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Volume 700: debated on Tuesday 25 March 2008

asked Her Majesty's Government:

What plans they have to reduce work disincentives arising from the interaction of the tax, tax credit and benefit rules. [HL2460]

The Government support people without children who are on low incomes and working full time primarily through the working tax credit (WTC). Together with the national minimum wage, tax credits have enabled the Government to guarantee minimum levels of income and tax credits entitlement for full-time workers.

The Government also provide the in-work credit to eligible lone parents, and couple parents in London, who have been on benefits for at least a year, during their first year in work. This further improves incentives to work.

From October 2008, a pilot will test a new better-off-in-work credit, which will seek to ensure that long-term benefits recipients who enter work will have an in work income of at least £25 more than they receive from out-of-work benefits.

To further improve work incentives, the Government announced at Budget 2008 that child benefit would be disregarded in calculating income for housing and council tax benefit from October 2009.

The Government keep the tax and benefit system under review with a view to ensuring that workers who see an increase in their gross income also see an increase in their net income, to maintain incentives to work. Since 1997, the Government have reduced by 540,000 the number of households facing marginal deduction rates of over 70 per cent, so more households can keep more of their income as they progress in work.