Childcare Payments Bill

Baroness Eaton Excerpts

Tuesday 9th December 2014 Lords Chamber

[Baroness Eaton (Con)]

My Lords, I start by applauding Her Majesty’s Government for the commitment that they have shown to helping families through a broad range of measures, which include, but are not limited to, greater flexibility in parental leave and the expansion of assistance with childcare costs. I and many others on these Benches particularly welcome the early steps that have been taken to tackle the biggest family policy challenge that we and many other western countries face, which is our epidemic levels of family breakdown. The wider family policy landscape is highly relevant to the Bill receiving its Second Reading here today, because the financial help with childcare that the Bill provides will be cast as a significant part of the fulfilment of the Prime Minister’s pledge to make this the most family-friendly country in Europe. Certainly, it is taking the lion’s share of the family policy budget.

The Institute for Fiscal Studies has calculated that the taxpayer is subsidising childcare to the tune of more than £7 billion a year. The rationale for adding to this enormous bill is that doing so will enable parents to play a full part in the labour market. It is concerning, however, that the IFS has concluded that we still lack a proper rationale and evidence base to support the assertion that these subsidies will succeed in getting more women into work. The IFS was particularly sceptical of the cross-party support for significantly greater help with childcare costs, saying that this does not always lead to the best policies. Moreover, the Government announced an increase in support for childcare before the Office for Budget Responsibility could estimate the costs.

Although this is a money Bill, surely it is our role at this end of the corridor, when necessary, to point out the downsides to generosity that could begin to look like profligacy when seen alongside other demands on the public purse, particularly those associated with supporting families. Calls to help dual-earner families with paid, formal childcare costs should not be allowed to drown out pleas for recognition of the considerable financial hardship facing many single-earner families. There are many reasons why one parent—often the father these days—takes some time out of the labour market when children or elderly relatives need more time than even flexible work arrangements will allow.

This Government’s introduction of transferable tax allowances for married couples is a huge achievement in a very difficult financial and political climate, but it is worth only around one 10th of the available support for one childcare place—a little over £200 per family in contrast to £2,000 per child. This is scant compensation for the many people who lost their child benefit or saw it reduced, yet we were assured that this cut to discretionary household spending power was essential to tackle the deficit. Many people who supported the withdrawal of child benefit to higher rate taxpayers have been appalled that a far more generous subsidy per child is being made available to families where each individual earns up to £150,000.

Canada’s Conservative Party has recently been able to make good on its 2011 election pledge to allow married couples to use income splitting to reduce tax bills by a maximum of 2,000 Canadian dollars—a benefit approximately five times the value of our transferrable tax allowance. However, there is a big difference, and that is that the Canadian Government are running a surplus. Canada’s income tax system, which treats families the same as roommates living under the same roof with no financial attachment, was judged by Prime Minister Harper to be unrealistic and unfair.

That assessment applies equally well to this Government’s tax-free childcare plans. I urge them to reconsider thresholds for this and the amount that can be claimed per child. This would allow some rebalancing of help for single-earner families during that period in their life cycle when finances are very tight but both parents working is unrealistic or the least family friendly option they can imagine, given their circumstances.

Polling by the Centre for Social Justice found that 82% of adults and 88% of parents thought more should be done to help parents stay at home in the early years. It has recommended doubling the amount parents with children aged under three can transfer, so that the allowance is worth around £400 per year. This would cost around £500 million.

I conclude by returning to the issue of family breakdown. We are all familiar with the enormous costs incurred by the state when couple relationships, and the families they are founded on, falter. This country is now at the point where almost half of all children are no longer living with both their parents by the time they are 15. We cannot put off the essential task of addressing family breakdown through a wide range of measures, some of which must include support for marriage, which leads to the most stable family form. Recognising marriage in the tax system also takes into account and supports the sacrifices and interdependencies within single-earner families.

However, to a certain extent our hands are tied until the public finances are in better shape. That date is likely to come later rather than sooner if we make our current and future generations of parents dependent on large childcare subsidies and resentful of any reductions to that entitlement at whatever point on the income spectrum the axe may have to fall. Let us obviate the need for the axe by being restrained from the outset.

Taxation: Personal Thresholds

Baroness Eaton Excerpts

Monday 20th January 2014 Lords Chamber

Asked by

[Baroness Eaton]

To ask Her Majesty’s Government how many people on the lowest incomes have been lifted out of income tax by the rise in personal tax thresholds since 2010.

[Lord Newby (LD)]

My Lords, by 2013-14, 2.4 million low-income individuals have been taken out of income tax altogether as a result of this Government’s increases to the personal allowance since 2010. This number will increase to 2.7 million once the personal allowance reaches £10,000 in April 2014.

[Baroness Eaton (Con)]

I thank the Minister for that Answer. The significant changes to the personal allowance mean that someone working full time on the minimum wage has seen their income tax bill more than halved under this Government. Does he agree that this is the most effective way to support those on low and middle incomes because it enables them to keep more of the money they earn?

[Lord Newby]

My Lords, I do agree. The effect of what we have done is that by 2014-15 there will be a £705 cash benefit to low-income households, which even in real terms is well over £500. This has made a material difference to the income of people in those categories and is much to be welcomed.

Barnett Formula

Baroness Eaton Excerpts

Tuesday 17th December 2013 Grand Committee

[Baroness Eaton (Con)]

My Lords, I also declare an interest as a vice-president of the Local Government Association, of which I am a former chairman, and I want to add my thanks to the noble Lord, Lord Shipley, for initiating this important debate. I strongly support the recommendation made by the Local Government Association that the Barnett formula should be scrapped, and I call on the Treasury to start evaluating the alternatives. As we have heard, figures from the United Kingdom Government highlight that Scotland is overfunded. The noble Lord, Lord Shipley, has made the case as to why the formula is unfair and I support his call for the return of the £4 billion to England that he referred to so strongly. This is imperative at a time when money is desperately needed for all public services, including for adult social care which we have heard about so ably from the noble Baroness, Lady Bakewell.

Basic fairness is not just about the money, important as that is. It is also about devolution from Whitehall to local government in England. This will give people a greater say in their public services and a more meaningful reason to vote in local elections. Recent polling by Ipsos MORI showed that 79% of people trust their council, whereas only 11% trust central Government. English councils are delivering for their communities and the Barnett formula should reflect that.

I would now like to turn very briefly to how the Government can deliver devolution across the United Kingdom in a way that is fair to England, Wales, Scotland, and Northern Ireland. As we have heard already in today’s debate, Her Majesty’s Government need to ensure that money is distributed fairly across the four countries. Having reformed the Barnett formula, HM Government should aim to implement the informative recommendations made in the document produced by the Local Government Association entitled Rewiring Public Services. They would make sure that the benefits of devolution are felt across England, and this could be achieved by, first, adopting five-year funding settlements for local government across the lifetime of a parliament. Progress towards this goal was made in the Autumn Statement, which announced that local public services will get the same long-term indicative financial statements as central Government.

Secondly, money should be shared more fairly around England by taking financial distribution out of the hands of Ministers and replacing it with an agreement across English local government. Thirdly, local government should be given wider revenue-raising powers, and fourthly, we should develop a market in municipal bonds that gives local government access to alternative forms of finance.

Local government in England is currently dealing with unprecedented reductions to its funding. Core funding will have been cut by 43% across the lifetime of this Parliament. There is, as the noble Lord, Lord Shipley, has said, a projected £15 billion funding gap by 2019-20 that councils must close in order to meet their legal responsibility to balance the books. The size of the challenge is so great that tinkering at the margins will not be enough. Without radical change in the way funding is distributed across the UK, we risk a situation where services in England that the public care deeply about will start to fail. Bold, imaginative action and political leadership are required to restore financial stability. It is time for a fairer deal for England and English councils.

Public Service Pensions Bill

Baroness Eaton Excerpts

Wednesday 19th December 2012 Lords Chamber

[Baroness Eaton]

My Lords, as I will be speaking about the Local Government Pension Scheme, I wish to declare my interest as a vice president of the LGA and also a member of the scheme.

I was very pleased to hear the Minister say that he is going to have detailed conversations with the LGA about the Local Government Pension Scheme. As we have already heard, the LGPS is a funded scheme. Its members and employers pay contributions which are invested to meet the costs of paying benefits. The funded nature of the LGPS means that pension benefits are paid for by underlying investment funds and not general taxation. It is therefore unlike the rest of the public sector pension schemes, which are unfunded and paid out of tax receipts—that is, current workers’ contributions and taxes.

The LGPS is collectively the biggest pension fund in the UK and the fourth largest in the world. There are 89 funds in England and Wales holding some £145 billion in investments and assets, which is enough to pay benefits for over 20 years. The 89 LGPS funds in England and Wales are required under scheme regulations to undertake a valuation of the fund every three years setting the employer contribution rates for the following three years. This framework allows for local circumstances—for example, life expectancy—to be considered when determining the employers’ costs.

The scheme has a positive cash flow, with income from investments and contributions exceeding expenditure. Unlike other public sector pension schemes which work on a pay-as-you-go model, the LGPS has sufficient funds to cover benefits for over 20 years. Members contribute an average of 6.5% of pay to the scheme, with higher earners paying proportionately more—currently up to 7.5%—and there is also provision for the lowest-paid workers to pay a lower percentage of contributions, currently 5.5%.

Throughout the process of reforming the LGPS, the Local Government Association worked closely with the UNISON, GMB and Unite unions through the LGPS 2014 project board, leading to a scheme design which received overwhelming support from both employers and trade union membership. The Bill as drafted does not fully reflect this agreement and therefore, in my view, requires amendment. It does not reflect the unique nature of the scheme or the fact that the arrangements have been fully agreed by the unions and the Government.

The scheme regulation provisions contained in Clause 3 could see detrimental changes imposed on scheme members without agreement. This is not the case under current scheme regulations. If left unchanged, the Bill would undermine confidence in the scheme and provision for future benefits. The provision for retrospective changes, which could have a material detriment for scheme members, would be in stark contrast to provision in private sector pensions, which allows for consultation and agreement before introducing any such retrospective changes.

As the noble Lord, Lord Monks, said, there are concerns that measures in Clauses 4 and 5 could impact on the transparency of the LGPS because there is no segregation between the scheme manager and the scheme board. For the LGPS, local boards are responsible for each of the individual 89 funds and are concerned with the effective and efficient administration of the scheme at local level. The scheme board would have concern for the scheme at national level, with a central focus to ensure efficient and effective overall management of the LGPS nationally. The scheme board and scheme manager being, in effect, the same committee would not promote good governance of the scheme and would not allow for effective separation of responsibilities at local and national level. Furthermore, the agreement reached between the unions, employers and the Government specified the need for a national board, as proposed by the noble Lord, Lord Hutton, in order to give it a national focus in line with the treatment of other public service pension schemes under the Bill.

There is a lack of clarity around the impact on fund valuations which are included in the Treasury’s scope within Clauses 10 and 12. This lack of clarity surrounds the apparent inclusion of both local fund valuations and the national notional model fund valuation within the control of Treasury regulations. Individual fund valuations are currently undertaken by fund actuaries under parameters set out in scheme regulations and assumptions agreed with the individual fund. It would be a marked change if such valuations were now to come completely under Treasury control. If the intention were to include only the notional model fund in the Treasury’s scope, the clauses would need to be amended to prevent future misunderstandings.

Clause 11 provides for the Treasury to set the scope, extent and methodology of cost management in the LGPS. It is difficult to see how the principles agreed in December 2011 for self-determination can sit easily with this clause. In contrast to the unfunded schemes, the agreement reached for the LGPS called for a separate cost management process and for the control of cost management issues to be the responsibility of the principal stakeholders of the LGPS. As a funded scheme, this is particularly important, given that funding of the LGPS is carried out independently of the Treasury.

In summary, although I acknowledge the need for the Bill to cover the LGPS, I remain concerned that it does not fully reflect and cater for the unique funded nature of the scheme or the agreement reached by the LGA and unions for the LGPS from 2014. That agreement received overwhelming support from employers and members alike, and the concern is that the progress made following agreement with the Government would be at risk should the Public Service Pensions Bill not fully reflect the unique nature of the LGPS among other public sector schemes.