Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2007

My Lords, as we heard, the first of these orders deals with the resetting of rates and levels of national insurance contributions; the second increases the thresholds of child and working tax credits; and the other three provide for the uprating of the level of guardian and child benefit. Overall, we welcome these orders, which are a necessary response to inflation over the past year. However, I would like to address a few issues that arise from the presentation of the orders and probe the Government about their future plans. I shall start with tax credits. I am sure the Minister is not surprised that I do so, but the facts alone make the point. The statistics on the tax credit system as a whole are telling: the finalised awards for the tax year 2004-05 show that only 56 per cent of tax credits were paid correctly and that £1.8 billion were overpaid and £550 million were underpaid, leaving nearly a million households without the support to which they were entitled. That led to 2 million recipients having to pay back the overpaid money from the payments they received in the subsequent year. That this situation is not acceptable is evidenced by the fact that even Labour Members criticise it. In October last year, David Blunkett was quoted as saying that the system was a shambles. The Comptroller and Auditor-General, Sir John Bourn, called it ridiculous. It is so complicated that the Prime Minister appeared to forget last summer that he abolished working families’ tax credit three years ago. If even he is unable to keep track of the complexities of the system, it is unsurprising that those applying for the credits are equally confused. What is just as worrying is that these tax credits are clearly failing to achieve their primary purpose, which is to reduce child poverty. A reduction in the number of children being brought up in poverty is an objective shared, I am sure, by all Members of the House. However, when tax credits cost the equivalent of 5 pence off the standard rate of income tax and the target for reducing child poverty is still missed, noble Lords may wonder whether there are not better ways of going about improving the welfare of children. That brings me to the last three orders that we are discussing today. First, I shall raise a point that I have been wondering about for a while. Can the Minister explain to the House why the guardian’s allowance is set at a lower rate than child benefit? I am curious about whether there is any rationale to that. The costs of bringing up a child are identical whether you are the biological parent or not. Is it just a long-running inconsistency that no one has taken the time to address? I also hope that the Minister will be able to shed some light on the Government’s plans concerning child benefit and associated tax credits. Do they have any plans to give child benefit a larger role within the tax and benefit system, as has been suggested? I understand that they intend to undertake a wholesale reorganisation and simplification of child benefit and the associated premiums and tax credits. Is that correct? Simplification is certainly needed because the UK now sits 67th in the world for the complexity of our tax system. If the Government have such plans to do so, can the Minister give us an idea of when more precise plans will be announced? I should also be interested to know whether there are any plans to move tax credits, child benefit and child trust funds from the Treasury to the Department for Work and Pensions, where common sense suggests they should be placed. The high levels of fraud and mis-payment of funds are clear testimony to the inappropriateness of the current arrangements. The Treasury's role should be one of keeping a close watch over the spending of taxpayers’ money, ensuring that it is spent effectively and reducing inefficiency in other government departments. I should like to finish by referring to the index used to measure the rate of inflation against which the level of upgrade is calculated. These orders up-rate the benefit levels at the rate of inflation determined by the retail price index. Although that has been the most common and convenient measure of inflation in use for a long time now, I am sure the Minister will agree that it does not paint the full picture. It, of course, neglects to include higher than inflation tax rises, council tax rises or more expensive mortgage repayments in the calculations. It is also a general measure that fails to identify the particular patterns of expenditure of the young families for whom these orders seek to make provision. It therefore increasingly fails to give a representative picture of the true cost of living for those people whom it is intended to help. Over time, the use of the RPI erodes the value of the benefits the Government intend to provide for in these up-ratings. It is, of course, tax credit benefits that are intended to help those most in need and who are struggling to cover inflating expenditure with incomes that do not rise as fast, but, as I have pointed out to the House, the tax credit system is severely and fundamentally flawed. I hope that, as inflation rises, and tax increases rise even faster, the Government will reflect on the efficacy of their key benefit tool, the tax credit system, and consider how it can be remodelled or whether they should be considering a replacement.