Clause 7 - Income test
Tax Credits Bill
9:30 am
Mr Paul Boateng (Financial Secretary, HM Treasury; Brent South, Labour)
No. It will be reconciled at the end of the year, but I shall deal with that point, if I may, in due course.
As I said, because of the way in which clause 7(3) is structured, it is possible to take different approaches to the treatment of falls and rises, and it is designed to respond to smaller falls in income than to rises. Last year's consultation exercise revealed a consensus that tax credits should be able to be adjusted in this way. It also became clear, however, that interest groups and other respondents were concerned about how the provision would work in practice—a point that the hon. Member for Northavon is trying to tease out through his amendment.
One reason for providing flexibility through clause 7(3) is to allow further discussions before regulations are made. As I said, such discussions provide a context for the formulation of regulations that fit the purpose. My hon. Friend the Paymaster General has asked officials to take forward those discussions, and she is keeping in close contact with them.
I turn to the points that the hon. Gentlemen made when speaking to the amendment. It was asked why it is not possible to have a system based entirely on the income of the previous year. In one sense, that has a superficial attractiveness, in that it would offer certainty about the level of tax credits that people would get, subject to changes in circumstances that might affect their award. Our concern, however, is that there will be some who experience a drop in income in the current year, and if we use the previous year's
income such changes could not be picked up for 12 months. The attractive point about the system proposed in the clause is that will help us to get over that problem.