Clause 2 - Functions of board

Part of Tax Credits Bill – in a Public Bill Committee at 11:30 am on 15 January 2002.

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Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 11:30, 15 January 2002

As the hon. Gentlemen who have spoken to it have said, the amendment seeks to explore the Government's thinking behind the funding for and accounting of the new tax credits.

Unfortunately, the amendment removes the provision for allowing tax credits to be funded from tax receipts, but does not provide for alternative funding. Therefore, it deletes all the credits, which—I am sure the hon. Gentlemen will be unsurprised to hear—I would not welcome. I mention that because it is a probing amendment, and I am sure that it will not be pressed to a Division, but if it were, I would ask my hon. Friends to oppose it.

The key issues are the interaction between the Red Book and national accounts, and transparency.

I am unsure whether I can immediately answer the question that has been asked by the hon. Member for Northavon, but I undertake to investigate the matter,

and to write to him. However, in my remarks, I will bear his question in mind, and try to address it.

With regard to the question about the accounting, the Government's position is clear and consistent. The tax credits are part of the tax system and, as such, they are administered by the Inland Revenue. They are designed to balance the contribution that families make through tax and national insurance with their financial needs. That is what the Inland Revenue is doing.

The tax credits provide a way for the tax system to take account of the circumstances and responsibilities of a family or a household during a tax year. Therefore, it is proper that the new tax credits should be funded from tax receipts: the working families tax credit and the disabled person's tax credit were funded in that way, as was the children's tax credit, which is essentially a relief.

Funding tax credits from tax receipts accurately reflects what actually happens. For the Government, the cost of the tax credits interacts directly with the Chancellor's other tax proposals, and it affects the net taxed receipts that are available to fund our programme.

The way in which the employers deal with tax credits precisely follows the treatment provided in clause 2(2). Through PAYE, employers withhold tax and national insurance contributions from their employees' wages. From that pool of money, they pay their employees' tax credits, with the caveat that if the figure that they pay out is larger than that which they receive, they can apply for a direct grant in advance to help them with their cash flow.