Immediately before—the day before—the Bill entered the Grand Committee a large number of government amendments were tabled to it—so many amendments and so late, indeed, that it was decided that the appropriate course of action was to cancel the first day in Committee upstairs. It is not unusual for a large number of government amendments to be tabled at short notice, but these amendments were not concerned with policy or tabled in response to points made in another place. They were what the Minister herself described as drafting or technical amendments. It would be far more appropriate to describe them as restructuring amendments because, as the Minister herself pointed out, there are fundamental inconsistencies—indeed, she used the word "contradictions"—between the earlier and later parts of the Bill. It is fundamentally flawed.
Rarely in almost 40 years in both Houses have I seen such a badly drafted Bill—in fact I probably never have. But this Bill does not come before us at its first stage. It has already passed through all its stages in another place. It was considered under a heavy so-called Programme Motion, which caused the time available for debate to be very limited. Indeed, Part 2 was not considered at all in another place. Clearly, the Opposition in another place were under considerable time restraints, but the legislation also passed through all of its stages in another place without the Minister responsible for the Bill realising that it contained such fundamental flaws.
Consequently, it seemed appropriate to us when the Committee finally met to ask the noble Baroness to inquire into the position. As always, she was extremely courteous and apologised on behalf of the Government. Naturally, we accepted her apology. But that does not cover the question of accountability. Apologies do not make the Government accountable. The crucial questions are: what went wrong in this case and what should be done about it? The relevant rules were examined in great detail by the Treasury Select Committee and the Liaison Committee in another place in 1985-86. They considered the precedents, including, in particular, the Crichel Down case—a famous case that, I regret to say, is referred to in the Hansard report of the Grand Committee as the "trickledown" case.
The position that emerged after the Westland affair and all that controversy was clear. Ministers are accountable to Parliament, and, if something has gone wrong in a department, the right course of action for the Minister is to inquire into the matter and report back to the House on what has gone wrong. It is not at all clear what went wrong here. Did the draftsman simply have a mental breakdown? Was he replaced by another draftsman, who realised what a horrible mess had been made of drafting the Bill? Was it that responsibility for the Bill fell between the Department for Work and Pensions and the Treasury? We really do not know what the reasons were, but, if the Government are to be held accountable, we are entitled to know that the Minister has examined the matter thoroughly. She should report to the House what has happened and what steps have been taken to prevent its recurrence.
My Lords, I think that I am entitled to say a few words—not many—on the background to the issue. As the noble Lord, Lord Higgins, said, a number of government amendments were tabled very late indeed. That was unfortunate. It is part of a tendency, which has been growing for a good many centuries, to regard Parliament as a rubber stamp for laws made by Ministers.
None of us regards the Minister as being in the least degree responsible for the error. She is accountable for it. She discharged that accountability with distinction. First, she owed us an apology, and she gave us a wholehearted and genuine one that I welcomed and accepted. She owed us her best efforts to help us understand what the amendments meant: she gave us that, even to the extent of providing us, well in advance, with her speaking notes. I, for one, found those notes extremely helpful in understanding the meaning of the amendments before I had to reach a decision on them. Finally, she had to persuade us that the amendments were clear, sensible, meaningful and useful to the Bill: she succeeded in that, too.
In those circumstances, the Minister discharged her accountability to the House with distinction. Any Opposition is, of course, entitled to a pound of flesh when such a mistake is made. The noble Lord, Lord Higgins, had his pound of flesh in Committee, but, as proceedings in Grand Committee are nearly in secret session, he was entitled to let the House know what had happened. He has done so, and he was right to do so. However, I cannot agree that he should ask that any further blame fall on the Minister.
My Lords, I thank the noble Lord for that correction; I am glad that it is now in the record. It was generous of him.
As I believe the amendments to be thoroughly beneficial and sensible, I do not intend to make any further fuss about them. Anyone who followed the proceedings of another place yesterday will appreciate how vital it is to this House that we do not have a guillotine. They will also appreciate that that freedom depends on the exercise of self-restraint. I shall say nothing more about any further groups of amendments dealing with the late government amendments. However, should there be a Division on any of those groups, those of us on these Benches will vote with the Government.
My Lords, I support what my noble friend Lord Higgins said. However, I am sure that all those who participated in the Committee share the opinion of the noble Earl, Lord Russell. The Minister was most helpful, clear and forthright in explaining the position. Your Lordships should be grateful to her for that.
There is an important point of principle and procedure involved, however. Does the Minister agree that the proposal—currently under consideration—that a draft Bill be examined before the actual Bill is introduced, in a bid to avoid problems with late amendments, would not cover a Bill such as this, for which there is a definite timetable? This Bill must be completed and introduced by the commencement of the next tax year, and certain constraints apply to such a Bill that would not apply to other Bills. I see that the noble and learned Lord the Leader of the House is in his place. Might not the Government consider whether, in such exceptional circumstances, additional resources might be made available to parliamentary counsel? Alternatively, the priorities of parliamentary counsel might be reordered, which might be for the convenience not only of this House but of Parliament as a whole.
My Lords, if I cannot express my appreciation of the fact that the noble Lord, Lord Higgins, has raised this matter, I can, at least, express appreciation of the tone in which he did so. I also appreciate the supportive remarks made by the noble Earl, Lord Russell, and the frank and generous response of the noble Lord, Lord Freeman.
I am happy to repeat the apologies from my department and from the Government. No one wishes to impede, in any sense, the proper scrutiny of legislation by tabling amendments late. What happened was undesirable and extremely unfortunate. I regret that it happened, and, as your Lordships have been kind enough to acknowledge, that regret is sincere, if only because the matter loses me all my moral leverage in trying to bully the noble Lord, Lord Higgins, into putting his amendments down in good time. In many ways, I am the loser in all of this.
As your Lordships have acknowledged, the amendments were entirely technical. I take the point about restructuring in relation to one clause, but the amendments sought, for example, to change the word "revoke" for the word "terminate" or to change the word "entitlement" for the word "award". We were trying to clarify what everyone has acknowledged to be a difficult and technical Bill that seeks to integrate a tax and benefit system. If, on reflection, my honourable friend the Paymaster General thought it sensible to make the amendments, even at that late stage, for the sake of clarity, it was right for us to do so, given that it is a major piece of legislation. I say that even though, as I said, I regret that the changes were not proposed earlier.
I am also grateful to the noble Earl, Lord Russell, for acknowledging the fact that, although the amendments were tabled late, we did what we could to redress the imbalance of information that would otherwise have resulted. I would not wish to be put in that position. Even though the noble Lord, Lord Higgins, might take my assurance that the amendments were technical, he and the noble Earl, Lord Russell, needed time to get their heads around the amendments to be confident that they were what I said they were. If I say that something is true because I say so and I am speaking for the Government, it is not always the case that it will be believed automatically. So I provided my speaking notes and offered additional briefing, and, with the co-operation of the Opposition—for which I am grateful—we deferred the first day of Committee. In practice, it turned out that there was a full week between the tabling of the amendments and the first discussion of them, thanks to the co-operation of the Opposition.
Where do we go from here? The noble Lord, Lord Higgins, went on to say that he wanted an inquiry that reported to the House. With respect, I do not think that that would be helpful. There was a mistake, which should not have happened, and I shall certainly do my best to ensure that it does not happen again. I regret it very much. However, I do not think that any report that named individual civil servants and the like would be helpful. If it helps, I am happy to arrange a meeting between the noble Lord and my honourable friend the Paymaster General so that he can air his concerns and discuss with her the issues that have arisen. I have failed to allay the noble Lord's concerns, but she may be able to do so. That would be an appropriate way forward. If the noble Lord is still not satisfied after that, he can, of course, pursue the matter.
I am not sure that I can do any more than I have done, but, if the noble Lord wishes to pursue the matter, I suggest that he allow me to offer him such a meeting with my honourable friend. I ask him not to pursue the option of an inquiry that would name individuals. I cannot do that; I take responsibility at the Dispatch Box. If the noble Lord wants further meetings with officials or any additional briefing—I am happy to snow him under with any amount of paper—I am happy to pursue that line. Having said that, I offer my apologies again and express my appreciation of the tone in which your Lordships have raised the matter.
My Lords, as always the noble Baroness has been most gracious. Of course we accept her apology, as well as all that she has said. She has gone to considerable lengths both to put the matter right and to ensure that procedures are carried out efficiently. We are grateful for that because in this House we have a working arrangement which enables us properly to scrutinise legislation. I may well take up the kind offer that she has made. Again, I should like to thank her for her extremely forthcoming response.
One very clear moral may be drawn from this tale: the system of programming in another place is not giving that House the time to do its job properly. Had this Bill not been scrutinised and amended in your Lordships' House, we would have passed, I believe, a completely unworkable piece of legislation. This is an extremely important matter.
Perhaps I may make a final point. The amendments before us today will go back to be considered in another place. I understand that the original programming Motion will probably cover that as well. For that reason, Members of the other place must be given adequate time—I am sure that they will be—to consider the amendments properly once the Bill leaves this House. I am most grateful to the Minister.
My Lords, in moving Amendment No. 1, I shall speak also to Amendments Nos. 2, 3 and 4 standing in my name and that of my noble friend Lord Higgins. Before doing so, perhaps I may once again draw the attention of noble Lords to the declaration of interest which I made at the commencement of the Second Reading of this Bill.
The issue touched on by this group of amendments was debated at length in Grand Committee, but I wish to return to it again and to refer to a helpful letter which I have received from the Minister. I shall come to that in a moment.
These amendments relate to the wording of Clause 1, which makes radical changes to the Government's whole tax credit scheme. The amendments suggest that we should insert the words "or benefit" in various places after the words "tax credit". It may be considered by noble Lords that the opening amendments from these Benches turn on a particularly small and pedantic point, or perhaps a "technical" point of the kind referred to by the noble Baroness when moving various government amendments. However, I hope that I shall be able to persuade the House that this matter is neither small nor pedantic.
It could be asked what possible difference could be made by what a thing is called; whether that thing is a benefit or a credit. What is in a name? We believe that a great deal rests in a name if it touches on a hyper- sensitive issue of the moment; namely, the question of accounting treatment. If, by changing the name of an item, its accounting treatment is changed, then the result may be that the picture of a set of accounts is altered, that any comparison made between accounts becomes more difficult, or, more generally, it becomes harder for the reader of a set of accounts to appreciate what is going on.
I shall explain the significance of those remarks. Until around only a month ago, the Government chose to bury the bad news of the impact of tax credits on the public accounts in the traditional hiding-place of creative accountants through the ages; that is, on the last page of the notes to the accounts. I have here the Red Book for 2001. On the last page of the notes we see the words,
"income tax credits which score as public expenditure under national accounting conventions".
That was a way of expressing the fact that the Government's treatment of tax credits did not conform with the standard accounting principles of the OECD, the result of which was that perhaps the most politically sensitive figure in the whole of the document—the so-called tax burden—was reduced by the accounting treatment adopted by the Government. However, as I have said, that treatment did not conform with generally accepted principles.
Protests have been made over many years about the Government's treatment of tax credits which culminated, I believe, in strenuous disagreements between the Office for National Statistics and the Treasury. Then, in the latest Red Book covering the last Budget, the Government belatedly repented. In Box C2 on page 216 they announced that henceforth the treatment of tax credits would conform with generally accepted principles.
The problem is that this change is central to what the Bill is all about. The reason why our proposed change of wording—the use of the term "benefit" alongside the term "tax credit"—is so important is as follows. In Committee, several revelations—I would go so far as to say "stunning" revelations—were made to many of the economists and commentators who follow the public accounts in detail. For example, we learnt for the first time that the total amount involved in tax credits is now £15 billion per year, which is a staggering sum. Huge though that sum may be, if that £15 billion was comprised entirely of tax credits and the benefit element was small, then perhaps there would be no need for our amendments. The fuss we are making would then be a genuine waste of time, as the noble Lord, Lord Bach, put it. Unfortunately, however, that is not the case.
The revelation in regard to this matter was made in a generous letter sent to me by the Minister. Of the £15 billion, some 90 per cent is not a tax credit; it is a benefit, by which I mean that the common usage of the term "tax credit" would suggest that it referred to a reduction in tax liability. In other words, if a person's tax liability is £100 and they receive a tax credit of £10, then their tax liability is reduced to £90. Everyone would understand that to be a tax credit.
In order to check that my own understanding of tax credits would be no different from that taught to anyone else, I shall quote from an accounting tutorial that I bought this morning, covering the NVQ level 2 accounting award. The book states that it is suitable for ACCA courses. It is a kind of child's guide to accounting. Under tax credits it states:
"This money comes from a reduction in the amount of tax which the employer collects from employees and pays to the Inland Revenue. This is why it is called a tax credit".
However, in her letter the Minister stated:
"The latest estimates are that about 10–11 per cent of the new tax credits will score as negative taxes in 2004-05 and later years and 89-90 per cent scoring as public expenditure".
That means that 90 per cent of the amount paid out in tax credits will not be a reduction in people's tax liabilities. It will exceed their tax liabilities so that, in effect, it is a benefit. That is why this matter relates closely to how it is treated in the public accounts.
It is important that the word "benefit" is used to make the position clear. When we discussed this matter in Grand Committee, the noble Baroness, Lady Hollis, said that the Government had accepted the distinction between a tax credit and a benefit. They had accepted that in the accounting treatment which from now on will be adopted in the Red Book. If the Government have come to recognise the distinction, will they now go to all the trouble of distinguishing between the 90 per cent that is a benefit and the 10 per cent that is a tax credit? To us it seems only reasonable to put on the face of the Bill words to the effect that the items now known as "tax credits" should be known as "tax credits or benefits". I hope that the Minister will see the amendment in the light of my argument. I beg to move.
My Lords, the noble Lord, Lord Saatchi, invites us to begin our proceedings as in Grand Committee—I was going to say with a philosophical debate but, after Starred Questions today, it is probably a theological debate about the nature of tax credits and whether payable tax credits ought really to be described as benefits. I suspect that there will be no meeting of minds on this issue. We discussed the matter in Grand Committee; I followed that up with a letter to his noble friend Lord Higgins in which I explained that the accountancy devices now seem to be both nationally and internationally consistent—and there is still no meeting of minds.
The noble Lord, Lord Saatchi, made the point that a payment of money to a claimant which does not offset tax that he would otherwise have had to pay should not be called a tax credit. He prayed in aid an NVQ 2 accountancy book. His reading of that is probably the best argument I have yet heard for having an annual updating of textbooks, to the greater profitability of the authors and the greater elucidation of their readers.
The noble Lord, Lord Saatchi, wishes to preserve the divide between those who receive support from the state by way of being required to pay less into the state's coffers and those who receive a direct payment out of those coffers. He seems to think that one form of support is perhaps more respectable than the other. I do not believe that the distinction should be preserved.
The tax credits introduced by the Bill will be much more closely aligned with traditional income tax than their predecessors, in a way which will enable the tax system to recognise family circumstances and resources. The new tax credits will run in line with the tax year, ending the six-monthly stops and starts of the present system; they will be based on the gross income of claimants for a tax year instead of on a snapshot of income around the time of claim; and they will be based on a definition of income which is much closer to the tax definition of income, enabling people to use the information that they have for tax purposes for their tax credit claims as well.
The new generation of tax credits will be closely integrated with the rest of the tax system and therefore in respect of all these measures quite different from social security benefits. That is why, as a system, it is much more akin to and aligned with the tax system than with social security benefits.
Behind that lies a deeper reasoning. One of the aims of the tax credits introduced by the Bill is to overcome the divide that currently exists between different systems of support, not only to give greater continuity of support for children but to allow people more easily to move out of work, into work, and, if they fall back onto benefits again, none the less to have continuity of support and not have to change from one system to another.
If we were to accept the reasoning behind the amendments of the noble Lord, Lord Saatchi, it would obviate what we are trying to do—that is, to integrate the streams of support for children into a single system which you port from out of work and into work. As a result, as he will know—we discussed this at great length in Grand Committee—most families with two children on income support, for example, will gain more than £9 per week from the new child tax credit. It is a feature of the system that has been widely welcomed by the groups which campaign on child poverty issues.
We are introducing two new tax credits to replace six existing and often overlapping strands of support. This is brought out in the last of the amendments in this group which seeks to replace the word "both", referring to the two new tax credits, with the word "all".
Our structural reforms will reduce complexity and overlap. They will do away with supporting children on the test of whether their parents are in work or not; instead, it will be in terms of their income and so on. This fundamental change should be welcomed. We discussed this matter at great length in Grand Committee and I followed that up with very full letters about the accountancy arrangements. I believe that there is now no dispute that the way in which the Government account for these arrangements is consistent with ONS and OECD accountancy practices. I shall not go back over that issue again except to repeat that where tax credits are less than or equal to the tax liability of the family, this is scored as negative tax. This treatment is consistent with OECD and ONS guidance and broadly consistent with international guidance. We are transparent in our accountancy.
Behind that is the deeper reasoning that we wish to consolidate support for children in a way that encourages people into work but does not penalise them if they cannot work. We have developed a system of tax credits which aligns the support we are giving for children far more closely to the tax system than to the benefits system. For those three reasons—the transparency of our accountancy, the structural thinking behind trying to integrate tax credits, and our wish to go for simplicity rather than complexity and for support rather than drawing a line between those out of work and in work—I hope that the noble Lord will not pursue his amendments further.
My Lords, I am grateful to the noble Baroness for her reply. I am also grateful for her reconfirmation of the Government's change of heart about the accounting treatment of these tax credits. The reason the issue has arisen is because changes in accounting treatment are a moment when people who study accounts become wary and nervous. Any change of accounting treatment, whether in a good direction or a bad direction, is a source of difficulty for readers of accounts. We would like to call a spade a spade. These tax credits are not tax credits, they are benefits—90 per cent of them are anyway.
I shall not press the point but I should like to remind the Minister of three statements that were made in a recent article. First,
"Reader understanding [of financial reports in the public sector] is sometimes felt by those who compile them to be a disadvantage".
The article goes on:
"Such reports should . . . minimise jargon . . . have a logical structure . . . not be unduly distorted"— and I draw your Lordships' attention to the last phrase—
"by public relations considerations".
The importance of those comments lies in the fact that they were made by none other than the chief adviser to the Chief Secretary to the Treasury on the these matters, Professor Likierman. He also said in a report written with Vass that,
"Those who wish to find out what is going on are faced with major hurdles".
We need a clear, complete and comprehensible set of public accounts, to which there are not too many changes and which conform with standards of accounting practice, so that people have a chance to carry out the detective work to find out what is really happening. That is a matter of common-sense. I am grateful for the Government's assurance that that is the way matters will proceed from now on. I beg leave to withdraw the amendment.
My Lords, the whole of this clause is effectively concerned with introducing two new tax credits—the child tax credit and the working tax credit—and with abolishing a series of other tax credits. One cannot help but feel that the speed with which tax credits are introduced and abolished is likely to cause some confusion.
The amendment seeks clarification from the Minister of a particular point. Those in outside bodies—particularly those concerned with the disabled—may be a little confused by the fact that in subsection (1) we introduce two new tax credits which do not refer to the word "disabled", whereas in subsection (3)(c) the disabled person's tax credit is abolished. That may give the impression that a disabled person's tax credit has been abolished without anything being put in its place. As I understand it, that is not the case. However, it may be helpful to those reading these debates who have an important interest on behalf of disabled people they are seeking to help if the Minister could spell out precisely what is the position so far as concerns the disabled.
My Lords, I am very happy to do so. I hope that this will be regarded as helpful. Basically, we are integrating the support for disabled people moving into work into the working-tax-credit and child-tax-credit scenario, but with greater generosity for disabled people. In particular, where there are two disabled workers in a family, two disability elements will be payable and there will no longer be a lower threshold for withdrawal of tax credit from individual disabled workers. In other words, we are seeking to make a distinction not as regards whether someone is disabled but as regards whether we can give him support for his family. As a result, DPTC, as was, is being integrated into the new tax credit system but with more generous support than has previously been the case.
I do not know whether that gives the noble Lord, Lord Higgins, enough information. I am happy to enlarge on it if he should wish me to do so.
My Lords, the amendment seeks to leave out Clause 1. In moving the amendment, I return to the history of tax credits. We still find it troubling that we have not received the assurance we had hoped to receive: that the process over the past five years of the introduction, abolition and replacement of tax credits on a regular basis would not continue. Perhaps the Minister will assure us that the improvements made by scrapping various credits and replacing them with others is the end of the process.
I remind noble Lords of the background to the difficulty in the hope that it might stimulate the assurance we seek. The working families' tax credit had a longer life than its predecessor—the employment tax credit. The latter tax credit never made it on to the statute book, let alone into the pay packet. In his pre-Budget Statement, the Chancellor announced that the employment tax credit was to become the working families' tax credit. That was a model of consistency compared with the history of the children's tax credit, with the replacement of which we are also dealing today.
In the 1998 Budget the Chancellor announced the introduction of the children's tax credit. That was supposed to begin in April 2001 but it never made it. In his March 2000 Budget Statement the Chancellor announced that the children's tax credit was to be replaced by the integrated child credit. Therefore the children's tax credit had the distinction of being abolished before it was even introduced. Sadly, since then the integrated child credit has itself disintegrated and we are left only with the child credit referred to in the Bill.
Over the past five years, the family credit which had existed since 1988 has been replaced by the working families' tax credit, the employment tax credit, the working tax credit, the children's tax credit, the integrated children's tax credit and the child tax credit. Looking at it in another way, the average life of a tax credit is six months.
Those changes of mind must reduce confidence in the system. They must also lead to the problems we have seen with regard to take up. They must increase the burden on business by adding costs in order to change systems to deal with the Government's change of heart on the tax credits. They lead also to the problems I described earlier in terms of accounting treatments which are crucial. A period of calm is now required for assessment. I hope that the Minister will assure us that that is the case.
The noble Earl, Lord Russell, reminded us of Keynes' injunction that no man should be condemned for a sincere conversion. However, I hope that he will also agree with my noble and learned friend Lord Howe of Aberavon who has done excellent work with the Inland Revenue in his tax rewrite group. He expressed alarm at the speed and volume of change of tax legislation. While Keynes and the noble Earl, Lord Russell, are right that a man should be allowed to change his mind, there is a limit. I think that the Government have exceeded it.
I shall withdraw the amendment. However, I hope that the Minister will assure the House that the pace of change that we have seen in the past five years will now cease.
My Lords, the Minister may remember a fact sheet distributed a few years ago by Rowntree under the intriguing title, "The WIS that was"—"WIS" being the working income supplement, the Canadian version of what we are attempting now. The fact that that was withdrawn is a marker that teething troubles over the introduction of this type of measure are not confined to this Government or this country. A difficult and important technical exercise is being engaged upon. We are being offered a considerable improvement on what we have had. I doubt whether it is the final word on the subject even now.
I take the point made by the noble and learned Lord, Lord Howe of Aberavon, whom I respect very deeply indeed. But between the noble and learned Lord, Lord Howe of Aberavon, and Keynes the noble and learned Lord, Lord Howe of Aberavon, might admit to being slightly more averse to risk taking.
My Lords, the primary question was whether this was the end of the process. The noble Lord can predict my answer. It is, "No, not necessarily". It is desirable to have a system which is as stable, predictable and transparent as possible. But against that one learns from experience. As the noble Lord spoke, I was reflecting on my experience in the world of social security. He will know that what we sought to do with this and other legislation over the past five or six years is to tackle poverty and, as one of the keys ways of tackling poverty, to make work pay.
I learned from family credit that when all payments went to the carer at home it meant that work, or entry wages, were often perceived as not worth having because they were relatively low compared with median wages. Therefore one needed a working families' tax credit paid either in full or in part by the employer.
I also learned from family credit that not enough support was being given to disabled people. Experience of the new deal demonstrated that we had to have more generous financial arrangements particularly for single disabled people who would otherwise not be eligible for something like family credit because they did not have children.
Equally, looking at family credit and the new deal for lone parents, we realised that one of the great handicaps for a lone parent moving into work is the lack of affordable childcare. Therefore we have needed to develop childcare support and a childcare tax credit as part of the package.
Since we have introduced the WFTC legislation, we have also learned that lone parents in particular have quite frequent movement in and out of work during the year, possibly coming out of work over the summer holidays and going back into work when the children go back to school. We need a constant system of support which reflects the realities of their lives not the tidy-mindedness of bureaucrats.
The noble Lord mentioned the employment earnings top up. That was a pilot scheme. We learned from that that there is significant poverty, not so much among the under-25s who do not have a disadvantage in the labour market so far as we can tell but for some single people over the age of 25 who remain extremely poor. To target support only on families meant that we could not help those people properly into the labour market and persuade them that work paid.
I call that learning from research, pilots and experience in trying to develop policies that meet the objective, which I am sure all noble Lords share, of tackling poverty, especially child poverty, and making work pay.
The simple answer to the noble Lord, Lord Saatchi, is no, it cannot be the end of the process, as the noble Earl, Lord Russell, said. I hope that it will be as stable a system as possible because that is the only way we shall make it an effective system.
With those more general remarks, I hope that we try to loop-in learning experience from research, pilots and the effectiveness of the legislation. Every piece of legislation seeks to improve on what has happened previously but produces new pressures and problems which have to be addressed. I hope that we shall be in for a period of stability. That is in the best interests of the people receiving these tax credits. With that explanation, I hope that the noble Lord will feel able to move on to the next amendment.
For reasons that I shall explain.
The trouble with this part of the Bill is the draftsman's determination to say that black is white and white is black. The Bill is drafted by reference to 1866 and 1890 legislation. In Committee, I complained that use of the word "gross" was inappropriate. If tax credits are deducted from the rest of revenue, one ends up with net income—not gross income. Curiously, the subsection states that after allowing deductions in respect of tax credits, one goes ahead with gross income—a contradiction in terms.
I have maligned today's draftsman because I find that in Section 10 of the Exchequer and Audits Departments Act 1866, the same situation arises. It states:
"The Commissioners of Customs, the Commissioners of Inland Revenue, and the Postmaster-General shall, after the Deduction of the Payments for Drawbacks, Bounties of the Nature of Drawbacks, Repayments and Discounts"— all of which might reasonably cover tax credits—
"cause the gross Revenue of their respective Departments to be paid . . . to . . . Her Majesty's Exchequer".
Watching Mr. Schama's television programme, "The History of Britain" last night, I noticed that there may have been other preoccupations in 1866 that diverted the attention of the then parliamentary draftsman from that provision but it is clear that after all those discounts, repayments and drawbacks from gross revenue, one ends up with net revenue. The 1866 Act was defective and has gone on being defective a long time.
I do not understand why the draftsman decided to refer to the 1866 Act. The Minister, in her usual manner, has courteously written a long letter seeking to defend the Government's position, but it is plain that once tax credits are deducted from revenue one ends up with net revenue—not gross revenue. I am seeking to ensure that the subsection makes sense by correcting the 1866 Act. Then everything will flow through in a beautifully lucid stream. That being so, the amendments are eminently sensible. The Bill would be properly drafted.
I hope that the Minister can accept the amendment. I realise that there may be consequential amendments to other legislation but no doubt they can be covered in later stages of the Bill. I beg to move.
My Lords, the noble Lord, Lord Higgins, has a sublime faith that the world is divided into black and white and never the twain shall meet. Unfortunately, most of real life happens in varying shades of grey. One of the best things about the Bill is that it allows us to recognise those shades of grey for what they are and to deal with them in a much more accurate way than could be done by the precise definition of black and white that the noble Lord would prefer. To paraphrase Charles II, all tax credits are grey in the dark.
My Lords, the noble Lord, Lord Higgins, took my best point. I too studied the words of the 1866 Act. I tried to seek help from the noble Earl, Lord Russell, because I think that was a Gladstonian measure, as opposed to a Conservative Bill. I cannot believe that even the noble Lord would think that Mr. Gladstone could be in error in his assessment of government revenues—since his has been the guiding hand on the Treasury for the past 150 years.
It is clear that "gross revenues" in the 1866 Act means the sum left after all deductions. Intrigued by the same point, I checked the Oxford English Concise Dictionary last night—regretting only that I did not have the full dictionary. One of the meanings of "gross" at the time of the 1866 Act was the greater portion, as opposed to the complete, non-net portion. That may be why "gross" was appropriate in 1866. I am not sure but that is the best that I can do in the time available. I shall check with some of my etymological friends, to see whether they can do better. The noble Lord is obviously right about our current understanding of the word "gross".
Section 3(4) of the Social Security Contributions (Transfer of Functions, etc) Act 1999 provides that the reference to "gross revenues" in Section 10 of the 1866 Act is not taken to include sums payable into the National Insurance Fund. That provision would be disturbed if the 1866 Act were amended.
I agree that it should be made clear in primary legislation that tax credit payments are to be deducted from tax receipts before they are paid to the Exchequer but that is made perfectly plain in Section 5 of the Tax Credits Act 1999—and in Clause 2(2) for the future. That is a better approach than trying to interfere with the established reference to "gross revenues" in the 1866 Act.
The 1866 Act contains no reference to net revenues. That term is not used at any point. If we were to follow the noble Lord, consequential amendments would be needed to rectify something like 150 years of finance legislation. The phrase "gross revenues" accurately refers back to legislation that gives the appropriate enabling powers. If the meaning of those words has changed, that may be for a future consolidation Bill. The words in the Bill have the same meaning as those used in 1866. I hope that the noble Lord accepts that we are not about to redraft back to Gladstone's period and that he will withdraw his amendment, tempted though he may be to pursue it.
My Lords, I find that response very sad. If the use of the word "gross" has changed in the dramatic way that the Minister suggests, there must be total confusion as to today's meaning. It seems clear that I am right and that the change ought to be made but I shall not pursue the point further. I beg leave to withdraw the amendment.
My Lords, this amendment deals with a somewhat similar point. I have great trouble with this part of the Bill. We are suggesting an addition to subsection (3):
"For the purposes of the Inland Revenue Regulation Act 1890" in this case—we are making progress!—
"the definition of 'inland revenue' in section 39 of that Act is to be taken to include tax credits".
That section of the 1890 Act lists a series of things which are to be taken as "inland revenue"—for example, taxes and so on. But they are all items where the Government receive revenue. Clearly, in the case of tax credits, the Government are not receiving revenue; they are paying out benefits—in 90 per cent of cases, as my noble Lord, Lord Saatchi, points out—or are deducting the tax credits from the revenue that they would otherwise receive. Therefore, one cannot include, with any sense at all, in the definition of "inland revenue" a tax credit. It is not revenue; it is expenditure—or, at the very least, it is a reduction in revenue. Therefore, to rely again on the 1890 Act is quite wrong.
There are other means of getting round this point in terms of the drafting. As I understand it—and the Minister wrote me a most helpful letter—the purpose of all of this is to ensure that the responsibility for tax credits is transferred to the Inland Revenue. That is what it is all about. In that case, all that has to be said is that the Inland Revenue should be responsible for tax credits, but one should not get into this convoluted, and in my view totally wrong, way of drafting the subsection.
There is no problem in dealing with the basic point that the Government apparently seek to achieve; namely, that the responsibility for these matters will not be with the Department for Work and Pensions but with the Inland Revenue. We are running into trouble here because, of course, the traditional function of the Inland Revenue is not to give money away. That is not what it is there to do. It is now being asked to fulfil a function which it has previously not fulfilled; namely, to give hand-outs or, at the very least, to reduce the amount of money that it receives from people. If that is so, then the matter ought to be dealt with in the way I have described and not by means of this convoluted idea that the definition in the 1890 Act should be perverted—that is the only word that I can use—or reversed, or turned upside down to meet the point that the Minister is trying to achieve. I beg to move.
My Lords, I suspect that I shall be no more helpful than I was on the previous point. The noble Lord is right: Clause 2(3) provides that, for the purpose of the 1890 Act, the definition of "inland revenue" is to be taken to include "tax credit". This is necessary in order to ensure that the same general statutory framework under which the board operates is appropriately applied to new functions. Thus, the reference to "inland revenue" in this context is simply a reference to the matters falling under the administrative responsibility of the Board of Inland Revenue.
Because the responsibilities of the board are changing—so that its role is no longer confined to the traditional one of collecting taxes—the scope of the 1890 Act, which set up the Inland Revenue commissioners and determined their powers, and which provides the statutory framework under which they operate, also needs to be extended. There is nothing sinister about this. Equivalent provision is currently made in both the Tax Credits Act 1999—which the noble Lord, along with myself, saw through this House and, as he said, improved, so this is possibly one area that bypassed him—and the Social Security Contributions (Transfer of Functions, etc.) Act 1999.
I have spoken at some length. It is simply that the term "inland revenue" means basically the handling of the matters that the Inland Revenue is now deemed to perform, as conferred by parliamentary authority. That is why the wording is in its present form.
My Lords, I still find this an extraordinary way for the draftsman to proceed in terms of what the Government want to achieve. All that need be said is that the Inland Revenue should be responsible for tax credits instead of going about the matter in this roundabout way—a way which, in my view, is positively wrong. I shall give further thought to the matter and consider whether we should return to it at Third Reading. I beg leave to withdraw the amendment.
"the amounts of the several payments made by them of or in respect of tax credits".
I seek to add the words,
"and the amounts deducted by them from inland revenue".
It seems to me that there are two aspects of tax credits: the part concerned with payments outwards, and the part concerned with reducing the amount of tax that the Inland Revenue will collect. It seems appropriate that we should deal with both.
Amendment No. 14 suggests that we should leave out paragraph (c) at line 28, referring to,
"the amounts received by them in respect of tax credits".
The reference is to the amounts of tax credits received by the board. I simply do not understand that. The board will not receive any tax credits; it will either pay out tax credits, in the form of benefits; or, alternatively, it will reduce the amount of tax which it collects. But, I repeat: the board will not receive tax credits. Tax credits will be going out; they are not revenue that is coming in. Therefore, I do not understand why Clause 2(5)(c) is drafted in this way.
My Lords, these amendments relate to the accounting requirements on the Board of Inland Revenue in relation to tax credits. Subsection (5) requires the board to show how much it has paid out by way of child credit and working tax credit; its administrative costs in respect of those credits; and how much it has received by way of tax credits.
Amendment No. 11 seeks to make payments of tax credits to be accounted for as deductions from "inland revenue". I assume that in tabling his amendment the noble Lord had in mind the reference to "inland revenue" in Clause 2(3)—which refers back to the 1890 Act. We have already discussed this matter.
There is, of course, a wider point about the responsibility of the board to account properly for the deductions that it makes from tax receipts in order to make payments of child tax credit and working tax credit. It is right that the board should be required to account for the tax credit that it pays out; and so it will do. This is already dealt with by Clause 2(5)(a) without the addition of the words proposed by the noble Lord. These amounts will, as a matter of fact, be the amounts that it has deducted from the "gross revenues" before paying them to the Exchequer.
Section 13 of the 1890 Act—I am sorry about all the history; I have learnt more about the founding of the Inland Revenue than I thought I should ever want to know—which imposes a duty to keep accounts, was originally drafted only with tax and duties in mind, as the noble Lord suspected. Clause 2(5) therefore amplifies Section 13 of the 1890 Act so that the duty to keep accounts is meaningful in relation to tax credits. Paragraph (a) requires the board to show how much it has paid out by way of tax credits; paragraph (b) requires it to show its administrative costs in respect of those credits; and, in order to ensure that the board is required to account separately for recoveries of overpaid tax credit, paragraph (c) requires it to show how much it has received by way of tax credits. That may address Amendment No. 14. What that is about is the recovery of overpayments—which means that money will flow into the Inland Revenue. I hope that the noble Lord is satisfied with that explanation.
My Lords, surely, then, the provision ought to read: "the amounts reclaimed by them in respect of tax credits". If that is the function of Clause 2(5)(c)—namely, that the board has to get back repayments—then that is what should be stated, and not that it has received money in respect of tax credits, because, with great respect, it has not; it has overpaid and then got the money back. That does not mean that it has received anything. It is to be hoped that it has received exactly the same amount in both directions, so it has still not received anything. If that is the function of subsection (5)(c), I do not think that it does what the Government want.
My Lords, I am happy to look again at the drafting, but I would have to take professional advice. My understanding is that the amounts received by the Inland Revenue in respect of tax credits followed the wording in the previous legislation of 1999. I was seeking to elucidate the seeming oddity of the Inland Revenue receiving tax credits: it does so if it is recovering overpayments. We are again into a debate about the appropriate use of words. I can only give the noble Lord my best advice.
My Lords, as this amendment is the last of this bunch, we can agree that it is all about the appropriate use of words. But it is not a good idea to have words in legislation that are positively wrong or that say the opposite of what was intended. It is not true that the Inland Revenue will receive any money in respect of tax credits. If the function of the subsection is to say it may get back what it paid out, the most it has received is what it paid out, which is nil. Therefore, it has not received any tax credit. If the subsection's function is simply to say that the amounts it reclaims are overpayments, surely the Minister can table an appropriate amendment at Third Reading. I beg leave to withdraw the amendment.
My Lords, in moving the amendment I shall speak also to Amendment No. 13. As we learnt in Committee, the Government propose to impose on employers, regardless of their size or profitability, the burden of administering the new tax credits scheme.
In Committee we raised the point that large companies might be able to cope with the administrative burden and therefore we should not shed too many tears for them, but we expressed concern about small businesses which employ only a few people. They do not have and cannot afford the departments to administer such a complicated scheme. Therefore, this modest amendment seeks to require the Government, at the minimum, regularly to assess and record estimates of the costs to employers of carrying out the new tasks required of them.
We believe that having such a regular responsibility would have a salutary effect in focusing the Government's attention on the costs to business of implementing the Bill. I remind your Lordships that the Government's so-called Better Regulation Task Force recognises the regulatory burdens associated with tax credits. In a report on payroll burdens, it stated that businesses now see themselves becoming unpaid benefit officers.
In another place and in Committee several attempts were made to move the Government to take pity on the plight of small businesses, but they have remained strangely unmoved by the pleas from small businesses, their regulatory body and the Opposition Benches; both ours and the Liberal Democrats'. The reason might become apparent if I recall two things the Minister said in Committee, which illustrate that there is a great philosophical—although she prefers "theological"—gulf across the Dispatch Boxes about the nature of the tax credits.
On the first Committee day, in response to concern about small employers, the Minister said, with mild irritation,
Later, on concerns expressed by Age Concern and others about claimants not being able to follow the lengthy complicated claim forms in relation to the minimum income guarantee, the Minister said, again with mild irritation—I believe she had a mock-up of the claim form—
"12 pages of print. Even with my poor eyesight, it is big enough to read".—[Official Report, 21/5/02; col. CWH 86.]
The Government do not in any way identify with the employer's problem, because their attitude is, I repeat,
"all they have to do is to pay out what the tax credit office tells them to pay".
They are not moved by the 30 per cent of claimants who do not claim tax credits because their eyesight is good enough to read 12 pages of print. But they are keeping too many small businesses and individuals dependent on them.
In Committee, it was clear that the Minister was radiantly sincere about the good that the Bill is bringing to families and businesses up and down the land. It is moving to hear her passion on the subject, but will she see that there may be a higher good than that the Government can bestow on employers and citizens: the good of independence? It is not necessarily desirable for companies to be in thrall to government offices to pay what the Government tell them to pay; nor for citizens to be dependent on filling in forms to gain sums of money from the Government.
Our Benches prefer to stress independence, inner directedness and self-determination on the part of people and companies. Those qualities are the essence of being grown-up. Sometimes the Government give the impression that they prefer people to remain as dependent children. I hope that on this occasion the Minister will show a little more sympathy for small businesses than she or the Government have done in the past. I beg to move.
My Lords, I was not entirely sure where the noble Lord was coming from. We were listening to a speech about the burdens on small businesses, which half-way through became about the dependency culture of the people employed in small businesses. I am not sure where his primary sympathies lie.
I shall try to take both points in turn. I am sure that the noble Lord does not want to go into compliance costs for employers; we come to that issue under later clauses in the Bill. Neither do I, except to repeat that, overall, business will save something like £11 million in the cost of administration and that the simplification of the Bill compared to the existing tax credits system has been widely welcomed by employers' associations.
The noble Lord made much of my phrase that employers would have to pay out only what the tax credit office told them to. The noble Lord appeared to believe that small businesses would themselves have to make elaborate calculations. On the contrary; I was saying that they would be expected only to set the amount they would need to add to wages against the moneys they would be collecting from tax and national insurance, and that it would be the simplest form of administration that could be devised. It was a point about simplicity and the minimum of burden rather than any dismissal of the behaviour of small businesses.
The reason why tax credits are necessary in the first place is that those small businesses are paying relatively low wages. They might actually think that it is in the interests of their workforce that, as a result of tax credits, their employees are now able to enjoy a higher standard of living—including better diet, better housing, and so on—than would otherwise be the case if they were solely dependent on the wage for which they work.
Moreover, in terms of the wider point about the dependency culture and workers, I should stress that we discussed earlier the reasons for developing and building on the working tax credit and disabled person's tax credit. For many workers in this country, especially if they have dependent children, the entry wages that they receive are not sufficient, as they perceive it, to make it worthwhile for them to work. As a result, this Government have introduced a minimum wage and a tax credit system, both of which make it financially advantageous to work, where appropriate, as a way of addressing what would otherwise be family poverty; in other words, we are helping people to help themselves.
Therefore, for the party opposite to accuse these Benches of increasing dependency when it opposed the minimum wage and tax credits as a means of ensuring that anyone coming off benefits and moving into work finds himself substantially better off is, to use the cliche, a bit rich. I hope that the noble Lord will accept that I am glad to say there is no meeting of minds on this issue.
My Lords, I am happy to give recognition to the support that the noble Earl has always given to the attack on both low pay and low income.
had given notice of his intention to move Amendment No. 15:
After Clause 2, insert the following new clause—
"ANNUAL REPORT TO PARLIAMENT
The Chancellor of the Exchequer shall lay before Parliament an annual report on the Board that shall include—
(a) the accounts of the Board;
(b) an estimate of the take-up of the working tax credit; and
(c) an estimate of the take-up of the child tax credit."
moved Amendment No. 16:
After Clause 2, insert the following new clause—
The Chancellor of the Exchequer shall lay before Parliament an annual report on the Board that shall include—
(a) the accounts of the Board;
(b) an estimate of the take-up of the working tax credit;
(c) an estimate of the take-up of the child tax credit;
(d) data on the number of investigations carried out into fraud, the number of prosecutions and the number of convictions; and
(e) an estimate of the cost to employers of operating tax credits."
My Lords, this amendment would require the submission of an annual report to the Treasury giving an account of the care and management of tax credits. In particular, the report would contain the board's estimates of the total take-up of each tax credit, the statistical, and other, assumptions upon which such estimates are made, and the actual take-up of each tax credit. The board's reports would be published by the Treasury so that where the take-up of any tax credit was less than the forecast level the report would set out the Treasury's estimate of the amount of moneys not spent by reason of the deficiency of take-up to which the estimate related. It would also contain the Government's proposals for increasing take-up to the forecast level.
Under the amendment, the report would also show the amount of tax not paid as a result of tax credits and the amount of tax credits paid to persons otherwise not liable to income tax. The key elements of the annual report would be a total estimate of the take-up of the working tax credit, an estimate of the take-up of the child tax credit, data on the number of investigations carried out into fraud, and the number of prosecutions and convictions. The report would also contain an estimate of the cost to employers of operating the working tax credit as well as an estimate of the cost to employers of operating the child tax credit.
The background to the amendment is that the vast nature of this Bill and its new tax credits are untested and, unless proper provision is inserted in the legislation to monitor what actually happens, will remain inscrutable for some time. I shall not repeat the very real fears expressed in Grand Committee because the Minister is familiar with them. However, because of the Government's record on the preceding tax credits, which they are trying to correct, it is feared that the most needy people in our society will not take up this help. We hope that the Government will correct the record, but, as has been said, the forms are complex. The Government have, quite rightly, tried to make them simpler, but the procedures are still quite intimidating to many people who do not have the excellent eyesight of the noble Baroness. Perhaps the Government will assess whether or not we are justified in our fears and agree to lay an annual report before Parliament on take-up.
Fears have also been expressed that the Bill will afford opportunities for fraud. We ask the Government to assess whether such fears are justified and to lay an annual report before Parliament on the extent of fraud and on their success in suppressing it. Concerns have been raised that the legislation will also impose an unassessed and large cost on employers, especially small employers, to the detriment of their business and enterprise. Therefore, if they will do nothing else, perhaps the Government can at least estimate the cost to employers of operating and working the scheme; and, indeed, lay an annual report before Parliament on such costs to employers.
Our suggested new clause makes the most modest request upon the Government—a government who often speak of "openness". I hope, therefore, that the Minister will now have an open mind and accept the proposed new clause in the spirit of openness and respect for accounting to Parliament. I beg to move.
My Lords, I do not often support amendments that request the submission of annual reports, but, as I believe the Minister and I are agreed, we are in a process that is still at an experimental stage and it is possible that we can achieve a period of stability that will have its advantages. We shall certainly need to review the operation of the measures introduced under this Bill at some stage.
The whole of the social security system hitherto has tended to be drawn up on the assumption that people are either in or out of work. However, we all know that it is not quite as simple as that; indeed, that is the principal problem that this Bill is trying to tackle. I believe we are agreed that it is likely to take several attempts to get it right. On the whole, there are political advantages in involving as many people as possible when considering the evidence upon which that has to be decided.
The proposed annual report would be capable of doing some good, but I have one small regret; namely, that it does not include any report on the possible danger to employees of claiming tax credit and being threatened with dismissal for being an annoyance to their employer. Such situations do arise. One needs to be even-handed. The amendment does not say that the report should not include such information. I hope therefore that those compiling the report will feel able to investigate that possibility.
The problem regarding the cost to employers is a real one. I am not certain whether it is best dealt with on a flat rate or by a general estimate, as set out here. That is a matter we should keep an eye on because it is capable of becoming a burden to small businesses. I hope, therefore, that the Minister will accept that this proposal is not meant to be unhelpful; indeed, it might advance our progress at later stages.
My Lords, I support the amendment moved by my noble friend Lord Saatchi. I very much agree with the remarks made by the noble Earl, Lord Russell. The Minister will recall that we debated this issue at an earlier stage in the sense that another amendment looked at estimates. The Minister was kind enough then to indicate that she might be able to describe what might, or might not, be forthcoming in an annual report—an ex post report.
In addition to the annual report—something that I support most strongly—can the Minister say whether, as a supplement in terms of information, there might also be included in the regular quarterly reports that come from the board—and which, I believe, do cover some other tax credits, especially the disabled person's tax credit—reference in the same format to the working tax credit and the child tax credit?
My Lords, such reference already exists. As noble Lords have shown some concern about these issues, however, I should perhaps give a fuller answer, and make a slightly longer contribution than I have done so far in addressing specific points.
The new clause proposed in Amendment No. 16 attempts to impose an obligation on the Board of Inland Revenue to produce and present to Parliament an annual report on the take up of tax credits and to include the board's accounts in the report. The noble Lord, Lord Saatchi, has made his case for such a report, as he did in Grand Committee. As I said in Committee, however, I believe that this new clause is unnecessary. In explaining why it is unnecessary, I should like to deal with the two substantive and core issues covered by the new clause—the scrutiny by Parliament of the tax credits system, and the question of take-up levels.
As noble Lords will be aware, there are several well established ways for Parliament to scrutinise precisely the information that noble Lords wish to be reported. Parliamentary Questions are, of course, one such method. In particular, however, the Board of Inland Revenue already publishes an annual report covering all that department's activities. This report includes departmental accounts and is presented to Parliament by the Paymaster General. Details of the board's administration of tax credits are, therefore, already made available to Parliament. Noble Lords will also be aware that the chairman of the Inland Revenue appears annually before the Public Accounts Committee so that the committee can more closely scrutinise the details of the annual report. That level of scrutiny may even exceed that proposed in the amendment.
With regard to accounting for tax credits payments themselves, that is a matter for the Treasury, which clearly sets out those details in the Financial Statement and Budget Report—the FSBR—at Budget time. If I may, I draw the attention of the noble Lord, Lord Saatchi, to tables C7 and C13 of chapter C of this year's FSBR for details of tax credits paid out in the years 2000-01 and 2001-02. Clearly, therefore, Parliament already has ample opportunity to debate the details of the Budget. Indeed, my right honourable friend the Chancellor of the Exchequer recently discussed at some length the treatment of tax credits with the Treasury Select Committee in the other place. Moreover, as I said, the Board of Inland Revenue already reports annually to Parliament, and my right honourable friend the Chancellor of the Exchequer reports to both Houses and the Treasury Select Committee on the Treasury's accountability for tax credits.
The amendment also requires the board to publish data on fraud investigations and prosecutions. Of course there must be the utmost transparency in this. However, I again remind noble Lords that the Board of Inland Revenue's annual report already includes details of the Inland Revenue's work on countering fraud and non-compliance. This will include precisely the details on tax credits investigations that the noble Lord, Lord Saatchi, seeks in his amendment. We therefore seem to be discussing almost a "scissors and paste" operation in which we should rearrange and republish information that is already published. I am slightly puzzled by the proposal. The way in which the information is provided currently allows one to contextualise it in terms of how the Treasury and Inland Revenue are meeting their responsibilities.
The new clause would also impose on the board an obligation to set out in an annual report the cost to employers of operating tax credits. I remind noble Lords that employers are not involved in paying child tax credit or the childcare element of working tax credit. Employers shall only be required to make payments of working tax credit. Again, such provision is unnecessary; it seems to be another "scissors and paste" proposal. The costs to employers for their part of the responsibility will be addressed by the revised regulatory impact assessment which is being prepared in the light of announcements made in the Budget. That is the right place to deal with this information as the board could not be responsible for formally accounting for costs other than its own. Indeed, the Government take the regulatory impact of legislation very seriously indeed, which is why we introduced the concept of a regulatory impact assessment. I remember crossing swords with the noble Lord, Lord Higgins, when we first debated the issue and he asked why we were making the proposal. I think that it is now accepted that this is a more transparent way of holding the Government to account than that which preceded it.
The noble Lord, Lord Saatchi, seems to believe that an annual report of these costs would be of more value, but I do not think that that is correct. A full and comprehensive assessment of the cost in the regulatory impact assessment will provide all the information he is looking for and probably more. This does not have to be produced annually because the cost to employers is unlikely to fluctuate year on year given a constant set of legislative obligations. I should also remind noble Lords that the Government provide comprehensive impact assessments whenever legislation is introduced or amended and there is a significant regulatory impact.
My Lords, perhaps I was speaking too quickly or quietly, but the noble Lord seems to have missed some of my remarks. I apologise. As I said, a regulatory impact assessment does not have to be produced annually because the cost to employers is unlikely to fluctuate year on year given a constant set of legislative obligations. I also sought to remind noble Lords that the Government produce comprehensive impact assessments when legislation is either introduced or amended and there is a significant regulatory impact.
The noble Lord, Lord Freeman, raised the issue of take-up. There are quarterly statistical reports not only on disability credits, including DPTC, but on WFTC and all income support benefits. These reports contain detailed information on tax credits awards, breaking them down by family type, region, amount of award and other categories. I certainly use the reports in my own background research. The Revenue intends to continue to produce this type of information in relation to WTC and CTC. Furthermore, the information is available not annually, as the amendment proposes, but quarterly. One will therefore be able to track the statistics and see the correlation between support through tax credit and employment profiles, possibly in relation to the time of year and other factors. The information already provided is therefore more informative than that requested in the amendment.
To summarise, I have dealt with the points on regulatory impact assessment, the quarterly statistical reports, the board's report to Parliament, the Chancellor's report to Parliament and the Treasury Select Committee's scrutiny. We already provide all that information, and I believe that we do so more comprehensively than the noble Lord, Lord Saatchi, proposes in his amendment. He is asking for a "scissors and paste" version of information that is already in the public domain, simply to present it in a narrower format. I do not understand why we should do that.
The noble Lord, Lord Freeman, raised the issue of quarterly performance reports and may find the following information helpful. The Revenue will agree operational targets with the Treasury which are published in advance in the service delivery agreements. This information on performance as against performance targets also is additional to the information called for in the amendment.
The last point raised by the noble Lord, Lord Saatchi, was on the take-up of tax credits. I cannot agree with his view on take-up. As I said in Committee, I believe that the take up of WFTC is hugely encouraging: 1.3 million families benefit from it, over half a million more than benefited from family credit. Moreover, these families are receiving on average £40 per week more on WFTC than they were on FC. The credit is benefiting 2.5 million children, and I think that that is a success. Perhaps the noble Lord has been thrown by the statistics published in the January 2001 report analysing the effect of tax credits on low and moderate income families up to the end of 2000. However, the tax credit legislation was not passed until 1999. Consequently, in the first year, take-up of WFTC by expenditure was 76 per cent—which is close to the 81 per cent for family credit in its final year, and much higher than the figure of about 60 per cent for family credit in its first year.
As I said in Committee, all the research I have subsequently seen suggests that the number of families on WFTC has increased by another 160,000, or 14 per cent, since summer 2000. We expect that figure to grow over time. One is tracking both cash and cases, if I can put it that way. Those figures diverge as the number of cases of families claiming is somewhat less than the percentage of cash because the people who tend not to claim are those who are due small amounts, perhaps 50p or £1.
The new child tax credit creates a seamless system extending further up the income scale than WFTC, so the take-up of the existing children's tax credit is equally relevant. Again, that is hugely encouraging. To date, over 3.7 million claim forms have been received and over 90 per cent of eligible claimants have claimed.
In the light of that our assumptions for the take-up of child tax credit are that about 5.75 million families with children will claim and benefit from it. One advantage of the new system is that we already know who most of the potential claimants are; they are families currently claiming WFTC, DPTC and the children's tax credit. Therefore, we know fairly well already what the client audience is and what the take-up is likely to be. Those families will be sent a claim form directly later this year.
That direct targeting of claimants will be complemented by an extensive publicity campaign using various media. That will begin later this year and will focus initially on general awareness before we go on to more targeted campaigns, including, above all, people who have hitherto not come within the fold; that is, those over 25 without children who will receive working tax credit. I agree that there is more likely to be a problem in that area.
I hope that your Lordships will agree that the proposed new clause is unnecessary. I argue that essentially it does a scissors-and-paste job on information that is already in the public domain. Plans are in place to monitor take-up of tax credits and the Inland Revenue and Treasury are working hard with their advertising partners to ensure that publicity will be maximised. The outcome will be open to scrutiny. As regards scrutiny, the amendment is rather less comprehensive than the scrutiny that currently exists in the ways I have described. I hope that your Lordships will accept that the amendment is unnecessary. To seek a scissors-and-paste annual report of information that is already available in the public domain in a fuller, more comprehensive and contextualised way is simply redundant.
My Lords, I am most grateful for all that the noble Baroness said. I hope that I may paraphrase it. I think she said that in order to find out how the new tax credit system is working I shall have to study the regulatory impact assessments—which may or may not be published from time to time—certain pages in the Red Book, the Inland Revenue's annual report and the report of the proceedings of the Treasury Select Committee. When I have done all that, I shall have to study some quarterly reports that the Government publish.
We cannot accept that that is an adequate way of presenting information. We believe that it should all be brought together. After all, I do not believe that it was clear until the Committee stage in this place that the total amount of money involved in tax credits was a staggering £15 billion. That figure does not appear in the Budget Red Book 2002. It was not clear until the proceedings in this House that 90 per cent of that amount will not be paid as a reduction in tax liability but will be paid, in effect, as a benefit payment, as the Government now concede. It was not clear until the proceedings in this place—as the noble Baroness told us on the second day of Grand Committee—that, apparently, the Government have carried out research. The noble Baroness stated:
My Lords, the noble Lord may not have read it but it is published research.
My Lords, it may be published research but the point of the amendment is that we should like to see all the research brought together in one place so that people who want to study the impact of this vast scheme will be able to find the answers that they seek. For example, the forecast in the Budget Red Book for 2002 is that the tax credits will cost £4.6 billion next year. It emerged only in the proceedings in this place that that figure was based on the assumption that 85 per cent of those eligible would claim. In other words, the total cost of the two tax credits in the Bill—if there were 100 per cent take-up—would be £5.4 billion and the Government would save £800 million through non-take-up. I do not know where I could find the figures for the saving that the Government have made through non-take-up since 1997. I do not know where I could find the figures for any aspect of the tax credits scheme. I do not know where I could discover what happens to the money that has not been taken up.
For all those reasons we believe that it is valid and reasonable to ask for information on all those aspects of this important scheme which may, as we have said from the beginning, do all that the Government hope that it will—as we also hope—to help the poorest people. That is a fine and worthy aim. I do not understand why the Government are not proud to produce an annual report pulling all the information together in one simple form for a simple reader to examine. I am sorry not to be able to accept what the noble Baroness said. I wish to test the opinion of the House.
My Lords, in moving this amendment, I shall speak also to the other 55 amendments that are associated with it.
This set of amendments—no fewer than 56 in total—clearly requires some explanation. Earlier, the Minister gave a courteous reply to the points that I had raised about the vast mass of government amendments that appeared at short notice before the Bill's Committee stage. In the course of our discussions upstairs, we debated those amendments. It seemed to us that there was a case for bringing them to the attention of noble Lords on the Floor of the House.
My noble friend Lord Saatchi has already referred to the vast amount of money that will be expended on tax credits. The Bill will be a major item in public expenditure. Perhaps the Minister would clarify exactly what that sum will be. I believe that it comes to almost the whole amount of the increase in taxation that the Chancellor introduced by increasing social security payments from the private sector as against the business sector. It is roughly comparable in scale to that sum.
We discussed the matter in Grand Committee. It is a great deal more convenient for the Grand Committee to sit upstairs rather than in the Moses Room, where one has the greatest difficulty hearing what is being said. The layout upstairs is also preferable. It was the first occasion on which I and, I believe, the Minister had been in a Grand Committee upstairs, and I was not fully aware of the normal procedures. They include the provision that, unless government amendments are objected to, they should go into the Bill. I was persuaded by the noble Lord, Lord McIntosh, to whom I defer on matters of procedure, to accept that view. If one wanted the issues to be debated on the Floor of the House on Report, it would not have been appropriate to object to the amendments.
On reflection, I believe that I made a mistake in following that line because, not infrequently, attendance in Grand Committee is not as large as it might be. Of course, the attention of the House is drawn to the matters which are debated in Hansard, and that is an improvement on Commons Hansard because the debates appear in the main publication.
None the less, if one wants attention to be drawn to an amendment on the Floor of the House, there are only two ways of doing so. Either one objects to the government amendment, in which case I understand that it would not be included in the Bill following the Committee stage; or, alternatively, one tables an amendment on Report to reverse the government amendment.
As I said, given the importance of this set of amendments and the other sets of restructuring amendments, I believe that on balance I was probably mistaken not to object to them all the way through, although that would have been a singularly tedious way of proceeding. It would perhaps have been only slightly less tedious than what we have done in bringing the matter to the attention of noble Lords on the Floor of the House; namely, reversing all the government amendments, which is what these amendments seek to do. That is an incredibly tedious procedure because the points in the Bill where the amendments appear have changed since the Bill was discussed in Grand Committee. I believe that we should consider how best these matters may be dealt with if a Bill goes to a Grand Committee.
Having said that, I also believe on reflection that it was a mistake that the Bill was dealt with upstairs because it is, after all, a major, flagship government Bill and involves a huge amount of public expenditure. That would have been my view in particular had I realised that all these amendments were going to be made.
In her usual—I am almost inclined to say "habitual"—helpful way, the noble Baroness responded to a suggestion that I made during a break in Grand Committee when a Division took place on the Floor of the House. I suggested that we should group the amendments into various categories. If we had not done so, I suspect that we should have been there until Christmas. Therefore, as we now go through the Bill, we have no fewer than five categories of government amendments, including a huge number of individual amendments which cover individual points. This group is in the first category, and I believe that it is worth while to spell out what it does.
Effectively, the amendments, which the Government have inserted and which, for the purposes of debate, we suggest should be knocked out, draw a distinction between the award of tax credits under which payments are made during the year—the crucial word there being "award"—and entitlement—the crucial word being "entitlement"—which is settled after the year end when the current year income is known. As I understand it, the amendments also include some technical changes to provisions concerning the recovery of over-payments and the paying out of under-payments—we referred to those matters earlier—when entitlement turns out to be different from the amount paid under awards during the year.
The system which the Government are introducing in the Bill is very complex so far as concerns both the entitlement and award of tax credits. In the elaborate explanatory document which the Government produced, they point out that different provisions will be applicable—we shall come to some of those points later—depending on whether an individual's income goes down or goes up. The individual will be able to claim adjustments during the year if his income goes down. If it goes up, it will be taken into account, both with regard to award and entitlement, only if the amount of the increase in the year exceeds £2,500. I hope that the noble Baroness will confirm that I am right in that.
I am afraid that all my old Treasury hackles tend to rise at this point—the Treasury halo takes a long while to wear out—so far as concerns allowing people to receive an extra £2,500 in income without the Treasury doing anything about it. Of course, that is not the case in relation to income tax. If someone's income increases from one year to the next, then, so far as concerns income tax and if that person is not outside the scope of income tax for whatever reason, he will be taxed on the £2,500. However, that is apparently not to be the case in relation to tax credit.
We have not been given any justification for that arrangement. We were given a justification as to why the £2,500 limit applies in relation to tax credit. We were told by the noble Baroness, and it is spelt out in the booklet, that, since most people's income increases a little during the year, it would involve a huge number of adjustments. That is one reason that has been advanced. However, I have not been given any justification as to why someone who receives tax credit should not be penalised for an increase in income of £2,500 within the year, whereas someone who pays income tax but does not receive tax credit should pay tax on the £2,500. We have not had any justification for that arrangement. If the Inland Revenue wants to reduce the number of calculations that people have to make, it can say that everyone who receives an increase of up to £2,500 in a year will not be taxed on it. That would be an expensive solution and I am not sure that the shadow Chancellor would necessarily want me to support it. But there is a fundamental difference here between the tax credit system and the taxation system.
Of course, as we know, the tax credit system applies to people with an income of £50,000 a year if they receive the working tax credit and £50,000 plus if they receive child tax credit as well. I believe that that is right; the noble Baroness will correct me if I am wrong. At all events, the figure goes way beyond the level at which income tax first becomes payable.
Therefore, this set of government amendments seeks to deal with the distinction made between the award of, and entitlement to, tax credit. Clearly, whatever one's view, that is something that one accepts with the system as a whole. As I said earlier, if we do not set this matter straight, the system will become unworkable. If the Bill went through as the Commons had left it, again, it would have been unworkable.
Therefore, noble Lords are fulfilling their function of seeking to improve legislation. With the help of the noble Baroness, we have done that in relation to a number of social security Bills. Consequently, the House will realise that the purpose of these amendments is to ensure that the Bill is debated on the Floor of the House. Perhaps a rather more elaborate explanation of exactly what the Government have in mind would be helpful, in particular in regard to the points that I have made. I beg to move.
My Lords, I do not want to discuss the substance—or reversal—of these amendments. I believe that we debated them in Grand Committee to a considerable extent. I simply want to take issue with the noble Lord, Lord Higgins, about whether or not this is the type of Bill that should be dealt with in Committee on the Floor of the House.
In my view, this is exactly the kind of Bill that should be dealt with in Grand Committee rather than on the Floor of the House because I suspect that not more than six Members of any party understand the detail of it. Certainly, having sat through the Committee stage, I do not believe that more than about six Members of any party participated in the debates or even came to listen to them.
I believe that one of the great problems in relation to this House and the way that it works is its gross inefficiency. By far the greatest single part of that inefficiency is the manner in which we take Committee stages of Bills on the Floor of the House when they could be dealt with, in parallel with other Committee stages, upstairs. I believe that this is exactly the type of Bill which should be dealt with in Grand Committee, and I consider it to have been an extremely sensible way of proceeding.
My Lords, it will not surprise the noble Lord, Lord Higgins, to hear that I agree with every word spoken by the noble Lord, Lord Newby. There is an opportunity off the Floor of the House to deal with technical Bills which are elaborate in terms of their inter-connections and to be able to press in a more informal way without the Chamber being taken over by the "anorak nerds" who follow social security matters.
I turn to the substance of the comments made by the noble Lord, Lord Higgins. I am in some difficulty and ask for the noble Lord's help. I had assumed that by seeking to reverse each of these technical amendments, the noble Lord wanted me to explain what they do. I am happy to do that at considerable length. Instead, the noble Lord raised general points about responsiveness and income test, which are more suitable to a clause stand part debate or an amendment to that effect. Indeed, subsequent amendments have been tabled on what counts as relevant income to which his points might have been more properly addressed. I am in somewhat of a dilemma. I am happy to seek to explain what each of the government amendments does—and, therefore, what the original government amendments, which are now part of the Bill, did—and what would be the effect on the Bill if the House were to support any of the amendments in the group proposed by the noble Lord. I am not sure that that is what the noble Lord wants.
I am happy to confirm that the amendments deal with the interaction between awards and entitlement, as the noble Lord said, and include some technical changes to the provisions about recovering overpayments and paying out underpayments when entitlement turns out to be different from the amount paid under an award during the year.
I am happy to repeat the need for this cluster of technical amendments. The new tax credits introduced by the Bill are designed to target support according to the current circumstances of claimants within the context of a system that bases entitlement to tax credits on annual income but allows for adjustment if claimants experience a change in their level of income.
Therefore, we need to make the distinction between an award, which is what one receives as one goes along, and the entitlement, which is the end-of-year reconciliation. As I believe the noble Lord understood following our discussions in Committee and the follow-up papers, there were some technical problems with the relevant provisions in the Bill as it originally stood. Most obviously, there was a contradiction between Clause 5 and some later provisions of the Bill. While Clause 5 was based on the assumption that awards would or would not end in particular circumstances, Clauses 14 to 16 made clear that the existence of awards was dependent on decisions made by the board. Those two ideas did not sit happily together. Therefore, we sought to clarify the matter.
In addition, the Bill was unclear about the effect of income on awards and entitlement. Because the new tax credits will respond to changes in income, entitlement cannot finally be determined until after the end of the year when current year income is known. However, as the Bill stood before Committee, the lack of such a clear distinction meant that claimants might face having their entitlement curtailed because of decisions taken by the board during the year based on expectation about income. In particular, if the board decided not to make an award in the expectation that a claimant's income would be too high for them to be entitled to any tax credits, that could cut across the claimant's entitlement. Awards will be finalised at the end of the year once all the relevant details about income are known. But if no award was ever made, there would be nothing to finalise.
The fact is that awards and payments under those awards are simply the vehicle for delivering support during the year. Entitlement is different. It depends on the underlying facts, some of which cannot be determined until the end of the year. But as the distinction was not clearly drawn by the provisions in the Bill as it stood, we decided that a number of technical changes were necessary and these were absorbed into the Bill in Committee.
I am happy to seek to rebut each of the detailed amendments moved by the noble Lord, but that would take some time. I invite the noble Lord, Lord Higgins, to say whether that would be helpful or whether, having made a general point, he is now content to withdraw his amendment.
My Lords, I thank the noble Baroness for giving way. In the interests of speeding up proceedings, it is certainly the case that, as she says, some of the points on income definition, and so forth, arise in later amendments. I was seeking to bring out the consequences of the Government's arrangements for the within-the-year and after the end-of-year situation, with which the amendments are primarily concerned, and to draw out the fact that there seems to be some inconsistency in policy between the tax credit arrangements and the normal tax arrangements. Under self-assessment one has a situation where there is a degree of anticipation.
Clearly, the Government feel that we must help those who suffer a fall in income during the year and who are somehow totally impoverished and in need of instant assistance rather than for that to be left until the end of the year. If that is the argument, it seems odd to make those arrangements for people who are being paid up to £50,000 per year and who seem unlikely to starve during the course of the year.
Essentially, as the noble Baroness rightly says, the amendments deal with the distinction between entitlement and award. I was seeking merely to bring out the inconsistency of approach by the Revenue to taxpayers as against tax credit receivers. That is why I thought it appropriate to raise the matter now rather than later. Having said that, it would be helpful if the noble Baroness could at least indicate to the House which amendments are concerned with that issue and which are apparently the minority of amendments concerned with the recovery of overpayments and the rectifying of underpayments, which I understand is the function of some of the amendments but not others.
My Lords, I shall try to be helpful but again I may need the assistance of the noble Lord, Lord Higgins.
As regards the substantive point concerning people who earn up to £50,000, the noble Lord will remember—we can debate later the question of MDRs and so forth—that those who are sensitive to a sharp taper fall in the withdrawal of working tax credit are those with incomes around £10,000 to £15,000 per year, depending on size of family. From about £20,000 per year upwards, there is little effect on taper rates because whatever happens to their income does not affect their entitlement to the children's tax credit element of the child tax credit, because that is the old tax allowance.
Therefore, the asymmetry of tolerance, the £2,500, in practical terms is available only to those on modest incomes who are to some extent on the edge of the tax bands. Once people come off the taper of the main child tax credit and go on to the children's tax credit at about £18,000, £20,000, thereafter, whatever happens to their income, it remains the same until they hit £50,000. It is precisely because we want to encourage work incentives that we have opted for what I believe is the decency of the asymmetry which allows for those who see an increase in their income. Often, with a couple, he may be on a low income and for the first time she re-enters the labour market. If they were immediately clobbered by a full withdrawal of working tax credit or some element of children's tax credit, probably the first thing she would do would be to drop out of the labour market. That is the last thing we want to happen.
We recognise that there is a sensitivity to those effects, simply because people are on very low incomes. That is why we have the asymmetry between immediately responding to falls in income but allowing in the first year in which it occurs for a tolerance of the first £2,500 of earnings. However, in practice that tolerance does not apply because it makes no difference to people once they have run out of the conventional working tax credit and children's tax credit and they are on just that last element of children's tax credit, which runs from about £18,000 or £19,000 up to £50,000 before it finally tapers out. So, in practice that tolerance is targeted on those who have the lowest income who are most sensitive to changes in circumstances. That is why I believe that it is such a decent policy.
Amendments separating out awards and entitlement—again, I am happy to give a full explanation, if the noble Lord wishes—are Amendments Nos. 17, 18, 19 and 22. If it will help the noble Lord, I am happy to speak briefly to them. I look for some steer from him on that.
Amendment No. 17 to Clause 3(1) would reverse changes designed to make clear that a claim to a tax credit is needed each year. That amendment was needed because, once a proper distinction between awards and entitlement has been drawn, the requirement for a new claim each year is no longer implied by Clause 5, which used to provide that an award on a claim ended at the end of each tax year.
I mentioned that there was an inconsistency between certain provisions of Clause 5 and the fact that awards will, in fact, reflect decisions made by the board during the year. Those provisions were therefore removed from Clause 5 and replaced by new subsection (3), which makes clear that an award is brought to an end during the year only by a decision made by the board to terminate it. Amendment No. 23 would reverse these changes.
Amendment No. 18, the third of the quartet, would remove new subsection (2) of Clause 3, which has been inserted to make clear that, where the board decides not to make an award or to terminate an award, any subsequent entitlement is dependent on the making of a new claim. That makes clear that the position for second and subsequent claims during the year is the same as that for new claims.
Finally, Amendment No. 19 would remove Clause 3(4). That provision states that entitlement ends when a couple breaks up or a new couple forms. That is an important provision. Couples will make a joint claim to the new tax credits. If a couple ceases to exist, obviously the previous entitlement must end. It would clearly be wrong to remove that provision.
I think that those were the specific amendments on which the noble Lord wanted me to expand. If he wants me to describe any others, I am happy to do so, but I do not want to trespass on your Lordships' time if he thinks that unnecessary.
My Lords, I am not clear whether all the other amendments are concerned with overpayments and underpayments. I was rather worried by what the noble Baroness said in speaking to an earlier amendment about overpayments and underpayments. This set of amendments includes provisions for underpayments and overpayments as well, and I am not clear which concern entitlement as opposed to award and which concern overpayments and underpayments.
My Lords, I have described the substantive amendments on entitlement. The amendments concerning overpayments and underpayments are Amendments Nos. 107, 108, 120 and 155. Apart from those making changes to Clause 14, the other amendments are primarily consequential. I am happy to follow up the matter in correspondence. If the noble Lord wants me to pursue any of this, he is welcome to hear my 16-page speech, but he may prefer not to.
My Lords, I agree with the noble Baroness that we do not want to get too deeply into the whole—mess, I was going to say. Will she just explain what the amendments concerning overpayments and underpayments do?
My Lords, the improvements were designed to enable the board to recover overpayments before the end of the year when an award was initially made to a person who, in fact, never met the basic qualifying criteria for the tax credit. They also allow interest to be charged in such cases from the point at which the award is terminated—although only if the overpayment arose as a result of fraudulent or negligent conduct on the part of the claimant. They also make clear that the board is under an obligation to pay any extra tax credits to claimants in cases where there has been an underpayment.
My Lords, this is a probing amendment by which we seek clarification from the Government of how they intend to define a separation as permanent or otherwise. We feel that the drafting as it as stands leaves the interpretation wide open. Accordingly, we should like more information on how permanence of separation is to be defined.
No doubt the Minister will maintain that the principles of the definition are well established in social security law and practice. That may be so, but it would be helpful if she would enumerate them. I have in mind the equation of that practice in Grand Committee by the noble Earl, Lord Russell, with the uncertain art of weather forecasting. The point at issue for us is how the relevant information about the separated couple, or the couple deemed to be permanently separated, is to be elicited from them. I beg to move.
My Lords, I shall try the short answer and if that is not good enough I shall try the longer one. The short answer is that we ask them. As the noble Earl rightly said, there are established tests for cohabiting couples, such as whether people share financial arrangements and cohabit sexually and whether the relationship appears to be stable, under social security arrangements. But ultimately, the test of whether separation is permanent depends on the facts of the particular case. In most cases, it is obvious. Where it is not, we tend to ask the claimant.
That is not to say that people must not get together with an ex-spouse in perpetuity, but they must consider that there is a degree of permanence in the separation. That covers situations such as those in which a couple have a perfectly stable marriage but may be working at different ends of the country and see each other only once a month. That is not a separation. We know what constitutes cohabitation in terms of shared financial arrangements, permanent relationships and the like. We also have well-established arrangements for permanent separation. If we are in doubt and have no reason to believe that there is fraud, we will ask them and take their word for it.
My Lords, I hope that the amendment is self-explanatory. The Minister will be aware that we debated something similar in Grand Committee. Indeed, she gave us a gracious and helpful response then to the effect that the number of individuals involved in making claims on behalf of others is relatively small in the scheme of things. Moreover—I hope that I have understood this correctly—they are either appointed by the Secretary of State or the Board of the Inland Revenue or are court order appointments.
None the less, while acknowledging those points, we continue to be concerned that a potential loophole for abuse remains. In the context of establishing the legitimacy of a claim on public funds, it is neither onerous nor bureaucratic to require that the Revenue satisfies itself as to the identity of the appointee and the claimant and to ensure that the appointee is acting genuinely on behalf of the claimant. That is all that the amendment would provide. Surely that is just common sense and good practice. It is an entirely reasonable requirement. At the end of the day, we are all in the business of ensuring that tax credits reach those who are entitled to them and minimising the potential for fraud through this provision would be an effective means of doing so. I beg to move.
My Lords, I am sorry that, if the noble Earl thought that my response in Committee was helpful, he did not at the same time think it persuasive. Obviously, the lesson from that is that I could read the telephone directory and it would make no difference; the amendments reappear.
Bluntly, I am not sure why the noble Earl is concerned about the matter. As he rightly said, repeating the information that I gave in Committee, there are only about 1,000 appointee cases, which usually involve people with severe learning difficulties. Three-quarters of those appointee cases are appointments made by the Secretary of State or by the Board of the Inland Revenue. The remaining quarter consist of court order appointments. Only about 200 of those are cases in which spouses have appointed their partners and we consider that all of those cases are genuine.
The point is that because the appointment process is already rigorous, the amendment is entirely unnecessary. We have no evidence of any compliance problems at all—not one. I have asked about that. The process is rigorous. People are visited by specially trained members of staff who meet both the appointee and the claimant. They must assess whether it is in the best interests of the claimant to grant appointee status. They will consider what measures the appointee is putting in place to ensure the arrangements—for example, whether they are currently looking after their affairs and managing their finances, whether the claimant can act on his own and what kind of work the claimant is doing. If necessary, they will make follow up visits, and so on. None of the staff in the disabled persons tax credit unit can recall a case in which a spouse was appointed when the other spouse could have acted on his or her own behalf. Given that fact and the fact that the appointment process is so rigorous, I cannot conceive of any reason why we need any further activity.
The noble Earl asked why the Revenue should not identify appointees. Appointees will be subject to an interview with an experienced member of staff. That is current practice, and it will continue. There are abundant safeguards in the system, and, as far as we know, it has never been subject, in any sense, to abuse. I hope that the noble Earl will allow that to continue.
My Lords, I am grateful to the Minister for that response. I should say in passing that I never dreamed of asking her to read out the telephone directory—perish the thought—although it might be more interesting than some of the drafting of the Tax Credits Bill. I shall leave that by the side.
My Lords, that may also be true. The substantive reason why we were unpersuaded in Grand Committee remains. We were concerned at the potential for abuse of the system. However, the Minister has given a more persuasive response to that point today. This time, I am persuaded, and I beg leave to withdraw the amendment.
My Lords, the amendment probes further the issue of passporting benefits. The matter was discussed in Grand Committee, but it merits a little further clarification. The amendment would clarify the suggested requirement that the Inland Revenue should have responsibility for signposting the rights of tax credit claimants to other benefits. It is a signpost; it is not designed to imply, in any way, that the Inland Revenue should be under a duty or obligation to calculate what the other benefits might be or to assess whether there is an absolute right to the benefits.
A few moments ago, the noble Lord, Lord Newby, rightly described the Bill as extremely complex. If it is complex for your Lordships' House and for another place, it will be extremely complex for those who will have to administer it and those who should benefit from it. Therefore, we on these Benches share with the Government the aim of ensuring that there is the highest possible take-up not only of the working tax credit and the child tax credit but of other benefits that are passported by the award of those tax credits. The amendment proposed earlier by my noble friend on the Front Bench and carried by the House will go some way to identify, through an annual report, where there is low take-up.
The Minister was most helpful. I shall study what she said in the record, but I understood her to say that it should be possible to compare performance targets on a quarterly basis for the working tax credit and the child tax credit, as administered by the Inland Revenue, with actual take-up and expenditure. That was what the Minister implied. I shall read Hansard, and, if that is the case, it would be helpful.
I hope that I have assured the Minister that my intention is to signpost, not to place additional burdens on the Revenue, which already has a substantial burden. I am grateful for the earlier clarification about the helpline and about the literature that would be available. All of that is part of signposting to passported benefits. It was helpful of the Minister to say in Grand Committee that those who wanted a face-to-face interview with officials at the Inland Revenue would be able to have one if they asked. I hope that I report the Minister's intentions correctly. There will, of course, be an extensive IT system to support the dissemination of information among officials and between departments, the Inland Revenue and local authorities on the nature of the benefits.
The minimum that many claimants will wish to see is the Inland Revenue providing information on available passported benefits in an up-to-date list and, most importantly, details of names, addresses, telephone numbers, fax numbers and website addresses for the departments to whom people may make a valid claim. That is a simple request. The system is immensely complicated and burdensome. It is designed to be beneficial to those on low incomes, and I hope that the Minister will embrace the purpose, if not the text, of the amendment. I beg to move.
My Lords, I support my noble friend's amendment. It seems eminently reasonable. We debate it against the background of a fundamental shift in the role of the Inland Revenue.
It emerged in debate on earlier amendments that the Inland Revenue would go from being an institution that only collected money to being one that also disbursed it in the form of tax credits of one sort or another. There has been an institutional change, and I suspect that it will come as a shock to some in the Inland Revenue to find themselves dealing with tax credits. In that context, the relationship between the Inland Revenue and—I was going to say—what remains of the Department for Work and Pensions will be important, particularly as the tax credits must have some relationship with what my noble friend Lord Freeman rightly calls passported benefits, which are still administered by the department. It will involve a fundamental effort to change the co-ordination between the two bodies.
Can the Minister tell us which benefits will be administered by the Inland Revenue and which by the Department for Work and Pensions, so that we can get some idea of the scale of the problem? Are we right in thinking that the tax credits covered by the Bill are the only benefit that will be dealt with by the Inland Revenue? Can the Minister enumerate the benefits to be administered by the Department for Work and Pensions to which people in receipt of tax credits will be entitled?
The other thing that I would like clarified relates to the so-called passported benefits. Generally, that has tended to relate to benefits covered by the contributory system. I am not sure that that is true. In short, we do not have a clear definition of what is meant by passported benefits. We must be clear about the so-called passported benefits to which tax credit recipients will be entitled. Secondly, will any of those be of the kind that is restricted to contributory benefit recipients? To put it another way, will some of the passported benefits not be those which would be received by tax credit recipients, but only by those who receive contributory benefits.
I hope that I have put that clearly. I apologise for my sentence structure and syntax, which went totally awry. I was short of a word to describe a person entitled to a benefit. Using the word "entitlee" provides the only way of getting around the problem. However, I shall not attempt to repeat the point; I rely on the noble Baroness to understand what I was saying.
My Lords, I am always delighted to work out what the noble Lord has said. When I am in doubt, I shall ask him.
First, I shall pick up a point not related to the question put by the noble Lord, Lord Higgins, but a point raised by the noble Lord, Lord Freeman, with regard to performance targets. To ensure that there is no ambiguity about this point, performance against published targets will be reported in the board's annual report. A quarterly report will be made containing information on the award of tax credits. As now, it will contain detailed information about regional variations and the like.
I turn now to the question raised by the noble Lord, Lord Higgins. He asked which passported benefits will be administered by the Inland Revenue and which by the Department for Work and Pensions. There may be one or two passported benefits, such as entitlement to the social fund and so forth, that will continue to be administered by the department to those claimants of child tax credit whose adult element is income support and jobseeker's allowance.
But passported elements as we normally think of them, such as free school dinners, prescription charges and the like, will be administered neither by the Inland Revenue nor by the Department for Work and Pensions. Rather, they will come under what might be called the host government department. Thus free school meals are provided by the Department for Education and Skills; free prescriptions and dental treatment are provided by the Department of Health. They are to be passported because, as the noble Lord rightly identified, if a claimant has been on income support or jobseeker's allowance, those provide an automatic ticket to eligibility for such benefits.
The list includes other benefits—I have been trying to recall some of the more obscure among them—such as reduced charges for utility payments; help with school uniform purchases, which is an education matter; prison visits; and home insulation, a benefit dealt with by the former DLTR. Furthermore, I cite entitlement of access to, although not necessarily an award from, the social fund, which will be a matter for the Department for Work and Pensions. The devolved administrations will also have their own schemes for passported benefits.
All those benefits will be paid to people by virtue of the income test employed by the relevant department. So far as I am aware, they have no connection, in terms of passported benefits, to national insurance or the contributory principle. Obviously I do not refer to benefits such as winter fuel payments or TV licences, which are passported because the recipient would be in receipt of an old age pension. In this context they have no connection to these tax credits. At that stage the noble Lord's point would be brought to bear if those were the elements that he wanted to call "passported" benefits.
I hope that that makes the matter clear to the noble Lord. Passported benefits, as they are conventionally understood, whereby via the income test the recipient will be entitled to those benefits, will be handled by the home department—the Department for Education and Skills or the Department of Health. I give way to the noble Earl.
My Lords, I have no reason to think so, but the noble Earl will understand that tax credits and social security remain national considerations. However, my understanding is that the passported benefits and their eligibility are matters for the devolved administrations. If I need to qualify that remark, I shall write to the noble Earl.
If the noble Lord, Lord Higgins, is content with my explanation of the nature of passported benefits, perhaps I may return to the issues raised by the noble Lord, Lord Freeman. I am sure that no noble Lord in this House would challenge the notion that people must know about and understand their entitlement to benefits which they are, indeed, entitled to receive. Knowledge is power in this context. If people do not know about the benefits, they will not be able to claim them.
My Lords, I am grateful to the noble Baroness for giving way. I wish to clarify one point. Does the fact that someone is entitled to a tax credit give them any kind of "passported benefit" to which otherwise they would not be entitled?
My Lords, yes. It would depend on their income; in other words, the question would arise over the connection between the income scale of the home department—the Department for Education and Skills may decide that free school meals will be cut off at a certain point of income level while the eligibility for free prescription charges may be cut off at a different income level by the Department of Health—and the read-across from those levels to the tax credit system. That is how the levels for eligibility will connect.
What we cannot do any longer is put in place an easy calibration. Those on income support will certainly be eligible for passported benefits, but there will be people who are eligible, perhaps, for child tax credit which will be sufficiently generous in its maintenance payments to float those recipients off income support. Therefore there will be complexities with regard to the read-across.
Basically, however, the Department for Education and Skills and the Department of Health have an income test which so far has been triggered by the read-across from income support and jobseeker's allowance. The income test will continue to apply, but clearly tax credits, which will include the working families' tax credit, apply right up the income scale to an annual income of £50,000 and therefore there can be no automatic read-across from tax credits. As the noble Lord will recognise, unless that is the case then far too many families would become eligible.
My Lords, is the noble Baroness saying that the fact that someone is entitled to a tax credit in itself does not entitle them to any other passported benefits which otherwise they would not receive because of the level of their income?
My Lords, that is correct. Tax credits will apply to incomes possibly up to £50,000 per year. Indeed, the matter is very straightforward. People will be entitled to passported benefits according to their level of income. What has yet finally to be determined—I hope that I shall be able to give clear details of this when we come to Third Reading—is the read-across from income levels to how high up a claimant is on the tax credit system. I refer here to the chimneys of income levels. We have to ensure that the read-across works effectively. I hope that that makes sense to noble Lords.
I am able to confirm the information I gave a little earlier in my remarks to the noble Earl, Lord Russell, about the devolved administrations. The devolved assemblies will be free to do as they wish in terms of how they apply the system. I am glad to be able to confirm that point.
I return now to the substantive issues raised by the noble Lord, Lord Freeman, in his amendment. Of course he is absolutely right to say that the information has to be made available. It also has to be timely and up to date. Ideally, because of the circumstances that I have just described, the information would best come from the home department, such as education or health. I believe that that is why the noble Lord wanted to see signposting put in place. That is quite right and is much better than an assessment of entitlement made by the Inland Revenue, which would not necessarily have the relevant information, given the host of very minor passported benefits that are available.
I hope that I am able to give the noble Lord the reassurance that he seeks by saying this. The award notice that the Revenue will send out to claimants detailing what tax credits they will be paid will include a message telling them that they may be entitled to other benefits as a result of their award. The message will advise them to telephone the Revenue's tax credit helpline, which is the point at which most applicants will be able to receive guidance. In turn, the helpline will direct applicants to sources of information about the main benefits.
As the noble Lord, Lord Freeman, identified, there will be interviews available for claimants. Furthermore, the Revenue is planning to produce a leaflet, telling claimants how to access more information on particular major passported benefits. I can confirm that the leaflet will include all the relevant telephone numbers, fax numbers and other information that we believe will be helpful. In that way, we shall ensure that people know how to follow up any benefit to which they think they may be entitled.
I hope that, as a result of my remarks, the noble Lord, Lord Freeman, will accept that we are putting in place signposts, as he suggested. We are doing that through the helpline, the offer of interviews, and the publication of literature containing all the relevant information. With that explanation, set in the wider context of what is a passported benefit and who is to be responsible for it, I hope that the noble Lord will feel able to withdraw his amendment.
My Lords, I thank the Minister for that helpful response. The record will need to be studied.
I shall work on the assumption that the relevant interests in the community—those who work with and represent people who will be making claims for tax credits—will be able to comment on and have some input into the literature and the nature of operation of the helpline. Over the coming years they should be able to review the effectiveness of those measures. On that basis, I beg leave to withdraw the amendment.
My Lords, again this is a probing amendment. We merely seek clarification of what kind of social security benefits the Government intend to prescribe in the context of the subsection. As drafted, it appears to be very open-ended.
With apologies for perhaps being a little obtuse, I should like to press the Minister on one other point. My first reading of the subsection suggested to me that its purpose was to disqualify certain individuals from entitlement to tax credits if they were in receipt of other prescribed social security benefits. On re-reading it, it occurred to me that that was not necessarily its intent; rather, it could be delivering a mechanism whereby the income test is waived in circumstances where individuals are in receipt of other prescribed social security benefits.
There is a world of difference between my two interpretations. I should be grateful if the Minister can clarify the matter for me. I beg to move.
My Lords, I hope that the noble Earl will not pursue the amendment. We discussed this issue in Grand Committee. The amendment would remove the provision for regulations to suspend the tax credits income test for those families receiving income support or income-based jobseeker's allowance, a provision which is necessary in order that such recipients may have automatic access to maximum child tax credit.
As I tried, obviously unhelpfully, to explain in Grand Committee, for most families the income test in Clause 7, which is based on the income of a tax year, provides a fair and simple way of assessing entitlement to tax credits and targeting support. However, for the poorest families there needs to be a safety net. Currently that is provided by IS or JSA, and both of those benefits include elements for the children in the household. But, from 2004, existing IS and JSA claimants with children will be transferred to the child tax credit and the child-related elements of these benefits will cease.
We want to ensure that those families continue to receive at least the same levels of overall support as they do now. If these families were subjected to a test of their annual income while claiming income support or income-based JSA, it is possible that they would not receive maximum child tax credit due to their income across the whole year— including periods when they may not have been receiving IS or income-based JSA—being more than the £5,060 income threshold. It is a way of protecting people who drop down into unemployment that they are able to receive this support which they would not otherwise do if we were, in some senses, anticipating or averaging the income that they had so far earned.
The regulations will make clear that for any period of entitlement to IS or income-based JSA, entitlement to child tax credit will be at the maximum rate and shall not be subject to a test of annual income. The income of the previous or current year when perhaps a period of employment or self-employment had come to an end will not be taken into account. This will ensure—this is why it is entirely benign—that the poorest families with children continue to receive the appropriate safety net support on a weekly basis. We believe that to be vital.
As to the noble Earl's final question, the income test is waived for those who are in receipt of IS or income-based JSA because they will receive the maximum CTC to which their circumstances entitle them. In that sense it is an automatic conveyor belt. I hope that that helps the noble Earl. It is a way of making sure that when people become unemployed and drop down onto the basic benefits they do not find their previous earnings disqualifying them from help during their most needy period.
My Lords, I am grateful to the Minister for that reply. I should perhaps apologise that it takes me a long time to wrap my head round the complexity of these issues. I do not have the experience of the noble Baroness. It is a delight always to hear her explanations as and when, slowly, they begin to enter my consciousness. I beg leave to withdraw the amendment.
My Lords, the amendment seeks to leave out subsection (3), an important subsection which effectively defines "relevant income".
In her typically helpful way, the noble Baroness was kind enough to send me a letter on this issue following the exchanges which took place in Grand Committee. There are a number of matters I should like to pursue, but perhaps I may first clarify one point. Among the other helpful information provided by her department—in particular in relation to what we called category three government amendments—was an explanation that Amendments Nos. 47, 48 and so on, which we will debate later, replaced the references to "relevant income" in Clause 17. We are dealing here with Clause 7, not Clause 17, and, as far as I know, the expression "relevant income" appears in Clause 7, is defined there and remains a concept which is helpful in the Bill. I am not clear why the amendments to Clause 17 apparently replace references to "relevant income". I am sorry to throw this one to the noble Baroness at rather short notice—Clause 17 refers to the "final notice" and so on—but if she can clarify that point, if not now, then when we come to Clause 17, it would be helpful.
The noble Baroness argues in the letter she was kind enough to send me that the definition of "income" for the purposes of tax credits is effectively the same as the definition of "income" for normal tax purposes. That would be so particularly, apparently, so far as concerns income from capital. But, having said that, it appears to be the case—this is a point that I raised on an earlier amendment but the Minister suggested that we should come back to it later—that the rules which apply in the case of income tax do not apply to tax credits because of the need, on the one hand, to help people whose incomes fall within the year and, on the other hand, to reduce administrative charges where incomes rise during the year.
I am still not clear how the Revenue has been "persuaded"—I think that is the best way of putting it—to adopt such lenient attitudes with regard to the tax credit, and how it remains intransigent in regard to allowing people to have up to £2,500 extra income from one year to another without taxing them. Given, for the reasons the noble Baroness mentioned—that is, reducing the level of marginal rates as you go up the income scale—the fact that the tax credit goes up to £50,000, and beyond that where an individual also receives child credit, this seems to be a very asymmetrical way of doing it.
If it were related only to people on low incomes, one could understand it. But it seems very strange to do it for people who are not on low incomes. Or am I totally missing the point? Would everyone with an income of up to £45,000 be entitled to tax credits? It may be that I have misunderstood that particular point. Will anyone on an income of £45,000 who is not entitled to tax credit be taxed on an income increase during the year of less than £2,500? A person on tax credit will not be so taxed. I beg to move.
My Lords, taxation rules are not changing. If someone's income increases from £20,000 to £22,000, or from £45,000 to £47,500, he will continue to be taxed on that increase as now. There will be no change in that.
With regard to people on higher incomes, it was the interconnection between that and the taper off of the tax credit. As the noble Lord will know, you enjoy the full tax credit up to incomes of about £90 a week. You then taper off the working tax credit. You then taper off the child tax credit which includes the childcare element, the children's element and the family element. The last element to remain is the family element. The other elements have been tapered out at about £15,000 to £20,000 according to family size. You continue to enjoy the family element which was the old tax allowance up to about £50,000 whereupon it tapers out again and you finally end up just on child benefit.
On responsiveness, at the point at which all the elements of child tax credit have tapered out except for the family element—that is, between £20,000 and £50,000—it does not matter what happens to your income; you retain your entitlement to that sum. Therefore the head space issue does not come into play.
My Lords, it will have to come under Amendment No. 37. Tax allowances are uprated automatically unless they are overruled by the Finance Act. Therefore that will come into that category. If I have any further information, perhaps I may come back to the noble Earl on Amendment No. 37.
With child tax credit being increased in line with earnings, and the working tax credit at present being increased in line with prices, I am not willing to make a commitment that that situation will continue in perpetuity. We may wish to rebalance that. The commitment for child tax credit for earnings is only until the end of this Parliament.
I do not know whether I have met the noble Lord's point about MDRs and deduction rates. First, he asked me a technical point about relevant income. The second more general point was about the asymmetry—it was the word I used in Committee—between drops and increases in income. I deal, first, with the technical point about the use of term "relevant income" in Clause 7. "Relevant income" is defined in Clause 7 but it was also used in Clause 17. It is no longer used in Clause 17. The terms "current year income" and "previous year income" are used instead. Noble Lords will understand that we tried deliberately to separate the two. But "relevant income" is still relevant to establishing the level of a claimant's entitlement and is still used, therefore, in Clause 7 and in Clause 13 which deals with that.
On asymmetry, I accept that there is here a difference in treatment between the instance when people on very modest incomes become eligible for taxation and their eligibility for tax credit. There is an asymmetry. In Committee I sought to express my strong support for what we have done. The expectation is that anyone on tax credits will have his tax credits for the current year based on the preceding year's income. However, if his income in the current year falls he goes immediately on to the current year assessment. That is to help him. The last thing we want is for him to drop out of work because we are unable to top up his income in the course of that year. If anyone's income increases in the course of the current year the first £2,500 of that income increase will be ignored for that current year. However, in the following year he will go on to the new adjustment.
Is it right to have that discrepancy between immediately topping up a drop in income in the current year while ignoring the first £2,500 of increases in income in a current year, taking it into account only the following year? The noble Lord, Lord Higgins, pursued me on that question. At the end of the day, it is a matter of judgment and information. The information is that there are probably twice as many changes in income due to income increases rather than decreases. There is a practical reason. Something like 1.3 million families who are likely to be affected by tax credit see an increase in their income of up to £2,000 in the year but only about 0.7 million see their income fall by a similar sum.
People's incomes do go up. Second earners move into the household calculation. If they were to have their tax credits adjusted immediately, what would that mean in terms of administrative load and, more importantly, with regard to the message we are trying to get across that work pays? Often the increase is through increased hours. A partner, a second earner, may be tempted for the first time into work. Income will be assessed on gross income rather than net. Therefore, there is a relatively lower marginal deduction than would otherwise have been the case. We welcome that. We shall catch up with that the following year when people have established patterns of work and payment.
We think that it is right and decent—and generous—to have an asymmetry so that if people's incomes increase through their efforts in the current year they will go on to that adjustment only in the following year.
At the end of the day it is a philosophical debate. Above all, we seek to encourage people into work, to stay in work and to make them accept, with us, that work pays. We think that the best way to do that is to have an asymmetry so that any efforts they make to help themselves, certainly in the first year before possibly new patterns of work are bedded in, are not met with deduction rates. That will come into effect the following year because we also have a duty to the taxpayer as trustee of public moneys. But we think that this asymmetry is right and decent. It affects only those on modest income; in other words, those for whom high MDRs in the year in which they move into increased earnings or increased work might serve as a disincentive.
The noble Lord may not agree with me. I am confident that I shall have the support of the noble Earl, Lord Russell, and the noble Lord, Lord Newby, that it is right to have asymmetry here. It is decent; it is generous. I ask the noble Lord to accept that this is where we are coming from.
My Lords, as always one is lost in admiration for the Minister's exposition on these issues. I was contemplating whether, when the Treasury takes over the whole of the Department for Work and Pensions, the noble Baroness will just about be ready to become Chancellor of the Exchequer—the first one in this House for a very long time.
Be that as it may, I understand the case for asymmetry. It is fundamental to the basis on which this system of so-called tax credits has been established. I am still not clear whether taxpayers not in receipt of tax credit will be fairly or unfairly treated. However, one can return to that point at a later stage. It may arise on subsequent amendments. I beg leave to withdraw the amendment.
My Lords, this amendment is part of a large group which we thought it appropriate to table so that we could raise the matter on the Floor of the House. In Committee, the Minister categorised the various amendments into five groups. These amendments seek to replace the relevant income provisions in Clause 17, although Amendment No. 26 affects Clause 7. That places them in category three.
We have just debated the relevant income definitions but we are not entirely clear why in Committee the Government wiped out the definition in Clause 17. The difficulty is that the reference in Clause 7 reappears—rather like the smile on the face of the Cheshire cat in Alice's Adventures in Wonderland, after the cat itself has disappeared. Could the noble Baroness explain why the Government feel that the original reference to relevant income in Clause 17 ought to be knocked out?
My Lords, will the Minister confirm that because tax credit entitlement is based on the previous year's income—I entirely accept the point about asymmetry—unless the Inland Revenue becomes aware of the fact that there has been an increase in income during the course of the current year of entitlement to tax credit, the proposed £2,500 threshold would effectively be lost the next year? That year will rely on the previous year's income, which may have risen more than the £2,500 threshold. If that is not disclosed and no adjustment is made to reduce tax credit, the benefit of that threshold will be lost.
My Lords, the £2,500 threshold does not continue in perpetuity but only from the previous year. Normally, the individual's P60—which reflects his income in the current year—will form the basis of the following year's tax credit. The current year's P60 will include the rise in income of £2,500, £2,495 or whatever. I was making the point that the rise is not taken into account in the current year in which the income increases. As a result, the individual will not see a reduction in his tax credit in the current year.
Yes, my Lords, that is correct, rather like upper and lower case in "Inland Revenue". The substantive amendments are Amendments Nos. 45 onwards, which relate to Clause 17 and do exactly as the noble Lord said. Although it is helpful to have the concept of relevant income in Clause 7, one needs to specify in Clause 17 whether the reference is to this year's income or last year's income in assessing the individual's entitlement to tax credit. That is the reason for using in Clause 17 the terms "current year income" and "previous year income", not just "relevant income".
The expression "relevant income" is defined in Clause 7 and used in Clause 17. We are separating that expression into its two component parts of "previous year income" and "current year income" in Clause 17 because that is a more illuminating way of helping claimants to get the right tax credit.
My Lords, I asked whether "in this Part" meant "Part" with a capital "P" because there are two parts to the Bill. If so, I am not clear why the change does not apply to both parts.
This is a topsy-turvy amendment—and is not the least thing topsy-turvy in the Bill. The subsection states:
"Regulations may for the purposes of this Part make provision . . . as to what is, or is not, income, and . . . as to the calculation of income".
The Minister helpfully provided a number of draft regulations, so we know what the Government are likely to have in mind when the Bill is enacted. That precedent might well be followed in another place. No one there goes to as much trouble as the noble Baroness to provide draft regulations.
The power in question is rather wide but I assume that it applies only to tax credits, not to income tax. I do not remember any such provision in income tax legislation, giving the power to decide what is and is not income. What do the Government have in mind, at least in the initial stages, for the calculation of income? That crucial point can fundamentally affect the way in which the Bill operates.
My Lords, some power of this kind is needed. I am sure that the Minister remembers a great many discussions about CSA matters pointing out that former husbands have developed a remarkable skill in classifying things as not being income which might appear to the untutored eye to be income. So such a power is needed.
The question of what is capital and what is income has given rise to a good deal of debate. What is the income of a company and what is the income of one of its employees or directors is a matter on which there is a good deal of room for obfuscation. These matters must be cleared up somehow. Since the ingenuity of man when it comes to tax evasion is almost infinite, the need for flexibility—constantly invoked by Ministers—is a point which, in this case, even I must concede.
What I have been thinking about the question of flexibility and regulation is that sometimes we need not to object to the regulation-making power as such but to demand a tighter drawing of the vires under which the regulation-making power exists. There is an increasing tendency in drafting the vires to make regulations not to confine oneself to saying that one wants to take a power to deal with the particular problem that one has on the stocks, but, just in case something might turn up that one has not foreseen, to make the power as wide in extent as it possibly can be. I wonder whether the Minister might make some provision for tightening the wording of these vires to see whether they can be more specific to the mischief which I agree we have to meet.
My Lords, there are two questions here. One—which was rightly pursued by the noble Lord, Lord Higgins—relates to what assumptions we are making about what counts as income. The second relates to the need for what may be called the "topsy-turvy" clause to deal with the fallibility of human nature—which is one way of describing what the noble Earl, Lord Russell, referred to.
As regards the definition of "income", it may help if I explain where we have arrived in our thinking. The definition will broadly be based on annual income which is taken into account for income tax. It will therefore include earnings from employment or self-employment, certain social security benefits and pensions and "other income" from savings, property, trusts and overseas sources, in line with the definition of such income in tax law.
I also point out that the Inland Revenue was working with interested groups in drafting the relevant regulations. These groups include not only what may be termed low income groups—CPAG, NCOPF, the lone parents' organisation, NACAB, the Disability Alliance, the Low Incomes Tax Reform Group, the Low Pay Unit, and the Women's Budget Group—but also the Chartered Institute of Taxation and the Institute of Directors, which includes accountants. In other words, with a very wide group of organisations we are refining our definition for regulation purposes of what counts as income. But basically we are following income tax rules.
The second point related to the "topsy-turvy" element. As the noble Earl, Lord Russell, said, in terms of social security I have been amazed at the number of people who run Porsches apparently on £90 a week, because the rest of their income is turned into other forms. I hope the House will allow me to repeat an obvious example that I have given previously. Someone may lend someone else a sum of money—£3,000, which is the capital sum—and it may be repaid on a weekly, fortnightly or monthly basis. But for this rule, that could technically be regarded as income—which it is not; it is the repayment of capital. Equally, people leaving prison will receive a modest lump of a couple of hundred pounds to settle them. We do not want that lump sum to disqualify them from entitlement to income support or JSA according to their circumstances. So that is the nature of the rule. It is benign, but behind it lies not only the basic income tax rules but full consultation with a wide range of organisations leading to regulations which will be available to this House.
My Lords, my instinct is "No", but perhaps I may reflect further on the matter to see whether I agree with the noble Earl's point.
My Lords, before the Minister sits down, we understand that there may be a need for regulations which enable the Government to vary the definitions of income and so on. The Minister referred to a particular item; namely, the repayment of a loan, which would not then be regarded as income. For the record, can she give us some idea of what the regulations contain in the first instance?
No, my Lords, I am afraid I cannot do that at the moment. They are still under discussion. All I would say is that the model that we are following was followed by the previous Conservative government when they introduced family credit, disability working allowance and other benefits. So far as I am aware, there has always been such a provision for exactly the purposes outlined by the noble Earl, Lord Russell. When the consultation regarding what is relevant income for these purposes has been concluded, I shall make sure that the noble Lord is notified of when the regulations will be available for inspection.
My Lords, Clause 7(10) is concerned with the board making estimates. I found it a rather puzzling clause which it would be helpful to illustrate. The subsection reads as follows:
"The Board may estimate the amount of the income of a person, or the aggregate income of persons, for any tax year for the purpose of making, amending or terminating an award of a tax credit; but such an estimate does not affect the rate at which he is, or they are, entitled to the tax credit for that or any other tax year".
That seems a rather strange provision.
The clause suggests that the board can estimate the claimant's income, and it will do so for the purpose of amending or terminating an award. In that case, surely it affects the rate at which it is entitled to the tax credit. The fact that it makes an estimate clearly does not affect the tax credit, but if it does make an estimate one would have thought that it was for the purpose of affecting the rate of entitlement to the credit. I do not understand for what other purpose the estimate will be made; nor do I understand why the board will make estimates if doing so has no such effect. I am puzzled as to the purpose of this part of the Bill. I beg to move.
My Lords, I thought that the Minister had explained this point in Committee. I believe that this relates simply to the system that is used for the assessment of Schedule D income tax. If you do it all afterwards, you have a very large sum falling due to be paid at some time when people may not have made provision for it and it can be quite difficult to meet. So, with Schedule D income tax, there is an estimate at the beginning of the year based on the previous year's earnings. If you earn less than that during the course of the year, your next year's liability is reduced. If you earn more than that—if, as sometimes happens, editors, publishers and the people who buy copyrights for reproduction in anthologies suddenly remember you in the last three months of the year, you find a whacking great tax bill which you were not expecting.
There are, of course, disadvantages in this system. I do not see how you can have a system without disadvantages. Granted that that is the case, this may be what the Minister would describe as rough justice; but it seems to me that, even when it works against me, it works about as fairly and as reasonably as any system that I could devise to replace it. Under those circumstances, I see no purpose in complaining. Furthermore, since it is already a tried and trusted system, it is one area in which the workings of the Bill will not involve substantial innovation. It is just as well that there are a few of those.
My Lords, the provision would not work against the noble Earl, Lord Russell, because over time it evens out lumpy sums—that is one of the phrases we were using. The noble Earl is right on the main argument; the amendment would remove the provision for the Inland Revenue to estimate a person's income for the purposes of the tax credit award during the year. We need to be able to do that because people's income may fluctuate during the course of the year; they may know that that is going to happen and we may want to take account of that.
Current year income cannot be known until the end of the year, so the system would not really be responsive if adjustments to reflect current year income were made only at the year's end. Those who needed more help because their income had dropped would be waiting until the end of the year for a lump sum payment of tax credits. In contrast, as the noble Earl, Lord Russell, said, those whose incomes had risen significantly would be overpaid and have to pay back much of that money at the end of the year. That clearly cannot be right if the overall aim is to give help to those who need it when they need it.
Subsection (10) therefore provides a mechanism for adjusting an award during the year based on an estimate or prediction of current year income. There will be no requirement to provide estimates of current year income as that would be impossible to enforce. So subsection (10) allows the Inland Revenue to estimate income in-year.
The question is, in what situations would the Inland Revenue wish to use that power as opposed to the self-reporting cases we have identified? First, as I have described, it could use it in response to a claimant providing an estimate—this is a benign version—of current year income because he thought his award would eventually be based on current year and he wanted it—as the noble Earl, Lord Russell, described—on the correct footing as soon as possible. The Inland Revenue will encourage claimants to do that.
Secondly, subsection (10) can be used by the Inland Revenue as a safeguard against those who deliberately try to abuse the system. Because current year income cannot be known until the year's end, it is not possible to take action against those who deliberately provide false income information until the end of the year. However, that false information may be provided in the form of an estimate during the year. In such cases the Inland Revenue could choose to use its own best estimate of income to protect the Exchequer from making the wrong payments during the year.
I could conceive of an example in which someone gave a false, artificially low statement of his income, received a high payment, then protected himself against overpayment the following year by going back on benefit. While on benefit he would have no such liability. In such situations, the Inland Revenue may seek to make an estimate of the person's actual income, based on its experience and information, rather than rely on manipulation of the claimant's information or fraud.
But I must point out to your Lordships that subsection (10) makes it clear that the board's power to estimate has no bearing on the final entitlement to tax credits. That will always be dependent on actual income and will be settled at the end of the year. The power at subsection (10) merely relates to provisional decisions during the year made under Clauses 14, 15 and 16.
There is no mischief here. It is a sensible way of making mid-term adjustments, but with the additional benefit that it can protect in the case of outrageous fraud, which I hope will be rare.
My Lords, I fear I have forgotten the exchanges in Grand Committee to which the noble Earl referred. That is possibly because I do not envisage myself being in the circumstances covered by the subsection—my publications are very limited—whereas those in receipt of royalties may be affected. The noble Earl may be affected for his distinguished publications, as indeed may be the Minister. They have more reason to remember the exchanges in Grand Committee than I do.
My Lords, that belief is held dear by every academic.
My Lords, we must not get too personal. My wife's three-volume work probably comes under that category.
I remain a little puzzled by the clause. I am not clear why the board rather than the individual estimates the amount. In one's self-assessment tax return there is a degree of estimation of one's likely income.
My Lords, that is exactly what happens. In the majority of cases the board will respond to information offered by the claimant.
My Lords, that would be in the second of the possible fraud cases I offered to the noble Lord.
My Lords, as the Minister rightly points out, at the end of the year the actual rather than the estimated income is relevant, so the fraud would be short-lived. The actual income figure may be fraudulent, in which case it is duly caught, but overriding a fraudulent estimate that expires at the end of the year seems rather pointless.
My Lords, I tried to give the noble Lord an example where someone dropped down on to benefit the following year and was therefore in no position to repay the overpayment. Equally, someone might go abroad. I have seen child support cases where the moment the maintenance arrears mount up, the person disappears. He may have gone abroad, but he is certainly not around to pay the bill. I hope that such situations will not be frequent, but I can conceive that there the board might have difficulty in recovering legitimate overpayments because the claimant was seeking to avoid them, in whatever form.
My Lords, I have a sense of unreality at this point. Here is someone making an estimate that the board believes is fraudulent. As it believes the person will disappear before the end of the year, it makes an estimate and reduces his benefit accordingly. I suppose that there may be such cases, but it seems rather a sledgehammer to crack a nut. But we are as much against fraud as the Minister.
My Lords, if I could continue for a second, I will of course give way to the Minister. The clause goes on to state that the estimate does not affect the rate at which the claimant is entitled to the tax credit. I find it rather puzzling, but I am no doubt slowing down at this stage in the proceedings.
My Lords, I am not sure how much further I can go. This is a helpful provision to allow mid-term adjustments where appropriate. It serves also as a stopgap on fraud where people are manipulating the system. The noble Lord says that he finds that in the world of unreality. All I can say is that from my child support experience, one of the most common causes for parents with care to go to the appeals system for a redirection on the amount of maintenance owed them is on the grounds that the non-resident parent—be it him or her—is leading a lifestyle inconsistent with declared income. I know that to be the case in an unfortunately large percentage of those who go for departures on child support arrangements.
You need think only of circumstances where a son is employed in his father's garage—or a similar small business—where all sorts of arrangements for income can be made; in this case to avoid paying maintenance. Often in small businesses the former wife or partner has kept the books and knows exactly what kind of double book-keeping is going on, often in terms of the Inland Revenue, I am afraid, as well as in terms of maintenance payments.
I am just giving examples to show that the issue is not as unrealistic as the noble Lord thinks. In some cases we may be talking about quite high value benefits, particularly if they are being paid in association with housing benefit or others. In such cases, fraud is likely to go across to high value benefits such as housing benefit.
My Lords, I well understand the comparison with the CSA. My constituency experience from a former incarnation leads me to believe that many parents behaved in the way that the noble Baroness has described. I am a little unclear about the connection between that case and the one that we are considering here. I shall reflect on what she has said and the extent to which these are likely to be relevant cases. Meanwhile, I beg leave to withdraw the amendment.
My Lords, Amendments Nos. 40 and 41 are also in this group. This is another restructuring amendment that refers to the amendments made by the Government in Grand Committee. It is in what the noble Baroness described in Committee as category two. The original government amendments deleted "revoke" and inserted "terminate". The reasons for that were eminently sensible. It suddenly dawned on the Government in a fit of inspiration that they could not revoke something that did not happen, so they suggested that a better way of getting rid of the problem was to "terminate" it. We realise that there is more joy in Heaven about one sinner who repents and we do not have any objection to the government amendments made in Committee, but perhaps the noble Baroness can explain their effect rather more precisely than I have done. I beg to move.
My Lords, I hope that the Minister is going to resist the amendment. It relates to an essential part of the schedule D system about which we have just been talking. The point is not only to prevent fraud—although getting an interim payment on account helps to do that—but to prevent the building up of a liability that becomes such a big capital sum that it cannot be raised all of a sudden. That can be a real problem with an irregular income, from which many people other than authors—builders, for example—regularly suffer. It is a more general problem than is understood.
It is possible for someone to overpay one year because they earn a great deal less than the estimate and then find that, according to the estimate, they do not owe any tax for the next year. That terminates their liability to tax for the time being, but it does not revoke it. If they then receive £10,000, they will find themselves paying quite a lot of tax in the next year. The distinction between terminating and revoking is vital, because once a tax credit is revoked, there is no entitlement.
We warmly welcome the asymmetry in the Bill. We do not want to lose the provision for dealing with the sudden loss of a job. The expenses that have gone with a job never disappear quite as fast as the job does. That seems to be a law of the Medes and the Persians. If someone in that situation cannot adjust their tax credit liability, they will be in a pretty poor situation. They will have to put in a new application from scratch, go through all the paperwork again and make the bureaucracy do all the work again. This system, which is borrowed from a tried and tested procedure that works, will simply let matters rest. It will terminate the payment of the tax credit for the time being, but if it turns out to be due after all, it will not have been revoked and can be got without further paperwork.
This is very good thinking. I welcome it and I hope that the Minister will not agree to delete it.
My Lords, the noble Earl, Lord Russell, has made my speech for me. I agree with every word that he has said and I hope that the noble Lord will not press his amendment.
My Lords, I hate to say this, but I thought that the noble Earl was on about the wrong amendment. However, we are clear about the point that was covered by the government amendments. They overcome the original fault in the drafting, and seem sensible. At least in that respect I can agree with what the noble Earl has said. I shall cogitate on his other remarks and work out—
My Lords, perhaps I should have been slightly more serious. The point is that, as the noble Earl, Lord Russell, said, terminating stops the current entitlement to an award, whereas revoking means that it is as though it never happened. That may not be what we wish to see established. That is the distinction. That is why substituting one word for the other seems to me a helpful clarification.
My Lords, it is worth reading out the text of subsection (4), which states:
"The prescribed manner of determination may involve the inclusion of such other elements as may be prescribed".
At first blush, does not that state the obvious, along the lines of "The prescribed determination will be prescribed"? That said, it is an almost infinitely broad provision. In particular, it gives no indication of which elements might be comprised in the "prescribed manner of determination". Accordingly, we would be grateful if the Minister could shed some light on the matter. Specifically, how precisely do the Government intend that the maximum rate of child tax credit is to be determined? I beg to move.
My Lords, I have a great deal more sympathy with this amendment. In addition to the other complaints about the language of subsection (4), this principle is a tautology. It reminds me of the judge who once said that an irresistible impulse was an impulse that had not been resisted. The subsection simply says that we may do what we may do what we may do and that a rose is a rose is a rose. It is a classic example of the point that I made a few moments ago. When a regulation-making power is created, the vires should be rather more tightly drawn to allow the department to do what it wants to do and not to do absolutely anything that it happens to think of afterwards. If we give such a power, we are in danger of making Parliament redundant. We ought to have some idea of what we are allowing the Government to do. The amendment deserves strong support and it raises a principle that is applicable in a good many other places. I am glad that it has been tabled.
My Lords, I am sure that it would also be helpful if the noble Baroness could explain in what manner these prescriptions, especially of the other elements, are to be made. Are they to be made by statutory instrument? If so, what sort of statutory instrument? If not, how are they to be made?
My Lords, I take the criticism of the wording. All I can say is that there is truth in a tautology by definition. I do not know whether that helps the noble Earl, Lord Russell.
The point is that the "prescribed manner of determination" includes the provisions in subsection (5)(a), (b) and (c). The amount of the family element may vary according to the age of the children or qualifying young persons, it may include provision for the amount of the individual element of child tax credit to vary according to the age of the child or qualifying young person, and so on. That has been prescribed. Subsection (4) gives some headspace so that primary legislation is not needed in order to adjust people's eligibility for child tax credit and working tax credit in the future.
The question upon which noble Lords are rightly pressing me is: under what circumstances might that additional flexibility be needed; and, basically, is it decent to have it? One of the best examples of that flexibility that I can give the House is on a personal level. I have been engaged in a good deal of work on child poverty. First, we know that the children who are most likely to be poor are those of workless families and children in families that should be receiving maintenance but are not in receipt of it; in other words, children of lone parents. We also know that the second group of poor children are those in disabled families. However, there is a third group of children about whom we know almost nothing—children in large families, those in families where there are four or more children. Very often, children in ethnic minority families are disproportionately poor when compared with most children.
At present, our benefit system concentrates help on the first child in the family, and not on the fourth, the fifth, or the sixth. In many ways—and quite understandably—the rates of child benefit produce a higher rate for the first child than for the subsequent children. That is the system at the moment because one parent, usually the mother, is most likely to drop out of work after the first child is born and that results in a fall in the family's income. It is also clear that there is a real degree of acute poverty at the other end; namely, with large families and reconstituted families. As presently structured, the child tax credit system seeks to add to wages that element for the family that a market wage does not properly reflect, because it is independent of family circumstances.
We may have got it right. However, speaking in a personal capacity from experience derived through my own department, there may well be a time when, having carried out further research and work on how we address and meet the poverty of large families—possibly ethnic minority families—we shall want to adjust the relativity of the different parts that make up the child tax credit. We shall need a power to enable us to do so. We shall need such a power to rebalance, for example, the elements in the child tax credit so as to redress need.
My Lords, I have given noble Lords an example of where I believe we may possibly wish to invoke such a power at some future stage, as and when research is completed and when we have a sensible strategy to underpin it. I am trying to persuade noble Lords that although this power is syntactically clumsy, if I may put it that way, it is also highly desirable in policy terms. Without such a power, we would freeze the existing component elements of the child tax credit. I had the support of the noble Earl, Lord Russell, earlier when we discussed why we need the two new tax credits when compared with the previous history of change. I said then that we had learnt from research, from pilot schemes, and from experience derived through developing these new systems.
We are not freezing now; those changes will continue to develop. We may need to revisit such matters but not by way of a major new Bill, which I hope will not be necessary. I am hoping that we shall see some stability. We may need to adjust elements in the balancing between the working tax credit and, say, the child tax credit elements—and, indeed, within different elements in the child tax credit. That is what this power will allow us to do. I cannot predict how it will be used in the future. However, I am confident that we need such a power.
My Lords, before the noble Baroness sits down, perhaps she would be good enough to answer my question. In essence, I can find nothing in Clauses 64 or 65, which deal with orders, regulations and statutory instruments, that covers the prescription method that the Minister has just outlined as regards Clause 9(4). Obviously, it will not be a matter of primary legislation; indeed, no one would ever expect it to be.
My Lords, I understand that any new element introduced under this power will be covered by a statutory instrument and dealt with by way of the affirmative resolution procedure.
My Lords, it seems to me that the system is already complicated. If we are to have further tinkering year by year, surely the whole process will only become more difficult.
My Lords, the noble Lord is, unusually, being unfair. All I am saying is that we—I use the collective "we"—have done the best we can, based on the information available to us. We believe that we have met the circumstances, but we are not saying that we have perfect or complete knowledge. We need a power in order to rebalance the relationship between working tax credit and children's tax credit in the future; in other words, all the constituent elements of what goes into childcare.
Perhaps I may give noble Lords another example. At present, we have had some very successful pilots on the education maintenance allowances for children aged between 16 and 18, which is in addition to child benefit. I can conceive that that scheme could be extended. If that were the case, that might have repercussions for child benefit, or for the family element involved. In such a situation, and if that were the policy push—I am not predicting it; I am just trying to give an example of where it could happen—we might need this power. Noble Lords need not worry: it is a benign power saying that we are not setting this provision in stone. It means that we can come back and make a judgment if, in the light of research and evidence, we need to do so. However, if we do so, it will be dealt with by way of the affirmative resolution procedure and noble Lords will have ample opportunity to scrutinise it properly.
My Lords, I thank the Minister for her reply, and, indeed, for the examples that she has given the House. I am also grateful for the sympathy expressed by the noble Earl, Lord Russell, and for the intervention of my noble friend Lord Skelmersdale. I remain unpersuaded that the drafting here is anything other than infelicitous. I take the Minister's point about flexibility, and the necessity for it from the Government's perspective. However, as we seem to be seeing with orders under the Regulation of Investigatory Powers Act 2000, that flexibility should not be used to undermine, or contradict, duly arrived at decisions of Parliament. The drafting as it stands on the face of the Bill creates the potential for that situation—
My Lords, this seems to misrepresent everything that has been said. I hope that I am not interrupting a pre-set wind-up here by the noble Earl, Lord Northesk. I have been at great pains to say that if we knew what circumstances we might need to take on board in the future, we would have built them into the subsequent part of the clause. It is precisely because we cannot do so that we need a residual power to enable us to introduce sensible, decent and intelligent measures to meet situations that could arise. I have tried to give noble Lords examples of entirely decent circumstances that could arise. If they should arise, we shall return to Parliament for proper parliamentary scrutiny.
If we remove this power, we could be responsible for denying any possible help to large families, or, indeed, the interaction of education measures relative to child benefit, unless we return with a full frontal piece of primary legislation that would have to take its place in the queue. I am sure that the noble Earl would not wish to deny possible beneficiaries of benevolent changes as a result of such opportunities.
My Lords, I have a dilemma here. If I could predict with any confidence where and when we might need such powers, I could insert one of those provisions used in the Chester case; for example, that "The Secretary of State shall have the power", and so on. However, I cannot do so. While thinking on my feet, I have been trying to give noble Lords possible examples of developments of which I am aware that could conceivably affect the appropriate use of tax credits in the future in ways that benefit those people whom we most want to help. Should we need to increase the support given to large families or ethnic minority families, I said that we may choose to do so. Alternatively, we may want to look at the elements surrounding working tax credit for those without children. Indeed, if we found particular examples in that respect, we might wish to reconsider the position.
I also gave a possible example of the interlocking of education maintenance allowances for those under the age of 16 with, say, either the family element or child benefit. The latter are all possible situations. I have absolutely no knowledge of whether government may wish to revisit that area in, say, one year, five years, or even 10 years' time. It must surely be wise to have a residual power to enable us to alter the constituent elements, provided that that power is subject to proper parliamentary scrutiny; and it will be, because it will be dealt with by way of affirmative regulations.
My Lords, before the Minister sits down, may I ask whether she understands that her point on not foreseeing the circumstances applies also to the fact that we cannot foresee the circumstances in which future Ministers may wish to use the regulations, and that scrutiny without control is of limited use?
My Lords, that is the point that I was making. This is not a power for the Secretary of State to decide by guidance; the decision will be made by Parliament when it receives regulations for consideration under the affirmative procedure. Those regulations will be subject in the usual way to the publicity generated by lobby groups and to other factors.
This type of debate always arises when legislation provides for a power to make further provision. In this case, however, the alternative would be to deny the possibility of adjustments or alterations to benefit those we are seeking to help without joining the queue for primary legislation. Your Lordships are realistic about this. As we know, every department has a queue for primary legislation. Unless it can be parachuted into other legislation, enacting a provision can take one or two years. Without this power, we shall for the foreseeable future be freezing development in the sphere of family social policy. It would deny my department and the Inland Revenue the ability to make representations to make adjustments in the light of information and experience. That cannot be sensible.
The objective should be to scrutinise the Government and to hold them to account for their actions. I believe that this Bill goes further than any preceding legislation in terms of publishing regulations in advance, scrutinising delegated powers and other protections. In social policy terms, I believe that it would be daft to remove this power. The important point is to ensure that the power, if exercised, is exercised subject to proper parliamentary scrutiny. I do not think that I can say any more about it without repeating myself ad nauseam.
My Lords, I fear that the noble Baroness was a little premature. I was going to say that we have some sympathy for the Government's dilemma. None the less, we still believe that there is a strong argument for tightening the drafting. I shall certainly have to study this very carefully between now and Third Reading, but I invite the noble Baroness to consider our perspective on the point. There is certainly a feeling in the House that the drafting is too wide and could perhaps be narrowed to the agreement of all sides of the House. As I said, we have some sympathy for the Government's dilemma, but I suspect that we shall have to return to the issue at Third Reading. Meanwhile, I beg leave to withdraw the amendment.
moved Amendment No. 33:
Page 7, line 7, at end insert ", with a view to ensuring that the amount of credit paid to all claimants supplements their household income to a broadly equivalent degree having regard to the different income levels and personal and domestic circumstances of different households"
My Lords, we move from the general to the particular in subsection (4). My amendment deals with the principle of equivalency and the use of the McClements scales. The McClements scales might sound very much like an engineering device that the Indian Army might have used in the 19th century, but I assure your Lordships that they are a very important part of determining the relative need of families and other claimants for income-related and housing benefits.
The principle of equivalency, which I shall describe in a moment, does not seem to apply to tax credits. By "equivalency" I mean the commonly used definition of the term—that the same degree of support should be provided to households so that incomes are broadly equivalent, taking into account not only income but the composition of the family unit. I should give a concrete example. Let us assume the same household income in two cases: a lone parent with two children; and a couple with two children of the same age as those in the first family, with all other family circumstances being similar. This Bill provides that the child tax credit, the relevant portion of the Bill, would be the same for the lone parent and the couple. I am sure that your Lordships will immediately appreciate the inequity in that. As I think stands to reason, in the raw definition of income need, two adults on low income will need more to support the family unit than will a lone parent.
The McClements scales have been used in the social security system as broadly defined in the past to provide equivalency by indicating how much extra is needed, for example, for a couple as compared with a lone parent, and vice versa, and in relation to the number of children in the family. However, that principle has not been used for either current tax credits or for those proposed in the Bill. I think that we need to probe why that should be so. I should add that I appreciate that, going back some years, both Labour and Conservative administrations have changed policy on the treatment and support of lone parents. This Bill is neutral in discriminating between lone parents and couples. I am also well aware that couples are mutually supportive in the sense that, unlike lone parents, one or both are more likely to be able to increase the family income.
I think that the House would appreciate any guidance the Minister can offer on this. We would also appreciate an explanation of the thinking behind excluding the principle of equivalency from the Bill. I beg to move.
My Lords, my noble friend Lord Freeman has produced a very interesting amendment which introduces the concept of equivalence. I suppose that, in one sense, the Government are generally trying to achieve equivalency. The idea is that, once people are on benefit, all their personal circumstances will be taken into account, and the social security system should not be used to produce inequality rather than equality within that context. Thinking immediately of the situation with regard to hospital down-rating rules, I am a little worried as to whether such objectives are pursued as effectively as one might wish. However, that is a rather detailed point. I shall be absolutely fascinated to hear the Minister's response to the amendment, which raises some very interesting points.
My Lords, there seem to be two conflicting goods—in the moral rather than the material sense—in this situation. It is clearly true that a second adult in a household will require more food, transport and so on. One might therefore conclude that extra allowance should be made in the working families' tax credit system and elsewhere to deal with those requirements. Conversely, as we know from previous arguments on withdrawing, reducing or levelling out the benefits that lone parents receive in relation to other families, lone parents are not only more likely to be poor than couple families, they are more likely to stay poor. Couple families are more likely to receive financial support only for relatively short periods, usually when a job ends, work hours are reduced or overtime is lost. It is a temporary safety net from which they bounce back.
Unlike couple families, lone parents cannot trade low incomes for low hours. Men in couple families are particularly likely to make that trade. As lone parents have sole childcare responsibility, they must reduce their hours to cope, tending to work between 20 and 22 hours per week. Therefore, they remain on tax credits or in-work benefits longer, and consequently remain poorer, than couple families. That is the double consideration. In any particular week a couple family may eat more food and have higher outgoings, but over time the lone parent, whether in or out of work, is likely to be on benefit for longer and will experience both persistent and deeper poverty than will the couple family. It is that poverty that scars.
One cannot win in trying to get those two matters right whether one examines Family Budget Unit assessments or household income patterns. At one stage under a previous Conservative administration lone parents received a higher premium. That was a decent recognition of the problem. We are not saying that one family should receive a different level of support from another. The family premium and the lone parent premium were introduced in 1988 by a previous Conservative administration. I believe that that was a recognition that there is no right answer here. You are trying all the time to balance two considerations with regard to short-term and longer term needs. I believe that we have the matter right but I can see that there are arguments to the contrary. That is the thinking behind the measure. I could talk for much longer about different patterns of poverty experienced by workless couple families and lone parent families but this may not be the occasion for such a social policy extended speech.
My Lords, I thank the Minister for her response. She is right to say that we shall have to come back to the matter, although not necessarily in this legislative round, and probably on the basis of further social services research. The amendment and the debate on it have aired the point. As I say, I am grateful for the Minister's comments. I beg leave to withdraw the amendment.
"Regulations may for the purposes of this Part make provision—
(a) as to what is, or is not, qualifying remunerative work, and
(b) as to the circumstances in which a person is, or is not, engaged in it".
We considered this matter earlier to some extent. Generally speaking, if a measure is in a sense transitory and may require bringing up to date from time to time, we consider that the use of a regulatory power is entirely appropriate. However, we consider that if a measure is not likely to change significantly, it is better to include it on the face of the Bill. I am not at all clear in this case why the Government think that they may need to make provision in regulations as regards what does or does not constitute qualifying remunerative work. One would have thought that that is not difficult to define. Similarly, one would have thought that it is not difficult to determine whether a person is engaged in it. If the work is remunerative, it is likely—unless the income gained is very low—that the Inland Revenue will already have the information which it requires to establish that someone is in remunerative work. As I say, we believe that such a measure could reasonably be included on the face of the Bill. Perhaps the Minister can give us some examples of circumstances in which she envisages that the regulatory power may be needed. I beg to move.
My Lords, there were moments in the previous debate on regulations when I felt that it might be possible that we were making a little progress. There were moments when we saw chances of a faint degree of give and take. We have here two very legitimate interests. The Minister's interest in flexibility is clearly legitimate. But Parliament's interest in the control of legislation is clearly also legitimate. In fact, there is not much point in having a Parliament if that is not the case.
Once we get to the point where we are prepared to discuss compromise on this matter, I think that real progress between us may be possible. What we have to get away from is the idea, which each of us has I think been capable of having in the past, that our own point of view is the only legitimate one.
As regards applying that test to subsection (2) of Clause 10, it is, I think, a little more difficult than the noble Lord, Lord Higgins, suggested to decide exactly what is or is not remunerative work. Take, for example, giving one's children extra pocket money for running an errand. I am sure that a number of us have done that. To classify that as remunerative work within the meaning of the Bill would be excessively bureaucratic and would be so described in words of one syllable by one's offspring.
There has been a question about volunteering and how far that may be classified as remunerative work. There has been a question about therapeutic work in the context of disability. That is a matter we return to over and over again. The noble Lord, Lord Rix, brought us back to it recently. It is a real question.
The provision needs to change because from time to time the ways people find to get through the thicket of combining work with either disability or family life may change. So I think that there probably is room for a regulation-making power here. I do not immediately see how one would tighten this particular definition if one were to set out to do it. It is quite unlike the prescribed manner of determination which is completely open-ended.
We have to accept here that one person's flexibility is the other person's inflexibility. Once we have accepted that, we may get somewhere. Within that principle, this is probably a legitimate way of addressing the matter. I do not really see how, if I were sitting in the Minister's place, I would do it any better. When one says that, one has to take the consequences.
My Lords, I am grateful for those helpful comments. I do not want to go over ground that we covered in Grand Committee. I am happy to say what does not constitute qualifying remunerative work. As the noble Earl indicated, that includes voluntary work and other payment which does not count as income for tax credit purposes such as training allowances, sports awards and payments received by a person caring for someone who is not a member of his or her household but is temporarily residing in the carer's own home, provided the payments are disregarded in the calculation of the carer's income for tax credit purposes.
The basic test of eligibility for working tax credit is that at least one claimant in a household is engaged in qualifying remunerative work. Regulations will allow us to vary what is required of a person to enable him or her to fall within the meaning of qualifying remunerative work. As the noble Earl, Lord Russell, suspected, those variables could be the claimant's age, whether he or she has a disability or is responsible for a child or young person.
In answer to the question of why we are introducing regulations, all I can do is to plead that the matter is technically difficult to define, as the noble Earl, Lord Russell, recognised, as patterns of work change. I refer to regulations that were introduced for income support, JSA, WFTC and DPTC. Regulations were introduced for family credit under the previous administration. There is nothing new here. We need that reserve power to accommodate different patterns of work and, if required, different ways of helping people to bring them within the eligibility criteria of working tax credit by virtue of their age, their disability or similar circumstances. I hope that with that information, which has been gladly received, the noble Lord will feel able to withdraw the amendment.
My Lords, the Minister has seldom been more convincing, although we still do not have a clear idea of what the Government have in mind. We will need to consider carefully the provisions relating to income tax, particularly the regulations that exist in other legislation, to which the Minister referred. We shall do so in some detail to establish whether we need to pursue the matter at Third Reading. For the moment, there appears to be a pretty convincing argument on the part of the Government. I beg leave to withdraw the amendment.
My Lords, I beg to move that consideration on Report be now adjourned. In moving that Motion, I suggest that we return to the Report stage at 8.30 p.m.