Taxation: Families

Baroness Massey of Darwen Excerpts

Thursday 17th January 2013 Lords Chamber

[Baroness Massey of Darwen]

My Lords, I thank my noble friend Lady Hollis for securing this important and stimulating debate and for introducing it with her usual immense knowledge and commitment.

I should like to focus today on the impact of changes to tax and benefits on children. As my noble friend said in her opening remarks, government policy is likely to be detrimental to children. It is obvious to say that children are our future, but if we neglect children we will surely be burdened later with possible criminality, drug-taking, other risks and social unrest. All that is important, quite apart from the vital humane impetus to protect children and advance their well-being and educational opportunities, particularly children who are vulnerable or deprived.

I declare an interest as chair of the All-Party Parliamentary Group for Children. This year we are conducting an inquiry into what opportunities there are for children to achieve their potential and into how children see their needs. We listened to a number of children, and it is striking how so many of them place a huge emphasis on the importance of parents and families in their lives, including those children who have challenging family circumstances.

What happens to those parents and families in times of austerity must be considered, and I am dismayed at the potential disruption and depression that may be caused by government policies. Is it not surprising that Save the Children is, for the first time, focusing some efforts on children in the UK, or that, as the noble Lord, Lord Greaves, said, we are seeing food banks in unexpected places such as Guildford and, as my noble friend Lady Pitkeathley tells me, in Ross-on-Wye?

It is easy to portray people in unfortunate terms using easy soundbites which appeal to popular prejudices and which are so often inaccurate, and it is interesting to note that many of us think that 27% of all welfare is claimed fraudulently. However, the Government’s figure is 0.7%, worth around £1 billion as opposed to the £70 billion lost in tax evasion. Further, most welfare payments go to pensioners. Unemployment benefit has fallen to 11% of average earnings compared with 22% in 1979. Therefore, myths abound. The fact is that since 2010 long-term unemployment has increased by 146% and I am told that there are plans to cut local authority budgets by 30%, to the dismay of those working to deliver services. All this will impact on families and children, and the poorest will be hit the hardest.

Perhaps I may give some examples that reflect the concerns of groups in the voluntary sector which are working with children and families. They include Barnardo’s, the Children’s Society, Working Families, CARE and Save the Children. Contrary to the Government’s ambition, levels of childcare funding may lead to disincentives to work. Under universal credit, lone parents with more than one pre-school child could face losing a significant amount of any extra money they earn. I was impressed by the speech of the right reverend Prelate the Bishop of Exeter on this issue. There may well also be an impact on the provision of free school meals, which is sometimes the only good meal that a child will have in a day. Some 1.2 million children living in poverty in England miss out on free school meals. The Government seem to be set on proposing that, under universal credit, families will be entitled to free school meals only if they earn less than a certain amount, which is another disincentive to earning more. I take the point made by the noble Lord, Lord Greaves, about the administrative costs of means-testing.

The plan to cap the uprating of key benefits and tax credits for the next three years will mean that almost 20 million adults with children and 11.5 million children will be affected. This will hurt millions of families who are already finding it difficult to meet the costs of food, rent and other basic necessities. For example, by 2015, a lone parent of two young children working as a nurse and earning £530 a week will lose £424 a year. Primary and nursery schoolteachers have an average weekly income of £600. Some 150,000 of them will be affected by the cap. The charity Working Families estimates that around 205 of the 3,000 calls made to its helpline in 2012 were on the issue of benefits and tax credits. Some 41% of parents in severe poverty said that they would consider giving up work and 25% would consider reducing their hours as a result of cuts in the level of support. In times of austerity it can be difficult for parents to find extra hours of work as employers cannot afford it. This means that up to 210,000 families with 475,000 children may lose out on tax credits. Does the Minister not think that the Government’s policy is producing a negative rebound?

Parents with disabled children report difficulties due to the high cost of specialist or one-to-one care because there is no extra support in the system for the childcare costs for a disabled child. Paying for such childcare is turning out to be a huge barrier to parents going into paid work. There is also disappointment that the principle of universal child benefit has been undermined. Child benefit has been simple to administer, has a high take-up and carries no stigmas, and by and large ensures that the money reaches the right people. Some families are now going to lose out and the system has been made more complex. It would be interesting to know the administrative costs associated with the new system.

Maternity and paternity pay in real terms may encourage parents on low incomes to cut short that important time with a new baby because they cannot afford it. This may affect early bonding, which is considered by experts to be very important in child development. The 1% uprating will impact on those claiming statutory maternity and paternity pay, which is well below the national minimum wage of £135.45 a week. The benefit cap may also apply until a parent reaches the wages level set out in their claimant contract. I am aware that there are some exceptions, but it may force parents who are currently working part time on low wages to seek longer hours, thus affecting family life. The prediction is that the median income in households with children is set to fall and that child poverty is set to increase.

The tax and benefit changes are significant factors in these trends. The introduction of universal credit may offset them in some cases—for example, it has advantages for those without children and for a couple who are both seeking paid work. I again cite CARE, which has challenged the Prime Minister’s statement that the child benefit charge will apply only to the top 15% of the country. As the right reverend Prelate pointed out, the charity has figures to show that the charge is not targeted at the top 15% and will impact on many families in the middle income distribution. The policy takes child benefit from those in the lower half of income distribution while not taking it from two-earner families which are considerably richer.

I return to my original concern that the inequity in tax and benefits that makes children and families suffer is morally indefensible and may have long-term consequences that affect not only children but society. I look forward to the Minister’s response.