Chancellor of the Exchequer's Budget Statement 2002 – Extract (welfare benefits)

Published to rightsnet – 17 April 2002 – 17:00 hrs

… At the very core of creating a more enterprising, fairer Britain is our policy of moving more people from welfare to work.

This morning’s unemployment figures confirm that, since 1997, there are now 1.5 million more people in work, giving Britain the best unemployment figures for 25 years.

In the mid 1980s, 350,000 young people between 18 and 24 had been unemployed for more than a year. Today the figure is just 4,700.

Having weathered the world downturn of the last year Britain is moving closer to our goal of full employment than for a generation.

And the Secretary of State for Work and Pensions and I are agreed that we must not relax, but accelerate our efforts in pursuit of that goal.
Starting two weeks from now, in six – and by December, twenty – of Britain’s high unemployment areas the introduction of the Step-Up scheme will oblige the long-term unemployed to accept a guaranteed job which will offer, instead of the dole, secure waged employment.

I can announce that we will also, in London and selected cities, match this new regime by introducing mandatory work preparation courses for long-term unemployed.

Many who have come on to the unemployment register recently have a history of not being able to hold down jobs so – starting in pilot areas – the unemployed who are recurrently in and out of work will now come within the same rights and responsibilities of the New Deal.

And, in return for new obligations, new opportunities to ensure that work will pay significantly more than benefits.

Building on the increase in the Minimum Wage from October, working families with children will have a guaranteed minimum income of 237 pounds, over 6 pounds an hour for a 35 hour week – 97 pounds more than Income Support and substantially more even when all benefits are taken together.

Lone parents working 16 hours will be guaranteed 179 pounds a week as well as help with child care. Lone parents working full time will be guaranteed 237 pounds a week – making work pay 70 pounds more than Income Support.

The Secretary of State for Work and Pensions will shortly announce the details of a national campaign with employers, lone parent organisations and Jobcentre Plus to make people aware of the jobs on offer, the higher income possible and the child care help available, backed up by a new mentoring scheme for lone parents.

A single person with a disability moving into work of 35 hours will be guaranteed 194 pounds a week – 22 pounds a week more than today.

And today I want to announce the details of our next reform to make work pay: to extend the benefits of the Working Families Tax Credit – currently received by 1.3 million families with children, 450,000 more than Family Credit.

For the first time single persons and couples aged 25 or over without children will be eligible for in-work support that makes jobs pay.

We know that the problems that, particularly those over 50, face not just in getting work but the doubts they express about whether it is worth their while working.

The Working Tax Credit tackles this problem. Couples with wages less than 280 pounds a week, or 14,000 pounds a year – and single people with wages less than 200 pounds a week, or 10,500 pounds a year – stand to gain from this tax cut.

For a couple with no children full time work will pay not just 130 pounds a week – the minimum today - but 53 pounds more at 183 pounds a week.

For a single person work will pay at least 154 pounds a week – 25 pounds more than today.

So, in return for the responsibility to take up the opportunities that are available, the Working Tax Credit fulfils our promise to make work pay.

I turn now to pensions.

Mr Deputy Speaker, last November the Secretary of State for Work and Pensions and I set out the new financial measures to ensure pensioners have dignity in retirement.
No matter what the rate of current inflation, the Basic State Pension will increase by at least 100 pounds a year every year. And this year it is rising by even more than that: 3 pounds a week for singles, 4 pounds 80 pence for couples.

From next year 5 million pensioners stand to gain from the Pension Credit by on average 400 pounds a year more per household: 8 pounds a week extra.

And for the poorest single pensioner, extra help will guarantee a minimum income this year of 98 pounds 15 pence and from next year at least 100 pounds a week.

For pensioners who have occupational pensions, small earnings or savings and who pay tax I am also able to do more with my announcements today.

The age related personal allowances will be raised in 2003-4 far faster than inflation.

An elderly taxpayer will be able to set the first 6,610 pounds of their income against tax – and the first 6,740 pounds of their income for those aged seventy-five or more.

As a result of this rise in the personal allowance, 170,000 pensioners will no longer be liable to pay income tax.

And as we maintain the free TV licences for all pensioners aged 75 and over, the Winter Fuel Allowance will be paid this year at 200 pounds and in every year of this Parliament.

With the Minimum Income Guarantee, the new Pension Credit and new pensioner tax allowances the average pensioner household will next year be 1,150 pounds better off in real terms since 1997.

… Mr Deputy Speaker, this Budget is about building a Britain of greater enterprise and greater fairness and nothing is more important to an enterprising fairer Britain than that, through education and through support for the family, we invest in the potential of every single child in our country.

A family friendly tax and benefit system should be founded – as Beveridge wrote in his 1942 report – on the principles that nothing should be done to remove from parents the responsibility of maintaining their children, and that it is in the national interest to help all parents to discharge their responsibility properly.

But for years there was no recognition in the tax system of the existence of children or of the sheer costs of bringing them up, and our tax and benefit system had ceased to reflect our values.

This Budget applies the Beveridge principles to the realities and needs of modern family life. Today many families rely on two incomes and most women work. Some of the greatest pressures parents face were almost unknown to Beveridge’s time: the loss of income because one parent ceases employment and is at home or works part time after the birth of a child, or the costs of child care when the mother goes out to work.

A tax and benefit system that puts families first in the modern world would not just recognise the family as the bedrock of society, and the rights and responsibilities of parents, but also the very real pressures parents face right up the income scale. It would materially help them balance the needs of work and family and it would be generous enough to ensure for each child a good start in life.

To create a truly family friendly tax system we must integrate tax and benefits.

Instead of the old argument between those who favoured only universal benefits and those who supported narrow means-testing, our reforms ensure one seamless system that supports all families through universal child benefit, recognises the costs of raising children that middle income families face, and gives most to those who need it most – those on lower incomes.

And, I have decided that in line with universal Child Benefit, all support will be paid to the main carer, normally the mother – the best way to support families to get money directly to the children and tackle child poverty.

And to support this I will make one of the biggest single additional investments in children and families since the welfare state was formed in the 1940s.

I propose two and a half billion pounds of extra support for families – a family tax cut that will help nearly 6 million families. As a result, the direct tax burden on a family on average earnings with 2 children will be below 20 per cent, lower than it was in 1997 or any previous year since 1979.

I can now give the details.

Because the tax system should recognise all the everyday pressures on middle as well as lower income families, the new Child Tax Credit will be available right up the income scale for families with incomes of 58,000 pounds or below, and for the first year of a child’s life families earning up to 66,000 pounds will receive some help.

With our maternity reforms, including the rise in maternity benefits to 100 pounds in April 2003 and the extension of maternity pay to 26 weeks, families will receive up to 2,200 pounds extra to help cover the costs of the first year of a child’s life.

Because the test is overall family income, the income of one earner families is treated in the same way as two earner families. And 90 per cent of families will benefit from the new system.

Recognising the pressures on families, I have decided on additional help for child care in the new system.

To deal with a particular grievance of parents who work irregular hours or have disabled children, I have decided that support for child care costs should include help with approved child care in your own home.

And under the new tax credit system a family with two children on 35,000 pounds a year could receive child care help of as much as 50 pounds a week.

And in return for this new support we will also do everything to ensure parental responsibilities to children are met.

Where there are lone parents under 18 who cannot live with their family, the policy is that – instead of independent tenancies – they will have supported housing that combines accommodation with counselling and help with child care.

And in the minority of cases where a Parenting Order has to be imposed, checks will be made to ensure that, as well as proper supervision, parents are meeting their children’s basic practical needs.

With these changes, I will now set a rate for the new Child Tax Credit that, introduced in April next year, will give proper recognition of the costs of raising a child.

For all families with overall incomes of 50,000 pounds or less, the Child Tax Credit with Child Benefit will be 1400 pounds a year - or 26 pounds 50 pence a week - for the first child. This compares to just or 575 pounds a year - 11 pounds 5 pence a week - in 1997.

For those in the 50,000 pounds to 58,000 pounds range, minimum support is 800 pounds a year, maximum support 1400 pounds.

Our changes will mean that, from next April, mothers who wish to leave work and be with their children at home but have found it financially difficult to do so will find it easier. For single earner families more help is now available and for those on incomes between 43,000 pounds and 58,000 pounds help is available for the first time – an essential part of a more family friendly tax and benefit system.

And for two million of the poorest families in this country, child support – which was 28 pounds a week in 1997 – will now be 54 pounds 25 pence a week for the first child, a near doubling of support since 1997. Support for a two child family will be 92 pounds 75 pence.

And because the Child Tax Credit must ensure that the poorest families share in rising prosperity, I can announce that our policy will be to raise the child rates at least in line with earnings for the rest of the Parliament.

As we pursue our goals, all families will receive more support for bringing up their children, families who need it most will receive most help when it is most needed: fairness to families throughout.

… I know that – as Chancellor – I have to assure the British people not just that everything has been done to ensure prudent finances but to ensure proper value for money; and to show that any tax paid is linked to the benefits received, and that it is fair.

Having agreed NHS reforms including a new audit system that will link the money paid to benefits received, and having also resolved to exempt the elderly and vulnerable, I have decided that, for the year 2003-4, there will be a freeze of the non-pensioner income tax personal allowance and National Insurance thresholds at 4615 pounds.

And, from April next year, there will be an additional 1 per cent National Insurance contribution from employers, employees and the self-employed on all earnings above 4615 pounds.

All other National Insurance and income tax allowances will be indexed in line with inflation. Save for the 1 per cent contribution, the ceiling of 30,420 pounds remains in place and will be indexed in line with inflation to 30,940 pounds. But I believe it is right that when everyone – employees and employers – benefits from the insurance provided by the National Health Service, everyone who can should make a fair contribution.

The two tax changes I have made will mean a full time earner on median income of 21,400 pounds a year – 410 pounds a week – will pay 3 pounds 70 pence a week: those on higher incomes will pay more, those on lower income less.

On 150 per cent of median income – 32,100 pounds – 5 pounds 75 pence a week.

On 50 per cent of median income – that is 10,700 pounds – 1 pound 65 pence a week.

… Families with children will pay less than that because of the introduction at a cost of 2.5 billion pounds of the Child Tax Credit.

For single earner families from 35,000 pounds to 50,000 pounds, currently excluded from the maximum Children’s Tax Credit, the 1 per cent on National Insurance will be reduced, or more than eliminated, because they receive up to 10 pounds a week extra.

After taking National Insurance increases into account, a single earner family with two children on 21,400 pounds will be 3 pounds 90 pence a week better off. And taking National Insurance and the Child Tax Credit together, half Britain’s families with children will be better off as a result of the tax and benefit changes in the Budget.

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17 April 2002 – 17:00 hrs