(" . Under any schemes for working families' tax credit prescribed under functions transferred under section 2(1)(a), families headed by a couple shall receive a basic tax credit, to take into account the second adult, between 55 per cent and 60 per cent greater than that received by families headed by a lone parent.")
§ The noble Lord said: My Lords, during the debate on the broadly similar new clause at Report stage, the noble Baroness rebuked me for misunderstanding the rules which the Government are proposing to introduce for the basic tax credit in the disabled person's tax credit. I fear that I have to plead guilty. But I plead in mitigation that I was basing what I said about the basic tax credit for the DPTC on the booklet describing the two credits issued by the Inland Revenue last December. Otherwise, it was an excellent booklet. But the noble Baroness may wish to ensure that the Inland Revenue now understands, as I do, that under the Government's disabled person's tax credit proposals as they stand, for DPTC a lone parent will receive the same basic credit as a couple and will not be treated as a single person. I suspect that what I have to say now on this new clause will in fact apply to DPTC in the same way as to the working families' tax credit. But in order not to risk further confusion I have confined the clause to the working families' tax credit.
§ The substance of the matter, which was originally raised by Professor Steven Webb on the Third Reading of the Bill in another place and which I and other noble Lords have since raised on Second Reading, in Committee and on Report without obtaining a reply, is this. In determining the amount of the basic tax credit to which a couple are entitled. the first step will be to add together the incomes of both partners and also their savings. In other words. at this stage the tax affairs of both partners are taken into account.
§ The noble Baroness stressed throughout our debates on this Bill that, by contrast with family credit, the WFTC is to be part of the tax system. Presumably therefore we should expect the normal tax rules to apply. However, quite clearly this treatment is in breach of the principle of independent taxation. The partners will not have privacy in their tax affairs and the tax liability of the partner drawing the credit will be affected by changes in the income of the other. No explanation of this breach of the principle of independent taxation has yet been forthcoming.
§ But at this point in the calculation of the credit due, having disadvantaged the couple by aggregating their incomes and savings, the Government are proposing to disadvantage them again by ignoring the second adult and giving a couple the same basic tax credit as a lone parent, despite the fact that the second adult has to eat, be clothed and incur the other necessary expenses of life. Yet income support, the jobseeker's allowance and housing and council tax benefit all recognise those needs by giving a couple a higher benefit than a lone parent. It is true that family credit is the exception. But if the introduction of the WFTC is to be, as the Government maintain, a major part of their welfare-to-work programme, it should not be necessary to follow the family credit in every respect, especially where it is the odd one out.
§ The Government made much of the fairness of their tax proposals, including the WFTC. But I question what is fair in this double disadvantage inflicted on couples. A major aim of WFTC is to encourage people out of welfare into work. But clearly, if there is an additional benefit for couples in income support and jobseeker's 1362 allowance but not in the WFTC, the incentive for couples to get paid work will be less than that for lone parents. Another aim of the WFTC is to get children out of poverty, as the noble Baroness said. But clearly, if perhaps surprisingly, at any given level of income the children in a family headed by a couple will he more likely to be kept in poverty than the children in a family headed by a lone parent.
§ In Committee the noble Baroness said that my new clause would cost £1.25 billion. With respect, that is not so; it need not cost a penny. It is asking that the credits should be fairly awarded. It says nothing about the level of the credits. But if what the noble Baroness is assuming in making that estimate is that it would cost £1.25 billion to increase the basic tax credit for couples in addition to the credits which the Government are otherwise proposing, then she is saying that under the Government's proposals each of the couples within the WFTC will be unfairly treated to the extent of £35 a week; that couples will receive £35 a week less incentive to get off benefits and into work; and that the children in a family headed by a couple will be in poverty to the extent of £35 a week more than other children.
§ Particularly given that in their consultative document, Supporting Families, the Government showed themselves to be fully aware of the advantages to children of being brought up in a family headed by a couple, I find this proposed discrimination against families headed by couples astonishing. What is less astonishing perhaps is that I and others have raised this point so many times previously without receiving a reply. I beg to move.
§ Lord Higgins
My Lords, perhaps I might intervene for a moment. My noble friend, who is very expert in these matters, made a number of important points. Will the Minister particularly clarify the point he made with regard to the question of independent taxation and the treatment of savings?
§ 7 p.m.
§ Baroness Hollis of Heigham
My Lords, a version of this amendment was raised by the noble Lord in Committee, on Report and again today. He made the point that WFTC, like family credit before it, has but a single rate of support for the family, which may have one or alternatively two adults within it. The noble Lord points out, though this amendment is confined to working families tax credit, that DPTC' has two rates: one for families regardless of whether they are headed by one or two adults, and a lower rate where it is a single person without responsibility for children but for which he or she qualifies by virtue of their disability.
The noble Lord, Lord Swinfen, first prayed in aid the structure of income-related benefits such as income support and JSA, which have separate rates for single, people, lone parents and couples. He says therefore that the structure of tax credits is illogical, even though the basic structure follows that used by the benefits that they replace, and he suggested on Report that there were two ways of dealing with this: one was to stop basing the help on family income and base it on the family's 1363 individual circumstances; alternatively, to give couples an additional credit to acknowledge that there is another mouth to feed, which is the approach taken by the noble Lord's amendment.
Several issues have become entangled in this argument and I should like to unravel them. First, the noble Lord is saying that it is unreasonable that there should be only one rate for WFTC, whereas essentially there are two rates for DPTC, like the DWA before it. I tried to say in a previous debate why that should be the case. There is no inconsistency. WFTC will not, does not and cannot go to a single person. DPTC can because to qualify for DPTC the first requirement is the disability. There is then an additional set of premia if, as a disabled person, you are also a partner in a family, which is the point at which it is analogous to a working families' tax credit. Following the noble Lord's logic, the DPTC would not be available to single people who are disabled but only to families. I am sure that, as somebody who has ardently espoused the cause of disabled people, that is not a line he would wish to pursue.
His second point is that the new tax credit does not follow the general structure of income related benefits. Precisely. We are making a clean break with income-related benefits. He points out that it is benefits such as income support and JSA that have more than just a single rate in WFTC. There is a group of rates for single people, another for lone parents and another for couples. I should point out that income support has 16 basic rates and JSA has 17 basic rates. Those credits and personal allowances are added to premia for families and the like.
That shows that the structure of tax credits is not the same because it was not intended to be the same as the structure of the basic income related benefits such as income support and JSA. It is simply not good enough to say that because you have these different premia for income-related benefits you should transfer them to a tax credit, when the only thing the Government have been trying to say is that the tax credit is not an income-related benefit.
The one exception made by the noble Lord concerned family credits, but he said in a throwaway remark "that's the odd one out". Of course. Family credit is not a straight income-related means-tested safety net benefit for out-of-work people. It is a means of support for people who are in work but on low incomes, with families to support. That is the one that has only the basic rate, and that is the benefit on which WFTC builds and which it will, of course, replace. So far from this being the odd one out, family credit, for the purposes of this Bill, is the basic benefit which is being superseded by WFTC. It is built on the same assumptions that we are dealing with a family and with individuals and you add up all the premia, as in the past with other income-related benefits. I hope I have addressed that particular argument.
The noble Lord's third point is that we need to consider how many adults there are in the family and should seek to base the benefit, as the family credit, on that, but with the tax credit we should simply act as 1364 though it were a benefit. We want to do something different with this measure. This is an incentive to work. This is a tax credit to make the wage at the point of entry worth having by virtue of the fact that the entry wage, with the benefit of the tax credit, will now make it worthwhile working.
The question is then: will the incentive be effective? Time will tell, but we know quite a bit about our target groups. We know, for instance, that 36 per cent of lone parents but only 14 per cent of couples claiming family credit work less than 20 hours a week. The vast majority of these lone parents are women and we know that the part-time pay of women is only 59 per cent of male full-time wages. Lone parents therefore are a particular target group for this Bill. The structure of the credits provides them with appropriate incentives.
The noble Lord said that this could be cost neutral, but it could be cost neutral only if you either depress the value of the credit or in some way introduce swings and roundabouts between the two groups. That means that one group gains or the other group loses. If you were to make it cost neutral by taking money away from lone parents to give to couples, that ignores all the arguments I have tried to advance, such as the fact that lone parents work fewer hours and are in longer-term poverty, compared to couples. They are the ones who would lose. That, of course, is not intended, but if the noble Lord wants to improve the situation of couples without damaging the situation of lone parents, then I am afraid he will be faced with a bill of £1.25 million of public expenditure, which we think could be better used.
As currently structured, tax credits already make couples much better off than they would be on benefit and they provide the incentive that we want. We do not think that extra money would make that much difference, in terms of incentive; nor do we accept the noble Lord's notion of fairness, because we think that long-term persistent poverty is a problem, particularly for lone parents. They are the ones who remain either on family credit, as in the past, or would probably be on working families' tax credit for longer than couples. Their poverty is persistent and their children's poverty is persistent. We want to help them out of that.
I have tried to explain that there needs to be a difference between WFTC and DPTC and, secondly, we should not draw a parallel between the structure of tax credits and the traditional income-related benefits, like income support and JSA. We are making a break with those and instead we are building on family credit, which the noble Lord recognises as the odd one out. Thirdly, far from accepting the noble Lord's argument about unfairness to couples, we want lone parents who are the poorest of the poor to be a target group for help in this Bill. I do not think it is appropriate that we should be asking for additional expenditure of the type that would be required to raise the tax credits by individualising them according to the situation of those lone parents by having one for him and one for her, representing additional public expenditure of £1.25 million.
1365 Finally, before I sit down I shall return to the point made by the noble Lord. Lord Swinfen, and reaffirmed by the noble Lord, Lord Higgins. There is no question of there being any breach of independent taxation, as the Chancellor has made clear on a number of occasions. WFTC, like family credits, is intended to give targeted support to families in work. It must therefore be based on household circumstances, but the Chancellor gave the assurance in his recent speech to the IMF that the principle of independent taxation will continue to be honoured. Perhaps I might just quote this extract from the Chancellor's speech:In all our reforms we will honour the important principles of independent taxation; but we will never allow the wife or partner to he regarded as the chattel, as was the case until the late 1980s. Everyone should he treated equally in the tax system and everybody should have the right to their own personal allowance, whatever the household status.Having given that assurance and tried to address the concerns of the noble Lord, I hope that he will see fit to withdraw his amendment.
§ Lord Swinfen
My Lords, the purpose of the amendment was to seek clarification, and after the noble Baroness's long exposition I probably have that. It is with pleasure that I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 5 [General functions of Board]:
§ [Amendment No. 9 not moved.]
§ Clause 14 [Persons qualifying for disabled person's tax credit]:
§ Lord Higgins moved Amendment No. 10:
§ Page 8, line 29. leave Out from ("certifies") to end of line 31
The noble Lord said: My Lords, this is probably the most simple amendment we have had in the course of our long debates on this Bill. It refers to Clause 14, which affects persons qualifying for disabled person's tax credit. The purpose of the clause, in some respects, is to be welcomed. I was simply puzzled as to why it is that in Clause 14(4)(2C)(b), when the disabled person's tax credit is going to run for a considerable number of days or, as I understand it, indefinitely, one of the conditions should be that a medical practitioner, within the meaning of the Administration Act. certifies certain conditions not more than 14 days before the date when the claim for the disabled person's tax credit is made. The amendment simply knocks out the expression
not more than 14 days before the date when the claim for disabled person's tax credit is made.
§ I just do not understand why, if the benefit is going to run for a considerable time, or perhaps indefinitely, this restriction needs to be imposed, given that the person is disabled. The claimant may be away, for whatever reason. I do not understand why it is necessary to say that this particular certificate must be produced not more than 14 days before the date when the claim is to be made
§ Baroness Hollis of Heigham
My Lords, the effect of this amendment will be to remove the requirement for people applying for the DPTC by the fast-track 1366 gateway to provide a recent certificate from a medical practitioner. As the noble Lord, Lord Higgins, will know, the fast-track gateway will bring far more generous help than hitherto to those people who have become ill or disabled while working, and the proposal is obviously an intervention while they are still on statutory sick pay. That has been warmly welcomed because it means that a person does not have to drop out of work in order to be able to re-enter it. I believe that it will make a big difference to disabled people as regards their being able to return to their previous employer with the help of DPTC, knowing that that will pick up some of the strain of possibly reduced earnings as a result of a disability.
However, we require the medical certificate to be no more than two weeks away. I believe that to be the concern behind Amendment No. 10. The certificate requires the medical practitioner to take a forward look at the applicant's condition and certify that it will last for six months—that is to say, for broadly the whole of the DPTC award period. So there needs to be a time limit; otherwise the certificate could be almost out of date by the time the applicants submit an application; for example, it could be submitted five months before, with the award running for only six months.
Clause 14 sets that time limit at 14 days. We believe that to be reasonable because it will ensure that at the time of the application for DPTC—say, week 20 or 26, or whatever, of statutory sick pay—a doctor has recently taken the view that the applicant's illness or disability is likely to last at least as long as the initial DPTC award. GPs will be able to complete the certificate for DPTC without reassessing the question of capacity for work. Therefore, we are minimising the extra work for GPs and, indeed, for the applicants because they will not have to make a separate appointment to see their medical practitioner in order to obtain this medical certificate.
Judging from what the noble Lord said, it seems to me that there may be some confusion about the timetable for a person applying for DPTC. The intention is that obtaining the certificate from the doctor stating that the disability will last for at least six months will be the last thing that a person does before returning to work. The doctor's certificate will come at the end of the process of negotiating a return to work with a former employer. The person will not obtain the medical certificate and then go and negotiate with his employer.
Perhaps I may give your Lordships an example of, say, a bus driver. He suffers an injury, perhaps a whiplash injury or something like that, which leaves him on statutory sick pay for many weeks. After around 13 weeks on SSP, we envisage that he could discuss with his employer the possibility of returning to work at a later date, albeit to a different job or even to the same job with shorter working hours. That would start negotiations between the employee and the employer to explore such possibilities. The employer will have a chance in this time to ascertain what obligations he has under the Disability Discrimination Act to make physical adjustments to the workplace in order to re-employ that person.
1367 Those negotiations between the employee and the employer could lead to a job offer or a change of job by, say, the sixteenth week of SSP. At that stage, agreement ought to be possible as to a date upon which the employee can return to work. The employee would then go to his doctor and get the six-month "forward look" certificate, by which stage he would virtually be ready to return to work. Certainly all the discussions with the employer would have been held and precise times of the new employment settled. After the 20th week of SSP and once the person is back at work, he would then apply for DPTC via the fast-track gateway. Given that all the return arrangements would have been made before the doctor signed the six-month forward look certificate, we think that 14 days is a reasonable time within which the DPTC arrangements must be finalised. In particular, the certificate must be a recent one.
There needs to be a close relationship between the doctor's statement and the forward look, which is what that doctor's statement would do. That will be taken just before the person returns to work. Otherwise, it could be a forward look taken three months before he goes back to work, whereupon it would be invalid. That is the reason for the 14-day period, which we believe to be reasonable.
I do not know whether the noble Lord has any further problems in that respect, but more time than that would simply eat into the six-month forward look period and may well be to the disadvantage of the person concerned. In the light of that explanation, I hope that the noble Lord will feel able to withdraw his amendment. I appreciate that it is probably a probing amendment and that is why I have taken time to explain how the procedure should work.
§ Lord Higgins
My Lords, I am grateful to the Minister for that reply. If the certificate is a long one well in advance of the date of claim, I realise that it will obviously extend the length of a period. It still seems to me that two weeks is very tight, although in that sense it will make the certificate recent. However, in the light of what the Minister spelt out in her response, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Schedule 2 [Transfer of functions]:
§ Baroness Hollis of Heigham moved Amendments Nos. 11 and 12:
§ Page 16, line 7, at end insert (", except Part XIII (advisory bodies and consultation)")
§ Page 16, line 10, at end insert (", except Part XII (advisory bodies and the duty to consult)")
§ On Question. amendments agreed to.
§ Moved, that the Bill do now pass.—(Baroness Hollis of Heigham.)
§ On Question. Bill passed, and returned to the Commons with amendments.