§ Order for Third Reading read.6.37 pm
§ Dawn Primarolo
I beg to move, That the Bill be now read the Third time.
When the working families tax credit is up and running, it will provide £5 billion to 1.5 million working families, which is the equivalent of £70 per week per family, and will give almost £1.5 billion more in-work support than family credit. It represents an important step towards greater integration of the tax and benefits systems and will reduce the wasteful overlap between the tax and social security systems, whereby almost 500,000 families pay tax to the Inland Revenue while receiving family credit from the Department of Social Security.
This paving Bill will assist in the preparatory work for the development of the working families tax credit and the disabled persons tax credit. It will ensure that the legislation, when it comes before the House, has been fully developed and that the credits are ready to be put into operation.
§ Mr. Fallon
The Bill is not about working families tax credit. We look forward to making a range of arguments when the major legislation is presented to the House later in the year. So that no one is able to mislead the House or the country about our position, I shall put on record the fact that we are not opposed in principle to the translation of benefits into tax credits provided that the system is transparent, easy to operate, does not impose a significant additional burden on employers and is fully compatible with the principles of independent taxation that we introduced.
The Bill is unsatisfactory. It is indiscriminate, it lacks any limit on the expenditure being sought, it lacks a timetable and, above all, it is not a paving Bill, because it does not pave the way for any other legislation. Nothing in the Bill links it to any subsequent legislation. The expenditure under the Bill need not be restricted to the working families tax credit and the disabled persons tax credit. The definition in clause 1(1) isbenefits with income tax credits".The Bill is thoroughly unsatisfactory, and we have done our best to amend it. The Financial Secretary has treated these proceedings throughout as if they were a burden to her. It is as if we should have given authority for this additional expenditure on the nod. The valid points that we have raised have justified the additional scrutiny that we have been able to afford the Bill.
§ Mr. Malcolm Bruce
As a Liberal Democrat, my support for the principle of tax credits is long-standing. My party has often argued that it is a way of transferring money to poorer people. I have no problem with the principle behind the Bill and the Government's desire to develop the idea of tax credits. I accept that we need to provide resources to do that.
However, my hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood) and I have expressed some reservations. We think that the Bill is imprecise and 567 ill defined. We shall hold the Government to the broad parameters that they have set themselves and to the timetable. I hope that as they develop the idea of tax credits, they will bear in mind the need for transparency and comparability.
The amendment to the Red Book was not an unreasonable way to present the figures. However, the problem is that it had a different effect. The Chancellor said that there should be a debate about whether tax credits should be classified as expenditure—in effect, a charge on social security—or as a negative tax incorporated in the Inland Revenue. The Bill requires the Inland Revenue and the Department of Social Security to work out ways of administering the credits. The effect of treating something as expenditure as opposed to negative income tax is that it alters the percentage of the gross domestic product that goes in taxation. That has the convenient effect for the Government of just taking it away from the top limit that it was about to reach.
I do not want to delay the passage of the Bill. I accept the Government's case with reservations. I urge them to ensure that when they present changes they do so openly and honestly, so that people can assess their significance. There is still concern about the problem of ensuring that the advantage gained from people getting benefits in connection with work does not undermine the principle, which the Government and the Liberal Democrats support, of the right of independent assessment. The Government have argued that, as that does not apply to family credit, no further compromise is required. However, they know perfectly well that an awful lot of women who currently receive money in their hands will not do so in future. If that were to happen, not everything that comes out of this process will be popular with all the beneficiaries. I hope that in a year from now the concerns that we have expressed will not have been vindicated by the outcome.
§ Mr. Forth
I am not as charitable about the Bill as my hon. Friend the Member for Sevenoaks (Mr. Fallon). We have not discussed its grand aims and objectives. The Financial Secretary misread the tenor of the debate when she happily burbled on about the joys to come if the Bill were to reach the statute book—never mind any further legislation containing the real substance, this being only a paving measure, as we have repeatedly been told.
The debate in Committee was about the essential nature of the Bill and our worries about it, charged as we are with scrutiny of legislation. The debate revolved around the key phrases in the Bill, which were picked up again and again. It allows the Secretary of State and the commissioners to doanything which in … their opinion is appropriate for the purpose".It rubs salt in that wound by saying that the powers conferred by that subsectionshall be exercisable whether or not Parliament has given any approval on which any of the things there mentioned depends".Those phrases caused the greatest anxiety among Opposition Members. What makes matters worse is the provision in clause 1(3), which states:Any expenditure incurred under this section shall be defrayed out of money provided by Parliament.568 That is almost legislative impudence. It completes the vicious circle. The Bill is saying, "Trust us, allow us to spend anything. We're not going to tell you in any detail what we're going to do. By the way, we want Parliament to give authorisation for any expenditure that may occur but it won't be specified."
§ Mr. Forth
My hon. Friend is right. That is our dilemma. We are being asked to authorise this completely unconstrained, unidentified and non-detailed activity and expenditure without knowing what will follow and in the knowledge that, if nothing were to follow—which would be in tune with what we have come to expect from the Government—because of delays, internal disputes, indecision or further review, we would be left with the burdens that this Bill would impose on the taxpayer. We do not know what those burdens will be, except for the vague passing reference in the explanatory and financial memorandum to "around £15–20 million", although even that must be in some doubt.
When my hon. Friend the Member for Sevenoaks, perfectly reasonably, moved an amendment to write into the Bill a ceiling on expenditure not unadjacent to the figure in the explanatory and financial memorandum, the Financial Secretary refused to accept it.
The Financial Secretary sought to reassure us by saying, "Don't worry. As usual, the Public Accounts Committee, the National Audit Office, the accounting officer and other splendid organs of government and the constitution will scrutinise the money that has been spent, so that will be all right." By then, however, the money will have been spent. Surely our role is to take responsibility for the money before it is spent on the taxpayer's behalf. We should not turn round afterwards and say, "We are terribly sorry, but the PAC, the NAO and whoever else have just discovered that £20 million was spent to no effect." We have not had sufficient reassurance from the Financial Secretary.
This has been a rather sorry episode. My hon. Friends the Members for Sevenoaks and for Grantham and Stamford (Mr. Davies) have endeavoured to co-operate with the Government; they have been rather too helpful in my view, but I understand what they have done, because they share the broad objectives outlined by the Financial Secretary. I, however, am not satisfied. Whether any of my hon. Friends are dissatisfied is for them to say, but we need much more explanation from the Government—particularly the Financial Secretary—before we can be satisfied with the Bill.
§ Mr. Peter Bottomley (Worthing, West)
Let me briefly follow the point made by the hon. Member for Gordon (Mr. Bruce) about public accounting. The Bill's provision for effectively changing benefits into tax credits should also, in my view, be considered in regard to what is wrongly called child benefit. I have said before that it should be called a child tax allowance, and I believe that the commissioners of the Inland Revenue and the 569 Department of Social Security should consider whether it should be set against tax in public accounting. If so, it would have an impact on the public sector borrowing requirement, but would not be counted in public spending.
I would make more points if it were convenient to speak at greater length, but I must ask the Minister whether she knows the impact on public spending of turning one benefit and one allowance into a tax credit, and whether she could do the same for the child cash allowance. I feel strongly that child benefit should continue to be paid as a child cash allowance, but the name should change, for reasons that are perfectly well known to the Inland Revenue, the Treasury and the Department of Social Security.
Until we are willing to overcome the theology of Government book-keeping, and become as creative as the Bill, we will not help people at the time when they are responsible for children. I am not talking about those on income support, but those in the broad bands who, when they have children, have reduced taxable capacity and increased need. An allowance—preferably cash—is clearly appropriate, but should not be counted as public expenditure.
§ Mr. Quentin Davies
This debate, on an important Bill, has been much too short. Once again, that is extremely revealing of the fundamental arrogance with which the new Labour Government treat Parliament. We have had examples of that over and over again; I need not list them, as they are fresh in the minds of hon. Members on both sides of the House.
The debate has been a monumental example of a Government's taking Parliament entirely for granted. My right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth) made an extremely powerful speech about precisely that. The Government may think that they can get away with it, and that they can win vote after vote with their enormous majority. That may make them even more self-confident and arrogant, but such pride comes before a fall. The British public will begin to notice that our institutions are subject to extremely frivolous treatment.
The Bill is extraordinary. My right hon. Friend the Member for Bromley and Chislehurst rightly said that it should go into the textbooks as an example of how Parliament is taken for granted. The Bill says that whether or not Parliament subsequently expresses approval, the powers, once accorded to the Government, will remain. In the debate on the last amendment, I asked the Financial Secretary what would happen if the House refused the Bill a Third Reading. Apparently, the powers—and the rights that they confer to spend taxpayers' money—will simply continue. The Government have not answered that question, or told us what they would do in those circumstances. That is simply not good enough.
We have said many times that we are not opposed in principle to the idea of working families tax credit. We therefore will not divide the House, and I do not urge my colleagues to vote against the principle of the paving Bill, because that would be interpreted as a desire to stymie the whole process. We do not want to do that, but we must ensure that if we go down this road, we do it properly. We must plan properly, but the Government have not satisfied us on that. They have rejected the sensible and 570 businesslike approaches in our amendments. We proposed that there should be a proper cash limit, a proper budget, proper controls and a proper time limit. They turned those amendments down, and there is a limit to our patience and indulgence.
We shall keep the matter under review. At least three major shortcomings in the Government's planning for the whole exercise were revealed on Second Reading, and have been revealed again today. Over the next few months, the Government must focus on those, and come up with clear answers. Up to now, we have had no answers on crucial issues.
Let me help the Government by reminding them what the key questions are on which they must do some homework over the next few months, and on which the British public will expect an answer before we consider how to vote in the autumn on Second Reading of the substantive Bill that will follow this. The first question has been put to the Financial Secretary repeatedly, but we have had no answer. What happens in the event of a dispute between partners over the working families tax credit? If the partners cannot agree whether the credit will be received by the partner in work through the tax system—
§ Mr. Deputy Speaker
Order. I am sorry to interrupt the hon. Gentleman, but this is a Third Reading debate. It should look back at the terms of the Bill, not look forward to what will happen in future.
§ Mr. Davies
It is indeed a Third Reading debate, Mr. Deputy Speaker, and we are, indeed, looking back. I am trying to draw conclusions from our debates, which will be extremely important to the substantive Bill to which this paving Bill looks forward. The Bill forces the British taxpayer to spend a lot of money in anticipation of the substantive Bill. It seems reasonable to make it clear that if the taxpayer's money will be spent on preparing for another Bill, the lessons of our discussion should be properly taken on board by the Government. When they next address the House on this subject, they may be a little better prepared than they were on this occasion.
There is another matter on which the Government had better do some rapid homework. There is considerable and growing anxiety about the burden of compliance costs on employers. The administration of the working families tax credit will be borne by employers. I put specific questions on that to the Financial Secretary, who, with her usual charm and parliamentary skill, deflected them all. We have had no answers.
What about the cash flow issue, to which I have already drawn attention? In many cases, under the tax credit, net pay will be greater than gross pay, and employers will pay more to their employees than they have contracted to pay. No doubt they will receive some compensation weeks or—who knows?—months later from the Benefits Agency, but who will pay for that? There has been no answer. It is not good enough for the hon. Lady to use the analogy of statutory sick pay and maternity pay. In most cases, employers do not pay the current pay that they are contracted to pay to employees in that position, but pay the maternity pay and the statutory sick pay instead. There is no cash flow loss in such cases; we want to know what happens when cash flow loss occurs.
571 The third general point—to which my hon. Friend the Member for Worthing, West (Mr. Bottomley) referred in his interesting speech—is the way in which this form of expenditure will be classified. Among the promises that the Labour party made to the electorate before the last election—many of which have already been broken—was a promise to reduce social security expenditure as a proportion of gross domestic product. If the Government are going to make progress towards that objective, it must be real progress. It must not be done simply by cooking the books, by falsifying the figures, by reclassifying what is now social security expenditure—the family credit—as something that is regarded as a tax credit, which is, in other words, negative tax and not public expenditure. That will not wash. If the Financial Secretary thinks that she can bamboozle the Opposition, or, indeed the British public, she had better think again.
I draw from today's interesting debates several lessons, in an attempt—my right hon. Friend the Member for Bromley and Chislehurst probably will not like this—to help the Government and to be positive. They may want to be taken seriously in bringing forward a new working families tax credit, but, next time around, in the autumn, we will not be so forgiving. We will expect clear precise answers to these important questions. We will expect the Government to do their homework—they have not done so up to now—and come to Parliament with proper modesty in proposing and explaining their legislative proposals, not the arrogance that we have had from them, with the Government thinking that, because of their enormous majority, they can simply take Parliament and its procedures for granted.
Question put and agreed to.
Bill accordingly read the Third time, and passed.