Clause 23 - Payments
Tax Credits Bill
10:30 am
Mr Howard Flight (Arundel and South Downs, Conservative)
I thank the hon. Gentleman for that additional point. We are addressing a framework Bill, we do not know its provisions and that seems wrong to me and to the hon. Gentleman. The total number of households affected may be more than 6 million. The Government have argued that because child tax credits will be paid directly to the main carer this will offset the additional numbers of people with whom employers must deal under working tax credits. It is unclear whether that follows, but it is their line of defence.
Amendments Nos. 35 and 36 take the route of providing for all tax credits, including working tax credits, to be paid directly. The logic behind this is separate from the issue of the costs to business. On Second Reading I referred to the consequence of that, which will be that people's pay packets will become a social wage that is unrelated to the economic reward for the job that they are doing. I am concerned, and the Government should be concerned, that this sends the wrong signal. There must be clear monetary signals if people are to be motivated to enhance their skills. If we are to achieve better productivity growth we need a more skilled population. In the past, people such as the parents of Lady Castle, who were coal miners in Wales, knew that to obtain skills was to progress in life. Happily, much of the Asian immigrant community knows that message, and its members get themselves more skills than other parts of the population.
The Government have admitted in their reports on skills that we are lagging far behind other developed economies. They predict that jobs will go vacant because of a lack of skill growth in the economy, and they point out that the proportion of the work force with intermediate vocational skills is one of the worst in the Organisation for Economic Co-operation and Development area. I put it to the Minister that there is a contradiction in that the Chancellor is saying that the top priority is to upskill to obtain productivity growth, which has declined, but we are making arrangements for pay that will send people the wrong signals.
The Government have argued that tax credits must be paid through the pay packet because of the stigma associated with the alternatives, but the inquiries that have been made point in the other direction. Employees prefer to receive such payments directly because they do not want either their employers or other members of staff getting to know their personal affairs.
There is an issue—it is not major—about employees taking a credit risk on employers. If employers have received money from the Revenue and go bust before they have paid it out, employees could suffer.
In principle, the biggest concern is that there is a Speenhamland element in that there will be an obvious disincentive to employers to up pay where they are able to give out pay checks that include a significant element of tax credit, which is obviously a form of negative income tax. Psychologically, if not in market terms, it will lead to downward pressure on pay, especially in areas where pay is low.
There is another fundamental point that underlies the amendments, which are intended to tease out from the Government how they will remunerate employers for their work. The Bill provides for a negative income tax, and, as the Confederation of British Industry has made clear, the Government indicated to it at the outset that tax credits would be administered by a tax coding system. We discussed tax coding last week, but the CBI and the Government have deemed it to be impractical, and I should like to know why. In principle, a system of tax coding would avoid muddle and fraud because annual negative income tax returns would provide the evidence, which would be different from payroll information, which the Revenue would need. That would enable the continuity of payment that the Government seek, just as a system of coding and tax returns would make easier the payment of tax on a rolling basis.
There is a probing question implicit in the amendments: why is a negative income tax system impossible? Is it the Government's intention to work towards that? As the CBI has argued, it would be the best solution to the problem.
Amendments Nos. 37 and 104 are probing amendments. The Government commissioned the Carter review, and they have indicated that they will respond to the issue that it raises, namely their imposition of costs on all employers for administering tax credits. What are the Government proposing? They cannot use the argument that they do not want to reveal the rates of tax credits because that will be announced in the Budget. The Government are imposing burdens on employers and have said that perhaps they want to alleviate them, so it is reasonable to want to know what alleviation the Government are considering following the Carter review.
The Minister has argued that moving to 12 months, rather than six months, might ease the burden on employers. The employer view, as expressed by the CBI, is to the contrary: because of the 12-month gap, people whose circumstances change materially during the year will advise the Revenue accordingly and will, as a result, have changed tax credits. Although the employer will be given information by the Revenue, every time that that happens they will have to change their computer programming to pay out a different individual amount to the employees who are affected.
The Government's better regulation task force indicated its worries about the impact of tax credit costs and time burdens on small business. Such
businesses must focus on their business to survive and they are already burdened with excessive regulation. Here we have not just a regulation, but a task and small businesses do not necessarily have the money to easily subcontract their payrolls. With staff who work differential hours, they are likely to be faced with changes in the tax credit arrangements during the year. We would like to hear what the Government plan to do about the problem. We also register the major contradiction between an economy that ends up operating with a social wage and a Government policy that wants higher productivity growth and people to upskill themselves so that they become more valuable. The Government should listen to employees who clearly do not want to be paid their tax credits in the pay packet.