Clause 7 - Income test
Tax Credits Bill
9:30 am
Mr Paul Boateng (Financial Secretary, HM Treasury; Brent South, Labour)
I welcome you back to the Chair, Mr. Hood.
We were debating the amendment when the Committee rose on Tuesday. Its effect would be to reduce the flexibility that clause 7 provides for handling fluctuations in claimants' income. I understand the concerns of the hon. Member for Northavon (Mr. Webb) about simplicity, which we discussed during Tuesday's sitting and I hope that my explanation of how we intend the system to work under clause 7 will provide some reassurance.
The aim of the new tax credit is to combine continuity of support, where appropriate, with the flexibility to respond to changes in claimants' lives. In particular, it is important that tax credits should be able to intervene to provide extra support when claimants experience a significant fall in their income, thereby helping them to stay in work. The thrust of tax credits is to reaward work and to encourage and sustain it.
Although that flexibility is important, we are aware that people need as much certainty as possible about their tax credits. Clause 7(3) enables thresholds to be set for a change in income between one year and the next, so that only changes greater than the threshold will make any difference to entitlement.
Depending on what is set out in regulations, clause 7(3) will enable tax credits to be based on: current year income in all cases; current year income only if that is higher or lower, by a set amount, than last year's; current year income ignoring the first slice of a change by comparison with last year; or, in effect, previous year income.