That the Grand Committee do report to the House that it has considered the Child Benefit (Rates) (Amendment) Regulations 2008.

Relevant document: First report from the Joint Committee on Statutory Instruments.

Child benefit, together with tax credits, delivers financial support to the families of children in the UK, and both are vital in our commitment to tackle child poverty. I am pleased to introduce these regulations, which increase the rates of child benefit. In my view, the regulations are compatible with the European Convention on Human Rights.

Child benefit is payable to over 7 million families for around 13 million children and young people, providing almost all families in the UK with a worthwhile contribution towards the cost of bringing up their children. The Government are providing further support to those families in these difficult times. We have brought forward our commitment to increase child benefit to £20 for the first child and to £13.20 for subsequent children to come into effect in January 2009 rather than in April. As a result of these changes, a family with two children will gain £24 from bringing forward the increase to child benefit. For the first child this is an increase above inflation and the Government continue to meet their commitment to increasing child benefit in line with prices. As a result of these increases, the rate payable for the oldest qualifying child remains over 25 per cent greater in real terms than the rate payable in 1997. A family with two children now receives more than £33 a week.

In addition, although not part of these regulations, the Government are bringing forward their commitment to increase the child element of child tax credit by £25 above indexation in April 2010 to April 2009. Added to the existing commitment to uprate CTC this means that the child element will therefore increase by £75 above indexation. Next year, a family with two children with a single earner working full time on the minimum wage will receive around £10 extra in tax credits per week.

We remain committed to the Government's long-term aim of eliminating child poverty within a generation and halving it by 2010; child benefit and tax credits will remain a key part of this. I commend the regulations to the Committee.

I thank the Minister for introducing these draft regulations, but the fact that he has done so in relatively brief terms will not necessarily influence the amount of attention that I shall give them. Fundamentally, the regulations are not controversial in that they set out the expected uprating for child benefit and lay the ground for bringing forward the date on which it is paid from April to January, but that needs to be passed in another order rather than the regulations before us.

These regulations are part of the Government’s famed fiscal loosening. According to the Pre-Budget Report, it will cost the government finances £170 million, so taken on their own they will not do much in the context of our economy, which has of course suffered from 10 years during which the Government have wilfully racked up one of the largest structural deficits in the world. That structural deficit is a severe constraint on the Government’s ability to use fiscal measures to stimulate our economy, as many such as the OECD and the IMF have correctly pointed out. We believe that the policies outlined in the PBR are fundamentally flawed since they will saddle future generations with a level of unaffordable debt. If the Government’s growth forecasts prove to be optimistic, as many observers believe, the outlook for the country’s finances is even more dire.

Against that background, we will not oppose this little bit of fiscal loosening on the simple grounds that we would choose to run the economy in a different way. However, we would like to understand why the Government have chosen child benefit as one of the few measures in the PBR. I assume that they have done so on the careful basis of its impact on the economy. Indeed, that was what the Chancellor was trying to convince us about in the PBR. However, we find the use of child benefit, a universal benefit that is not taxable, a curious choice, and I hope that the Minister will explain the rationale. In that context, will he tell us what estimates the Treasury has made of the amount of the additional child benefit that will be spent, saved, or used to reduce debt? Since the benefit is payable to families whatever their income, the impact is likely to be less direct than, say, if child tax credits were used. I believe that the PBR is broadly predicated on a spend half/save half assumption. Can the Minister shed light on the assumptions in relation to child benefit?

The Minister raised the subject of child poverty, and that is what I now turn to since child benefit is one of the tools the Government claim they are using to reduce child poverty. It is not a particularly targeted tool in that regard, but the Government claim it as one that they wish to use. In the Pre-Budget Report speech, the Chancellor referred to child benefit immediately after making the usual commitment to eradicating child poverty by 2020, and of course through the forthcoming Bill, on which we look forward to working. However, we have yet to be convinced that there is any substance behind the Government’s commitment and whether a Bill can help that, but my noble friend Lord Skelmersdale is looking forward to working on the detail.

The Government like to brag about their record since 1997 on reducing child poverty, but the statistics simply do not add up. The number of children living in families on less than 40 per cent of median earnings, which is an absolute poverty measure, has risen in the past decade by 600,000. In 1997, there were an estimated 3.4 million children in relative poverty on the Government’s favourite measure. By the end of 2006-07, the latest period for which we have statistics, there were 2.9 million. However, the Government pledged to reduce that figure by 25 per cent by 2004-05, which is nearly four years ago, to 2.55 million, so they have missed that in spades and are still missing it. In the two years to 2006-07, child poverty increased by 200,000.

The Minister has already referred to the Government’s next target, which is to reduce child poverty by 50 per cent by 2010, and that requires a further 1.2 million children to be removed from relative poverty. However, will the Minister say whether the Government have any chance of meeting that target on current policies, because 2010 is getting awfully close? The ultimate target is eradication by 2020, as the Minister reminded us, although the Government have never said exactly what they mean by “eradication”, and they have certainly not said how they will get there. If the Minister has any more information on that, that will be valuable.

The PBR claims that measures since the 2007 Budget will lift 500,000 children out of relative poverty, which of course is nothing like enough to meet the 2010 target. However, the PBR does not differentiate between the different measures that contribute to this figure of 500,000. We have had the 2007 Budget, the 2008 Budget, the 10p rate climbdown in April 2008 and now the latest Pre-Budget Report. Paragraph 4.18 of the most recent Budget made exactly the same claim as is in this PBR—that 500,000 children will have been lifted out of poverty since the 2007 Budget. This implies that the PBR itself, including the measure before us today, will have no impact on child poverty, because exactly the same claim was made in the Budget last March. Alternatively, it may mean that since the last Budget the direction of child poverty has gone backwards again and that this Pre-Budget Report is required to correct that movement. I hope that the Minister will cast some light on what is happening in child poverty. It is important to understand not only what the Government are doing today but whether they have any hope whatever of meeting the targets for the future.

We on these Benches welcome this measure as far as it goes. I do not propose to make a slashing attack on government economic policy over the past 11 years, as the noble Baroness, Lady Noakes, has just made the case most powerfully. The audience consists of seven noble Lords, most of us pressed men and women. I see the noble Baroness the Conservative Chief Whip but, apart from her, we all have to be here and I am not sure that that will really be very productive. However, we believe that this provision is a way of getting money to people who are likely to spend it.

On the general economic argument, we do not believe that the 2.5 per cent VAT cut will be in any way effective. Indeed, I bought a set of Leeds Monopoly last week. It cost £25 in WH Smith and £20 in Zavvi. I bought it in Zavvi, which charged me £19.46. It had not even bothered to show the new price with the VAT cut, so I think that shows us how ineffective the cut has been.

This is a clear and simple benefit. Although it is not means-tested—I shall be interested to know whether the Minister has any figures on this—it tends to get spent on children by the parent, usually the mother. To that extent, we think that it is a sensible way of putting some spending power into the economy at this desperate time.

The Conservatives are against fiscal loosening in principle and therefore we are not sure why the noble Baroness, Lady Noakes, does not oppose these regulations, even though they involve only a little bit of fiscal loosening. However, we support them. I shall leave it there and look forward to the Minister’s reply.

I thank both noble Lords who have participated in our discussions to date. Each in their own way has welcomed the regulations, the noble Baroness, Lady Noakes, perhaps in a slightly unseasonal manner, although she acknowledged that they were uncontroversial. The £170-million cost is correct and is reflected in the PBR. The noble Baroness referred to the level of debt. We could debate it endlessly but I do not accept her assertions on our relative position. She certainly poured some doubt on the Government’s growth forecast. As we have debated on a number of occasions, the record of the Government and the Treasury in growth forecasts has overall proved to be stronger than a range of external commentators.

The noble Baroness asked me: why child benefit? As I explained, that is not the only thing we are doing; we are also bringing forward the child tax credit improvements as part of the package of measures. It is a universal benefit and therefore reaches the people for whom it is intended. It is one of the key measures we deploy to impact on child poverty. That is why we are using the mechanism of child benefit as a part of the package.

The noble Baroness asked what we mean by “eliminating”. She will be aware that we are scheduled to introduce a child poverty Bill in this Session of Parliament to take stock of where we are and how we can drive forward to eliminate child poverty in 2020. Along the way there will be a consultation which will reflect, in part, on where we are and on what other mechanisms we might deploy to meet that target. I would have thought that “eliminating” means that we no longer have the disparities relating to the 60 per cent measure that we have at the moment.

The noble Baroness raised a number of points about the progress we have made to date. Perhaps I am repeating a message that we have debated on a number of occasions over the years, but we look at this, in part, in the context of where we were when we took office. There had been a substantial period where child poverty had increased dramatically and reversing that is a significant achievement. The Government are committed to ending child poverty and we have the record to prove it. A total of 600,000 children have been lifted out of relative poverty since 1998-99 before housing costs, and 500,000 after housing costs. This represents significant progress.

The noble Baroness asked about the various measures that we have deployed to achieve that. There has been a combination of tax credits and child benefit increases. From April 2009, the child element of the child tax credit will increase by £75 above indexation to £2,235, bringing forward the commitment that was originally stated for April 2010, as I have already outlined; and we are discussing the child benefit increases at the moment. In addition, we have committed in respect of child maintenance to ensure that there is a total disregard in the calculation of benefits. That is another significant weapon in our armoury to tackle child poverty. We have made progress but there is no doubt that it is very challenging to make the progress that we want to. That is why we need to enshrine that commitment in legislation and, along the way, make sure that we identify all the levers that will help us to do so.

Before the noble Lord leaves child poverty, perhaps I can remind him of my question about the claim made in the PBR that since the 2007 Budget, some 500,000 children will be lifted out of child poverty compared with the identical claim made in the 2008 Budget. That implies that this PBR either does nothing for child poverty, which was not what it implied, or that it is necessary to reverse some other adverse trends, which would not be surprising given that child poverty has been rising in the statistics for the two years up to 2006-07, the latest for which we have them.

I say simply that the PBR is an update of the forecasts which takes account of what has happened since we looked at these issues during the 2008 Budget. That should be crystal clear.

The noble Lord, Lord Oakeshott, did not think that the VAT measures would work. Frankly, we will have to see. We are just at the start of the process of the reduction and we believe that it is a better measure for encouraging people back into prompting demand in the economy. It will run for a total of 13 months, and as I say, we are at the start of the process. Of course there is heavy discounting in the stores at the moment, but who knows how long that will continue. Both noble Lords asked me about the propensity for people to save child benefit sums in comparison with other amounts. I do not have specific data on that and my officials do not have it to hand. However, if there is anything, I shall certainly write to noble Lords

I stress that this is part of a package to help hard pressed families. We shall come on to talk about pensioners in the next order. Given the economic challenges we face because of the global credit crunch, I believe that this is an important step and I commend the regulations.