so that their annual average would be high enough to reach the 16-„hour rule, and it would be difficult to explain why they did not qualify. However, we also need to ensure that changes to the rule will not cut across any employment rights, such as contributions. We have nearly achieved our aims in that regard.

It is true that the introduction of the new tax credits gives us the opportunity to make matters smoother. We might be able to help certain groups, such as people who have a chronic disability, and whose health deteriorates, resulting in a reduction in their hours, but who subsequently return to the labour market; that variation will not be reflected in their hours across the year.

I cannot be more specific about such matters at the moment, but the new regulations will not be as rigid as they are in the current arrangement. The annual assessment gives us more room for manoeuvre, and it helps with administration, because it will be easier to understand.

Question put and agreed to.

Clause 10 ordered to stand part of the Bill.

Clause 11 - Maximum rate

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 32, in page 8, line 19, at end add—

'(8) The prescribed manner of determination must take account of the needs of all the members of a married couple or an unmarried couple by comparison with those of a single person'.

The amendment would ensure that couples in which one partner or spouse does not work are not unfairly treated.

I referred to that issue earlier. The Minister pointed out that it was less suitable to raise it with regard to child tax credit than to working tax credit. With regard to the definitions of entitlement to working tax credit, do the Government intend to address the point that I and the hon. Member for Northavon made earlier about the difference between people who are a decent margin above the poverty line who are lone parents with two children, and people being below it when they are in partnerships in which one spouse is not working? The amendment would make provision for them to address that.

The Minister did not refer to the work of Martin Wolfe. That is a serious issue. We do not want a tax credit system that gives significant fiscal advantage to

one person not to partner up or marry another when children are involved. It is ridiculous that there should be a disincentive to partner up until the partner has earnings that are 170 per cent. of average income. As she said, that needs to be dealt with. Her prior comments suggested that the Government did not feel like doing that. They may do so marginally, but not in a way that will truly level out the problem. She requested, however, that we focus on such issues now rather than when we discuss the child tax credits, so I look forward eagerly to her giving me comfort that such matters will be addressed adequately.

Steve Webb (Liberal Democrat, Northavon)

The Minister argued that there were two reasons not to give equivalent support to a two-parent family and a one-parent family. Work incentives were essentially the issues involved. If the working tax credit were not about children but about adults, such arguments would not be so strong. If there is a problem with child care incentives, we should deal with that under a child care tax credit and other mechanisms. However, if it concerns poverty, the argument about the inequality between a one-parent family and a two-parent family is much less acute in the case of childless families. The case for penalising a two-parent family, not a one-parent family, seems harder to make in light of childless families.

The Minister said that income support, housing benefit and working tax credit constituted one benefit, while measures for children were another benefit. Well, if housing benefit, income support and working tax credit are of a kind, and housing benefit and income support recognise second adults, why is working tax credit not included? If she is categorising such benefits as those that support adults and two out of three of them give something with which to feed the extra mouth, why should not the system under the Bill do the same? I cannot see the reason for such a distinction.

Dawn Primarolo (Labour, Bristol South)

The amendment would ensure that couples who are awarded working tax credit always receive a higher award than single people in similar financial circumstances. I do not disagree in principle with such a proposition. However, the amendment is unnecessary because clause 11 provides under subsection (6)(b) for a second adult element in addition to the basic element that all recipients of the working tax credit will receive.

As we have discussed at length, the working tax credit is a work incentive measure. We are well aware that both lone parents and couples are likely to face greater barriers to work than single people with no children. The living costs of couples, whether or not they are responsible for children, will be greater than those of single persons. If the hon. Members who support the amendment are angling for a commitment on the relative rates of the second adult element and the lone parent element, what a surprise, I cannot give them one. However, I do not believe that they are.

Setting the rates of all the elements of both the new tax credits is a matter for the Budget, and we shall not debate it today. However, I assure hon. Members that we fully intend to include in the working tax credit all the elements in clause 11.

Work is already well under way on the regulations to be made under the clause, which will provide for an additional element for claims in respect of both lone parents and couples. The maximum rate of the working tax credit payable to those categories of households that claim will, therefore, always be higher than the maximum for the single. That covers the point made by the hon. Members for Northavon and for Arundel and South Downs. Now that I have made it absolutely clear that we intend to use all the elements in the clause, I hope that they will appreciate that the amendment is unnecessary and that, rather than making the Bill longer, the hon. Member for Arundel and South Downs will agree to withdraw it.

Steve Webb (Liberal Democrat, Northavon)

That is a tremendously welcome announcement. I suppose, considering the matter, that that should have been obvious, but it did not jump out, and until today we did not have the assurance that the power in the Bill would be used.

Did the Paymaster General say that there would be a second adult element in respect of couples? I believe that she mentioned lone parents in the same breath. Was she effectively saying that lone parents would be deemed to be couples for the purpose of the working credit? What did she mean by that? We are separating children and adults—the clause relates to adults, not children—but are saying that couples will receive an extra amount for the second adult regardless of whether they have kids, but single people who have kids will receive an extra amount through the working credit. I hope that she understands why I am slightly confused by, although delighted with, what she has just said. What did she mean?

Dawn Primarolo (Labour, Bristol South)

I may inadvertently, in trying to clarify, have first clarified and then confused the matter. The essential point that the hon. Members for Arundel and South Downs and for Northavon make relates to single people or couples without children and the additional adult allowance. The clause provides for an element to be added. Two elements are involved, for both of which the rate would have to be set. The first relates to a second adult. The other relates to lone parents and would recognise that some costs are fixed, regardless of whether there are two adults or one in the household.

The point that the hon. Gentlemen make relates to whether there is an additional adult allowance for couples without children. What the amendment would provide is already provided for in the clause. I presume that the hon. Member for Arundel and South Downs knew about the intention behind the amendment.

Howard Flight (Conservative, Arundel and South Downs)

With respect, and as I thought that I had made clear in discussing amendment No. 31, which dealt with the same subject as amendment No. 32, the issue does not relate to couples without children. In simple language, under the present working families tax credit and children's tax credit, if one parent in a couple is not working, for reasons such as young children to care for or the place in which the couple live, there is no recognition of the economic needs of the non-working person.

The illustration to which the hon. Member for Northavon and I referred shows the effect of that on families on, say, £150 a week, with two children. A lone parent would end up £35 above the poverty level and a couple in which one spouse does not work would end up £20 below the poverty level. That is a £55 material difference. The same issues were raised when the working families tax credit was introduced. A different way to make the point is to say that there are tax credit disincentives to partnering up for the single person with children.

When we suggested that the matter should be addressed as a special element in the child tax credit, the Minister said that we should address it in relation to working tax credit. Our amendment is broadly drafted. We want a commitment from the Minister that the arrangements for working tax credit will contain an element that takes specific account of the non-working spouse's economic needs. That could be achieved by adopting the amendment or it could be covered under subsection (6), as the Minister said. Our welfare objective is to ensure that there is not considerably greater assistance to lone parents compared with couples in which one person does not work.

Dawn Primarolo (Labour, Bristol South)

I cannot follow the hon. Gentleman's logic with regard to the second adult element. I have assured him that the issue is whether a lone parent would be at an advantage compared with a couple in which one person did not go into paid employment. I said that we must address greater barriers to lone parents than their ability to work.

The structure of the elements in the clause provides for additional optional elements. Certain elements form the absolute base of the working tax credit, but optional elements should provide extra financial support to increase the incentive for work. The elements take account of greater living costs that are incurred by certain categories of claimant. The second adult element falls into that category.

The hon. Gentleman makes a slightly different point that is more about household structure and people's choices on that. He implied that people would choose to be lone parents because they would be better off than if they were in a two-parent household, and that the Bill will provide an incentive for that. I reject his first proposition that people choose to be lone parents because they would be a few quid better off. Anybody who knows about the experience of lone parents will know that, unfortunately, the overwhelmingly majority become lone parents because of often tragic and difficult personal circumstances, which they did not choose. Being a lone parent is considerably harder than being in a two-parent household. In the end, the hon. Gentleman and I have a different view. I do not believe that people choose to be a lone parent because they will be financially better off, and the Bill does not provide for that.

The hon. Gentleman's point is about the interaction

of those elements. He is right that when those elements are balanced, and a level is set, the position of two-parent households in which one parent is not in paid employment should not be skewed dramatically. He is mixing up a case for its being better to be in a two-parent or married household than in a lone parent household, and asking whether the Bill is a piece of social engineering that pushes people to being in one-parent households. I assure him that that is not the case.

The hon. Gentleman's point about the second adult element is dealt with clearly in the Bill. I have explained that twice, and it has been accepted that it is clear. His views on what is a better household type—single or married—are not a matter for the Bill, which tackles poverty traps, unemployment traps and work incentives, and responds to the barriers that exist in those circumstances.

Howard Flight (Conservative, Arundel and South Downs)

The Minister has somewhat misrepresented what I said. My point was that none of us would want a situation in which a lone parent was discouraged from partnering up with someone because the net effect, if that person was not working, would be a £50 fall in disposable income. It would be crazy for that to be the case, although at certain levels that is how working families tax credit operates. Although I am grateful for what she said, the Opposition are looking for an assurance, in common-sense language, that if the situation is not catered for under working tax credit, the Government will make arrangements to ensure that that does not happen.

Steve Webb (Liberal Democrat, Northavon)

The debate on the amendment has been helpful. Subsection (6)(b) gives the Government the power to provide a second adult credit in respect of a person who is married or in a couple, whether or not there are children. It also gives a power to provide extra sums to a lone parent. Therefore, the only people who are not covered are those who are single and childless. That is a welcome step in the direction of the spirit of the amendments.

I cannot help feeling that the matter has been dealt with and, having received an assurance that the Government will use the power, that the amendment is no longer necessary. However, I am still slightly puzzled as to why the question of whether someone has a child is being muddled with the working tax credit, given that we were told this morning that it was not about children. It therefore seems a strange place to deal with that issue. However, I am sure that there are reasons for that, which will perhaps be discussed outside the Committee. I want to put it on the record that I welcome the progress that the Government have made on the issue, and the amendment is therefore unnecessary.

Amendment negatived

Question proposed, That the clause stand part of the Bill.

Mark Hoban (Conservative, Fareham)

I take this opportunity to raise an issue that I mentioned on Second Reading. Subsection (6)(a) deals with the hours that can be worked by single persons and those living together as a couple. A

couple could aggregate their hours to meet the 16 and 30-hour limits that we have discussed, but a single person would have to work either 16 or 30 hours. That puts lone parents at a disadvantage. Couples could manage their time to achieve 30 hours between them. Lone parents would have to work harder to meet the same limit and qualify for additional premiums. I raise that as more of a question than a speech, and I am open to clarification from the Minister as to whether my interpretation is correct.

Dawn Primarolo (Labour, Bristol South)

The interpretation is that a couple would be able to combine their hours to complete the 30-hour element as long as at least one partner worked 16 hours or more. The 16-hour limit is still there, but we are allowing couples to aggregate their hours, instead of requiring one parent to work 30 hours, if both parents are working.

In the case of lone parents, the 16-hour rule applies. We thought it fair that if both parents work, but neither works a 30-hour week, they should be allowed to get 30 hours in the same way as lone parents. That is an equalisation, not a disadvantage. It is a benefit to households in which couples work part time.

Mark Hoban (Conservative, Fareham)

I understood the Minister to say that a two-parent household can aggregate its hours to get 30 hours as long as one person works at least 16 hours and the other perhaps 14 hours. I am slightly concerned that it is easier for a two-parent household to reach that 30-hour threshold by working together than it would be for a single person, as a couple could manage child-care arrangements so that one person worked while the other looked after the children, and they swapped over to complete the 30 hours. A lone parent might need to find child care for the full 30 hours. It would be easier for a two-parent household to mix and match, and they would find it far easier to achieve the hours. The Minister, by trying to equalise provisions for couples, may have inadvertently made life more difficult for lone parents who must work 30 hours.

Dawn Primarolo (Labour, Bristol South)

No, this concerns a change in rules from those that applied to the working families tax credit, under which one of a couple—but not lone parents—had to work 30 hours. There is no change to the position of lone parents. They already have the advantageous position. The change in position helps two-parent households, and equalises the provisions. The circumstances about which the hon. Gentleman is concerned would not occur. The benefit that is being introduced is an improvement on the 30-hour rule for two-parent households.

James Clappison (Conservative, Hertsmere)

I rise briefly to put a point to the Minister, who has been courteous in responding to so many interventions.

I seek clarification from the Minister, as her response to my hon. Friend's question about the disincentive to couples to partner up was unclear to me. She addressed the circumstances in which people become lone parents. I want her to address what happens when a couple take the decision to form a joint household, because that is the subject that my hon. Friend raised.

The hon. Member for Northavon drew attention to the risks that are run in such circumstances as a result of the intermingling of the child tax credit and the working tax credit. I want the Minister to address the matter again, so that I can be clear about her position.

Subsection (6)(c) establishes that, as part of the working tax credit, a lone parent will receive an additional element for being a lone parent who has care of a child. In addition to that, under subsection (6)(b), if that lone parent takes a decision to form a household with somebody else, they will receive an element to reflect that they are part of a couple. The lone parent will gain that extra element for being a couple, because they will face the extra costs involved, but is it not the case that the single parent will lose the element that they received under subsection (6)(c)? They will no longer be receiving the element that they would have received in respect of their child. They will still have to bear the costs of the child, but they will not be getting the element to help them to afford to do so.

All of those elements are independent of the child tax credit: they are part of the working tax credit, and I want the Minister to explain why there is no disincentive.

Dawn Primarolo (Labour, Bristol South)

I shall try once more, but my back hurts, because I have had to keep rising to my feet.

The working tax credit needs to cover a single person who has no children and no disability; they will get the basic credit. The other area that needs to be covered is the question of who will get the extras—whatever they are. Lone parents, couples and individuals with disabilities will get extra, in recognition of their extra costs. For instance, a lone parent does not get a reduction on their rent, gas or electricity; there are certain costs that can be shared between people.

If a lone parent household were extended so that there were two parents—two adults in the household—the lone parent would lose the lone parent element but gain the couple element. As I suggested to the Committee, the variation is so tiny that it would not act as an incentive. If an individual were deciding whether to live with another person, they would not be greatly influenced by the marginal difference between lone and couple elements.

There are lone parent, couple and disability premiums that recognise extra costs. A person could not get them all: they could be a lone parent, or a couple, and have the disability premium, but they could not have lone parent, couple and disability premiums.

I am confident that the balance will not suddenly encourage families all over the country to decide that they should be lone parents, and if they thought about making that choice the position should certainly be explained. People would have to manipulate their households in a spectacular fashion to get more out of the system, and that will be revealed under later clauses on enforcement and the correctness of details and applications.

I hope that that clarifies the matter and that the hon. Gentleman feels slightly more at ease with the proposal. I understand his point: a dramatic change in household structure needs to be notified, because a second income might dramatically affect the household income and trigger a reassessment in the current year. There are several ways through the problem. The household may end up with more because of the way in which the system works, and because of the inter-relation of child credit and working tax credit.

Question put and agreed to.

Clause 11 ordered to stand part of the Bill.

Clause 12 - Child care element

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 33, in page 8, line 26, at end insert—

'(2A) The charges of a prescribed description under subsection (2) may include an amount to take account of the loss of earnings of a person or of the spouse or, in the case of an unmarried couple, of the partner of the person by whom a claim for working tax credit is made who does not take qualifying remunerative work in order to care for a child of a prescribed description for whom the person is responsible.

(2B) The amount of tax credit payable under subsection (2A) shall not exceed the maximum amount payable to a person in qualifying remunerative work'.

Howard Flight (Conservative, Arundel and South Downs)

The amendment is in related territory and proposes that the child care element should involve an allowance to take account of the loss of earnings of a partner or spouse who does not work but who looks after children. Such an element would not exceed the maximum payable to a person in qualifying remuneration.

The amendment tackles the issue that we discussed in the previous amendment and in amendment No. 31. There are circumstances in which one spouse may not be able to work for reasons of travel, choice, qualifications and so forth.

Dawn Primarolo (Labour, Bristol South)

I cannot say why the amendment would not work, only that it would not produce what the hon. Gentleman hoped for. He went straight to the principle that he wanted to explore: whether there should be compensation for a partner who stays at home caring for the children and does not enter the labour market. It used to be called wages for housework; I do not know what it would be called now.

The Government appreciate and understand that some couples take the decision that one of them will forego paid employment to stay at home because they believe that that is best for their children, and we therefore make payment by other methods, in particular child benefit. It would completely undermine our intentions on work incentives to make compensation for those who stay at home. We oppose the transfer of allowances for the same reason. However, it is important to ensure that those couples receive some recognition. That could be done through the adult element and child benefit, which, I remind the hon. Gentleman, the Government have increased

by 26 per cent, as well as other arrangements. The new tax credits build generously on the working families tax credit. The Government are not prepared to concede this principle. I ask my hon. Friends to oppose the amendment, as it is an inappropriate way of recognising the costs on families, and would require expenditure that we are not prepared to commit ourselves to at this stage.

Amendment negatived.

Karen Buck (Labour, Regent's Park and Kensington North)

I beg to move amendment No. 87, in page 8, line 27, after 'provided', insert

'whether in the child's home or elsewhere'.

The argument has been well rehearsed. I raised this issue when we discussed the working families tax credit on Second Reading. It extends entitlement to the child care component of the tax credit to the provision of child care in the person's own home. There are two clusters of beneficiaries. The first are children with special needs and disabilities. I am grateful to Mencap for its briefing on this. It is concerned about children who need specialist care that is not closely accessible, such as in a special nursery that is not nearby, or care that is provided by a specialist carer in the home. Parents of such children are not currently entitled to draw down the child care component of the credit.

Mencap gives a helpful example of

''a working mother, Sue Knight who has a 5-year-old son, with multiple disabilities and is tube fed. In the holidays, he needs someone from a registered agency to come into the house to look after him because he needs higher levels of support than child minders. The Inland Revenue rejected her childcare expenses as part of her Working Families Tax Credit claim. The letter from the Inland Revenue makes it clear that they would pay if her son could leave the house and go to a childminder or a club.''

That was not possible because of his disability and the intense support he required. That case illustrates perfectly the point. I will not add any more.

The second group of potential beneficiaries are those who work antisocial hours. As a parent of a young child I recognise that parents who work from 3 pm to 8 pm are reluctant to move their child from child care in the evening, even assuming that such child care is available. That is a strong disincentive to people taking work.

James Clappison (Conservative, Hertsmere)

I am listening to the hon. Lady with great interest. Obviously she has received briefings from a number of organisations. Can she give us an idea of the number of people who work antisocial hours?

Karen Buck (Labour, Regent's Park and Kensington North)

I cannot give a figure. Among other things, we are talking about a potential group of beneficiaries. We simply do not know who could be drawn into the work force. Representing a constituency in the inner city, I know that the jobs that are increasingly available and that may suit working parents or parents wanting to move into the work place are early evening shifts at supermarkets and shops. The number of potential beneficiaries is substantial. There is a strong argument for the amendment. The issue is about accreditation and paying for child care that is of suitable quality and

consistent with accredited child care through nurseries and child minders.

Dawn Primarolo (Labour, Bristol South)

The regulations need to be determined by the Department of Education and Skills. The Chancellor made it clear in the Budget last year that we wanted to ensure that disabled children could be cared for in their own home, but that the provision would apply to other jobs, too. We are working closely with the Secretary of State for Education and Skills. I hope that my hon. Friend will withdraw her amendment.

Karen Buck (Labour, Regent's Park and Kensington North)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

It being after Five o'clock, The Chairman proceeded, pursuant to Sessional Order D [10 December 2001] and the Order of the Committee [15 January 2002], to put forthwith the Questions necessary to dispose of the business to be concluded at that time.

Question put, That clauses 12 to 22 stand part of the Bill:—

The Committee divided: Ayes 9, Noes 5.