Clause 7 - Income test
Tax Credits Bill
9:30 am
Mr Paul Boateng (Financial Secretary, HM Treasury; Brent South, Labour)
I am glad that the hon. Gentleman thinks so.
The clause must create a context for the regulations that come later, which must have the capacity to meet all eventualities if they are to be fit for the purpose.
A tax credit system that responds to falls in income and provides extra support at the point of need must
be counterbalanced by the scope to adjust the amount of tax credits payable when people have had a significant rise in their income. That would entail setting thresholds under clause 7(3)(a) or 7(3)(a) and (b) together. If thresholds are set under both paragraphs, it is possible to allow people room for their income to rise by a certain amount without it affecting their tax credits for that year, so that their incentives to work and to increase their earnings are maintained.
The same sort of flexibility is available where people have falls in income. Thresholds can be set under clause 7(3)(c) and (d), so that people stay on previous year income unless they experience a significant fall in their income.
Because of the way in which clause 7(3) is structured, it would be possible to take a different approach to the treatment of falls and rises in income, and to respond to smaller falls in income than to rises. I see from the silent indication of assent from the hon. Member for Arundel and South Downs (Mr. Flight) that he understands and approves of that point.