1.  CHILD POVERTY NUMBERS

  The baseline year for the Government's child poverty target is 1998-99, when relative child poverty was 3.4 million.

  Halving child poverty by 2010 implies getting child poverty levels down to 1.7 million children in 2010-11. The latest available data is for 2005-06 showing 2.8 million children in relative poverty, so there needs to be a fall in relative poverty of 1.1 million between 2005-06 and 2010-11 to meet the target.

  Child poverty is influenced by a number of factors:

—  parental employment rates;

—  demographic factors, such as the number of children and the type of households in which they live;

—  growth in incomes across the distribution, in particular how incomes grow among the poorest families compared to the median; and

—  the effects of changes to the tax and benefit system.

  The last three fiscal events are expected to make further progress and lift over 500,000 children out of poverty as a result of changes to the tax and benefit system, of which:

—  Budget 2007 is expected to lift 200,000 children out of poverty;

—  2007 Pre-Budget Report and Comprehensive Spending review is expected to lift 100,000 children out of poverty; and

—  Budget 2008 is expected to lift up to 250,000 children out of poverty.

  The 500,000 figures represents the number of fewer children in poverty compared to what would have happened without policy intervention. The actual change in poverty in the future depends not only on that, but also the underlying trends in poverty, which could either be rising, falling or remaining flat. As such, the above estimate of 500,000 children taken out of poverty are not necessarily a projection for the future.

  The Institute for Fiscal Studies has estimated that after taking account of policy changes, and the underlying trends in child poverty, a further 450,000 children need to be lifted out of poverty to meet the 2010 target.

  SR02 set a target to reduce the number of children in relative low-income by a quarter by 2004-05. This was set using the McClements Equivalisation scale which is different to the modified OECD scale which is currently used.

  Under this scale the baseline was 3.1 million children in 1998-99 (BHC) and 4.1 million children (AHC). In 2004-05 child poverty fell to 2.4 million (BHC) and 3.4 million (AHC) representing a 23% and 17% fall respectively. This fall was less than the Government SRO2 target of a fall of 25%.

2.  CHILD BENEFIT DISREGARD IN HOUSING BENEFIT AND COUNCIL TAX BENEFIT

  Housing Benefit (HB) in 2007-08 is calculated according to the formula below. The calculation of Council Tax Benefit (CTB) is similar.

  Housing Benefit = Eligible rent—( 65% x ( I—A ) )

  That is, HB is withdrawn at 65p (20p for CTB) for each £1 of net income for housing benefit purposes (I) that exceeds a family's applicable amount (A) in HB.

  Income is net of income tax and employee National Insurance Contributions, and also includes Child Benefit and tax credits received; there are earnings disregards ranging from £5 to £25 per week, and an additional disregard for those eligible for Working Tax Credit. Applicable amounts for HB vary by family circumstances, eg there are different rates for singles and couples, and additions for dependent children.[1]

  Under the 2007-08 system, Child Benefit is included in the calculation of net income for HB purposes, ie is not formally disregarded. However, exactly equivalent amounts are also included in a family's applicable amount for HB. This means that two families identical in all respects except that one receives Child Benefit and the other does not, both receive exactly the same amount in HB and CTB.

  Budget 2008 announced that from October 2009 Child Benefit income will be disregarded in calculating income for HB and CTB purposes. Compared to the current system, this reform amounts to an additional disregard in net incomes for HB/CTB purposes up to the value of Child Benefit for any family receiving Child Benefit. This new disregard will be additional to the existing Child Benefit premiums in HB/CTB applicable amounts which already ensure that families receiving Child Benefit do not have any of this income taken away from them through withdrawal of HB/CTB under the current system.

  Compared with the current system then, this reform will lead to a genuine increase in income for any family receiving Child Benefit whose net earnings for HB/CTB purposes currently exceeds their applicable amount (and who currently face withdrawal of HB/CTB). A worked example for HB is provided in the table below.

  In addition, some families receiving Child Benefit whose entitlement to HB/CTB is fully withdrawn on the basis of family income under the current system will also see gains. Working families with children will be the main beneficiaries of this measure; non-working families currently receiving maximum HB/CTB are unaffected. For example, a family with one child on the lowest incomes will gain up to £17 a week from this change; gains are greater for larger families. The measure has an estimated exchequer cost of £350 million in 2010-11 (Budget 2008, Table 1.2).

  Transferring additional resources via HB and CTB ensures that gains are focussed on low income families with children, with greater gains for larger families where the risk of child poverty is greater. Together with other Budget 2008 announcements, the measure is expected to lift up to a further 250,000 children out of poverty. By boosting in work incomes, the reform also improves incentives to work for low income families.

Worked example for Housing Benefit in 2007-08: Single earner couple with two children, with net earnings of £140 per week, paying rent of £60 per week

£ per week
2007-08 system	Including disregard of Child Benefit1
Applicable amount: Couples Allowance: 92.80 Family premium:2 16.42 = (545 x 7/366 + 18.10—12.10) Child premium:3 94.77 = 2 x (1,845 x 7/366 + 12.10)       Total: 204.00 Net income for HB purposes: Net earnings: 140.00 Child Benefit: 30.20 = (18.10 + 12.10) Tax credits: 127.69 less   Earnings disregard: 10.00   WTC disregard: 15.45       Total: 272.44     Housing benefit: 15.51 = 60.00—0.65 x (272.44—204.00)	Applicable amount: Couples Allowance: 92.80 Family premium:2 16.42 = (545 x 7/366 + 18.10—12.10) Child premium:3 94.77 = 2 x (1,845 x 7/366 + 12.10)       Total: 204.00 Net income for HB purposes: Net earnings: 140.00 Child Benefit: 30.20 = (18.10 + 12.10) Tax credits: 127.69 Less   Earnings disregard: 10.00   WTC disregard: 15.45   Child Benefit disregard: 30.20       Total: 242.24     Housing benefit: 35.14 = 60.00—0.65 x (242.24—204.00)     Family gains 19.63 = (35.14—15.51) =.65 x child benefit (30.20)

1  For illustrative purposes, HB calculations with and without a formal disregard of Child Benefit income are shown in 2007-08. Budget 2008 announced that Child Benefit will be disregarded in income for HB and CTB purposes from October 2009.

2  Equal to the family element of Child Tax Credit plus the difference between the eldest and subsequent rates of Child Benefit.

3  Equal to the child element of Child Tax Credit plus the rate of Child Benefit for subsequent children.

3.  COUNCIL TAX: TABLE C6

  The figures in Table C6 are produced on a National Accounts basis and are not solely gross Council Tax—they include accruals adjustments, Northern Ireland domestic rates and are less Council Tax Benefit.

  Within the overall projection, gross Council Tax figures for 2006-07 are based on outturn and 2007-08 figures on CIPFA data, including historic growth in the Council Tax base. The 2008-09 figure reflects the average bill increase in England and Wales in the previous three years plus base growth (eg. more households). The Scottish Parliament announced no cash increase in bills over the CSR07 period and that forecast assumes only base growth. The underlying bill increase and base growth numbers assumed in Table C6 are below:

		2006-07	2007-08	2008-09
		Outturn	Plans	Assumption
England	% Change	4.5	4.2	4.3*
	Base growth	0.8%	0.8%	0.8%
Scotland	% Change	3.2	1.8	0**
	Base growth	0.5%	0.5%	0.5%
Wales	% Change	4.4	4.7	4.3*
	Base growth	0.5%	0.5%	0.5%

*  Three-year average 2005-06 to 2007-08

**  Announced by Scottish Parliament

  Local authorities, not the Government, determine Council Tax increases annually. The Council Tax projections in Table C6 are based on stylised assumptions and are not Government forecasts. In seeking to forecast growth in Council Tax bills in 2008-09, it is more appropriate to refer to the Local Government Association who, in January 2008, reported that average Council Tax increases in England would be around 4%.

4.  RESIDENCE AND DOMICILE NUMBERS

Of the people who don't leave the UK how many will be in employment?

  There is a limited amount of data in this area as the recent consultation document indicated. Currently our data shows that around 80,000 remittance basis users have UK employment income. We expect this to stay broadly the same following the changes announced at Budget.

Are you expecting them to be compensated by their employers?

  Our understanding is that currently employers do offer workers posted from overseas tax equalisation packages for limited period. How employers wish to structure their pay packages is however a matter for them. It should be noted that we believe the £30,000 charge will now be creditable against US tax, compensation would not therefore be necessary.

How many will be casual workers?/Can HMRC cope?

  HMRC will provide support and guidance for migrant workers and other low income groups who find that they are impacted by the changes. It is however important to note that not all casual workers coming to the UK from abroad will use the remittance basis. Some may not be here long enough to qualify as UK tax resident. Those who are resident for UK tax but don't use the remittance basis will find that if they have paid tax on employment income in their home country they are unlikely to need to pay more tax in the UK. If they do qualify for the remittance basis, most non domiciled workers on a low income who will not be touched by the new proposals as personal allowances are not removed unless they have more than £2,000 unremitted income and gains, which implies savings income on capital of around £40,000. Similarly, if they are casual workers they are unlikely to be here for more than seven out of 10 years and so will not be affected by the charge.

How many will leave?

  As mentioned above, there is a limited amount of data in this area as the recent consultation document indicated At the time of the consultation our working assumption was that 3,000 people would leave. This is broadly still the case.

What assessment has been done of the economic impact of people leaving?

  HM Treasury does not do economic impact assessments for personal tax measures. It should however be noted that the estimated increase in tax yield in 2009-10 is £700 million.

5.  SAVING GATEWAY AND ELIGIBILITY

  Eligibility to the national Saving Gateway will be passported from qualifying benefits and tax credits.

  People who are retired will not be eligible as other forms of support are in place for those who are retired and on low incomes, such as the Pension Credit and the Winter Fuel Allowance. Students are able to access financial support through student loans and maintenance grants.

  Building on the lessons learned from the Saving Gateway pilots, individuals will be eligible to open a Saving Gateway account if they are in receipt of:

—  Working Tax Credits (WTC)

—  Child Tax Credit paid at the maximum rate

—  Income Support

—  Incapacity Benefit or Employment and Support Allowance

—  Severe Disablement Allowance

—  Jobseeker's Allowance

  This will give a potential eligible population of around eight million individuals. Passporting access to the scheme provides the simplest and most cost effective way of reaching the target population.

  Some individuals on low incomes of working age would not have access to the Saving Gateway through passporting. Details of these are set out below:

Group	Size of Group (m)
Those on low incomes, in work, aged 18-25 who do not qualify for WTC	0.5
Working 16-30 hours not eligible for WTC	0.7
Eligible for a qualifying benefit but do not take it up	2.7

  To bring these groups into eligibility for the scheme it would be necessary to set a separate income and asset test for those who do not qualify through passporting but think they have income and assets low enough to qualify.

  There are a number of issues which would arise in doing this. Primarily a separate income and asset test would detract from the simplicity of passporting and may act as a further barrier to helping individuals on low incomes to save. It would also not be possible to put the necessary computer systems in place to do this in time for the introduction of the scheme in 2010.

6.  VFM—DISALLOWING GAINS DUE TO SERVICE QUALITY INDICATORS

  Under the SR04 Efficiency Programme all efficiency initiatives have service quality indicators and gains are not allowed to score as final until it can be demonstrated that service quality has not been adversely affected.

  HMT's challenge process looks at a range of issues including whether service quality is being robustly measured. Our process is designed to engage constructively with departments to ensure that genuine efficiencies are being achieved. When HMT has concerns about any aspect of an SR04 efficiency initiative, we engage with the department to understand the issue and resolve it quickly. The success of this approach is demonstrated by the fact that 87% of the gains departments reported to December 2007 are now classified as final, and therefore have demonstrated that service quality has not been adversely affected. This compares with 68% of the gains reported at Budget 2007, indicating the progress that has been made in resolving measurement concerns.

  As we look to bring the programme to an end we will be working to ensure that all the gains counted towards the target are real, robust and have demonstrated that quality has not been affected. If Departments have put forward gains that cannot meet this criteria they will not be counted. However we are not at this stage now, and our engagement with departments has been characterised by constructive challenge and support, not "disallowing" programmes.

7.  HOW MANY PEOPLE WITH INCOMES LESS THAN £18,500 A YEAR WILL BE EXPERIENCING A FALL IN LIVING STANDARDS?

  The Government gave details of those affected by the tax changes announced in Budget 2007 in answers to Parliamentary Questions by Mr Frank Field (Official Report 18th Oct 07, Col 1266W-1268W) and Mr Drew, Mr Boswell, Mr David Anderson and Mr Syms (Offical Report 18th Oct 07, Col 1268W-1270W).

  Specifically, estimates are that 0.8m single earners with income under £18,500 will see their income decrease by around £1.45 a week on average. The reforms overall, however, are of particular benefit to low income households. The reforms will lift around 200,000 children out of poverty, and analysis of the reforms by the Institute for Fiscal Studies showed the greatest gains are for households in the poorest two deciles.

  The maximum amount any single individual could be worse off by is £232 per year (£4.46 per week)—about 3% of net income. This loss would be completely offset by increases in Working Tax Credits for those eligible to claim. For those not eligible for WTC it is possible that households around or under the level of income achieving the maximum loss could be receiving Housing and/or Council Tax Benefits and could therefore have up to 85% of this loss offset by increases in HB/CTB. For households that are worse off, the average loss is about £2 per week.

  In October 2008 the National Minimum Wage increases by 3.8% outweighing the losses arising from the income tax changes for many. For a single person aged 22 or over, working full-time on the National Minimum Wage and not eligible for, or not claiming, Working Tax Credit will be £77 per year (£1.49 per week) better off in real terms by October 2008 compared with October 2007.

  As a result of personal tax and benefit measures announced in Budget 2007, PBR 2007 and Budget 2008 around 22 million households will be better off or no worse off in 2008 in real terms than compared with the 2007-08 tax and benefit system. More than nine-in-ten households in the bottom fifth of the population will be better or no worse off in real terms in 2008 compared with 2007. On average, households in the bottom fifth of the population will be £160 per year better off in real terms—an increase in their net incomes of 1.2%.

  It is not possible to estimate how many people with incomes less than £18,500 will experience a fall in their living standards as it depends on their individual circumstances and earnings growth.