Clause 7 - Income test
Tax Credits Bill
10:45 am
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
To be honest, that returns us to the point that the hon. Gentleman made in previous debates. A cap would be an unnecessary complication for everyone claiming tax credits and in the legislation, in order to deal with a few exceptions. I would also hazard to suggest that an individual would have to be going some to spend £500,000 a year—that is a more lavish lifestyle than mine. Moreover, that income may be deposited somewhere, generating an income that would come into consideration, which leads me to his question of what the income tests would be.
The clause ensures against the anti-avoidance element in which people put income under the name of one of their children or a friend. We trace that money, which is a method used often in the tax system. The starting point is to bring tax credits in line with the tax rules. It would be right to depart from those rules for some types of income. During the current consultations, we are discussing exactly what they may be and whether it is necessary to exempt them. The income taken into account will be the annual taxable income from all sources, such as employment, self-employment, social security benefits, pensions, or other incomes: savings, trusts, overseas income and so on. Those rules come straight from the tax system, and we need to decide whether it would be right to include any other form of income. I hope that that explains the basic criteria. We are now deciding whether any other income should be identified. That would be implemented by regulations.
We will always make a judgment whether the income would be enough to merit its being drawn in, or whether that would complicate the system by dragging a large proportion of those claming tax credit into a burdensome submission of information.
At every point, we strike a balance and make a judgment. When that is finally made, I will be happy to go through it with the hon. Gentleman and to provide an explanation if the position is different from what I have said today. I appreciate that what regulations contain is a big issue for Committee members. I am trying to be as open as I can as well as to manage the final consultation to ensure that we get things right as much as possible. The Committee will receive the information as soon as possible.
I am sure that everyone appreciates that it is right to settle these matters in secondary legislation so that, once the tax credits are operational, we have the opportunity to learn from experience, to make
adjustments if necessary and to consider how people's income changes over time and whether other things need to be drawn in. On that basis, I hope that the hon. Gentleman will withdraw the amendment.