Payment of Tax Credit by Employers etc

Part of Clause 6 – in the House of Commons at 3:43 pm on 22 June 1999.

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Photo of Steve Webb Steve Webb Shadow Spokesperson (Work and Pensions) 3:43, 22 June 1999

It is a pleasure to follow the hon. Member for Bromsgrove (Miss Kirkbride), who made an important contribution to our scrutiny of this matter in the Social Security Committee, and the distinguished hon. Member for Havant (Mr. Willetts). Our paths have crossed in the sheltered world of academia, and I look forward to their crossing many more times. His first contribution in his new role showed clearly why he has such an enviable reputation.

The Minister has propounded a strange doctrine: that it is in lone parents' interest to be denied a choice, presumably because they might make the wrong choice and choose to have their money paid direct to them rather than being mediated through the employer. It is almost impossible to imagine any model of human behaviour in which that is true, other than when the individual concerned is stupid. Only in that case should the Government step in and insist that one option be taken rather than another.

I am sure that, in a different setting, the Minister would tell us that lone parents are far from stupid, that their role is often challenging and demanding as they juggle work and family responsibilities, and that many of them make a superb job of it. That being so, why cannot those able people be trusted to make the simple choice about how to get their money?

The Minister said that the point was to drive home the message about making work pay. That goes back to people being stupid, because if they want to they can have their family credit paid direct into their bank account, just as they can have their salary paid direct, and every month they will get a bank statement showing two elements that will not appear if they do not work: the pay and the tax credit. Unless they are as thick as two short planks they will notice that both appear when they work, and neither when they do not.

Forcing the two elements to appear as one figure on the bank statement does not in any sense demonstrate that work pays. Indeed, given that people may not scrutinise their pay slip as well as they scrutinise their bank statement, the presence of two separate entries on the bank statement might spell it out more clearly that the credit is a benefit of working.

The Minister gave two reasons why the argument for choice for lone parents should fall. She said that there was no issue of confidentiality involved in payment through the pay packet. We are dealing with lone parents, many of whom do not remain lone parents. Some of them, to use the jargon, re-partner; they do not necessarily marry, but become part of a new partnership. The new partner's income would have a bearing on the lone parent's family credit entitlement, so the employer would get a letter from the Inland Revenue saying that the amount payable had changed. The employer would know that the lone parent's income had not changed and the employer would also know—because they had not paid any maternity pay—that she had not had a child; so the employer would know that the she had experienced some other change, such as re-partnering.

What business is that of the employer? If family credit was being paid, the employer would not know, and if the lone parent could opt to have the tax credit paid direct, the employer would not know. It is only because payment has to be made in this doctrinaire way that employers will be aware of any change.

5.45 pm

The Minister also said that an employer could not work out from the amount of tax credit payable what the family circumstances of the lone parent were. The Minister will correct me if I am wrong, but I understand that in about a third of tax credit cases the maximum credit is paid. The Minister also mentioned tapers, but they would be irrelevant. She also mentioned child care costs, but she cannot have it both ways. Most of the time she tells us that the child care tax credit will not cost a fortune because not many people will take it up, but if lots of people do take it up, the cost will be much greater than the Government have budgeted for.