DRAFT Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2016
Debate between Dawn Butler and Damian Hinds(8 years, 8 months ago)
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Damian Hinds
I thank everyone who has taken part in the debate, which was constructive and useful. I particularly thank the hon. Member for Salford and Eccles, who speaks for the Opposition, for a measured and constructive speech in which she put some reasonable points and questions.
Alongside the broader steps that the Government are taking on long-term reform to welfare, the creation of jobs, and making work pay, the regulations will reduce the unfairness in the tax credits system. The reduction to the income rise disregard will decrease the instances where one family receives a higher tax credit award than another family with precisely the same income and the same circumstances. That is a clear point of fairness, and I hope that hon. Members can agree that on principle it is the right thing to do.
As I have already set out, the provision returns the income rise disregard to the original level; but there is a key difference, compared with 2003. This time the Government are making sure that the system is able to cope with fluctuations in family incomes. The answer to one of the parliamentary questions tabled by the hon. Member for Salford and Eccles would be that we estimate that the income of about 800,000 claimants will increase by more than £2,500 in year, and that therefore they will have an adjustment to their tax credit payments. Those people are doing the right thing, as a number of Opposition Members have said. They are working hard to increase their income. No one will have a cash loss, because their pay rise will always exceed any change to their tax credit award in year; so there will still be a clear incentive for working claimants to increase their earnings, as they will take home more money.
Dawn Butler
As there is no impact assessment, does the Minister agree that the measure will probably affect women and children more than any other group?
Damian Hinds
The 800,000 recipients are households, and the majority of them will be couples. The majority of those couples will be male and female couples. However, let us be clear, come the end of the tax year, whatever the income rise disregard and with or without today’s statutory instrument, their tax credit award will be adjusted downwards to take account of their higher income—by which time they may, of course, have become accustomed to what was to be a temporarily higher award.
The measure ensures fairness to the taxpayer, because a system of large income disregards unnecessarily increases costs. The Exchequer—hon. Members’ constituents— bears the cost of paying tax credit recipients a much higher award than they would get if their increased income were taken into account. Rather than continuing with that, the Government are taking action to make tax credits more responsive to income changes, which ensures that more claimants receive the entitlement that more closely reflects their actual income.
Real-time information will ensure that the changes to income can be identified earlier. From September 2016, the majority of claimants will be prompted to report increases of income to HMRC through a text message, voice message or letter, with the default action, in the event of non-response, that the award will be adjusted to reflect the income change. That will mitigate the likelihood of overpayments, and will make clear to claimants, in a fair way, their responsibility to report an increase in their income.
HMRC will provide information to those affected by the change, in tax credits renewals packs and updated guidance and notes to claimants, as well as in briefing lines for the tax credit helpline, to ensure that claimants are aware of the change and what it means for their tax credit award. The Government are committed to seeing the change implemented correctly, and are taking a considered approach to both the operational IT delivery and engagement with claimants, to ensure there will be a reduction in tax credit overpayments and the number of claimants falling into debt.
I will now answer some of the points raised by the Opposition during the debate. The hon. Member for Salford and Eccles asked about the rationale for the precise number, and we have had a similar discussion in previous debates. There is never one single magic number that can be applied to such a threshold.
As the hon. Lady said, the figure of £2,500 brings the design of the income rise disregard back to Gordon Brown’s original figure. It is a balance between on the one hand making sure that the system adjusts as quickly and smoothly as possible to someone’s rise in income—to reduce the fall they would otherwise experience at the end of the tax year—and on the other not having to make an administrative change, and change the tax credit award, when there is a very small increase, such as from an annual pay award or a small increase in hours. The big change compared with 2003 is real-time information. To answer the hon. Member for City of Chester, real-time information is already operational and has been since 2013. A lot of the debates he mentioned have happened, but it is an important part of the continuing development of our taxation system.
The hon. Members for Salford and Eccles and for Banff and Buchan mentioned people on zero-hours contracts. I think it is always worth repeating this point because sometimes one could get the impression from listening to the Opposition that people on zero-hours contracts are the overwhelming majority when they are not; something like 2.5% rely on a zero-hours contract. Some of those are coming back into the workplace, and some of them are students. On average, zero-hours contracts deliver 25 hours of work a week.
The important point, which also applies to later in the debate, is that tax credits are still based on an annualised estimate of income. It is not necessarily the case that every single time there is a change in someone’s hours in a particular month they will have to say that this year’s permanence level of annualised income has changed. Through the RTI system there is an opportunity for those on PAYE to be prompted to do so, and others still can do so. The point is what they expect their total annual income to be. That is what the tax credit architecture of the system is based on today. It has always been based on an annual view of income.
The hon. Member for Salford and Eccles also asked how we define no cash losers. It is very simple. People’s pay is going up, which is a good thing. Because the tax credits award cannot go down by more than the pay has gone up, therefore these people will be better off.
Tax Credits
Debate between Dawn Butler and Damian Hinds(9 years, 1 month ago)
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Damian Hinds
Today’s bills will be paid at some point. We believe that the challenges for this generation should be dealt with by this generation, and we believe we need to get our finances under control and eliminate the deficit, and not just pass on the problem to our children and grandchildren.
Dawn Butler (Brent Central) (Lab)
Does the Minister think that the 1% pay cap on public sector workers contradicts the Government’s policy for a high-wage economy?
Damian Hinds
I do not deny that pay restraint in the public sector is difficult, but that 1% restraint has also protected 200,000 jobs in the public sector, which is an important aim. In addition, since 2007-08, pay in the public sector has risen faster than in the private.