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Tax Credits

Volume 691: debated on Monday 23 April 2007

asked Her Majesty’s Government:

What proportion of (a) eligible working families, (b) single parents and (c) old age pensioners claim tax credits.

My Lords, latest estimates show that, in 2004-05, 90 per cent of eligible low-income working families with children and 93 per cent of eligible working single parents took up the child and working tax credits. Estimates of tax credit take-up rates for those above state pension age are not available.

My Lords, I thank the Minister for that reply. First, would it be difficult to obtain the latter figures on pensions, which are very important? Secondly, are there substantial differences, not only between but within regions? My understanding is that in some cities fewer than half of those entitled to tax credits are claiming.

My Lords, we could not possibly have the figures for cities, given the low return rates, as the noble Baroness has indicated. I have no briefing on city break-downs. I should emphasise that we do not have figures on pensioners because a very small number of them are entitled to claim tax credits—not pension credits but tax credits. That is why we do not have figures with which to draw comparisons.

My Lords, why does one-third of the money spent on tax credits—one-third of £16 billion—go to the richest half of society, and is paid to those with incomes of up to £61,500? Why does the system appear to pay more to couples who split up than to couples with children who remain together?

My Lords, on the latter point, there might be difficulties catching up with the new arrangements when couples have recently split up. There is no difficulty over permanent relationships; but overpayments can occur during the year following a split-up. On the more general point, I would have thought that the situation was clear. The concept behind tax credits is to give benefit across the board. It helps in our strategy of relieving child poverty, it helps the low-paid among whom the take-up rate is high, and those who pay higher tax and who qualify get higher returns; that is the logic of the situation.

My Lords, I do not have the precise figures but the answer is too many. We were, and are, concerned about the administration of the scheme, which certainly led to far too many overpayments being made. There will always be a difficulty because people’s tax position and liabilities can change significantly during the year, the most dramatic change being when families split up. It is obligatory for citizens to respond when their circumstances change but they do not always do so with alacrity. That is why overpayment occurs, why we are concerned about the level of overpayment and why we introduced procedures to reduce it.

My Lords, perhaps I may help the Minister. In 2004-05, £1.8 billion was overpaid in tax credits. It was then clawed back the following year, often causing great difficulty to the recipient. By now, the noble Lord should have the figures for 2005-06. What are they? Furthermore, the pensions Minister in another place has claimed that the Pensions Bill will prevent the number of pensioners being means-tested reaching 80 per cent by 2050. How many pensioners will be means-tested if the Pensions Bill, which is currently in this House, goes through as expected?

My Lords, the noble Lord anticipated that I would have the 2005-06 figures but I am sorry to say that I do not; they are not ready. I regret that but it is a fact and I am not armed with the figures. On the more general issue, the noble Lord will recognise that in all these areas the Government have set objectives for high targets to be reached by their legislation, although that does not mean that we are fully on course to meet them in every case. However, I hope that the other side will recognise the significant improvement that we have made in reducing child poverty, whereas under the previous Administration child poverty was doubling.

My Lords, if no one else is going to put in a word in favour of tax credits, perhaps I may do so. Is it not the case that tax credits have enabled large numbers of people to work at levels of pay that employers can afford and enjoy a relatively decent standard of living?

My Lords, as my noble friend indicated, the whole point about tax credits is that they are meant to reduce the disincentive to work, which obtained significantly before they were introduced, and they guarantee a proper income for people in work.

My Lords, I do not think that I heard the Minister answer the question put by the noble Lord, Lord Skelmersdale, and perhaps I may add to it. What proportion of pensioners are now subject to mean-testing and what proportion will be subject in 30 or 40 years’ time, or whatever figure he may like to take, under Mr Brown’s new policies?

My Lords, the noble Lord should recognise that this is a question about tax credits and not about welfare benefits relating to pensions. Therefore, it is not surprising that I am not in a position to hazard a guess about the situation in 2050 in the way that he asked. As I have clearly indicated, the Government’s intention is to reduce poverty among older people and children, where the greatest incidence of poverty occurs, and we are making powerful strides in that direction.

My Lords, given that the noble Baroness, Lady Williams of Crosby, is concerned that certain areas may be suffering from a postcode lottery, will the Minister consider encouraging CABs and other such organisations to offer people help in filling in what are often difficult tax forms?

My Lords, we certainly want to ensure that the system is uniform across the country, and the information given by and understanding of the taxpayer are crucial in arriving at a correct assessment.