Schedule 3 - Tax credits: consequential amendments

Tax Credits Bill – in a Public Bill Committee at 4:30 pm on 24th January 2002.

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Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 4:30 pm, 24th January 2002

I beg to move amendment No. 76, in page 46, line 4, at end insert—

'28A In sections 150 and 152 of the Social Security Administration Act 1992, replace at all places where they appear references to the ''Secretary of State'' with ''Secretary of State or

Treasury'', and in section 150(1) of the same Act after sub-paragraph (k) but before the words ''in order to determine'' insert a sub-paragraph (l)—

''(l) arising under the Tax Credits Act 2002 (or regulations made thereunder),''.'.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

With this we may take new clause 6—Review and alteration of rates of tax credits—

'Section 150 of the Social Security Administration Act 1992 shall apply with like effect to tax credits and paragraph 28A of Schedule 3 to this Act shall amend the said section 150 accordingly.'.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

Returning to sobriety, this relatively straightforward amendment and new clause would insert in the Bill provision for annual uprating, presumably in line with prices at least, of the various thresholds that will apply to tax credits legislation.

Clearly the Paymaster General could legitimately point out that since the Government came to office they have done far more than price index many of the elements of sport for children. That is laudable and to be applauded. However, we are legislating not merely for benign Ministers such as the hon. Lady but for subsequent elected despots, whom we might face across the Chamber or indeed form a Government with. [Laughter.] The issue is whether the Government want to place on record their intention to index all aspects of the tax credit regime.

There is a serious point to be made here. One assumes that in the normal run tax credits will probably be uprated in general, but there are detailed nooks and crannies in these systems that often do not get uprated. In the social security system, one thinks of capital limits, which sometimes remain the same year on year. Although an individual decision not to uprate does not matter a great deal, the cumulative effect can sometimes be quite serious.

Although we would be grateful for an assurance from the Paymaster General that the Government's intention is benign, it would be nice to tie their hands to some extent by including such a provision in the Bill. It would require them to uprate not only the headline parts of the system—we assume that they would fear the consequences of not doing that—but the obscure parts that no one really notices, but which could impact on individual claimants. The effect of failing to uprate various parts of the benefits system is often similar.

As I understand it, the Bill does not make such provision, and we therefore hope that the Paymaster General will accept the new clause.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 4:45 pm, 24th January 2002

As the hon. Gentleman is concerned mainly with the principle behind his amendment, I hope that he will not object if I avoid discussing its technicalities. That said, those technicalities—let alone what I am about to say—are sufficient to prevent its inclusion in the Bill, so we will have to vote against it. As he said, the amendment is chiefly concerned with the legislation's mechanisms and the principle of uprating, so perhaps I should stick with that point.

We would need to look carefully before leaping in the direction in which the hon. Gentleman suggests. The Bill is designed to strike a careful balance between transparency and flexibility. Some hon. Members suggested that it is little more than a framework, but that accusation is not justified. In constructing the Bill, we have been careful to make clear the intended shape of the credits. The elements that we intend to create are set out in clauses 8 to 12, and I hope that hon. Members agree that I have been forthcoming about the Government's intentions during our deliberations.

At the same time, it is important that the Bill allow scope for the credits' structure to develop as our understanding of the needs of families and of working households develops, and as patterns of work and family life change. If we include an uprating provision in the Bill, the risk is that we might inadvertently cause the credits' structure to ossify, when in fact we want more latitude. Ossification could indeed occur if there were a presupposition that, once introduced, elements must always persist, even if they become redundant over time. In that sense, uprating would lock us in.

The hon. Gentleman will probably say, ''Let's have a little uprating, which can always be adjusted.'' Of course, the process of setting the new tax credit rates will be highly transparent, even without a provision such as section 150 of the Social Security Administration Act 1992. As hon. Members will be only too well aware, the rates and thresholds are the subject of the Chancellor's Budget statement, and I am sure that they will not escape the enormous scrutiny to which the Budget process is already subject.

Having said that, I am happy to acknowledge that the hon. Gentleman's arguments in favour of an uprating provision are not without force. I should like the opportunity further to reflect on the points that he has made before deciding whether it would be appropriate for the Government to introduce such an amendment. As this is such an important issue, I hope that he will forgive me for asking for a little more time, and I hope, too, that I have been generous enough to tempt him to withdraw his amendment and to allow me to consider the matter further.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I always find the hon. Lady tempting in the extreme.

The Paymaster General has given me quite a heartening response, which goes some of the way towards addressing my concerns about parts of the system not being indexed. I am concerned, however, that were no Government amendment along these lines introduced, there would in effect be a licence to cut parts. She is essentially saying that things might change and that the Government might decide that they have different priorities and therefore want to cut parts. If there were no intention ever to cut anything, having their hands tied over uprating would not be a problem, because it was always going to happen. If the Paymaster General introduced no amendment at a subsequent stage, that would suggest that the Government had in mind keeping open the option to cut parts of the system. Obviously, they do not have that intention at present as the system is new, but claimants might be slightly concerned were no such amendment introduced.

I mention some precedents. One is the Social Security Administration Act mentioned in the amendment. It is far from unprecedented to include in legislation that parts of the income maintenance system shall be indexed annually. Governments do not say that they do not guarantee to index pensions every year because that would tie their hands. They have statutory duties to index things. It seems slightly odd for them to argue that they do not want a statutory indexing provision because it would tie their hands. The Government do such things in very similar circumstances.

Another precedent, perhaps closer to the tax system, is what is known as the Rooker-Wise-Lawson amendment, which requires statutory indexation of personal tax allowances unless the relevant Bill overrides it. The assumption is that it is a positive, high-profile action not to index, rather than something that just goes through on the nod because there is no requirement to index. I had thought that I would seek to press the amendment until, at the end of her remarks, the Paymaster General said that she has some sympathy with where the amendment is coming from. Heartened by that, and looking forward to what she comes up with, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I beg to move amendment No. 118, in page 46, line 4, at end insert—

'28B In sections 170 and 172174 (except section 172(5)) of the Social Security Administration Act 1992 (c.5), at all places where they appear replace references to the 'Secretary of State' and 'his functions' with 'Secretary of State or Treasury' and 'their functions' respectively, and in section 170(5) of the same Act after sub-paragraph (b) add:

''(bb) the provisions of the Tax Credits Act 2002''.'


Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

With this, is will be convenient to take new clause 12—Advisory bodies and consultation—

''The Social Security Advisory Committee (constituted under section 9 of the Social Security Act 1980 and Part XIII of the Social Security Administration Act 1992) and its functions shall apply to tax credits and paragraph 28B of Schedule 3 to this Act shall apply to Part XIII of the Social Security Administration Act 1992 accordingly.''.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

The amendment and the new clause are about the scrutiny, and to some extent the pre-legislative scrutiny, of the regulations that will govern tax credits. Quite a profound point is involved here. In recent years, the blurring of the distinction between social security, tax and tax credits has meant that some of the established mechanisms for ensuring that the system works properly—in the interests both of the Government's aims and of claimants—have started to go a bit fuzzy round the edges, for want of a better phrase.

A specific example is that social security changes are subject to the expert scrutiny of the Social Security Advisory Committee. The people on that independent body have a wide range of backgrounds and experiences. The danger is that although the tax credit legislation has many of the properties of social security legislation in terms of the client group and the sorts of issues raised, which are meat and drink, bread

and butter to the Social Security Advisory Committee, as far as I can see, there is no provision in the Bill for regulations that will allow the tax credit system to be scrutinised independently. The actual act of scrutiny might not change the regulation, but the knowledge that scrutiny is going to happen might mean that the regulation is better before it becomes public. If regulations are going be pored over by experts, it might ensure that they are more rigorous and better thought through before they are publicly introduced.

We are already some way down a dangerous track, and have established a system whereby tax credits, which are increasingly important, are not as well scrutinised as we would wish. The Bill, which increases the scope of tax credits, appears to take more things outside the domain of the SSAC.

There is a related issue: whether and how tax credit legislation and policy will be scrutinised in Parliament. Will that be done by the Work and Pensions Committee or by the Treasury Sub-Committee? It will probably not be the Work and Pensions Committee as these are now all matters for the Inland Revenue, but the Treasury Sub-Committee has not, historically, got into that role and got used to that client group.

The purpose of the amendment is to get some proper scrutiny. I hope that the Minister will be sympathetic to what we seek to achieve, and will be as tempting as she was last time.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I shall do my best to help the hon. Gentleman, and explain why I think that his amendment and new clause are unnecessary. I do, however, agree with the points that he is making, and we are trying to proceed on the issues contained in his proposals.

The role of the Social Security Advisory Committee is set out in part XIII of the Social Security Administration Act 1992. That role is to advise the Secretary of State in connection with carrying out his functions. The amendment and new clause seek to widen the SSAC's remit, giving it an advisory role in relation to the Treasury's functions under the Bill. I do not think that it needs to be concerned with everything there.

I understand the hon. Gentleman's concern that we should ensure that the experience and knowledge of the committee, in the area of social policy, can inform the development of the tax credits system and that proposals for draft legislation made under the Bill are subject to the appropriate scrutiny and consultation. I wholeheartedly agree with that sentiment.

When the working families tax credit and disabled person's tax credit were introduced and, similarly, when the responsibility for national insurance contributions was transferred to the Inland Revenue, I was anxious to ensure that that consultation was happening. I asked my officials to make sure that the committee was shown all relevant regulations in draft so that we benefited from its members' expertise. That practice has continued, and I take the opportunity to place on record my appreciation of the contribution that those people make.

The SSAC was also consulted about the proposed introduction of the two new tax credits. Officials from the Inland Revenue, the Treasury and the Department for Work and Pensions met the committee to discuss the Government's proposals. My officials are already in touch with the committee to ensure that arrangements are made for the dialogue to continue and progress.

I hope that the hon. Gentleman and I are—I do not think that I can say this—as one on this issue. I have embarrassed him now. However, I do not think that the appropriate way forward is to amend the Bill. I agree that the provision must be made. In the area of tax contributions and tax credits, the Government's function, and what is important to the committee, is the new tax credit system, including the making of new regulations for it.

The board of the Inland Revenue is a statutory body, with duties set out under the Inland Revenue Regulation Act 1890. There are clear lines of accountability here, and it would be messy and difficult to put things in the way that the hon. Gentleman has suggested. The board is answerable to Treasury Ministers on the matter. I sincerely hope that the hon. Gentleman will accept that I agree with his points about the SSAC. We intend to ensure that it will continue to be involved, consulted and referred to, not through amendments to the Bill but by direct agreement between the relevant Departments. I hope that, on that basis, he will withdraw the amendment.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I am grateful that the Paymaster General accepts the spirit of what we seek to achieve in the amendment. I have one reservation about how far the process that she described meets those concerns. As far as I can see, it is largely or entirely a private process. I did not know that those meetings had happened, although perhaps I should have done. I do not know if there are minutes of those meetings. I believe that the SSAC probably has the power to call witnesses when it holds inquiries into regulations, but it has probably not done much of that in its discussions with the Treasury.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Treasury officials have gone to the SSAC on those matters. I shall examine what the hon. Gentleman says about whether those meetings are known about, but those are not issues of principle. We are prepared that there should be such arrangements.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I hope that that scrutiny will be open, accountable and publicly reported. Grateful for the Paymaster General's assurances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 93, in page 46, line 43, after ''of'' insert—

''Part 1 of''.—[Dawn Primarolo.]

It being Five o'clock, The Chairman proceeded, pursuant to Sessional Order D [28 June 2001] and the Order of the Committee [15 January], as amended by the Order of the Committee [22 January] to put forthwith the Questions necessary to dispose of the business to be concluded at that time.

Schedule 3, as amended, agreed to.

Question put, That clauses 44 to 47, schedule 4, clauses 48 to 55, schedule 5, clause 56, schedule 6 and clauses 57 to 65 stand part of the Bill:—

The Committee divided: Ayes 8, Noes 6.

Division number 9 Adults Abused in Childhood — Schedule 3 - Tax credits: consequential amendments

Aye: 8 MPs

No: 6 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Bill, as amended, to be reported.

Committee rose at three minutes past Five o'clock.