That the draft order laid before the House on 10 February be approved.

Relevant Document: 9th Report from the Joint Committee on Statutory Instruments.

In moving this Motion, I shall speak also to the Tax Credits Up-rating Regulations 2010, the Guardian’s Allowance Up-rating Order 2010 and the Guardian’s Allowance Up-rating (Northern Ireland) Order 2010. We shall debate the four related regulations and orders together. Tax credits, together with child benefit, deliver financial support to the vast majority of families with children in the UK and are vital in our commitment to tackle child poverty. I am pleased to introduce these regulations and orders, which increase certain elements and thresholds of tax credits and raise child benefit and guardian’s allowance. In my view, the regulations and orders are compatible with the European Convention on Human Rights.

I turn first to the Tax Credits Up-rating Regulations 2010. Tax credits play a major role in ensuring that work pays and in tackling child poverty. Overall, 6 million families containing 10 million children benefit from tax credits. These regulations increase the child element of the child tax credit by £20 above earnings indexation, which means that the child element will increase to £2,300 from April 2010. Since its introduction in April 2003, that element will have increased by £855, benefitting 7.5 million children.

For the first time in half a century, the retail prices index decreased, which means that all rates have increased in real terms. To provide additional support to households during the early stages of this economic recovery, the Government are bringing forward by a year a proportion of the increase expected in April 2011. From April 2010, rates will be increased by 1.5 per cent for those benefits and tax credits normally uprated by RPI. In April 2011, rates will be increased by the remaining amount necessary to make up the difference, locking in the real increase that arises from the fact that prices fell. These regulations therefore increase the disabled element of the child tax credit and most of the other WTC elements by 1.5 per cent.

I turn to the Child Benefit Up-rating Order 2010 and the guardian’s allowance orders. Child benefit is payable to around 7.5 million families for 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. These instruments also increase rates by 1.5 per cent. From 12 April 2010, child benefit will be worth £20.30 per week for the first child and £13.40 for each subsequent child. Guardian’s allowance will increase to £14.30 per week.

With the increases introduced by these instruments, we will be delivering even more support next year. We remain committed to the Government’s goal on child poverty, of which tax credits will remain a key part. As a result of all the changes to the personal tax and benefits system since 1997, families with children in the poorest fifth of the population will be on average £5,000 a year better off. I commend these regulations and orders to the House.

My Lords, I thank the Minister for introducing these regulations and orders, which are among the highlights of the Treasury calendar. We shall not be opposing the instruments but I have a few points for the Minister.

As the Minister explained, these instruments, in one way or another, grant real increases in benefits and tax credits. Most but not all of the tax credits are being increased; because RPI fell in the year to last September, simply maintaining the value increases them in real terms. However, this analysis may not resonate with the average family. While prices fell in the year to last September, which is the reference period for the uprating, they are not falling at the moment. The latest year-on-year RPI figures show a 3.7 per cent rise and RPIX, which excludes mortgage payments, shows a rise of 4.6 per cent. The rate of increase is accelerating sharply, with annualised rates over a shorter period being very much higher. I would not like to be a Labour candidate, or canvassing for one, in a few weeks’ time, explaining the great munificence of a 1.5 per cent increase in, say, child benefit against inflation rates perceived as very much higher than that—but that is very definitely not my problem.

I will start with child poverty, which the Minister mentioned. The Minister and I have been spared dealing with the Child Poverty Bill and I shall not repeat all the analysis that noble Lords spent many happy hours debating in the Moses Room. One thing is now crystal clear, and even the Government cannot escape this analysis: the Government have failed to meet their 2010 target to halve child poverty. That required the numbers to fall to 1.7 million. At the last count, 2.9 million children were living in relative poverty. The statistics have been going backwards since 2004, with particularly worrying increases in the number of such children in working, as opposed to workless, households. We do not rejoice in any of this, because it is yet another problem that a new Government will have to solve.

The Government have often used the granting of real increases in child benefit and the child element of tax credits as a way of claiming an advance in the war on child poverty. Since the 2007 Budget, the Government have been claiming that their plans would lift 500,000, or sometimes 550,000, children out of relative poverty. I read very carefully the 2009 Pre-Budget Report, in which the changes included in these instruments were first announced, but I found no claims about the impact of the PBR, either on its own or cumulatively, since the 2007 Budget on child poverty figures. Will the Minister say what impact the child benefit and child tax credit changes in the instruments before us will make on the child poverty figures? If he cannot give an up-to-date estimate of the number of children who will be in relative poverty in 2010-11, can he say what impact these instruments taken on their own will have? If he cannot give that analysis, will he say why a Government who have bragged so much about their policies to reduce child poverty cannot calibrate one of their flagship PBR announcements on tax credits in those terms?

The other area that I want to confirm with the Minister is how these increases will be clawed back next year. The Government have made it clear that the 1.5 per cent increases will not be permanent but will be offset against the inflationary increase that they expect on the basis of the September 2010 RPI figures. Let us take the basic element of the tax credit, which is currently £1,890 and is being increased by the tax credits regulations by £30 to £1,920—an increase of just short of 1.6 per cent. When they come to the calculations based on the September 2010 RPI figures, will the Government knock that 1.6 per cent off inflation for the year to September 2010 in calculating the increase allowed for the following year’s tax credits? If, for example, inflation to September 2010 is 4 per cent, will tax credit recipients get 2.4 per cent? If we translate that into the basic element of the tax credit, a claimant will get £51 extra in 2011-12 rather than the £81 that inflation would indicate for the year. If inflation slumps to 1.6 per cent—it is unlikely, but let us assume that it does—will they get nothing? It is important to be clear about this: if this is happening, it is another of the poisoned wells being left for an incoming Government.

My Lords, like the noble Baroness, Lady Noakes, we broadly support these orders and regulations, but again, like her, we have one or two questions and comments.

First, we need to recognise that the tax credits system has never worked properly. More than a third of all tax credits payments have been wrong since the system was introduced. The Government have overpaid on average 1.5 million families every year and in that time more than £16 billion has been overpaid or lost due to fraud and error. Even though most of the mistakes are made by the Government, they have dragged more than 50,000 families through the courts to draw back the money. More than half a million families, or about 1 in 10 receiving tax credits, are earning more than £40,000 a year. Does the Minister think that that is a sensible use of public money, with as desperate a deficit as we have now? Those families should not be stuck in the revolving door of complex means-tested benefits, having to claim back the taxes that they have paid. Instead, they should be paying less tax in the first place.

The noble Baroness, Lady Noakes, also talked about the Government failing on their child poverty target. That is right, but it is a relative target. The bulk of the reason why the Government have been failing on their child poverty target is the rapid increase, over the past few years, in inequality in income and particularly wealth. How is it possible to complain about the Government missing their child poverty target while being in favour of tax breaks at the very top? For example, did the Minister notice that inheritance tax was the tax that dared not speak its name in David Cameron’s 40-minute speech at the Conservative Party conference? There was no reference to it at all. Can the Minister confirm that, under the Conservative proposals, the 3,000 wealthiest estates would get a tax break of about £250,000 each—far more than the owners of family homes, for whom this is intended? As always, the tax breaks are biggest at the top, which can only make the achievement of the child poverty target much more difficult.

I will not go through the retail prices index statistics as the noble Baroness did except to say that I am sure that the Minister will regard the past few months—as do I and almost all informed professionals, whether those who work in the City or economists—as a short-term spike in inflation. Certainly, it is nonsense to project up annualised rates from two or three months. Short-term inflation is painful, but we must be realistic. We are not at the moment in a situation where the economy has serious inflationary pressures. If anything, the risks are more on the other side.

Can the Minister tell us more—this has been something on which I have pressed him and his predecessors—about the change in the cost of living over the past year and how he sees it developing over the next year for different income groups? In particular, how has it affected people in the lower-income bands? Does he have any statistics for the relative change in the cost of living between households without children and households with children, which is clearly of particular relevance for these benefits and for these instruments?

My Lords, forgive me, but I do not have the full paperwork in front of me. I have a question regarding the guardian’s allowance. If I picked up what the Minister said correctly, it appears that the child benefit allowance is higher than the guardian’s allowance. Does that put guardians at a disadvantage? Obviously, a guardian comes about because of the changed circumstances of a child—a child could be left an orphan or with parents in long-term care in hospital. Form-filling is required for the potential guardian to get the allowance. What is the normal time specification from the date of the submission of the form until payment of the guardian’s allowance?

My Lords, as I said in my introduction, these regulations and orders increase certain rates and thresholds and are in line with the Government’s commitment to make work pay and to tackle child poverty. Tax credits provide financial support to nearly 20 million people. It is a responsive system designed to tailor financial support to reflect families’ current circumstances and to respond quickly to their changing needs, particularly in difficult times when income falls or needs increase.

From April to October last year, the flexibility of the tax credits system has given extra help worth on average £37 a week to 400,000 families whose income has fallen. Tax credits, together with child benefit, deliver support to virtually all families with children in the United Kingdom. Where in the 1980s and early 1990s the number of children in poverty more than doubled, tax credits have helped to lift around 500,000 children out of relative poverty since 1998, and the number of children in absolute low-income poverty has halved, from 3.4 million to 1.7 million. The fight against child poverty is, of course, not over and will require continued effort on behalf of government. These regulations and orders, together with other measures announced in the Budget 2007, will help to lift 550,000 out of poverty.

The noble Baroness, Lady Noakes, asked a number of questions relating to statistics on child poverty. I do not have the statistics available but I will, with great promptness, write to her with the information that she seeks, if such information exists. I will also copy that to the noble Lords, Lord Oakeshott and Lord Martin, who have participated in this debate.

The noble Baroness mentioned the pathway of retail prices inflation. RPI is definitely not falling at the moment, but the Bank of England, which has a good record over the past 10 or 11 years in forecasting inflation, suggests that it will fall back quite sharply as the year progresses. The noble Lord, Lord Oakeshott, referred to the current experience being a spike in inflation. I believe that that is correct. However, I am not in a position to give the noble Lord forecasts for inflation by household income or to differentiate between households with and without children. We all know that the experience of inflation for different subgroups of society will be different because of their differing expenditure plans. That is one of the reasons why it is so important in the current year that we anticipate how we think inflation will develop in accordance with the Bank of England’s central projections and reflect that in some of the proposals that we are putting.

I quite understand what the Minister said about forecasts. However, I would be grateful for an answer, not necessarily now, on what statistics there are on the effects over the past two or three years on different income groups. Does he feel—it is a constant worry to me—that we have enough statistics in those areas? We have seen over the past few years that there can be sharply differing statistical effects of inflation on different groups. Will he look into that and see whether we have enough statistics, particularly when deciding on these benefit upgradings in future?

I am delighted to tell the noble Lord, Lord Oakeshott, that I will do that. There is a danger with the news focusing on one figure for RPI, capturing whether it has moved by one-tenth or 1 per cent during a 12-month period, to miss the fact that there will be differential experiences of inflation. We need to be alert to that particularly when it comes to issues of social policy as achieved through taxation, benefits and credits.

We are committed to tackling child poverty and our action to date has made a significant step forward in that process. The figure that I gave—550,000 children lifted out of poverty since Budget 2007—includes the impact of the changes announced in PBR 2009.

Can I clarify that? The Minister said 550,000 would be taken out of poverty as a result of PBR 2009. The same number was given in the previous year. Do we therefore conclude that these orders take zero children out of poverty as a result of the increases that are proposed?

My recollection is that the previous figure was 500,000. However, it would be wrong for me to mislead the House. I will therefore give the noble Baroness the precise answer that she seeks when I have the absolute data close to hand in order to inform her and Parliament on this matter. Rest assured, our commitment to the progressive eradication of child poverty is undiminished.

One cannot help, therefore, but note the observation from the noble Lord, Lord Oakeshott—who pays such close attention to these matters and regularly writes to me seeking information—about the contrast between the Conservative Party's position on issues relating to child poverty and the issue of inheritance tax. I believe that the figures given by the noble Lord were correct. The Conservative proposals, on which we now hear very little, as the noble Lord noted, would have the effect of removing 3,000 of the wealthiest families in the country from inheritance tax, with a benefit of £250,000 each. That is quite an extraordinary act of generosity, largely to the people of Kensington and Chelsea and Notting Hill. It is quite an outrageous set of priorities. I am sure that we will have many further occasions to discuss this including, possibly, in the upcoming economics debate.

The noble Baroness asked about the impact of the proposal that any increase in prices over and above the 1.5 per cent increase from September 2009 will be reflected in the 2011 rates of tax credit. These will lock in, in real terms, the increase of the rates of tax credits and child benefit. The RPI in January 2010 is still lower than the RPI for September 2008. Bringing forward this adjustment will be taken into account when setting the limits in 12 months’ time.

The noble Lord, Lord Oakeshott, raised questions about HMRC and errors. I have information that the HMRC makes very few errors, but I have to say that it is an organisation which needs to constantly work to improve its user-friendliness and the accuracy of its processing. Many members of our population have suffered as a result of mistakes made by HMRC. I do not think anybody in HMRC should be content with its performance. I am sure that this is reflected in the urgency with which the senior management in HMRC addresses these matters. I myself have at times suffered from mistakes made by HMRC, so I fully understand the point that the noble Lord makes. Overpayments are too high. They cause great disturbance to those who receive overpayment and are then required to make adjustments, for which they have not made, or had an opportunity to make, appropriate plans. We must work hard to reduce that.

The noble Lord also asked about tax credits to those earning over £50,000 a year. This in fact only represents 0.02 per cent of the entitlement in 2007. The answer is that the line has to be drawn somewhere and the Government believe that it is appropriate that we provide support for those raising and caring for children. The vast majority of the benefit paid is to those on incomes below £20,000.

The noble Lord, Lord Martin, asked about the Guardian’s Allowance. My understanding is that a couple or an individual eligible for the Guardian’s Allowance receives this allowance in addition to child tax credit. It is not either/or. Therefore, it is not a matter of the two necessarily being in line. Nor should one draw any great conclusion from the fact that one is higher than the other. I do not have information as to how long it takes between making the application and receiving the first payment. This is one of these dilemmas, however—we all believe that an honest and correctly completed application should lead to a fairly swift decision to start distributing payments. On the other hand, we have to have regard to the point made by the noble Lord, Lord Oakeshott, that we need to ensure that our processes are correct. There will always be a difficulty there. Some will say you are making too many mistakes, in part because you are rushing the process, on the other hand, an equally credible argument will be that an unreasonable delay can cause pain, stress and real financial distress to those entitled to the Guardian’s Allowance.

I believe I have covered the majority of the points raised in the debate. If on reading Hansard I find others, I will of course write to those who participated in the debate. I commend these regulations and orders to the House.