Clause 8
Welfare Reform Bill
6:00 pm

Photo of Stephen Timms

Stephen Timms (Shadow Minister (Work and Pensions); East Ham, Labour)

The hon. Lady makes a number of points, and I shall respond to them. I completely agree about the difficulties caused by the current tax credit system and the problem of overpayment. She is absolutely right about that, and we all know of many examples; indeed, for a time I was the Minister responsible for the tax credit system, so I am familiar with the difficulties. I am completely persuaded of the advantages of the real-time earnings data system. It will be a huge improvement, and I hope that it will overcome the problem of overpayments that causes such great difficulties. My scepticism is about whether it can be done on time. That is all. I am sure that it is the answer. It needs to be done, but I am sceptical whether it can be done by October 2013.

As for how self-employed people are treated, the hon. Lady will agree that they cannot be treated through the real-time PAYE system. Self-employed people are not in employment, so that seems not to be an option. I am not bringing a proposal to the Committee on how it should be done. I hope that the Minister can explain how the Government envisage it being done, but it seems to be rather difficult.

I am not sure that income for self-employed persons can be defined on a monthly basis, because there will be all sorts of variations from one month to the next. In some months there will be more money going out in costs and little income, but other months will see more income than expenditure. I am puzzled how the universal credit system will do that on a monthly basis. However, I am sure that many of the finest minds in the Department for Work and Pensions have been working on that, and I look forward to hearing the answer. The amendment would merely make it explicit that regulations will be needed to explain everything, because at the moment it is a bit of a mystery.

On a separate point, the assumption that anyone who is in self-employment will earn at least the minimum wage for all the hours that they work is an unrealistic  assumption. The Low Incomes Tax Reform Group has made the point that the tax credit system works much better than that arrangement would for self-employed people. The tax credit system does not assume a minimum income. It is based on information about actual income. As the hon. Member for Cardiff Central has said, it is often in arrears, but at least it uses a realistic figure. It appears that that is not going to be in the universal credit. I am worried that that will discourage people from moving into self-employment at the exact time when that is the right thing for many people to do. I am concerned that this is one of a growing number of examples of incoherence in Government policy.

Different Departments are pursuing policies without talking to each other very much, and they are ending up undermining each other as a result. Sometimes, as is the case here, that is happening between different parts of the same Department. Yesterday saw the launch of StartUp Britain, where the Prime Minister encouraged people to start up businesses and promoted entrepreneurship. Indeed, this Department has itself reintroduced the enterprise allowance, designed to encourage people to move into self-employment. However, through universal credit, the Department is also offering what the Low Incomes Tax Reform Group says is a much worse deal for the self-employed than that offered by the tax credit system. The fact that one bit of the Department is discouraging people from entering self-employment while another is encouraging them to do so means that there is, at the very least, a bit of incoherence and the potential for a serious mess.

We need to get a proper grip on that area and to put in place a coherent policy for supporting self-employment. I hope that the Minister will be able to give us some indication of what the system for calculating universal credit for self-employed people will look like.

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