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Tax Credits Up-rating Regulations 201

My Lords, I am very grateful to noble Lords. As is becoming a pattern here, we have had a small, focused and to-the-point discussion. I am disappointed that the noble Lord, Lord Davies of Oldham, did not appreciate my approach this afternoon. On other occasions, when I have gone perhaps to excessive lengths to point out every detail of measures, I did not always seem to be grasping his attention right through, so I thought I would try another attempt and go for the sunny uplands this afternoon, but it seems that that has not worked either. I shall have to try some other approach next time. I do not want to be drawn too much into the big picture because, as the noble Lord, Lord Davies, said, we shall have a long debate tomorrow and another one next Thursday. However, I cannot entirely let his remarks go unanswered. Every commentator, from the IMF to the OECD through to all the domestic commentators, has reiterated the fact that the Government need to stick to the clear deficit reduction plan. To be fair to the noble Lord, he recognises that, as he says that he understands that we cannot give away money through taxes or otherwise. I welcome his partial recognition of the reality. It is against the background of the situation last year and the background that still persists that we bring these measures forward. Welfare spending now accounts for one-third of all public spending. As I said in my introduction, spending on tax credits has increased from £18 billion in 2003-04 to an estimated £30 billion in 2010-11. My noble friend Lord Newby made the point that in respect of what we are discussing this afternoon, it is unsustainable and, in significant respects, unfair. The reforms to tax credits outlined within these regulations and orders are fair and proportionate. They tackle the deficit in a way that ensures that tax credits are targeted at those who need them most. Again as my noble friend Lord Newby points out, it is in the broader context that the critical move to the universal credit over this and the next Parliament gets driven forward. I was grateful to the noble Lord, Lord Davies of Oldham, for recognising that we will use some of the savings from withdrawing child benefit from families with a higher-rate taxpayer to increase the child element of the child tax credit. That is important. It is an increase of a further £30 above indexation in 2011-12, and a further £50 above indexation in 2012-13, in addition to the above-indexation increases of £150 in 2011-12 and £60 in 2012-13 announced in the previous Budget. While we are on indexation, I hesitate to take the opportunity to give a reminder to the noble Lord, Lord Davies, who raised questions about RPI and CPI. As he says, it is correct that RPI is now 4.6 per cent. However, the previous Government were intending to uprate by applying RPI minus 1.5 per cent. Of course, 4.6 per cent less 1.5 per cent takes one back to 3.1 per cent. So, in practice, there is no difference in these rates between the old and the new policy. I will get back to my noble friend on his specific question about funding for Sure Start because I want to make sure that I have my facts right. I certainly agree that if, under the flexibility and the money that councils are allowed, some councils are able to continue I am not sure why others cannot. I will check the details of that. To conclude, I believe that reforms at the Budget and the spending review, of which these are an important element, have been carried out in a fair and responsible way. We have ensured that everyone who is able to contribute to the deficit does so, while those with the lowest incomes continue to be supported. The critical test is that, after combining the impact of tax, benefit and public services spending review changes, it is the highest quintile of earners who will make the greatest contribution towards reducing the deficit as a percentage of their income and benefits in kind. I commend these regulations and orders to the Grand Committee. Motion agreed.