– in the House of Commons am 12:02 am ar 21 Ionawr 1991.
This is an extraordinary story of how 192,000 families are about to be cheated by the Government, and about families who have been cheated over the past 10 years. The cheating is as sure as if their pockets had been picked or their purses rifled. The theft is official, subtle and almost invisible, because it is hidden under a tangle of complex regulations. Fortunately, there is still time for the Government to repent or for revolt by their Lordships to stop this happening. If the measure goes through, many of the most deserving people in the land—more than 100,000 of them on invalidity benefit, 18,000 of them pensioners and 60,000 of them widows—will lose substantially.
All those people are now receiving child benefit, but they will not receive the £1 a week embarrassment bonus which was heralded by a great blare of trumpets and trombones in the 1990 autumn statement. That famous occasion will be well remembered in the House. In the death throes of her premiership, the right hon. Member for Finchley (Mrs. Thatcher) agreed to bestow £1 a week on first-born children as an act of atonement for her sabotage of child benefit in the past. It was a vain attempt, perhaps, to prolong her doomed premiership.
The matter is unavoidably complex. Support for families receiving basic maintenance benefits such as widows' and mothers' allowances, invalidity benefit and retirement pensions takes two forms. They receive child benefit in the same way as any other family. However, it has always been recognised that child benefit is not sufficient for all the needs of the child, so a child dependency increase is paid in addition. What matters is the combined value of child benefit and child dependency increase, described in a recent parliamentary answer as the overall level of support payable for the child.
Child benefit is now £7·25 per child, and child dependency increase is £9·65—a total overall level of support of £16·90. A written parliamentary answer on 17 June 1980 revealed the rather extraordinary news that the overall level of support in November 1979, at April 1990 prices, was £23·05. It has fallen steadily to its present level of £16·90. Expressed as a percentage of average gross weekly earnings, the figure is even more startling: it has fallen from 9·7 to 5·7 per cent.—in other words, by almost 50 per cent. The reason for that unjust drain on the value of the benefit is a change in the method of calculating the annual child dependency increase which took place in 1980. Apparently very few people were aware of it.
The simple, rational, defensible method used by all parties up to 1979 to calculate child dependency increase was as follows. The first step was to calculate the increase in the overall level of support needed to restore its value, taking into account the increase in prices—or, under the last Labour Government, the increase in earnings—since the previous uprating. The second step was to deduct from that overall increase the uprating, if any, of child benefit. The third step was to uprate the child dependency increase by the difference. In that way, whether the value of child benefit was maintained, increased or reduced, the overall level of support for the children of widows, long-term sick and pensioners was fully protected.
Clearly, the second stage in the calculation—deducting any increase in child benefit—made sense only if the starting point of the calculation was the overall level of support, including child benefit itself. Since 1980, however, that has no longer been the case. The method now used was explained in a written answer on 17 January: the first step is to calculate what the child dependency increase would be if the general uprating percentage were applied and the second is to deduct any cash increase in child benefit.
The absurdity of that method can be shown by a simple hypothetical example. Suppose that child benefit and child dependency increase were both £10 per child, making a total of £20, and that, in the year in question, prices had risen by 10 per cent. Suppose that the Government decided to do the right thing and uprate child benefit and child dependency increase in line with prices, giving a new rate of £11 for each—a total of £22 per child. Under the present fraudulent formula, the £1 increase in child benefit would be deducted from the child dependency increase, leaving it at £10, and the new overall level of support would be £21 instead of £22. That is an increase not of 10 per cent., but of 5 per cent. and that is why the erosion of the benefit has continued since 1980. To produce a 10 per cent. overall uprating, the child dependency increase would have to be increased by 20 per cent. to a full £12 so that there would still be £11 left after deducting the £1 increase in child benefit.
One wonders what kind of Machiavellian brain could have produced that formula. The best that can be said about it is that it does not appear to be illegal. However, if anyone other than the Government were to try to pull such a confidence trick, I am sure that that person would be up on a charge of fraud.
Child dependency increases are included in the list of benefits that the Secretary of State is required by section 63 of the Social Security Act 1986 to uprate annually. However, the minimum requirement applies only to child dependency increases and not to child benefit or to the overall level of support. The Secretary of State for Social Security can comply with the law simply by uprating the child dependency increase in line with prices even if the child benefit is frozen, as it has been over the past three years, and the overall level of support is cut. To make matters worse, in any year in which child benefit is uprated, section 17 of the Child Benefit Act 1975 allows the Secretary of State to deduct whatever amount he thinks appropriate to take account of the uprating of child benefit.
That provision was included in law originally as it was intended by a Labour Government in 1975 to be used only when child benefit was increased by more than the normal uprating—that was a possibility in those days. However, successive Conservative Secretaries of State since 1980 have perversely used the provision as a pretext for deducting every increase in child benefit from the child dependency increase. Although that is within the law, it is plainly indefensible in principle.
Before November 1980, and including the first Tory Government uprating in 1979, neither Labour nor Conservative Secretaries of State abused their power in that way, although the law as it stood then would have allowed them to do so. It is therefore not necessary to change the law in order to revert to the simple, fair and rational principle followed by all Governments before 1980. All that is necessary is for the Secretary of State to stand up to the Treasury, where I am sure the present policy originates. In my experience, Social Security Ministers are reasonable, well-meaning people trying to break out from the straitjacket of meanness imposed on them by Treasury Ministers.
From the bad of the past, we come to the worse of the present. The April 1991 uprating is different in two ways. First, for one-child families—and only for those families —the £1 increase in child benefit is slightly more than is needed to compensate for the 10·9 per cent. rise in prices over the past year. Eighty pence would have been enough to restore the value of child benefit for the first child. Therefore, it is possible to argue that the other 20p should be knocked off the child dependency increase uprating—although, after what has happened since 1980, allowing the long-term sick and the widows to keep their 20p would not seem to be over-generous. To deduct the £1 from the child dependency increase is iniquitous.
The second difference in the 1991 uprating is that the £1 cannot be deducted from the child dependency increase without a change in the law. The reason for that is that there is only one child dependency increase rate for all children, and the uprating order cannot introduce a lower rate for the first child only. I understand that the Government intend to get round that difficulty by the dubious device of amending the overlapping benefits regulations. That device might well be unlawful. It is certainly wrong in principle and it must be challenged.
The case for allowing widowed mothers, pensioners and the long-term sick to get the full benefit of the child benefit uprating is even stronger this year than in previous years. One special group who are clearly on our minds at the moment are war widows. To the surprise of many hon. Members, we heard that a special fund is to be set up—the Gulf Trust. One would have thought that, if the Government had shown a better regard for war widows over the years—they certainly have not done so for that category, although they have taken certain benign decisions elsewhere—perhaps there would not be a need for such a Gulf Trust. Tragically, that group will soon increase.
In April, a war widow will get £14·65 a week for her second and subsequent children, but only £13·65 for her first child because the extra £1 will be deducted. The treatment for war widows seems to be worse than that handed out to national insurance widows, because the children's allowance is not even uprated fully in line with prices. For instance, in April 1990 it was raised from £12·60 to £13·40. That is a 6·5 per cent. increase, although prices rose by 7·6 per cent. There was a similar shortfall in each of the previous two years, and there will be another shortfall this year. Even when child benefit is frozen, the war widows children's allowance is not fully uprated. I genuinely do not know the reason for that, and I should be grateful if the Minister would explain why war widows are treated so shabbily compared with other widows.
If we compare the combined value of the children's allowance and child benefit in November 1979 and April 1990, we will note that it was £14, the equivalent of £29·05 at April 1990 prices, and in April 1990 it was £20·65, a real loss in value of £8·40 per child. That is for war widows. Why? In the past 10 years, the Government have cut by almost half the true value of the essential child support payments to parents who are widowed, elderly or seriously ill. On top of that, the Government now plan to rob 192,000 families of the value of the £1 increase for the first-born this year. They are cuts, and they are furtive, unjust and miserly.
I congratulate the hon. Member for Newport, West (Mr. Flynn) on securing this opportunity to debate child dependency additions and the way in which they are increased. I congratulate him also on the care with which he prepared and presented his case to the House.
I hope to deal with the hon. Gentleman's point about whether we were cheating or being fraudulent. I deny both charges. I hope also to explain some of the consistency that underlies our policy in this matter. I noted carefully what the hon. Gentleman said and his criticism of our policies, but our approach to the issue has its origins as far back as Beveridge's 1946 plan for social security. In framing his proposals, Beveridge established certain principles of how financial provision was to be made for those with responsibility for the care of children. Those principles, which I shall describe in a moment, have underpinned policies in this matter for all Governments since the introduction of the post-war social security system.
Beveridge's plan included a general scheme of children's allowances which gave direct provision for the maintenance of dependent children through the payment of the allowances to those responsible for such children's care. However, the new family allowances had a drawback —they were not paid for the first child, only for the second and subsequent children. Initially, Beveridge saw that as a way of observing the principle of shared responsibility between the community and the individual for the support of children while an individual was working. However, it was recognised that the scheme presented a real problem for someone who was not in work but who was still responsible for the care of children. In devising the new scheme set up in 1948, it was decided to provide an allowance for the first child by making an addition—hence the subject of the debate—to the benefit payable during such an interruption from work as a result of unemployment or disability.
As the House will see, the principle of child additions was established when there was no universal payment from the state towards the care of all children. That principle was put into effect in 1948, when family allowances were joined by increases in benefit for children made under the newly established national insurance scheme. In 1951, the principle was established that the setting of the level of child dependency increases had to take into account the level at which family allowance was being paid. This also confirmed the extension of the principle of linkage between the two forms of payments.
The rates of increases of benefit continued to be set at different levels dependent on whether the child was the first or a subsequent child in the family. However, the higher rate of family allowance for the third and any subsequent child which came into effect in 1956 was reflected in the rates of child dependency increases and three different rates of increases payable with widow's benefit were introduced in 1964.
The interrelationship between family allowances and child dependency increases was thus founded on the general principle that a lower rate of child dependency increase was appropriate where a higher rate of family allowance was payable for a particular child. Implementation of this principle was continued in 1967, when the then Labour Government introduced a third rate of family allowance for the fourth and any subsequent child, which resulted in a corresponding reduction by the same amount in the payable rate of child dependency increases for those children. This process was continued from 1968 onwards, when child dependency increases took into account the full amount of family allowance.
This position was reinforced in 1975 when the Child Benefit Act made provision for any increase in benefits for children to be adjusted to reflect any increase in child benefit. In the interests of consistency and accuracy I can do no better than quote the words of Baroness Castle, who was Secretary of State when the Child Benefit Bill received its Second Reading. In opening the debate, she explained that the relevant clause in the Bill
continues the long-standing practice whereby dependency benefits paid, for instance, with sickness, unemployment and invalidity benefit are set at a rate which takes account of family allowance, so that together the payments provide a uniform level of income for each child."—[Official Report, 13 May 1975; Vol. 892, c. 339.]
This establishes beyond doubt that the Government have followed the broad principles of the history and approach as outlined and confirmed in legislation by Baroness Castle.
When child benefit of £1 was introduced for the first child in April 1977, the dependency increase for that child was reduced by the same amount. The interrelationship that I have just established was further underlined in April 1978, when the rates of child benefit of £1 for the first child and £1·50 for subsequent children were increased and equalised at £2·30 for each child. The effect on child dependency increases was a corresponding reduction of £1·30 in the amount payable for the first child and a reduction of 80p in the increase payable for other children. The result was equalisation of dependency increase rates for each child. When the rate of child benefit was increased by £1 in April 1979, the rates of child dependency increases were reduced by the same amount.
In the course of reviewing the rates of benefits now, the Secretary of State is required to look at the rate of child dependency increases and also guardian's allowance, and child's special allowance which are benefits payable in respect of children and at the same rate as child dependency increases. He is also required to consider the rate of child benefit, and if he decides that an increase in child benefit is appropriate, he is empowered to make a corresponding reduction in child dependency increases and child-related benefits. I emphasise that this formula is the same as that used by the Labour Government in 1977.
To apply this measure means calculating what the child dependency increase would be if the general uprating percentage were applied and then deducting from that amount any cash increase in child benefit. The Secretary of State is thereby enabled, when setting these rates, to reflect by the operation of the formula the combined effect of the uprating increase and any reduction that he considers appropriate.
The use of the formula has protected beneficiaries who have had the full percentage rise in their child dependency increase in the years that have seen no increase in child benefit. Equally, this formula achieves the common intention shared for all those responsible for the social security system since 1948, that increases of benefit paid to those supporting dependent children had to take account of payments made for these children either by family allowances or, now, child benefit. The formula makes it possible to adjust the constituent parts of overall child support.
The hon. Gentleman referred to the history of this benefit. It is true that a different formula was used before 1977 and for the reviews of rates of benefit that took place in the Novembers of 1978 and 1979. This variation involved applying the percentage increase to the sum of the child dependency increase and child benefit and then deducting the new rate of child benefit from the total. This level of expenditure could not be sustained in the light of the economic situation that the Government inherited in 1979, and consequently we had to revert to the less generous formula of 1977.
The continued development of the social security system to help other disadvantaged groups was also in our minds. We have given assistance to such groups as disabled people, lone parents and war widows. Consequently this has constrained our ability to amend policy in this sector. In the context of competing demands on public expenditure, we decided in 1979 to uprate child dependency increases from 1980 by the lower amount allowed by the legislation and therefore adopted the formula first used in 1977, thus maintaining a consistent approach. Decisions in this area continue inevitably to be affected by financial limitations, and our view remains that increases of child-related benefits based on the 1977 formula secure the most effective use of finite resources.
The operation of the formula has been simple up to now. As the legislation now provides, as the hon. Gentleman said, for a single rate for benefits applicable to children, it has been a simple matter to increase this rate by the general uprating percentage and then to take off the actual amount of any increase in child benefit.
However, the fact that the main legislation is framed in terms of a single rate of child dependency increase raises a problem in observing the principle embodied in the uprating formula. The new proposal to pay a £1 per week increase in child benefit for the only, elder or eldest child in a family from April this year has the effect of creating two different rates of child benefit. Application of the uprating formula taking account of child benefit to determine the new rates of increases and benefits for children would necessitate the creation of two different rates for these benefits.
But I should mention that we are not proposing to break entirely new ground by making this provision—this answers a point made by the hon. Gentleman. Within the overlapping benefits regulations in this area of benefits for children are powers that enable us to cater for this contingency. The regulations provide for an overlapping benefit reduction in the amount of benefit payable for a child where the increase in child benefit for a single parent is also in payment. Adjustment in these circumstances is designed to prevent simultaneous payment of benefits meeting the same income maintenance needs of, in this instance, the same child.
As I have explained, the overlapping benefits adjustment that we are proposing to introduce is designed to secure exactly the same result as would have been achieved by the operation of the child dependency increase uprating formula. We consider that the proposal will secure a fair level of support for each child and will achieve its aim of recognising the natural interdependence between payments available in respect of children. This aim is based on the long-established view about the way in which the social security scheme should help with the support of children, a view with which we see no reason to differ.
I remind the House that, for those in receipt of the child dependency increases who have more than one child—the hon. Member was selective in the use of his facts on this —the full value of the uprating will be applied to the child dependency increases applicable to the second and subsequent children, bringing the amount payable in their case to £17·95 per child.
The hon. Member also chastised us on the question of war widows. I point out that, in the interests of consistency all Governments, following the same pattern, have treated war widows in the child increases they get in precisely the same way. The rates that war widows receive are at a much increased and preferential level compared with those who also receive these increases. So that principle remains, but the levels are more generous. It is also worth pointing out that, for those on widow's pension, the social security benefit may not be the sole source of income. We have to have regard to the whole question of family income. The amount of widow's benefit payable is the same regardless of earnings, and I have noted with interest that 55 per cent. of all widows under the age of 60 are presently in employment. Equally, the group may also receive assistance through other social security benefits such as housing benefit or community charge benefit.
On the subject of war widows, I should add that the uprating order for this is being looked at. The hon. Member mentioned a number of detailed points which will take some close analysis. I do not want to avoid the Department responding, and I undertake to write to the hon. Member on those specific issues.
The hon. Member mentioned that those on invalidity benefits are the largest group receiving child dependency increases. I add that they, too, can have their incomes supplemented. To give the House an example, from April the average rate of invalidity benefit for a couple with two children will be £110·90. They will also receive £15·50 by way of child benefit. The beneficiary's spouse will be able to earn up to £41·40 net of work-related expenses before the rate of benefit is affected. In this example it would bring the family's total net income up to £167·80.
I should add that any occupational pension which the beneficiary may receive does not affect the payability of invalidity benefit. I hope I have shown that there is a wider view on this issue. Rightly, the hon. Member took a narrow point on a technical issue, but I have sought to widen it and I hope that he will accept the spirit in which that information is offered.
Having explained the principle and practice of the Government's policies towards child dependency increases, I must conclude by putting the debate in the context of the Government's overall approach to helping families with children. Here I believe we can take some pride from reflecting on the fact that this expenditure has risen by 30 per cent. in real terms since the last year of Labour Government and stands at £10 billion. In addition, this has helped us to finance new benefits such as family credit and income support, which has enabled us more accurately to target help to low-income families who also have children.
I thank the hon. Member for raising this issue. I also thank my hon. Friends the Members for Richmond and Barnes (Mr. Hanley), for Maidstone (Miss Widdecombe) and for Harrow, West (Mr. Hughes) for supporting me in this my first Adjournment debate.
Question put and agreed to.
Adjourned accordingly at twenty-seven minutes to One o'clock.