§ 6.1 p.m.
§ Lord WELLS-PESTELL rose to move, That the draft Child Benefit and Social Security (Fixing and Adjustment of Rates) Regulations 1976, laid before the House on 28th June, be approved. The noble Lord said: My Lords, I beg to move that the regulations be approved. The purpose of these regulations is to provide for the rate of child benefit announced by the Government on 25th May and for the consequential adjustments in social security benefits. Last summer we passed the Child Benefit Act creating this new benefit for all children, and these regulations, together with the orders and regulations laid before your Lordships' House at the same time, complete what is needed to start the scheme in April 1977.
§ Before I get on to the detail of the regulations, it may help your Lordships if I give some preliminary explanations. There cannot now be many people who do not know that we have been obliged to bring in the child benefit scheme in a more modest form than we had originally hoped. I will try to explain as clearly as I can what the issues have been and what led us to the decisions we have made. The object of the full child benefit is 72 eventually to replace both the existing schemes of family support—family allowance and child tax allowances. A single universal tax-free benefit will replace the present dual system. It will cover all children, including first children who are excluded from family allowances at present and those in families below the tax threshold who do not benefit from child tax allowances now. It will also transfer family support from the father—who now receives the chief benefit through child tax allowances which are worth more than family allowances—to the mother, who is usually responsible for the day-to-day care of the children.
§ In passing the Child Benefit Act last summer we provided the necessary vehicle for payment of the benefit. The repercussions on tax allowances were however to be made later in a Finance Bill; and of course the rate of benefit could not be fixed until we knew what resources might be available.
§ When the Government came to consider the rate, the public expenditure situation was very grave indeed. Child benefit is a very expensive benefit because it is paid for all children, irrespective of income, and there are nearly 14 million of them. Any improvement, over and above the existing cost of child tax allowances and family allowances, costs £6 million net for every penny of benefit. It was evident that there was not enough money for a rate which would give a good overall improvement for all children; even the extra costs involved in making payments for first children and for families below the tax threshold were considerable. And then came a pay policy based, for the first time ever, on take home pay, which acquired a significance —let us be frank about this— that it has never had before.
§ The fall in take home pay which would have been caused by abolishing even the lowest rate of child tax allowance would, for most family men, have exceeded the net increase permitted under the pay policy, so they would have ended up with less money in the pay packet than they are getting now. If we could have afforded a really good rate of benefit so that we could have pointed to a good gain for the family as a whole, this might have been tolerable. But, as I have explained, this kind of rate was out of the question.73
§ One answer to this dilemma would have been to postpone the whole scheme. But come what may, we thought it wrong to defer the benefit for the first child because it is a reform which has been needed and wanted for many years. So we are introducing the child benefit scheme at a rate of £1 for the first child and £1.50—the same as family allowances now—for the other children. Family allowances will be abolished but child tax allowances will continue as they are. The benefit will be subject to tax and clawback like family allowances. This will mean that while working families below the tax threshold will get the full £1, it will be worth only 30p net to other families. The mother's benefit will go up £1 and the father's take home pay fall by 70p. The child interim benefit, which gave one parent families £1.50 a week from this April, will cease, but a premium of 50p will be paid to them on top of the £1 so that they will not lose.
§ The cost of these proposals is about £95 million net. The effect will be that we shall have made a modest start—we recognise that it is only a modest start— on our child benefit scheme. There will be a payment for the first child, working families under the tax threshold will benefit more than others, and there will be some transfer from husband to wife. And we shall have done this without risking the serious damage to pay policy which, in our view, the full scheme would have involved.
§ But let me make it quite clear that we remain committed to the full scheme. As your Lordships may know, a Working Party has been established by the Labour Party and the Trades Union Congress to consider means of implementing the scheme fully. The Government will play a full role in the Working Party, which we very much hope will come forward with constructive proposals, although it will be for the Government to decide what they will recommend to Parliament on this.
§ I now turn to the regulations themselves. Regulation 1 is formal. Regulation 2 deals with the rate of child benefit and as I have explained that is laid down as £1 for the only, elder or eldest child and £1.50 for others. Your Lordships may wonder why first children could not have the same rate; namely, £1.50, as other 74 children. The answer is quite simply, that it would cost too much. To give all children £1.50 would cost another £100 million, more than doubling the cost of the scheme. Exceptions made in this regulation to the rule that the first child gets £1 and the others £1.50 are one parent families, in which the first child is to get £1.50, children in the care of voluntary organisations and families dealt with under the transitional provisions relating to apprentices.
§ I will come to the first two a little later, but perhaps I should just say a word now about apprentices. Those very few apprentices now included in the family for family allowance purposes— they have to be earning, as your Lordships know, under £2 a week—will not qualify in the ordinary way for child benefit. We debated this at some length in Committee on the Child Benefit Act—it was raised, I believe, by the noble Baroness, Lady Elles—and I think I can claim that your Lordships were satisfied on the point. But we have made provision in the Child Benefit (General) Regulations for child benefit to be continued at the family allowance rate transitionally where there is already a title.
§ So in these cases the child counted as the first for child benefit will already be getting £1.50 and we have excluded them from Regulation 2 so to avoid knocking them down to £1. Apprentices are mentioned again in Regulation 2(4)(b), which excludes these families from the one-parent family premium, again because they are already getting £1.50 for the "first" child.
§ Regulation 2(2) provides for an extra 50p for the only, elder or eldest child in a one-parent family. The purpose of this is to ensure that lone parents will receive the same level of income as they do now by way of child interim benefit. Your Lordships may remember that this benefit was introduced in April under the Child Benefit Act to provide effectively for the first child in one-parent families in advance of the main child benefit scheme. Child interim benefit is at the rate of £1.50 a week, and so the extra 50p is needed to make the £1 child benefit for the first child up to the child interim benefit level. The definition of a one-parent family in paragraph 2(a), (b) and (c) of this regulation—that the claimant must be the child's 75 parent, the child must be living with the parent and the claimant must not be living with his or her spouse or with anyone else as a spouse—is the same as for child interim benefit.
§ Regulation 2(3) deals with children looked after by voluntary organisations. Normally, only an individual can get child benefit, but we made a special exception in Section 24(5) of the Child Benefit Act so that voluntary organisations could draw the benefit for children in their care not paid for by local authorities. The regulations governing this are in paragraph 17 of the Child Benefit (General) Regulations. A child benefit of £1 will be payable for each such child. Regulation 2, paragraphs (4) and (5), and Regulation 3, all deal with the interaction between child benefit and National Insurance benefits. Before looking at these regulations in detail, it may help if I explain the general principle that lies behind them. Additions for children paid to people getting National Insurance benefits have always been fixed on the basis that, taken with family allowances, they provide the total support required for the child. Thus, child dependency benefits for first children are now £1.50 higher than for others because they do not get family allowances; and persons getting certain long-term benefits were excluded from title to child interim benefit.
§ The same principle is carried over into Section 17 of the Child Benefit Act, which enables social security benefits to be reduced to take account of child benefit paid. The general effect of these regulations, therefore, is that people with children on social security benefits will not gain from child benefit because their child dependency benefits will be reduced or, in the case of the one-parent family premium, their child dependency benefit will be reduced or they will be excluded from title to the premium. The State support for these families comes, not from child benefit but from the social security benefits they are getting, which are regularly uprated.
§ In more detail, Regulation 2(4) and (5) deals with the social security beneficiaries who are one-parent families. Regulation 2(4) provides that the 50p increase shall not be payable if the parent is in receipt of certain "specified benefits", 76 and these are listed in Regulation 2(5). This follows the approach adopted for child interim benefit that for long-term benefits, like widowed mother's allowance, it is better not to put the parent to the trouble of claiming a small amount, which would be paid by means of another order book, but which would give her no financial advantage because the child dependency benefit would then be reduced by the same amount.
§ The same approach was not thought to be appropriate for recipients of short-term social security benefits, such as sickness benefit and unemployment benefit, because such lone parents would need to claim the additional payment for periods when they were not receiving the short-term benefit. There would be problems for the parent if order books had to be withdrawn and reissued every time a short-term benefit was in payment, and we thought that it would be sensible to pay the addition and reduce the child dependency benefit by a similar amount.
§ Regulation 3 deals with the adjustment of social security benefits to take account of child benefit itself, as distinct from the premium. It provides that all the listed benefits shall be reduced by £1 for the first child and £1.50 for the others. The reason it is necessary to specify the £1.50 reduction, which is just the same as that already made for family allowances, is that the Child Benefit Act amended the Social Security Act 1975 to provide that from April 1977 the weekly rates of benefit and increases of benefit payable under that Act should be at the higher level; that is, the present child first rates.
§ So from those rates we have to deduct both the £1 for the first child and £1.50 for others. The actual effect will be that the social security benefits for second and subsequent children will be unchanged. For first children they will be £1 lower, that £1 being made up by the child benefit. Regulation 4 is a transitional provision to make sure that a person getting child interim benefit will also get the premium. My Lords, I hope there is no need for me to say anything more, and I beg to move.
§ Moved, That the draft Child Benefit and Social Security (Fixing and Adjustment of Rates) Regulations 1976, laid before the House on 28th June, be approved.—(Lord Wells-Pestell.)77
§ Lord SANDYS
My Lords, the House has listened with bafflement, certainly, but I think at the same time with gratitude to the extent to which the noble Lord has explained some clearly very complicated regulations, which stem, of course, from the Child Benefit Act, which reached the Statute Book on the 7th August last year. I do not think that at that time any of us anticipated the chain of events which has taken place or, of course, the prominence which these regulations have in the public mind. I will not comment upon the fact of the present inquiry being conducted by the police into alleged Cabinet disclosures. The only point I wish to raise for the noble Lord, Lord Wells-Pestell, is the question of a leaflet. I am wondering whether he will be able to confirm that the Department is preparing a leaflet to explain the intentions behind these regulations which will be necessary for the Department to have in hand by 4th April next year.
§ Lord BANKS
My Lords, I, too, should like to thank the noble Lord for the clarity with which he has explained these somewhat complicated regulations. As he pointed out, the Child Benefit Scheme was intended to replace family taxable allowance and child income tax allowances by a tax-free cash payment to the mother, in this way helping some quarter of a million families earning below the tax threshold who do not benefit from income tax allowances. That principle was clearly agreed with the TUC. Unfortunately, these regulations, as the noble Lord said, do not provide for the full scheme to be introduced next April as planned; and income tax allowances will continue. The only really significant change brought about by these regulations is the introduction of a child benefit of £1 for the first child subject to income tax and claw-back; and the allowances at present paid of £1.50 will continue to be paid for the second and subsequent children.
I welcome the fact that a benefit is at last going to be paid for the fist child. The first Parliamentary Election which 1 ever fought was in 1950 and the Liberal candidates' handbook which I used at that Election, and which I have with me tonight, includes the sentence:We will extend family allowances to include the first child78 For the 26 years that have elapsed since then. I have been pressing for that to happen; and I am happy to think that it will happen as a result of these regulations. I regret the fact, although I take note about the cost, that the allowance for the first child is to be smaller than that for the second and subsequent children. The first child is the most costly in most cases and other social secutiry benefits acknowledge that fact. I would make one further brief reference to the Liberal candidates' handbook of 1950. It also included the words:Instead of children's allowances paid partly by income tax and partly by family allowances, the Liberal Party proposes straight, positive payments, all benefits to be paid in cash …which is a neat description of the child Benefit Scheme and was written 26 years ago. But we must wait longer before we see that coming into practice. The Child Benefit Act provides for it, but these regulations do not.
From what the noble Lord has said and from what was said in another place, it seems that the position is that the increase in children's tax allowance in the recent Budget has increased the reduction in take-home pay for the wage earner which will be caused by the withdrawal of these allowances; so that even after the 4½ per cent, increase permitted by the pay policy, there will still be a net decrease in take-home pay. The Government argue, and the noble Lord argues, that even though the net decrease would be more than made up by the increase in the payment to the mother, the reduction in take-home pay will be unacceptable and will undermine the pay policy. I believe that if the switch in payments to the mother was carefully explained, this would not be true. If average earners understood that this switch, leaving their families no worse off, would greatly assist the poorest and help to lift them out of the poverty trap, I believe they would accept it.
By introducing the benefit for the first child before the switch instead of simultaneously with the switch, the Government have made the eventual operation of the switch more difficult. The Government insist that there must be a net gain in take-home pay and that the cost of providing this would be prohibitive in view of the need to control public expenditure. But if we accept that a net gain is not necessary, for the reasons I have 79 suggested, the figures are not so astronomical. We must bear in mind that raising the child income tax allowances in the Budget cost £300 million. Tax reliefs are not regarded as public expenditure, so that did not have to be approved by the Cabinet, according to the right honourable lady, Mrs. Castle, the former Secretary of State, speaking in another place. When we compare that figure of £300 million which the Government were able to find a few months ago with the Government's estimated cost for a break-even scheme of £220 million or the alternative cost put forward by Mrs. Castle of £110 million, and the £95 million which is to be spent in any case on the limited plan that the Government are putting forward, it is seen that the sums involved are not so great.
In conclusion, may I say that we welcome the payment at last of a benefit for the first child. We think that the benefit should be as high as the benefit for the second and subsequent children. We very much regret that this benefit for the first child is not being introduced at a higher figure at the same time as the withdrawal of income tax allowances and the implementation of the full scheme. We regret that the full scheme has been indefinitely postponed for reasons which seem to us inadequate. Finally, we regard the full scheme as the first step on the road to a wider tax credit scheme embracing other benefits and allowances as well. For that reason, we doubly regret its postponement.
§ 6.29 p.m.
§ Baroness PHILLIPS
My Lords, I am general secretary of a woman's organisation, non-political, non-sectarian, not given to sending angry letters; but occasionally certain issues disturb them, and I am sorry to tell my noble friend that this is one such issue. When the orginal Child Benefit Act was introduced last year there was great rejoicing. It certainly seemed that here was a scheme which was not going to be taxed but was going to be paid to the mother and was a straightforward benefit to all women. But it was not to be. My noble friend explained this evening some of the reasons why the Government had to change their mind. I must say that I found it strange when he said that it was discovered that there was not enough money—I think I heard 80 him aright. I find it strange that any Government or any bureaucracy could introduce a measure without having discovered that they had enough money to put it into operation. I appreciate that the pay policy came after this. Whichever way the Government try to present this, I am afraid that the women are going to see it as the fact that the men will get the benefit of the money and the women will not necessarily do so. This may not be the case in every household and I think a very unfortunate choice has been made.
It is a very complicated order and my noble friend explained it with clarity, as always; but it seemed to me that the subsequent clauses about people in receipt of any kind of benefit add up to the good rule that we all come to learn: the State will never give you too much. If it gives it to you on the one hand, it will make certain, by an elaborate and expensive operation, that it takes it back on the other. I am delighted to note that the first child has been included. I hope that the postponement of some of the other sections of this very imaginative Act are only of a temporary nature, and that money which can be utilised in this sphere could possibly be saved from another source which perhaps we might be discussing on another occasion. Money which is spent for the children must always be spent in the right way.
§ Baroness SEEAR
My Lords, I do not wish to delay the House, but I must say how deeply I regret the fact that this payment is not going to be made to the wives. Together with my noble friend Lord Banks, I strongly believe that if the payment had been made as planned and there had been a reduction in the pay packets (a small reduction after the 4½ per cent, because of the advantage which was planned to go to their wives), it would have been accepted by the great majority of men once the issue had been made plain. Of course, in a great many cases husbands and wives work together on these matters and it makes very little difference. We know that there are a large number of cases—how many it is impossible to say—where a substantial family allowance paid to the mother is going to make a great difference to the kind of support that is given to the children. This is supposed to be a child 81 benefit regulation; the idea is to benefit the children. In the bad cases, that benefit will be effective only if the fullest possible payment is made to the mother.
§ 6.32 p.m.
§ Lord WELLS-PESTELL
My Lords, I am grateful to the Members of your Lordships' House who have taken part in what is a short debate. A number of things have been said which are valuable, very clear and to the point. I personally share the views that have been expressed. The Government are disappointed that for a whole variety of reasons—some acceptable and some not acceptable—it has not been found possible to bring in the scheme that we originally visualised.
If I may try to deal with some of the matters that have been raised, the noble Lord, Lord Sandys, asked whether a leaflet would be available. I fact, I can promise him that a series of leaflets will be available soon. There will be a full publicity campaign to explain the scheme. I am glad that we provided the noble Lord, Lord Banks, with an opportunity of putting in a "plug" for the Liberal Party. We do not deny for one moment what he said. Some of us in the Labour Party have felt that many years ago the mantle of Liberalism, and what it stood for, fell on our shoulders.
§ Lord WELLS-PESTELL
My Lords, there are times in life, as the noble Baroness must know, when we have to buy a suit off the peg because we cannot afford to have it made to measure. I have recently been in that position.
I would not quarrel with anything that the noble Lord, Lord Banks, said. He pointed out in very simple language—as one would have expected him to have done—the real problem which faces the Government, even if he feels that the matter could have been dealt with in some other way. I understood him to make the point that it was not only a serious inroad into the 4½ per cent. which had been agreed with the TUC, but that it would have meant some workers losing more than that. Let us be frank about it; with the state of our finances, with the agreement we have with the TUC, this is not the right 82 moment to do anything which might make an inroad or dent into the agreement or undermine it in any way.
The only comment I would make is that what we are doing is a step in the right direction. We are making a reduction —albeit a small one—in take-home pay of 70p and giving £1 to the mother. It will cost £95 million. It at least means that it is £95 million which will not have to be found when we come to implement the scheme in full. In a sense, I have answered my noble friend Lady Phillips because she made much the same point that had been made by others. My noble friend said that she hoped it would be a temporary postponement. We do, too. That is why the Labour Party are meeting the Trades Union Congress, with a view to seeing whether this matter can be expedited in some way. I think I have answered the point raised by the noble Baroness, Lady Seear. I read her letter in The Times. I do not think that there is anything I want to add, other than that if we want to be fair I do not think that this is the right moment, having regard to what we are facing, to introduce a scheme which has such wide implications. Having said that, I hope your Lordships will approve of the regulations before you.