Child Poverty Bill

My Lords, I thank the noble Lord, Lord Freud, for his amendment. Perhaps at the start I might just clarify one or two points. The purpose of offering the meeting was to convince the noble Lord that his persistent material deprivation target did not add anything to the measurements that the other targets had, rather than to sit with him and devise a fifth target. But I hope that he would still be happy to meet. If he tells me that he is committed to the other four targets, that is fine and I accept that entirely. I took it from one exchange that we had last time that, although an income-related target was something that he would support, he was not very specific about whether that was the income-related target that we had in the Bill. If he wishes to clarify that, it would be fine, but it has not been clear to date. This is a fascinating area. The noble Lord raised the issue of the significance of income transfers, which are a key part of tackling poverty, but they would never be made on the basis of reported incomes in a survey. They are made on the basis of the usual strict rules that apply to benefits. I do not have the data to hand, but if he looks at the statistics he will see that benefit fraud has been progressively reduced in recent years through lots of concerted effort. On the other side of that coin, as we touched on with the noble Lord, Lord Kirkwood, we talk about benefit fraud as part of the informal economy but often do not talk enough about benefit take-up. This Government are the only Government in history ever to have benefit take-up campaigns, and significant progress has been made in some areas, but there is still progress to make in others, particularly around council tax benefit take-up. If we could crack that one, we would have made significant strides on pensioner poverty, for example. So we need to keep that in mind. Amendment 10 seeks to include income from the informal economy—I believe that is a much better expression—in the calculation of a household’s income. Given the obvious difficulties in defining the informal economy and the income streams flowing from it, the noble Lord will not be surprised by the fact that this information is not currently explicitly asked for in the survey of household incomes which we would use to monitor progress towards the child poverty targets. However, some respondents may offer this information; for example, if they work cash-in-hand, they may report this as their employment income. The question of whether such revenue should be included in our measure of income was touched on in the Second Reading debate, where it was argued that survey respondents who depended significantly on the informal economy for their living could misreport their true incomes. This, it was reasoned, would affect how accurately our measures of income reflected the true living standards of the respondent. That is the basis of the noble Lord’s amendment. The Government recognise that the issue may marginally affect the accuracy of our measures of income, and we wish to emphasise our commitment to building up a fair and truly representative picture of households’ living standards. However, we argue against the adoption of this amendment, for some practical reasons, if no others. Asking interviewees explicit questions on unlawful income would impact on their willingness to participate in the survey. Indeed, any interviewee asked to provide such information, and in regular receipt of income gained in the informal economy, would be unlikely accurately to report the amount received. For these reasons, no other comparable surveys capturing information on incomes attempt to collect this information. Likewise, administrative data would not reflect the extent of the informal economy. The issue of ensuring that income is captured as accurately as possible by the survey, and that our measure of income accords with a household’s living standards as closely as possible, was examined extensively as part of a national statistics quality review in 2004. We have a commitment to the accuracy of these statistics, and they are produced to national statistics standards. Additionally, we do not rely only on income measures of poverty. Children in families with a higher level of income through the informal economy would not experience material deprivation and would therefore not be considered to be in poverty on that measure. To pick up on other points made by noble Lords, the noble Lord, Lord Kirkwood, asked about the nature of the order. It will be an affirmative order. Most of the regulations in the Bill are subject to affirmative orders. Only three are negative, and I think that we will be challenged on one of those as well. My noble friend Lady Hollis raised the issue of income disregards. She made an important point because some of the drivers of unreported income in the informal economy are potentially issues around whether work pays. Disregards are an important component of that. As my noble friend is aware, we are looking at piloting increased disregards. We have increased disregards in relation to housing benefit and in relation to child maintenance payments, for example, so there is movement in that direction. An interesting issue that arises from all of this is the assumption that, in aggregate, there is clearly an informal economy and income that is not captured in the tax system, which may have negative consequences in the benefit system. But I do not see the distributional impact of that and where it would fall would lead us to make different judgments in relation to our strategy. The conclusion would not necessarily follow that income from the informal economy may not be reflected in the surveys. In a sense, we can only speculate whether the proportion is a greater issue for those at the higher end of the income scale than for those at the other end. Over a number of years, the Government have had a raft of measures to tackle tax avoidance. There are particular arrangements going on at the moment where overseas bank accounts and so forth are recommended to be in the purview of the Inland Revenue, and rightly so. Along the way we are often criticised for these measures because it can lead to quite complex legislation. There is always a trade-off between complexity, whether in the benefit system or the tax system, and fairer collection. Clearly, as we have done, the Government need to continue to crack down on benefit fraud, and we certainly need to crack down on tax avoidance, so we would have common cause on that issue. A point was raised in our last Committee about the process of the surveys. There was a suggestion that the way in which people’ data were collected was a bit ad hoc. It is clearly stressed to interviewees that the data collected by the survey can be used only for statistical purposes and cannot be used to investigate unlawful income or tax irregularities. There are no explicit questions asked about income from unlawful sources, but there is nothing to prohibit respondents providing information on their income from informal economy sources. The respondent may say that they are receiving a benefit amount which, based on their personal and family characteristics, they would appear to be claiming fraudulently, but that amount is not corrected or adjusted in any way. The noble Lord alights upon an issue, but what it tells us about the strategies that should be devised to focus on it does not take us very far. To actually adopt a specific requirement on the basis of this amendment would not be helpful or productive, but a continued effort to challenge the informal economy—the tax avoidance and evasion that goes with that, as well as benefit fraud—is something we must continue to be vigilant about.