May I welcome you to the Chair, Mr Hood? It may help the Committee if I run through the background to schedule 8, and then talk about the purpose of our amendments. Schedule 8, which is introduced by clause 35, makes changes to ensure that all recipients of employer-supported child care who join schemes on or after 6 April 2011 receive the same amount of income tax relief as basic rate taxpayers. Reform in this area was announced in 2009 by the previous Government, and this Government also accept that changes to the system will make it fairer, because it will ensure that individuals do not receive a greater amount of tax relief on employer-supported child care just by virtue of being higher earners. Employer-supported child care allows participating employers to offer their employees support with their child care costs, and it supports the Government’s policy on providing support for child care costs to encourage parents to work.
The latest HMRC modelling suggests that around 450,000 parents are members of employer-supported child care schemes, and about 40% of them are higher or additional rate taxpayers. That support is offered through tax relief and an associated national insurance contributions disregard, and employers are able to offer their employees up to £55 a week free of income tax and national insurance contributions.
Most employers offer that support through child care vouchers, delivered either by salary sacrifice or by flexible remuneration arrangements. Such arrangements benefit employers as they can also make national insurance contribution savings. At present, basic rate taxpayers can receive up to £900 of support a year, whereas higher rate taxpayers can receive up to £1,200 a year.
While we are very much in favour of employers helping their employees to share the cost of child care, it is neither progressive nor well targeted for wealthier parents to derive more benefit than those on lower incomes. The argument rehearsed in the debate on clause 35 in the Committee of the whole House was that the previous Administration announced these reforms in order to fund further free child care provision for the most disadvantaged two-year-olds. I remind the Committee that the basis of that was all tax relief on employer-supported child care—all tax relief—would be stopped for those joining schemes on or after 6 April 2011, and indeed tax relief for those in existing schemes would cease from April 2015. That was hardly an incentive for parents to go back to work. In the face of robust opposition from parents, the child care sector and even Ministers in the previous Government, the reforms announced in September 2009 reappeared in the 2009 pre-Budget report in the format being introduced now.
All parents who join employer-supported child care schemes on or after 6 April 2011 receive the same amount of income tax relief as basic rate taxpayers. That is the change that the clause and the schedule seek to introduce. That is achieved by limiting the amount that higher rate taxpayers and additional rate taxpayers can receive each week to £28 and £22 respectively, so all parents receive the same amount of income tax relief support each week—about £11. All existing members who joined a scheme before April 2011 will be able to retain their current rates of tax relief as long as they stay within a scheme offered by the same employer. I can assure the Committee that the change will not affect the tax and national insurance contributions relief available for workplace nurseries.
Paragraphs 2 and 3 relate to child care vouchers. Paragraph 2 introduces a new condition for tax relief to apply, based on a new condition relating to employers making an estimate of the employee’s relevant earnings for the tax year in respect of which the vouchers are provided. Paragraph 3 introduces a new section setting out the detail of the relevant earnings amount and the required time for making the estimate. That should take place at the beginning of the tax year, or, if an employee is joining an employer-supported child care scheme during the course of the year, at that point.
Paragraphs 4 and 5 of the schedule deal with directly contracted child care: for example, when an employer pays a child care provider directly on the parent’s behalf. The provisions mirror those for child care vouchers. Some respondents to the consultation on draft legislation, which we undertook prior to finalising the Bill, felt that this change should be through P11Ds, the normal form used by employers for the reporting of employee benefits. However, it was felt that the approach taken—of asking employers to make an assessment of employment income at the beginning of the relevant tax year—was better for several reasons.
First, it is more generous to parents, in that it focuses on the single employment offering child care support, and does not include income from further employments or other sources. Secondly, the approach taken is quicker to implement, since changing the P11D would have taken a further two years. Finally, it keeps the necessity of employer contact with HMRC to a minimum, a point that many employers will welcome. Further guidance aimed to address any outstanding concerns was published at the beginning of April, and HMRC will continue to work with key interest groups. The additional cost for all employers will be around £1 million over five years, a reasonable amount given that at least 450,000 employees participate.
I will now briefly set out the purpose of the amendments. As a result of continuing consultation with relevant interested parties on the detailed guidance to support schedule 8, we identified some further practical issues that require an amendment to the legislation as published in March.
The aim of amendment 108 is to offer further support to employers who have the responsibility for applying the legislation. It is they who will have to determine the appropriate level of tax relief on employer-supported child care. The amendment removes some of the detail related to the estimate of relevant earnings from the primary legislation. The detailed provisions will instead be replaced with a statutory instrument containing regulations relating to the estimate of relevant earnings for the year. A draft of the regulations will be made available for consideration by interested parties as soon as possible. The regulations will be introduced before 31 December 2011 and will take effect from 6 April 2011.
They will have a more generous effect than the legislation as it currently stands, and will reflect more accurately guidance published last autumn. Further guidance to help employers has already been published by HMRC. Through the amendment the Government are showing that they listen to the concerns of interested parties and take action to address them. The changes aim to support employers and make the legislation more business-friendly. Therefore, I urge the Committee to accept the amendment.
More broadly, in terms of schedule 8, the Government recognise how valuable the support is to working parents, but it cannot be right that wealthier parents receive more support than basic rate taxpayers with their child care costs. The reform will make employer-supported child care fairer, better targeted and more progressive. I urge the Committee to accept that the schedule stand part of the Bill.
Before I call the hon. Lady to address the Committee, the Minister in proposing her amendments referred throughout to the schedule. She implied that she would like me to consider the stand part question as well. I think that is right, so we will consider stand part with this group of amendments.
Thank you, Mr Hood. I am happy to discuss the stand part question as well as the amendments.
We had an interesting and impassioned debate on clause 35 in the Committee of the whole House several weeks ago. Given the concerns raised by many hon. Members during that debate about the finer details of the clause and the associated schedule and the implications for child care provision, it is important that we now have the opportunity to debate it in more detail and to look at the Government’s amendments. I have some technical concerns about them, which I will come to later.
Schedule 8 reduces child care relief for higher earners. It has been well documented that the previous Labour Government had planned to reduce child care relief for higher earners to bring it into line with the relief for basic rate payers. There are, however, clear differences between this Government’s proposals and the plan put forward by the previous Government. The original idea was motivated by a concern that support for child care was not sufficiently well targeted given that a third of funding for employer-supported child care schemes goes to higher rate payers. Currently, basic rate taxpayers can receive up to £900 a year, while higher rate taxpayers benefit from relief of up to £1,200 and additional rate payers up to £1,500. It is generally accepted that that could be targeted much more effectively and fairly, and schedule 8 accordingly introduces a new tax exempt limit of £28 a week for higher rate payers and £22 for additional rate payers, compared with £55 for basic rate payers.
To understand our reservations about schedule 8, it would be helpful to outline the differences between the proposals in front of us and Labour’s intention when in government. Equalising the rate of relief will generate substantial savings for the Treasury, and the Labour Government proposal was to use that to fund an expansion of nursery places for two-year-olds, starting with 65,000 places for the most deprived children. We thought that it was right to target the families who are most in need and who stand to benefit the most from the funding, and the policy ensured that hard-working higher rate payers could continue to receive some still much-needed support.
In contrast, we understand that the present Government intend to pilot an entitlement to 15 hours a week for 28,000 two-year-olds. The Exchequer Secretary told the House that clause 35, as detailed in schedule 8, will save the Treasury £100 million a year, but my understanding is that the estimates have been revised down to £15 million this year, rising to £65 million in 2013-14. Nevertheless, it is clear that the proposals that we are discussing today fall far short of the previous Government’s proposals and lack the ultimate long-term ambition of 250,000 free places for two-year-olds.
When considering what constitutes a fairer employer-supported child care scheme, it is important to consider it in the context of wider support that may or may not be available to working parents. That is why, when it was discussed by the Committee of the whole House, we tabled an amendment to clause 35 that would have required the Chancellor to report on the impact of taxation on child care. Our amendment was not selected for discussion, but we hope that the Treasury will nevertheless give due consideration to our concern that the affordability of child care, and the undoubted impact that Government policy has on it, is kept under review. Indeed, the low incomes tax reform group, responding to the proposals to reduce child care relief for higher earners, called for a full review of child care policy across government, which supports our view that the relief for higher earners cannot be considered in isolation.
The context in which we must consider the impact on families has changed markedly for both high and low-earning families since Labour’s original plan to reduce higher rate payers’ relief. Under this Government, all parents have had their child benefit frozen, which represents a substantial real-terms cut given that inflation is now at 5.2%, or 4.5% if the Government choose to use the consumer prices index. Moreover, families with a higher rate tax payer will not only see their help with child care reduced, but also lose all their child benefit from 2013. As we have made clear, when in government, we thought that there was an argument for reducing child care relief so that support was targeted, but the child benefit cut is not at all fair or equitable, given that higher earning couples will continue to receive child benefit. The Government’s policy on support for working parents, therefore, does not seem to be about ensuring that it is appropriately targeted.
In contrast, the Government have chosen to target their spending cuts in a way that disproportionately hits women and children. Families not only face losing child care support and child benefit, but will on average also be paying £450 a year extra in VAT. The House of Commons Library has calculated that some families will be £1,700 a year worse off due to the Government’s tax and benefit changes, and there are no longer plans to improve child care provision for two-year-olds from low-income families.
Returning more specifically to the provisions in schedule 8, doubts have been raised about whether they achieve the Government’s aim of ensuring that all working parents receive the same rate of relief. As my right hon. Friend the Member for Delyn mentioned during the Committee of the whole House, the Chartered Institute of Taxation’s low incomes tax reform group has expressed concern that the schedule will only apply when an employer estimates at the beginning of the financial year that an employee will earn above the basic rate limit; what the employee actually earns is irrelevant.
Concerns have accordingly been raised that the earnings assessment will be too unreliable and inconsistent and, consequently, will wrongly penalise some parents. Additionally, putting the onus on the employer has the potential to compromise their relationship with the employee, especially as the employee has no effective means of challenging the decision. As the Treasury has confirmed, it will increase the administrative burden on employers, who are required not only to estimate their employees’ earnings when they are not necessarily in possession of all the relevant facts, but to retain records for HMRC.
Clearly, there are financial implications for the employee if the employer gets the assessment wrong, which I will come to later. Is there any possibility of penalties being imposed on the employer if HMRC considers that they made a mistake with the assessment or failed to keep the necessary records?
As a small business owner, I found that administering the voucher scheme was very difficult. Will the hon. Lady give the Committee her views on that scheme, which was set up by the previous Government? How efficient did she feel it was at dealing with this issue?
We will come to the child care voucher scheme when we address clause 36, which is the next clause, so it might be more appropriate for me to answer those questions then. I accept that there is some concern that the system was complicated to administer, but in this instance we are talking about tax relief, rather than the voucher scheme.
I do not want to draw my hon. Friend further on the comments she has just made, but does she accept my concern that although it is important that the burden on small businesses is not onerous, without support for child care many parents would not be able to work and, therefore, would not be in the workplace to begin with?
That is a valid point. I am concerned, as are many of my colleagues on the Committee, that Government Members tend to portray some of the measures to support people in work with child care arrangements—whether it be through financial provisions, such as tax relief or vouchers, or through other provisions, such as allowing flexible working and maternity and paternity leave—as burdens on business, rather than something that helps employees.
Obviously, a balance has to be struck, but, particularly as the Government make great play of encouraging people back into work and, in some cases, have introduced draconian measures to force people back into work, it cannot be just a stick approach, rather than a carrot approach. There have to be conditions that allow people to juggle their busy lives. People with child care responsibilities need support from the state to combine looking after their children and going to work.
My hon. Friend makes a powerful point. Is it not true that as well as being advantageous to employees, such flexibilities are also advantageous for employers? They allow employers to maintain their work force in an imaginative way so that skills continue to work for them, which allows them to prosper.
My hon. Friend makes a good point. The situation is sometimes portrayed as employees demanding certain things from employers, and employers grudgingly having to go along with it because the Big Brother state tells them that is how they have to do things. Actually, most decent companies care about their work force. When an invaluable employee who has been working for an employer for some time decides to have children and goes on maternity leave, because the employee’s contribution is valued and the employer would like them to return to work, it is important that the employer can facilitate that through flexible working and other support with child care. There is an underlying philosophical debate about the state’s role in helping people, rather than only imposing burdens on them, but now is perhaps not the time to venture into it.
Before those interventions, I was saying that there has been some criticism that the administrative burden on employers may lead to them being challenged by HMRC, and penalties may be imposed on people if they make mistakes with the assessment. The low incomes tax reform group concluded:
“The proposals introduce a new layer of complexity for employers and employees alike and the mechanism is, in our view, unworkable.”
The tax faculty at the Institute of Chartered Accountants in England and Wales reported that the system
“will prove not to be practicable”,
and warned that the earnings assessment is
“open to error, manipulation and abuse.”
I would appreciate the Minister’s comments on those experts’ concerns, and on how schedule 8 would work in practice.
I note that the Treasury has responded to some points raised during the consultation on the draft legislation, such as the requirement to take into account the amount of any coded-in personal allowances, but reservations remain about the impact on businesses. The Treasury has estimated that the average annual cost of the administrative burden would be £200,000, so, for some businesses, the amount would not be inconsiderable. Will the Minister tell us what discussions the Treasury has had with businesses about their additional responsibilities included in schedule 8, and whether the schedule could deter them from offering employer-supported child care? As we have suggested, it is important that the balance is right. It should not be a deterrent to employers; it should be a benefit for employers and employees alike. Will HMRC be able to provide advice and assistance to employers who are uncertain about the relevant earnings assessment?
Many groups have raised concerns about the inflexibility of the relevant earnings assessment approach, which means that an employee’s exempt entitlement cannot change until the next financial year, regardless of changes to their circumstances, which could be in hours or earnings. It also does not take into account the fact that some employees may have additional sources of income, meaning that one employer’s assessment may misrepresent the tax band that they are actually in, which again, undermines the objective of ensuring that all parents receive basic rate relief. Although, on one hand, there can be additional complexities and administrative burdens in requiring in-year changes, will the Minister tell us what consideration has been given to allowing for those, and whether it is thought that the earnings assessment is a more accurate reflection of actual earnings?
Can I take the hon. Lady back to an earlier comment, so that I can understand her point? She asked about the fact that it would only be down to the employer’s earnings—the earnings that the employee had with that employer—and that only they would be taken into account, and not other earnings, which she said could put people’s ability to get basic rate taxpayer support at risk. I wondered how she felt that that would be possible, given that if someone had employment elsewhere and already qualified for the support, in many respects, the only risk is that their overall earnings would have been under-calculated. Had all their earnings been taken into account, they would have been a higher rate taxpayer, but they would still be eligible for the same basic rate tax relief. Will the hon. Lady clarify that, so that I can understand the point that she was making?
An outside group raised that concern with us. I appreciate the Minister’s point, which is that the danger would be that if somebody’s extra earnings from another job were not noted, the only impact would be that they would not get the higher rate relief. I think that perhaps the concern is that if people have two separate jobs, they would be assessed separately and could somehow be entitled to the relief in respect of both employments. I am not quite sure what the issue is, but I think that is what has been suggested: somebody could benefit, as though their two jobs did not correlate, and the relief would be received in respect of both employers.
I was asking the Minister whether it would be better to deal with the matter on a more ongoing basis through in-year changes, rather than through the earnings assessment. The Chartered Institute of Taxation and the tax faculty of the Institute of Chartered Accountants have suggested that the previous year’s earnings and P60 could be used as an alternative to the earnings assessment. That would not be perfect, because the parent’s earnings might have changed significantly, but it is another possibility. I would appreciate further information on what consideration was given to that and why, if it was considered, it was rejected by the Treasury. Similarly, others have recommended using the P11D form to reduce the burden on employers, so that actual earnings are used. Will the Minister elaborate on the reasons for rejecting the P11D method and treating employer-supported child care like any other benefit?
Many responses to the draft legislation queried whether it took account of employment income exemptions under part 4 of the Income Tax (Earnings and Pensions) Act 2003 and suggested that it could mean, for instance, that provisions for transport for disabled employees might result in their basic earnings assessment classing them as a higher rate payer when they are not. Can the Minister confirm that that is no longer the case and that sufficient guidance and information will be given to employers to ensure that the appropriate exemptions are made?
Uncertainty about what should be included in the earnings assessment brings me to the four Government amendments. Amendments 108 and 109 give the Treasury further powers to change the definition of “relevant earnings” and “excluded amounts.” Not only does that have implications for the level of parliamentary and external scrutiny, but it might mean that employers are more dependent on interpreting guidance and additional regulations than on following clear legislation. Can the Minister clarify why the Government are proposing this amendment and what they plan to include, and exclude, from the proposed regulations? How will the Treasury ensure that the list is a clear and exhaustive one, which will help employers more accurately to assess an employee’s tax band?
The reason for these changes is unclear. The explanatory notes to the amendments state that they are
“designed to better express the policy intention of the measure” and that they
“will increase clarity for employers through the introduction of regulations which will contain further detail to help them carry out the estimate of relevant earnings required under the legislation.”
It is difficult to see how giving further powers to the Treasury to change those definitions whenever it likes will result in greater clarity for employers. If more detailed definitions were needed, why did the Minister not provide them by making amendments to the Bill, as she has done with schedule 2? Regulations will result only in more uncertainty for employers, because they will have to watch for secondary legislation rather than being able to rely on the certainty of primary legislation, and the secondary legislation may be liable to change without notice. It seems more sensible, therefore, for the Government to include those definitions in a further amendment to the Bill. For the sake of clarity and transparency, I encourage the Minister to consider bringing that forward on Report.
Amendment 111 would allow the Treasury to make retrospective changes, which would apply to the current tax year, as far down the line as 31 December 2011. That is particularly troubling and seems impractical. Paragraph 3(5) of schedule 8 makes it clear that the relevant earnings assessment will be conducted only once each year and that unless the employee joins the scheme part way through the tax year, the assessment will take place at the beginning of the tax year. Can the Minister explain to the Committee how changes can be retrospectively applied part way through the financial year? Does the amendment mean that a parent’s entitlement could change with very little warning, and does it increase the burden on employers still further by potentially requiring them to conduct another assessment in December? I think that the Minister said during her opening remarks that secondary legislation would be brought forward before December this year, which seems rather a long time given that the Bill has been discussed on the Floor of the House and is now being considered in Committee. Will she explain why it might take until December to produce the secondary legislation?
The Chartered Institute of Taxation has commented:
“We are disappointed that the Government has not listened to our concerns that this proposal will complicate matters and introduce a significant additional burden on employers. The mechanism proposed for restricting tax relief on employer-supported childcare is, in our view, impractical and depends on an employer’s ‘back of the envelope’ calculation of ‘basic’ earnings.”
With the Office of Tax Simplification including employer-supported childcare in the reliefs that it plans to review, is the Minister satisfied that the requirements in schedule 8 are sufficiently straightforward for employers, employees and HMRC and that they will promote fairness in ensuring that all parents can access the same level of relief?
In conclusion, although we support the general principle of trying to make the system of child care tax relief fairer and removing the higher rate, as we suggested when we were in government, there are real concerns about how it would be implemented. We want to make sure that the system works so that employees with child care responsibilities are supported in work and get some help from their employers and from the Government via their employers. There are concerns that people will find themselves in very complicated situations and that we will have to unpick the mess once the new system is in place. I would be grateful if the Minister reassured us that the Government had looked at alternatives ways of delivering this measure and addressed some of my points about the potential complexities and problems that could arise from the current proposal.
Before I answer the hon. Lady’s points, it is probably worth while setting out the original starting point for the legislation and the schedule. The previous Government introduced a proposal to abolish employer-supported child care entirely. Many felt that that was a retrograde step and, as a result of the fallout from that proposal, a hybrid and more sensible approach was proposed. The previous Government were right to recognise that their original proposal was not well targeted and to seek to remedy that. Their initial proposal to abolish employer-supported child care altogether to ensure that it was better targeted by having it targeted at nobody was seen by many as a draconian step. The measures before us today and the measures that the previous Government finally realised were perhaps more sensible will strike a balance between targeting employer-supported child care and ensuring that it does not get spent excessively on higher rate and additional rate taxpayers who, under the previous scheme, were benefiting the most financially. We are going to press ahead with this.
To answer the hon. Lady’s questions, we are absolutely committed to striking a balance between supporting people in work but more broadly supporting families and working families. That is one of the reasons why we are providing access to affordable and high-quality early education and care with 15 hours of free early education for all three and four-year-olds. It is also why we are extending that entitlement for the first time to all disadvantaged two-year-olds, which is a targeted measure that will bring some real benefits. The spending review provided £380 million per year by 2014-15 to fund that new entitlement for two-year-olds. More broadly, and not explicitly related to child care per se, but to support families, we have brought forward above-indexation increases in the child care tax credit for this year and for next year too.
As for the impact on individuals, when employers carry out the basic earnings assessment they are not expected to take employment income from other employments into account. In other words, we have built in some generosity in a sense to make sure that it is simple for employers and that they do not have to go through a whole process of asking their employees whether they have other sources of income.
The hon. Lady uses the term “generosity”. The Library calculates that some families will be £1,700 a year worse off. They may not feel that the Government are being desperately generous in those circumstances. The Chartered Institute of Taxation has warned of a considerable increase in the effective burden on those on incomes in the £40,000 to £50,000 bracket. Does the Minister accept that analysis, and will she explain how those on middle incomes are so heavily squeezed by this and the related changes?
I realise that the hon. Gentleman is speaking up for people who will feel that this puts a squeeze on them. Obviously, the people worst hit by this will be those earning £150,000 a year who receive tax relief on their employer-supported child care. He may want to argue that, in this time of fiscal deficit—which the Government have picked up—we should prioritise supporting those earning £150,000 a year with tax relief. He may feel that that is the right priority. The Government believe in ensuring that money is there to support the families who need it most. Perhaps that priority is different to his, but I think that it is right. [ Interruption. ]
I can see that I have made Opposition Members slightly irate, but I remind them that if they argue against me then they argue against their Government’s policy prior to the election. I also remind them that to argue against this is effectively to argue against the money that we now have to help improve free education and child care support for the most disadvantaged children. That would undermine our ability to bring forward the pupil premium and a range of measures targeted at low-income families to help them and their children have a better life.
I said in my remarks that there was a correlation between the amount that we would have saved by abolishing the higher rate of relief when we were in government, and a direct programme with the ambition of creating 250,000 free nursery places for two-year-olds. It was not hypothecated as such, but we made a clear link between reducing something that benefited higher rate taxpayers and shifting the money to provide for people who needed it at the lower end of the scale. The Minister just outlined a broad-brush approach, such as the pupil premium. Will she clarify how much the Government think will be saved by introducing the measure—I think the figure of £65 million was mentioned—and how much of it will actually be spent on providing nursery places for children?
We will be churning £380 million per year into the new entitlement for two-year-olds by 2015, particularly targeted at the disadvantaged. That is the right thing to do. I understand that many families on the higher rate, and those on an additional rate, will lose out because of the proposal. I understand that they will not welcome that, but, when you look at the sweep of reforms and changes that we are introducing to tackle the deficit left by the previous Government, the biggest burden falls on those with the greatest shoulders. This measure contributes to that.
The hon. Lady makes the point that the burden falls on those on the highest incomes, and yet that is not what the Chartered Institute of Taxation says. It says that
“increasing the tax burden on middle-income households while withdrawing tax credits and child benefit from them will result in their being squeezed proportionately more than those on higher incomes”.
More, not less. That is the complete opposite of what the Minister just said.
The problem with the hon. Gentleman’s point is that it is a half argument. There is an argument that pretends we live in a world without a fiscal deficit to tackle; that we do not have to make any savings; and that we can somehow ignore all that debt and pass it on to our children. I do not accept that argument. We need to sort out the country’s public finances as fast as possible. Debt is costing the taxpayer £120 million every day. Getting a grip on that by taking the actions that we are to bear down on it and ensure that we do not hand that debt and deficit on to our children is critical.
I will make more progress on the questions put by the hon. Lady. We have published guidance. I want to reassure the Committee that we have worked with employers and general stakeholders on the guidance and the amendments to ensure that the legislation will operate as intended. The hon. Lady asked about some of the amendments we have brought forward. Those amendments reflect the discussions that we had with stakeholders and the clarity they felt they needed to ensure that the schedule and the clause work well. We are encouraging employers to use that guidance, and to speak to HMRC if they encounter problems. As any further problems are pointed out, we will of course update the guidance. The message to employers is that as long as they take reasonable care in how they look at the earnings assessment, the question of penalties should not arise.
I was asked explicitly whether using the P11D would have been a better approach. That was obviously a possible alternative. However, the estimated administrative cost for employers of the approach we are using is approximately £1 million over five years. If P11Ds were used, the estimate was £4.7 million over five years, nearly five times as much. Using the P11D to deliver the reform would not just have been more expensive, it would have meant that we could not have made progress for two years, which would have delayed any savings and meant that employers could not report national insurance contributions on any overpayments at year end using the P11D. Generally, the thought for employers of having to file P11Ds for 450,000 employees would be the practical evidence of that increased administrative burden. It would also have carried significant processing costs for HMRC.
Obviously, it is as I have just said. If employers can demonstrate that they have reasonable processes and systems in place to collate information, and that they are taking their information from the payroll system, for example, which would be most companies’ source data on the level of employment remuneration, that will clearly be seen as reasonable.
All we are saying is that we want to find a balance between being prescriptive enough, so that employers have the detail and understand what they need to do, and flexible enough, to enable them to get that detail in the way that is most straightforward for them. We hope we have found that balance. The regulations approach will enable us to provide more detail and that extra degree of support and certainty for employers—something that came out of our consultation with external stakeholders. That has enabled us to remove some of the detailed provisions from schedule 8. The regulation-making powers for HMRC will enable greater detail to be provided, but should support employers and make the legislation more business friendly, which, as the Committee can imagine, is what they wanted.
I hope I have been able to answer the questions. Although these are difficult debates and important questions, I remind the Committee that we are implementing a proposal that the previous Government had gradually reached, probably not starting from the best approach—of proposing to abolish employer-supported child care entirely. We did, however, end up in the right place, and we will ensure that we continue to work with business to ensure that the measure now operates as intended. With that, therefore, I hope that we can accept the amendment and the schedule.
Amendments made: 109, in schedule 8, page 159, leave out lines 13 to 33 and insert—
‘(4) In subsection (1)(b) “excluded amounts” means amounts specified in regulations made by the Treasury under this subsection.’.
Amendment 110, in schedule 8, page 160, leave out lines 40 to 43 and insert—
‘( ) In subsection (1)—
“relevant earnings” has the same meaning as in subsection (1)(a) of section 270B (see subsection (3) of that section), and
“excluded amounts” has the same meaning as in subsection (1)(b) of section 270B (see subsection (4) of that section).’.
Amendment 111, in schedule 8, page 161, line 38, at end insert—
Regulations made under section 270B(3)(b) or (4) of ITEPA 2003 (inserted by paragraph 3) on or before 31 December 2011 may have retrospective effect in relation to the tax year 2011-12.’.—(Justine Greening.)