HL Deb 16 May 2002 vol 635 cc1-54GC

[The Deputy Chairman of Committees (Lord Skelmersdale) in the Chair.]

The Deputy Chairman of Committees (Lord Skelmersdale)

Before I put the Question that the Title be postponed, it may be helpful to remind your Lordships of the procedure for today's Committee stage. Except in one important respect, our proceedings will be exactly as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard. The one difference is that the House has agreed that there shall be no Divisions in the Grand Committee. Any issue on which agreement cannot be reached should be considered again at the Report stage when, if necessary, a Division may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.

I should explain what will happen if there is a Division in the Chamber while we are sitting. The Committee will adjourn as soon as the Division Bells are rung and will resume after 10 minutes.

The Parliamentary Under-Secretary of State, Department of Work and Pensions (Baroness Hollis of Heigham)

I am sure that I, along with other noble Lords, may make procedural mistakes. I hope that I shall have the indulgence of the Committee if I do.

Before we embark on the business of the Committee, I wish to make an apology, particularly to Members of the Opposition Benches. On behalf of the Government, I apologise sincerely for the fact that so many Government amendments appeared on the Order Paper on Monday. I am acutely aware of the serious inconvenience that this will have caused noble Lords and I accept that it is completely at odds with the practice of the House.

Apart from the provisions in relation to children in respect of whom care is shared—these are the provisions I promised the noble Earl, Lord Russell, at Second Reading that we would come back with—these are technical amendments and drafting changes to improve the clarity of the Bill. The changes result from technical clarifications in the early part of the Bill. The amendments are numerous because similar consequential changes had then to be repeated in a number of different clauses. Many of those changes follow the splitting of Clause 17, which would otherwise have become unwieldy.

It was not possible to table parts of the package of changes earlier because the technical points arc interrelated. I am afraid that the need for these amendments came to light after the Bill had been considered in another place. This is a highly technical Bill and, despite all the efforts of counsel and officials, the amendments were not ready to be tabled earlier.

We first gave priority to tabling amendments that made substantive changes, such as those in relation to appeals and to the annual review of the value of tax credit, and also—this was extremely, but rightly, timeconsuming—to making draft regulations available to assist understanding of the Bill well in advance of Committee.

I am most grateful for the co-operation shown by noble Lords in rearranging the timing of Committee days. We, on our side, are trying to do as much as we can to minimise the difficulty these late amendments have caused. I have made available my speaking notes on the technical amendments. I am happy to arrange briefing meetings with officials to talk through those technical amendments, or to write to noble Lords with more detail. I am happy to flood noble Lords with as much paper as they can possibly manage.

Nevertheless, I fully accept that it is unacceptable for amendments to be tabled so late and in such numbers. The Paymaster General, Dawn Primarolo, wishes to join with me in offering our most sincere apologies for what has happened.

Lord Higgins

I am sure that the Committee would wish to accept the Minister's very gracious apology. After more than 35 years in Parliament, I cannot quite recall anything precisely the same happening. In particular, the timing seems quite extraordinary. The matter has gone right the way through the House of Commons without any second thoughts being expressed on behalf of the Government. As the Minister rightly said, the amendments were tabled only at the very last minute, with the result that the Committee's session on Tuesday had to be abandoned. I fully accept the Minister's apology which, as always, is combined with the helpful way in which she provided the Committee with papers and meetings and so on. But I am not sure that we should leave the matter there.

The Minister is accountable to Parliament and parliamentary accountability flows through the Minister. We are not able, if something has gone wrong, to summon officials to explain what happened. This was a matter of great controversy, Members will recall, back in the mid-1980s when the Treasury and Civil Service Committee went into this matter in great depth as a result of trickledown and so on. Finally the Liaison Committee produced a report on it. Basically, what was then agreed—and it is the principle on which we operate—is that the Minister is accountable to this House. If something has gone wrong in the department, the Minister will carry out an investigation and explain what happened following that investigation.

It seems quite extraordinary, however, that these are not simply technical amendments; they are most certainly drafting amendments. It would seem that the draftsman had something of a brainstorm. At the very last stage of the Bill, as it entered your Lordships' House, he decided that the thing was structurally wrong and therefore he had to table all these amendments.

Whether it was one draftsman or a change in draftsmen or that the draftsmen were distracted from their business to do something else, we do not know. If this kind of thing were to happen in business life, the individual would undoubtedly feel it appropriate either to be fired or to resign. I hope, therefore, that the Minister will feel it appropriate to find out precisely what happened and perhaps come back to us again at a later stage as a result of her inquiries. I am not talking here of some junior officials. Parliamentary draftsmen used to be paid rather more than permanent secretaries and certainly much more than Ministers. Thus the matter really is quite serious. I hope that the Minister will agree—as I say, we fully accept her apologies—none the less to carry out further investigations so that she can tell us, because we have no means of finding out from officials, how this matter arose as it did.

Earl Russell

I thank the Minister very warmly for the trouble she has taken to help us deal with this situation as it has arisen. In particular I should like to thank her for her speaking note, which enables me —I hope—to make sense of what these new amendments are trying to do and to see that they are, as she assures us, innocuous and indeed possibly even rather sensible.

However, that is—as the Italians say when two trains meet at a junction—coincidenza. Unlike the noble Lord, Lord Higgins, I can recall such things happening before. For example, there was the Social Security Bill in 1990, on which 50 pages of government amendments were tabled on the morning of the first day in Committee. One of those, in my opinion, was so objectionable that I ended up disgracing myself by having the Chamber counted out by dividing against it at 12 midnight, the Minister having resisted my invitation to defer dividing until Report stage. I can say only that I was consoled by the opinion of the Court of Appeal on that matter that the Secretary of State's interpretation of the clause was so unreasonable that Parliament cannot possibly have intended it.

It reminded me of the delightful case of the judge's children who saw crate after crate of champagne being carried into the house and asked, "Mummy, what's that for?". Reply: "Daddy's been upheld in the Appeal Court!". So I agree with the noble Lord, Lord Higgins, that the fact that these particular amendments are not ones that we should make a meal of does not mean that this is something that we should accept as being capable of becoming normal practice. It is, after all, Parliament, not parliamentary counsel, that makes the law. It is not my fault that it makes the law.

The noble and learned Lord, Lord Simon of Glaisdale, has asked questions in the past about the chain of accountability of parliamentary counsel. Those are not our business as a Committee, but they are points that may concern us as individuals in the future. I am sure the Minister will be at one with the rest of us in saying that, however good her own record on this—and it is absolutely excellent and I congratulate her on it—we should not allow the matter to rest. It should not happen, again because next time it might not happen under quite so good a Minister.

Title postponed.

Clause 1 [Introductory]:

Lord Higgins

moved Amendment No. 1: Page 1, line 4, at end insert— () The provisions of this Act are concerned only with the imposition, repeal, remission, alteration and regulation of taxation or the imposition for financial purposes of charges on the Consolidated Fund or the National Loans Fund. The noble Lord said: I again thank the Minister for all the help she has given us on the drafting of the various proposals and explaining what they are. From force of habit, whenever I am opposite the noble Baroness I declare an interest as the chairman of a company pension fund. I am not sure whether that is relevant on this Bill, but on every other Bill I have discussed with the Minister it has been.

The amendment is somewhat unusual. I believe the noble Earl, Lord Russell, was under the impression that I would in some way use it to criticise the Speaker.

Earl Russell

I would be very grateful if the noble Lord, Lord Higgins, would not persist with this amendment. It deals with a matter which, in the words of Section 1(2) of the Parliament Act 1911, is to be settled solely by the opinion of the Speaker of the House of Commons". I am certain that the noble Lord, Lord Higgins, is a quite old enough hand to have had no such intention, but I am also certain that he is a quite old enough hand to know that one is not always interpreted according to one's own intention. It is not as widely appreciated as it should be that quarrels between the Houses are extremely difficult to resolve because there is no authority with power over the two Houses, both sovereign over their own procedure. They are therefore not to be lightly bridged. I hope that the noble Lord, Lord Higgins, will go no further.

Lord Higgins

Had the noble Earl allowed me to finish my sentence, I would have been able to explain precisely what I had in mind in tabling this amendment. The noble Earl suspected, I believe, that I was in some way going to criticise Mr Speaker. After 33 years in the House of Commons, that is not something I am likely to do. On the contrary, it seemed to me that Mr Speaker's decision was admirable and one on which he ought to be congratulated.

There is not the slightest doubt, if one consults Erskine Maj, that whether a Bill is a Money Bill or not is entirely a matter for Mr Speaker, as the noble Earl rightly says. If he decides it is a Money Bill, then it is a Money Bill; if he decides that it is not a Money Bill, then it is not a Money Bill.

The only reason I tabled this amendment was to stress, as my noble friend Lord Saatchi has stressed, that the more this House can participate on matters financial, the better it may be. Certainly, if Mr Speaker had decreed that this was a Money Bill, then the whole of Part 2 would have received no parliamentary consideration. However, it has been decided that it is not a Money Bill and therefore we can proceed in this Committee.

My only point in relation to the amendment is that I was not absolutely clear, when I first saw the Bill, which parts of it were outside the remit of a Money Bill and therefore led to the determination that it was not a Money Bill. Can the Minister enlighten us on that? I understand that the advice is that there is nothing wrong with this amendment. Criticising Mr Speaker is the last thing I would do. The decision he has made is in every way admirable and enables us to look at this Bill constructively. I beg to move.

4.15 p.m.

Earl Russell

The noble Lord, Lord Higgins, with impeccable care, has dropped his match outside the box of gunpowder. I am extremely relieved that he has done so, though not particularly surprised. However, if one carries matches and lights them, and then starts a general debate in the neighbourhood of a box of gunpowder, the likelihood of the flame spreading to one or two places where they might not be quite so welcome is by no means negligible. I believe that we discuss matters such as this at our peril. If the amendment were carried it would have absolutely no effect as the decision is, as the noble Lord, Lord Higgins rightly said, entirely one for the Speaker the House of Commons.

If we were to push the amendment to a vote on Report and carry it, it would change absolutely nothing whatever. I cannot therefore see that it is a necessary, valuable use of the Committee's time. In general, the view of the noble Lord, Lord Higgins, that we have something to contribute on financial law, is one with which I have some sympathy, but I do not believe that this amendment is a useful or particularly wise way of proceeding with it. I hope that when we come to Report stage it will not be tabled again.

Baroness Hollis of Heigham

All that I need do is to confirm what both noble Lords have said, which is that the decision as to what is a Money Bill is exclusively a matter for the Speaker. The amendment is defective because it alleges that the provisions of this Bill are concerned only with the imposition. The Bill also includes child benefit transfer matters, which would rule it out of classification as a Money Bill whatever the situation. I believe that that answers the particular point of the noble Lord, Lord Higgins, of whether there were matters in this Bill which would by definition rule it outside the classification.

I hope that your Lordships will accept the words of the noble Earl, Lord Russell, and that we can now put the issue to bed.

Lord Higgins

In the light of the. Minister's reply, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins

moved Amendment No. 2: Page 1, line 6, after first "credit" insert "or benefit The noble Lord said: In moving Amendment No. 2, I shall speak also to Amendments Nos. 3, 4 and 5. These amendments relate to the wording in Clause 1, which makes radical changes to the Governments' proposal with regard to the whole tax credit scheme. It is suggested that after the first tax credit we should insert the words "or benefit", and similarly in the following line.

It is our contention that the terminology used by the Chancellor of the Exchequer, who has a passion for tax credits in every conceivable form, is not entirely appropriate as far as this Bill is concerned, although we have of course deferred the decision on the title until later. Effectively, many of the payments which will be made under this Bill are not tax credits at all. They are not credited against people's tax for the simple reason that they are not bound to pay any tax. Therefore it is a confusion to use the expression "tax credit".

As I pointed out at Second Reading, this is not a proper tax credit scheme of the negative income tax kind which was proposed as long ago as 1972. This is simply an abuse of terminology as far as concerns much of the payments under this Bill. Perhaps the Minister can tell us— no doubt we will return to this point at various stages in our proceedings—what percentage of the amounts paid out under this Bill is expected to be deducted from tax and what percentage is simply going to be paid out as benefits, otherwise there is likely to be very considerable confusion in the terminology.

The other aspect of the matter is that, by calling them tax credits, the Government seek to give the appearance that the amount of public expenditure on social security benefits is less than it is and, as a result, alter the overall position of the Government, who were elected in 1997 on an undertaking by the Prime Minister to cut the costs of social security. In fact from 1996–97 to 2003–04, there was a bigger increase in social security spending, allowing for the tax credits, than there was over the same period for either health or education.

Our contention is that using this terminology is misleading and inappropriate. At the very least it ought to be made clear in the course of the Bill that what is now being called a "tax credit" is in fact, to a large extent, a social security benefit. That would seem to be the very least one can do. Of course, in later amendments we will come to various specific proposals as to which tax credits are abolished, which ones are superseded, and so on. We can return to that issue when we get to the appropriate amendments. But, as far as these amendments are concerned, it would clarify the position if we were to accept them. I beg to move.

[The sitting way suspended for a Division in the House from 4.21 to 4.31 p.m.]

Earl Russell

The amendment raises a couple of issues that we shall have to look at at some stage of the progress of the Bill, and this seems as appropriate a moment as any. Both of them were discussed to some extent in the Commons, but neither was brought to the point of resolution.

We have here two different approaches to the giving of money, one under tax and the other under social security. There are a whole collection of minor legal differences, some of which are capable of being of very practical importance. One of them is the definition of the household, which is rapidly becoming a fairly lively issue in politics these days. As the Minister knows very well, although not everybody else does, social security has from the beginning, ever since Beveridge, run on a definition of the household that relies on the couple as the common economic unit rather than on the simple fact of marriage. This has not been true of the Inland Revenue.

If I have followed proceedings in another place correctly, it appears that, because the child credit is a family benefit, it is going to be governed by the social security definition of a household unit, but the rest will be governed by the tax definition of a household unit. There is a case for unifying these definitions of the household unit.

The social security definition has worked extremely well. It is much more in line with the way the world is changing nowadays. There would be a strong case for going over to that altogether. Maybe the Minister will say that the time is not yet right for that, but times are capable of becoming rotten as well as ripe. I shall not insist on putting any dogmatic view on that before the Committee, but we ought to think about it.

The other issue that arises from these two definitions—the social security and the tax definitions— was raised by my honourable friend Mr Webb in another place. If a benefit counts as a family benefit within the meaning of EC Council Regulation 1408/71, then it gives rise to reciprocal rights in other countries under European law. If it does not, it does not. I gather that this reciprocity applies to part of the credit but not to the rest of it. That is another issue on which I would not wish to put any dogmatic view before the Committee, but on which perhaps all of us ought to think further. I would be extremely grateful for the Minister's thoughts on this question.

Baroness Hollis of Heigham

The Minister's thoughts on this question at the moment are largely theological rather than practical, just as we had a similar debate on the exact status when we were dealing with the introduction of the WFTC Bill.

I would like to make some general points about the two amendments and then to address the specific questions that have been raised. Again, as it is Committee stage, if I have overlooked anything, I am sure that noble Lords will come back to me.

These amendments concern the argument that tax credits are not properly taxed, but to a large extent should be regarded as benefits. The two noble Lords who spoke previously have approached this from two slightly different angles. The noble Lord, Lord Higgins, said that they should be benefits because he does not regard them as being genuinely offset against tax, whereas the noble Earl, Lord Russell, is more concerned with the integration of the separate assessment for taxation—the household assessment for the benefit system—and how, therefore, one integrates the two in any meaningful way. The concerns come from different heresies, if I may say so, from the Government orthodoxy.

The aim of Amendments Nos. 2, 3 and 4 is to re-cast them as benefits. The key point of the Bill, as with the original working families' tax credit legislation, is to overcome that distinction between tax and social security, benefits and tax credits, which these amendments seek to preserve as far as support for children is concerned.

At this point, perhaps I may trespass on where we may go later. One of the difficulties that divides social security from taxation, as the noble Earl, Lord Russell hinted, in practical terms is also one of the big obstacles people face when seeking to move from being out of work and then into work. That is because out-of-work benefits form one chimney of support labelled "benefits", while another chimney of benefits and tax credits is labelled "in work". The problem of porting from the one to the other, with the attendant delays and risks, mean that the perception of risk—the perception that one's housing benefit may not turn up; the perception that payments for one's children may not turn up—affects the decision to go into something fairly precarious—work—when people have been away from the labour market and now face possibly no more than modest entry wages.

We know what inhibits people from moving into work. It is the fear of insecurity of income; problems about best buy packages; worries that the job will sustain the additional costs which going to work will generate. That is why here we seek—unlike in the original WFTC Bill which tried to strengthen financial support for families—not only to add to the financial support for families, but to restructure the arrangements. Thus we are moving away from the chimneys—out-of-work benefits; in-work benefits—to a horizontal slice, in particular for child tax credit, which will integrate the out-of-work benefits one receives for children with the in-work benefits for children so that one can port them across the two, thus bridging the risk, the possibility of exclusion, the possibility of failure, involved in crossing that divide, which I know currently affects lone parents in particular.

Anything that goes to re-casting the benefit—here are benefits, here is tax expenditure—seriously subverts the philosophy of what this Bill seeks to do; namely, structurally—not only financially—to overcome the mindset that states, "This is what you get when you are out of work; this is what you get in work. There is a real problem in moving from one to the other". Structurally, that is what the Bill addresses when compared with the old Bill. It also rightly enhances support for people with children and those without children.

There are a number of reasons for what we seek to do. First is the presentational point about not stigmatising those who have to claim support for their children through a separate system because they are out of work. There are problems about moving to and from work. Many lone parents move to and from work several times during the course of the year, in particular when their children are young. They may stop work over the holidays. We do not want them to have to approach two different departments every time. We also want to ensure that those on the lowest incomes will gain a level of support, and we are doing that.

All these "peaches" of the new system have been widely welcomed by the relevant pressure groups. I am not aware that any of those groups which respond to the needs of families and children have asked us to revert back to what I have termed the "chimney" attitude towards benefits, as opposed to this portable development of a citizen's income for children.

I turn now to Amendment No. 5, and also to the point about streamlining our new system. We are introducing two tax credits to replace the six existing and often overlapping strands of support listed in subsection (3), which we shall discuss later.

Amendment No. 5 would replace "both" with "all". That shows that the line of argument being advanced by the noble Lord, Lord Higgins, would add to the complexity of the current systems. It would create confusion for the sake of what I think is a debating point.

That is our philosophy. We want to make a structure as well as a method of financial support that delivers to the people for whom the move into work, staying in work or changing in work can be precarious. We believe that the Bill achieves that.

The noble Lord, Lord Higgins, asked me a set of particular questions. I shall give him the information I have and he can come back to me if he thinks I have not addressed all his points. I am not sure that he asked me about the number of people affected, but I shall give him the information anyway. We expect approximately 6 million families to be eligible for the new tax credits. I should like to bank that information now, because we may wish to come back to it on other amendments. My understanding is that 1.7 million of those families pay neither tax nor NICs, mainly because they are on IS and JSA. Just under a further million—900,000—will receive more tax credits than they will pay in tax or NICs. More than two fifths will be receiving more money out through NTCs than they pay through tax or NICs. Those are the statistics on beneficiaries.

The latest estimates arc that around 10 to 11 per cent of the new tax credits will score as negative taxes in 2004–05 and later years, and 89 to 90 per cent will score as public expenditure. The proportions will be slightly different in 2003–04 at about 13.5 and 86.5 per cent respectively, partly because of the way in which the transitional arrangements will work.

Finally, I am sure that the accountancy point will come up in later amendments but I shall try to hank some more information. On 20th February 2002, the Office for National Statistics announced that the working and child tax credits would be classified in the national accounts as negative taxation to the extent that credits are less than or equal to the tax liability of the household, and as public expenditure where credits exceed the liability. That decision is consistent with OECD guidance, which has recently been reviewed following extensive consultation, including with the UK.

However, in contrast to the ONS, the OECD will also be applying the same classification rules to WFTC and other current tax credits giving more consistency. I understand that the OECD's position is likely to be adopted by other international bodies.

I hope that I have addressed the points raised by the noble Lord, Lord Higgins. If I have not done so, I shall do my best to come back on them. If I still cannot answer to his satisfaction, I shall of course write to him.

I do not know whether the noble Earl, Lord Russell, believes I have addressed his point, but, by going on into blue sky as to what we are trying to do with the structure, I recognise the real problems that arise in trying to integrate the theological basis of our independent taxation system with the household basis used for social security. He will recognise some of the problems that are generated as a result. I hope that, with that explanation, the noble Lord, Lord Higgins, will feel able to withdraw his amendment.

4.45 p.m.

Lord Higgins

First, I thank the Minister for that reply. We shall give careful consideration to the point about the vertical as against the horizontal philosophy behind the tax, which she has put forward so clearly. Some further thought will be needed.

On the basis of the figures that the Minister has given roughly 90 per cent will not be deducted against tax and only 10 per cent will be, yet this is called a Tax Credits Bill. That seems wholly disproportionate. Ninety per cent of the amount is expenditure. The 10 per cent that is deducted against tax conceals the reality of how much the Government are spending on social security, with the result that the figures for increases in social security compared with, say, education or health are confused. This confusion would seem to affect not only the public. Part of the effect of this Bill is that it is yet another takeover bid by the Treasury—that cannot seriously be denied—and the role of the Department for Work and Pensions is steadily diminishing.

When we come to the public expenditure review, I am not clear whether the only part debated in that review is the 90 per cent and the department somehow gets away with the other 10 per cent, particularly in relation to negotiations with other departments, and has an advantage that they do not have. To the extent that the Chancellor himself is involved in this anyway, one must suspect that the allocation of resources may get somewhat distorted as a result of this.

It is not at all clear, therefore, that this is other than smoke and mirrors to a large extent. The terminology is undoubtedly confusing. As I understand it, 90 per cent of it is not a tax credit but a benefit payment, and that is how it ought to be described.

Baroness Hollis of Heigham

We can debate this endlessly. My view is that we are seeking behind this to do two things—that is, to address family poverty and to encourage people into the labour market if they currently are not. These two matters go together. We know that those who are poor are those who, very often, are lone parents or have a disability, who are out of the labour market and who, as a result, remain and linger on benefits. We also know that one of the difficulties for people going into work, particularly

Women—and some men—with relatively low intellectual capital is that entry wages going into work are something like 40 per cent of the median wages. Thus, there is a real "best buy" problem, particularly when you take into account things like childcare.

We want to support the move into work and to sustain those who are in low paid work through a form of tax credit. As the noble Lord will know, wages do not reflect family size and family need. The tax credits can pick up that strain and make it possible.

It is also the case that not only does tax credit have less of the hinterland of social security behind it, and is therefore more likely to encourage people to draw on those benefits in work, but people's individual circumstances may change quite frequently over time, both into work and out of work if you are a lone parent with young children, and also in terms of extending your hours or reducing your hours. For example, a couple may have only very modest entitlement, but if the relationship breaks up both parties, for whatever reason, may come on to it.

Given that, we want one consistent system that is transparent, that is portable from out of work into work, that encourages people to draw on it and that, as a result, will meet our dual objectives of addressing family poverty and supporting people in work. Trying to turn the nomenclature back to before the days of 1998 is not particularly helpful or useful. If I have addressed the substantive points about percentages and money and so on to the noble Lord's satisfaction, I hope that he will feel able to withdraw his amendment.

Lord Freeman

Before my noble friend addresses the points raised by the Minister, does the Minister agree that, although the Government will clearly know how much has been claimed under the tax credits for a particular financial year, the Inland Revenue will not know how much to apportion to negative tax? We will not know the amount of tax assessed to households for perhaps up to nine to 10 months after the end of the tax year. Does the Minister therefore accept that sampling and estimates will have to be made and corrected in future years in order to meet the OECD guidelines?

Lord Higgins

I shall make one further comment and then I shall not continue on the amendment. I have some difficulty in following the Minister's argument. She says that the crucial things are reducing family poverty and encouraging people into work—both of which we are all in favour of. However, it is not clear to me in the least why calling it a tax credit rather than a benefit achieves either of these objectives.

She also seemed to imply that, if it is a benefit, there is a degree of stigma attached to it and that we should not become involved with the Department for Work and Pensions; rather we should become involved with the Treasury, whom we all love.

Baroness Hollis of Heigham

I choose my words carefully and I did not use the word stigma—I do not think my Secretary of State would tolerate my suggesting that any such item could be associated with the Department for Work and Pensions.

Lord Higgins

That is why I cannot follow the noble Baroness's argument. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 3 to 5 not moved.]

Lord Higgins

moved Amendment No. 6: Page 1, line 11, leave out paragraph (a). The noble Lord said: I beg to move Amendment No. 6 tabled in my name and that of my noble friend. This is the first of a series of amendments dealing with deleting the various subsections of Clause 1. It suggests that we should leave out Clause 1(3)(a), which reads as follows: The following (which are superseded by tax credits) are abolished— (a) children's tax credit under 257AA of the Income and Corporation Taxes Act 1988". The first point I wish to make relates to all the following amendments in the series and concerns the use of the word "superseded". It is not clear whether this is purely a terminological expression or whether it means that, for example, the children's tax credit will be superseded by the child tax credit. If that is the case, then a crucial question arises as regards whether the actual benefit changes, or whether we are purely changing the name here. If the benefit does change, as well as the change in name, then will those who are at present receiving children's tax credit gain or lose as a result of the rather odd expression "superseded" or perhaps "supercession" of this particular children's tax credit, to be replaced by a child tax credit?

What is the present position with regard to the children's tax credit; that is, that which is to be superseded? We come now to the well-known problem so far as take-up is concerned. It was pointed out a few days ago by my opposite number in the other place, Mr David Willetts, that there has been a serious problem in the take-up of the children's tax credit. As a result of that, the Treasury has probably not spent—

Baroness Hollis of Heigham

Did the noble Lord mean the children's tax credit? Does he mean that particular credit as opposed to any of the other ones? Could I ask him to check on that point?

Lord Higgins

It would not be surprising if I am confused. If I am confused, then everyone except for the noble Baroness will be confused. That is a rather immodest remark but, at all events, I may well have got it wrong.

What I seek to make clear is, so far as the children's tax credit is concerned, to what extent has there been take-up, and to what extent has the department underspent? Turning to the other side of the coin, to what extent does the noble Baroness think that take-up will improve as a result of ceasing to call it the "children's tax credit" under Section 257AA and instead calling it a child tax credit? This highlights the extraordinary way in which these terms are bandied around, are created and abolished at will, so leading to general confusion. It is hard to know what the public will make of it. One cannot help but feel that this way of expressing changes is not ideal.

We hope that the Minister will clarify in particular what is meant by the expression "supercession" and whether there is also a change in coverage. To what extent does the Minister think we will derive any benefit from this remarkable change? It seems extraordinary that the Chancellor of the Exchequer is constantly changing these terms, with the result that there is considerable confusion. I hope that at least the Minister can explain the reason for the change and explain the particular points that I have raised. I beg to move.

Lord Newby

When I read the first page of the Bill I was rather pleased to see the phrase, which are superseded by tax credits I thought that was a helpful explanation by the parliamentary draftsmen so that somebody who was coming to it afresh would understand what on earth the Bill was about. It is very complicated. I have heard that the aim of the new form of drafting by parliamentary counsel is to clarify and simplify matters. I thought this was a classic example of parliamentary counsel guiding a new reader through the beginning and early stages of the Bill so that they could see that these credits had a lineage. Perhaps the noble Baroness can enlighten me if I am wrong, but I thought there was nothing more sinister in it than that.

Baroness Hollis of Heigham

I am grateful for the support I have just been given, and I am delighted that parliamentary counsel has been the recipient of so much praise this afternoon, under the circumstances.

We had a general debate about what we are seeking to do on Second Reading, so I shall deal specifically with the amendment. The children's tax credit was introduced by the Finance Act 1999 and was expected to benefit 4.6 million families. It replaced the married couple's allowance for couples aged under 65 with an income tax relief targeted on families with children. Alongside increases in child benefit and in income support child premiums, it redirected resources towards families with children. As a result, it is worth more than twice as much as the married couple's allowance that it replaced—more than £;10 a week more this year. The children's tax credit is gradually withdrawn from families containing a higher rate taxpayer and in such families must be claimed by the higher income partner in a couple.

As an income tax relief, however, the children's tax credit could only provide support to families that included a taxpayer. Its value for taxpayers on the lowest incomes was restricted by their tax liabilities. In a couple, because of the link to paying tax, it is more likely to be claimed by the man. The withdrawal of the credit for higher rate taxpayers is based on the income of the higher earning partner, working with the grain of independent taxation. One effect of this has been that families on the same joint incomes have been entitled to different amounts of children's tax credit depending on the distribution of income between the partners.

Those points are addressed in the design of the child tax credit, which can be claimed by taxpayers and non-taxpayers alike. It is paid direct to the main carer for children and is based on family income in all cases. Under the child tax credit, a couple with an income of £40,000, however it is split between the partners, will receive that £545 a year. For a single-earner couple on that level of income, that represents £320 a year more than they would have received from children's tax credit. To answer the noble Lord, Lord Higgins directly, this tax credit changes the structure to that degree.

The noble Lord asked about problems of take-up. I am not aware of problems of take-up with children's tax credit, which is the one he was referring to—that is why I queried him. I suspect that he and his noble friend may have been probing the wider issue of WFTC take-up. My information is that at April last year, children's tax credit was worth up to £10.17 and went to 4.6 million people. The Inland Revenue invited claims from taxpayers and received 3.7 million forms. Three million of those have already had their PAYE codes adjusted. That is why I have no reason to believe there is a problem here. If, on reflection, the noble Lord thinks he may be referring to WFTC take-up, of course I am happy to explore that. With those remarks, I hope that the noble Lord will feel able to withdraw the amendment.

5 p.m.

Lord Higgins

We are grateful to the noble Baroness for that statement of the Government's intentions. I understand from what she said that there are a number of people who lose and a number who gain. We will turn later, of course, to the issue of paper and so on. To what extent does the change from the children's tax credit to the child tax credit alter the papers? Does it alter them significantly? Furthermore, is it now the case that whereas before part of the benefit was claimed against the single person's income, all of it will now be related to the income of both parents—assuming that there are two of them?

Baroness Hollis of Heigham

On the second point, yes. On the first, what the children's tax credit becomes is the family element in the new tax credit scheme, which tapers out at the £50,000 to £58,000 figure on just under a 7 per cent taper. We explored taper rates at Second Reading and we can come back to it. But the noble Lord is correct.

Also, I apologise to the noble Lord that I overlooked his push on me on the word "superseded", which I should perhaps put in as it was of concern to him.

Clause 1 is an introductory clause which encapsulates what the Bill is about. It declares that new tax credits are to be created and sets out what they replace. Technically the repeal of existing systems is effected in Schedule 6 and in the relevant secondary legislation, so no technical weight is attached to the term "superseded". As the Liberal Democrats indicated, it is a helpful description by parliamentary counsel as to the intent of the Bill. We are not amending an existing Tax Credits Bill; we are replacing the original Bill with a new one.

Lord Higgins

I am again grateful for that further explanation. I am right, therefore, that the expression "superseded" does not simply mean that there is a change in terminology but also that there are significant changes in the actual benefits which individuals will receive. I note that the Minister indicates assent. Again, we shall study carefully what the Minister says and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins

moved Amendment No. 7: Page 1, line 13, leave out paragraph (b). The noble Lord said: Amendment No. 7 is somewhat similar to the previous amendment and we have clarified a number of points in relation to it. The question is whether or not one should clarify the position with regard to the working families' tax credit.

It seems quite extraordinary after five years or so of this Labour Government that we constantly have these changes. I suggest that the Chancellor suffers from rather severe myopia; that is to say, we spent many hours going through the original working families' tax credit legislation, seeking to improve it, at which stage we had assumed that it would be relatively permanent. In reality, as has been pointed out by my noble friend Lord Saatchi, the life expectancy of any of the Chancellor's tax credits is about six months.

Yet again, the working families' tax credit is to be superseded—or, more accurately, abolished in this case—and in place of it we shall get the working tax credit; another change in terminology. It is not clear why the original aspect of it could not be retained, except that the word "families" is now deleted. It seems extraordinary, however, that we should have a situation where these constant changes are made and the Committee is burdened with tackling legislation which is then effectively replaced by further legislation. Perhaps the noble Baroness can tell us exactly the reason for this change and, apart from the change in terminology, what we will gain from it and the extent to which any individual may gain. I beg to move.

Earl Russell

We spend half our time in Opposition criticising government for being inflexible. We spend the other half criticising government for changing their mind. We cannot have it both ways. The Minister is attempting a pretty far-reaching change in the way we look at the whole question of social security, taxation and support. I am entirely in sympathy with the philosophy of the attempt, but it will take a good many tries to get it right.

A case could be argued—there are one or two examples recorded in the Commons committee proceedings where this is made clear—for saying that it could possibly have been done a little more slowly so that some of the questions could have been thought out a little more before the Bill was tabled. However, for a Minister to change his mind in the face of new information cannot be regarded as a crime. I cannot help but sympathise with Keynes when he said: When the facts change, I change my mind, what do you do …?".

Baroness Hollis of Heigham

Keynes also said: Look after unemployment and the Budget will look after itself". I think that we are reaping those rewards in the current state of the economy.

I can respond to the noble Lord, Lord Higgins, in a somewhat mechanical sense by saying this takes out the word "family". Under the existing system, working families' tax credit applies to the set of benefits available to people in work. In future, the working tax credit will be the benefit that adults attract when they are in work, whether or not they have children. That will be independent of child tax credit which will apply from being out of work and then into work. That is the technical reason why we are changing the terminology. We are deconstructing the original "chimney" and approaching this horizontally. Thus working tax credit will apply to the adult element.

I could go beyond those words and give the noble Lord a fuller answer. However, given the general support for the principle expressed by the noble Earl, Lord Russell, and the noble Lord, Lord Newby, I wonder if the noble Lord, Lord Higgins, needs me to go further.

Lord Higgins

Some time after the two quotations referred to by the noble Earl and the noble Baroness were made, someone else said: We are all Keynesians now". Whether that is true of the Government, I am still not entirely clear. The Minister has explained that.

What I am not clear about is why the Chancellor thought vertically at the time of the working tax credit. but now suddenly thinks horizontally. He might have considered that possibility in the first place. However, again I thank the Minister for her explanation and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins

moved Amendment No. 8: Page 1, line 14, leave out paragraph (c). The noble Lord said: The amendment, standing in my name and that of my noble friend, concerns the disabled person's tax credit. The noble Baroness has kindly provided a great deal of information behind the scenes on various aspects of the Bill. On Second Reading I expressed my concerns about the 16 hours requirement and entitlement to claim the working tax credit benefit. The noble Baroness very kindly sent one of the many letters she has written spelling out the matter.

However, concern has been expressed by outside bodies working with the disabled about that aspect. Of course we all wish to see the circumstances created where the disabled are facilitated in their desire to work and to benefit from them doing so. Perhaps the Minister might give the Committee a brief summary of the points set out in her letter, which I am sure will be of interest to outside bodies. I beg to move.

Baroness Hollis of Heigham

Amendment No. 8 seeks to delete the reference to disabled person's tax credit in Clause 1(3). Like working families' tax credit, the disabled person's tax credit was introduced in 1999, building on the foundations of the disability working allowance. So far as I recall, I believe that DWA had in the region of 16,000 claimants. The disabled person's tax credit now reaches over 32,000 claimants with an average award of £77 a week.

The reason behind these proposals is to integrate disabled people into the labour market. We believe this will be welcome to them. Support for workers with disabilities will be provided through the working tax credit framework rather than through a tax credit that focuses on a disability. This may sound rather sentimental, but it is important that we talk about abilities rather than disabilities as far as possible. However, disabled people will have access to additional elements in WTC to provide them with appropriate levels of support.

Secondly, under the working tax credit, where there are two disabled workers in a couple, two disability elements will be payable and there will no longer be a lower withdrawal threshold for individual disabled workers. Another important improvement from which disabled people will benefit more than many is that they will no longer be hit by the capital rule when there has been a settlement by virtue of an injury, because only notional income will be taken into account.

As I have said, the rates will go up. At the moment, a single disabled worker will have access to support of £68 per week. From April 2003, they will have around £5 more than under DPTC. The minimum income for such a worker on 35 hours a week will be 194 a week, compared with £172 this April. For someone working 16 hours, the minimum income rises to £135 from £127 now.

One further welcome advantage, which I hope will also be welcomed by Members of the Committee, is that proposals for childcare, in particular home childcare, should also be particularly beneficial to disabled people. The noble Lord, Lord Rix, welcomed that on Second Reading. He also asked about the 16-hours rule, as has the noble Lord, Lord Higgins, this afternoon. I reaffirm my response on Second Reading that there is no proposal to move from 16 hours being recognised as the appropriate demarcation of someone being in the labour market. At less than that, people tend to be supported through their benefits with disregards—for example, a lone parent may be on income support and work up to a disregard of £20 and only when she works 16 hours a week does she enter the territory of a work-supported benefit as opposed to an out-of-work supported benefit, as in the past.

The question is whether the 16 hours is about right. It is equivalent to about two days' full-time work. I also suggested to the noble Lord, Lord Rix, that it was not particularly helpful to suggest that disabled people should have a lower number of hours before they could claim the new working tax credit. Instead, it seemed to me that the permitted work rules—and, above all, the permitted supported work rules—would be particularly beneficial to disabled people in that situation.

On Second Reading, the noble Lord, Lord Rix talked about people with learning disabilities, who are likely to be in a supported work environment. Under the permitted work rule they can work and receive £66 per week in addition to their benefit indefinitely. We think that those needs can be met in a more appropriate and focused way by keeping the 16-hour rule but allowing people below that on 113 or S DA to have the £66 per week for 26 weeks if they are in permitted work, and indefinitely if they are in permitted supported work, which is likely to be run by a voluntary organisation or a public body.

I have taken rather more time to respond on this occasion, but it was important to put on the record that this may be a more appropriate and helpful way forward. With that, I hope the noble Lord will withdraw his amendment.

Lord Higgins

That was an extremely helpful explanation. I am sure that those outside concerned with the problems of the disabled will be extremely interested in what the Minister has said. I therefore thank the Minister very much indeed and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 9 not moved.]

Lord Higgins

moved Amendment No. 10: Page 1, line 20, leave out paragraph (e). The noble Lord said: Amendment No. 10 in this series of amendments is concerned with paragraph (e) which states: increases in benefits in respect of children under sections 80 and 90 of the Social Security Contributions and Benefits Act 1992 (c.4) and sections 80 and 90 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c.7)". It is proposed by the Government that those benefits should be superseded and incorporated—that is perhaps the most accurate way of putting it—into the child tax credit.

Again, I have to ask the Minister whether that involves any specific change in the allowances, rather than just a change in terminology. We also have to consider the position with regard to child benefit, which the Prime Minister recently suggested—the subject of some controversy—might be reduced as some form of penalty. I sought to clarify the position on that by way of a Parliamentary Question. I asked the Minister to what extent any reduction in child benefit would result in the benefits which we are now discussing being increased, for example, so that the effect was totally nullified.

Perhaps the Minister could tell us in regard to the benefits which are dealt with in paragraph (e), or the new benefits which are dealt with under the new title of "child tax credit", whether, if the Government have decided that they ought to penalise people having child benefit for this or that social reason, it would in fact result in both the present benefit or the replacement benefit being increased so that the effect was largely nullified. I beg to move.

5.15 p.m.

Baroness Hollis of Heigham

The noble Lord, Lord Higgins, pressed me on two points. The first was on child benefits and sanctions, and the second was whether it was simply an alteration by name or whether there was any substantive change in the structure of CDIs.

On job benefit and sanctions, it is the case at the moment that if one is on income support or JSA, one's child benefit counts as income and therefore has an effect on the level of income support and JSA which one currently receives. Clearly, in any proposals to connect payment of child benefit with any sanctioning of behaviour, those arrangements could be adjusted accordingly. I hope that answers the noble Lord's question.

CDIs are the child dependency increases which go with current national insurance benefits like incapacity benefit, such that they receive those benefits almost as an alternative to being topped up by income support benefits for their children.

I burned the midnight oil on this about a year ago to get my head around its implications. Ultimately, it did not seem sensible to continue to keep child dependency increases for those social security benefits of which the major one is incapacity benefit, for two main reasons. The first, and the main one, is that if we are trying to simplify the system so that all child support is based on one benefit—child tax credit—it is foolish to have some other benefit like incapacity benefit retaining its own provision for children. Therefore, in the name of simplicity, it is right to take that out.

Secondly, it is also the case that over the last few years the level of CDIs have effectively been frozen because of the growth in child benefit, which has offset them. In any case they were diminishing in value. I can assure the noble Lord, Lord Higgins, that at the moment, there are around 250,000 families in receipt of one of those child dependency increases. They will be protected. What we are saying is that, in future, new claimants to that benefit will have their support for children carried through the new tax credits.

I hope that noble Lords are reassured that the existing CDIs will begin to wither on the vine; that in any case and for the sake of simplicity we believe that all child support should be carried with the children's tax credit, but that existing recipients of those CDIs will have their position protected. I hope that, with that explanation, the noble Lord will feel able to withdraw his amendment.

Lord Higgins

That certainly was an interesting reply in two respects. What the Minister describes as CDIs, which I presume are the benefits covered by subsection (e), will continue for existing beneficiaries, but new beneficiaries will come under the child tax credit system. I hope that I have understood that correctly.

I am not entirely clear whether that means any of those beneficiaries will now receive less than they would otherwise have received. Clearly the people—I was going to say "grandfather", which would really confuse the issue—who are already in receipt of the benefits covered by subsection (e) will continue to do so and will not lose out. However, I am not entirely clear whether new claimants who would have received those benefits, and who will now receive child tax credit, will get the same amount as those who are already in receipt of it.

The other part of the answer from the noble Baroness was extremely interesting. The Prime Minister proposes that one should use a reduction in child benefit on families who are behaving in a manner of which he does not approve. I have pointed out—the noble Baroness has confirmed it—that that would not be effective because they would simply receive other benefits instead.

Baroness Hollis of Heigham

I did not say that. I said that were the Government, after reviewing these proposals, to proceed with them, they would have the option of ensuring that, as a result, other benefits would not compensate. I say simply that that would be an option were Government to pursue those proposals.

Lord Higgins

What the noble Baroness has said is that unless the proposal is to be totally ineffective, what they will do is not merely clobber child benefit, but other benefits as well. That is an aspect of the Prime Minister's proposal which perhaps had not previously emerged.

Baroness Hollis of Heigham

Perhaps the noble Lord could repeat that. I become nervous when the noble Lord starts attributing views to the Prime Minister via myself. I would be very grateful if he would say those words again.

Lord Higgins

The Prime Minister made a proposal that, in certain circumstances, child benefit should be withdrawn from families because the family concerned was performing in a way which, for various reasons, he felt was wrong. The point I sought to make earlier was that apparently this would be ineffective. If he were to do that, then all that would happen would be—this was confirmed by the noble Baroness's Parliamentary Answer—that in effect such families would receive other benefits instead.

Baroness Hollis of Heigham

I wonder whether—

Lord Higgins

Perhaps I may finish and then the noble Baroness can respond. That is what I understood her to say. The noble Baroness went on to point out that if that were to happen, then one might need to make adjustments to other benefits. Thus if this proposal were to go ahead, and apparently the Prime Minister is persisting with it, we would find either that it would not be effective—because the other benefits would not he reduced—or it would he made effective by clobbering not simply child benefit, but any other benefits which might replace it.

Baroness Hollis of Heigham

That happens at the moment. It is a little hard for me to say that this is "wide of the Order Paper" when earlier we were talking about Keynes. However, child benefit will not be taken into account as income for child tax credit. The amount of child benefit as payment is therefore not in fact relevant to child tax credit.

Having said that, it remains the case that, at present, if one is on income support or JSA, child benefit is counted as income, which is therefore taken into account when determining the level of IS or JSA. We have established that. One of the highly desirable features of moving on to child tax credit is that we will not have such incidents of netting-off taking place as they did in the past. What I made clear is that, if on reflection the Government decide to go ahead with these proposals, then they would have the option of ensuring that they were effective by taking into account child benefit as income, and therefore not simply compensating for it with an uplift in other forms of benefit. That should not surprise the noble Lord. Were these proposals to be pursued, I do not doubt that this would be one of the considerations informing further reflection.

Lord Higgins

It is certainly a point that we would wish to return to at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 11 not moved.]

Clause 1 agreed to.

Clause 2 [Functions of Board]:

Lord Saatchi

moved Amendment No. 12: Page 2, line 8, at end insert "or in cases where an individual is not paying tax, the Department of Work and Pensions The noble Lord said: As this is the first lime l have spoken, I should like to draw the Committee's attention to the declaration of interest that. I made at Second Reading. I thank the Minister for her gracious apology at the start of our proceedings today and for her entire attitude towards the problems that arose as a result of what she described.

So far as we are concerned, the Bill has a fine, worthy aim—that is, to help to boost the income of people in low paid jobs—and we support that. I hope that it will be recalled later that the amendments moved by my noble friends Lord Higgins and Lord Northesk and myself, and all the amendments moved from our Benches, were brought forward in a spirit of our working to assist the Government to make the Bill as effective and as workable as possible.

Having said that, Amendment No. 12 relates to the wider issue that we discussed earlier and to which we will return at several stages during the Committee stage of the Bill—that is, the question of whether tax credits will be paid to people who do not pay tax. The Minister will recall my second question in a letter I wrote to her on 23rd April. I asked how much of the total cost of the Bill will be paid to those who do not pay tax—that is, those who will he receiving credits as benefit? Unfortunately, although I have received a reply from the Minister, that point was not dealt with. I should be grateful if she can say what is the answer to that question.

The question seeks figures—how much of the total cost of the Bill will be paid to those who do not pay tax—and in order to answer it the Minister will have to say what is the total cost to the Exchequer of all tax credits; what will be the cost of these particular tax credits; and, of those amounts, how much will be paid to people who do not pay tax—that is, to people who receive credits as benefit.

Having said that, and given that the reply to my letter did not deal with that point, perhaps I may pursue the amendment, the purpose of which is to suggest that where an individual is paying tax the Inland Revenue should deal with that person via the tax credit procedure set out in the Bill; but where an individual is a non-taxpayer, he or she should deal with the Department for Work and Pensions.

Having brought forward the amendment, I can immediately see many problems with it. But it does touch on a central aspect of the Bill—my noble friend Lord Higgins has referred to it and we will certainly be returning to it—that is, the question of tax credits being paid to people who do not pay tax. I should be grateful for the Minister's view of a situation where individuals who are not working, either through choice or otherwise, and are therefore paying no money to the Inland Revenue, will nevertheless be receiving money from the Inland Revenue. I beg to move.

5.30 p.m.

Lord Newby

There is a certain logic in what the noble Lord, Lord Saatchi says, in that when somebody receives tax credit, it should be dealt with by the Inland Revenue and when he receives a benefit, it is not. He possibly underestimates the extent to which people are not, for long periods, in one category or another. During the course of the year, many people will be in work for some of the time and out of work for other periods. My own experience of dealing with the Inland Revenue is that it is difficult enough to establish an understanding of one set of rules and one department. For people on low incomes—shuttling in and out of work, sometimes having jobs for very short periods and then, for family or other reasons, not being able to continue with them—there may be an accurate question as to whether the Inland Revenue is the right department, but it must make sense for one department to be responsible for a particular benefit rather than two.

Baroness Hollis of Heigham

I entirely share that view. The noble Lord has essentially returned to the points made by his noble friend about the nature of tax credits and whether it is right for them to be the vehicle for providing support to those outside the traditional tax system. The noble Lord is absolutely right that there is considerable mobility between those in and out of work, particularly for the families who are going to be enjoying this support. We are talking about people who are probably in the next to bottom quintile of the income range—those in the bottom quintile are likely to be on benefit. These are people whose work is precarious, who very often find their hours reduced, who may well find themselves made redundant and whose partner may or may not be able to go to work as a result. They are families who move in and out of work and need to deal as far as possible with one system. It will be handled by the Inland Revenue. Clearly, anyone who is currently on IS or JSA will be able to get access to this information through Job Centre Plus, so an integrated service is being provided.

The proposition lying behind the argument of the noble Lord, Lord Saatchi, would bifurcate—cut right through the middle of—our overriding aim of integrating out-of-work and in-work support and thus dealing with both family poverty and the move into the labour market.

Clause 2(1) brings tax credits under the care and management of the board. This means that the board will be able to appoint people to administer tax credits and will be responsible for accounting for them. It derives from the Inland Revenue Regulation Act 1890. The concept of care and management cannot be applied to the Department for Work and Pensions because it does not have a parliamentary remit, so the amendment is technically flawed, although that should not perturb us particularly, as it is a probing amendment.

The more fundamental point is that the amendment would cut across our aim of achieving a single framework of support. The majority of those who will be eligible for tax credits will already be customers of the Inland Revenue, because they receive WFTC, DPC, DPTC or children's tax credit or are taxpayers. They are already relating to the Inland Revenue as they receive this through their wage packets. In the new system, the same framework will also apply to families with children in which the adults are out of work or do not currently qualify for income-based support. Those are the key features of the new system, which seems to have been widely welcomed.

I could go into technical detail about the board and so on, but we are going back to the bigger issue behind the Bill: whether we should try to separate out support for those in work and support for those not in work, with one being dealt with by the Inland Revenue and the other by DWP. The whole point of the Bill is to bridge that divide, which can impede people trying to make rather a risky journey from being out of work to being in work. I hope that with that explanation the noble Lord will not seek to pursue his amendment. I am happy to try to give him more technical information about the specific responsibilities of the Board of Inland Revenue, but he was probably after the bigger point.

The noble Lord also raised a point about numbers. I am sorry if I did not reply as fully as he would have liked to his letter. In a sense, I thought that I had given some of the statistics to his noble friend. About 10 to 11 per cent of the money going on the new tax credits will score as negative tax. I gave those figures on an earlier amendment. The rest of it will therefore be scored as public expenditure, out of a total cost of nearly £15 billion for CTC and WTC put together. I thought that I had answered that point in my reply earlier when I suggested that we bank those statistics, but if I am able to help the noble Lord any further, I shall certainly do my best.

Lord Saatchi

As much as anything else, I was seeking information with this amendment and I am grateful to the Minister for what she has said. Did I correctly hear her say that the total cost of tax credits was £15 billion?

Baroness Hollis of Heigham

The total cost of family support through the CTC and WTC together is nearly £15 billion. The additional support over and beyond the current system is about £2.7 billion.

Lord Saatchi

I am grateful to the Minister for that reply. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Lord Burnham)

Before I call Amendment No. 13, I have to tell your Lordships that if it is agreed, I cannot call Amendment No. 14.

Lord Higgins

moved Amendment No. 13: Page 2, line 9, leave out subsection (2). The noble Lord said: I shall speak also to Amendment No. 14. I understand very well the issue of pre-emption that has just been explained. Amendment No. 13 would delete the whole subsection. The argument is to some extent focused by the reference to "gross" in Amendment No. 14.

We are somewhat puzzled by this provision, which seems to us to be potentially open to dispute. It suggests that the section of the Exchequer and Audit Departments Act 1866, which refers to gross revenues being paid into the Exchequer, is suddenly, after a century and a half, to be construed as allowing the Board to deduct payments for or in respect of tax credits before causing the gross revenues of their department to be paid to the account mentioned in that section". The Act seems to have survived pretty well without this provision for 150 years or so. If I understand it correctly, it enables the Treasury to pay into the Exchequer less than the amount that it would pay under the provisions of the 1866 Act. I am particularly puzzled by the words, "before causing the gross revenues of their department to be paid". I would have thought that, if you deduct payments for and in respect of tax credits, the amount you are paying in is not the gross amount but the net amount. I simply do not understand why the term "gross amount" is used in this context. I beg to move.

Earl Russell

Is that provision of the Bill simply the reverse of what was normal practice in the Exchequer before 1640? It had both advantages and disadvantages, but usually the advantages outweighed the disadvantages.

Baroness Hollis of Heigham

I was promptly provided with a page or two of the 1866 Act to see whether the noble Lord and I would have a debate about how we construed it, but we would certainly have to ask the noble Earl, Lord Russell, to umpire.

I believe it is fairly straightforward. Amendment No. 14 would change the reference to accounting for gross revenues under Section 10 of the 1866 Act to a reference to "net revenues". It is simply drafting. The reference to "gross revenues" is necessary to bring tax credits into the ambit of that legislation, under which the Inland Revenue and Customs and Excise account for the money they have collected. We cannot refer back to the Act of 1866. While it is true to say that the receipts paid to the Exchequer by the board will be net of tax credits—that being the point of subsection (2). The use of the term "gross revenues" is a drafting device to ensure that the cross-reference to Section 10 of the Exchequer and Audit Departments Act 1866 works. A reference to net revenues would be meaningless in this context because there is no such reference in Section 10 of the 1866 Act to which a drafting device could link. With that explanation, I hope that the noble Lord will be able to withdraw his amendment.

Lord Higgins

While we have the greatest respect for the draftsmen—qualified a little on our earlier proceedings—I see the point made by the noble Baroness. Having said that, however, surely it would be possible to devise some other form of words which would amend the 1866 Act. Perhaps it would be better to amend it rather than simply to say it should be construed. It could be amended in a way which would enable the board to deduct the payments for the tax credits. However, if the tax credits arc to be deducted, then the amount which will be paid in is a net amount and not a gross amount.

I take the point on drafting made by the noble Baroness, but I say simply that it is not an accurate way of drafting this. The 1866 Act should be amended rather than construed. Then the amount that will be paid in will be a net amount and not a gross amount. I can see that there may be some problem because it may be that other departments are paying in gross amounts, but the reality is that this department will not be paying in a gross amount. It will be paying a net amount after the deduction of the tax credit, as is made perfectly clear in the clause.

Baroness Hollis of Heigham

If the noble Lord is making a point about the drafting, I am sure he is correct and I would be happy to follow up the point by writing to him about the implications of seeking to do as he suggests; that is, retrospectively to amend or consolidate—I do not know what would be required here—the wording in the 1866 Act.

However, a different point can be made here which concerns whether people know what is happening by the use of this phraseology, as opposed to why it is being deployed. That point concerns transparency and accountability to Parliament. I believe that Clause 2(5) should address any of the noble Lord's concerns on that. It requires the Inland Revenue to set our accounts for tax credits, distinguishing the amounts for each tax credit. That is a more rigorous procedure than that undertaken in respect of voted money.

I can develop that argument hut, if the noble Lord is concerned that we are concealing what is happening, then that is not true. If he acknowledges, however, that we need this as a drafting device but wonders whether there is some other way of approaching it, I would be perfectly happy to follow that up in writing.

Lord Northbrook

I support my noble friend Lord Higgins on this amendment. So far as I can see, to the layman, regardless of the 1866 Act, they are net revenues.

Lord Higgins

Perhaps the Minister would write to me and then, if need be, we could return to the matter on Report. In the interests of transparency as well as of drafting, there is a case for making some kind of change to this clause. However, I take the point made by the Minister in relation to subsection (5), which may result in the matter being made more transparent. Whether that would be consistent with Section 2 is a matter to which we will need to give some thought, but we certainly should not spend more time on it now. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 14 not moved.]

5.45 p.m.

Lord Higgins

moved Amendment No. 15: Page 2, line 15, leave out "include" and insert "exclude The noble Lord said: This is a somewhat related point. The subsection states: For the purposes of the Inland Revenue Regulation Act 1890"— we are getting more up to date— the definition of 'inland revenue' in section 39 of that Act is to be taken to include tax credits. Tax credits are quite clearly not revenue. Tax credits are paid out as benefits in 90 per cent of cases, as the noble Baroness has told us. In the remaining 10 per cent of cases they are simply a deduction from tax and thus no tax will be received as a result. Whatever else may be the case, it cannot conceivably be construed as inland revenue. This ought to state that tax credits will be excluded. I beg to move.

Baroness Hollis of Heigham

Like WFTC and DPTC, the working tax credit and child tax credit are to be administered by the Inland Revenue as part of the tax system, and will therefore fall within the overall administrative responsibilities of the board of Inland Revenue. Those responsibilities are generally set out in statute, and Clause 2 ensures that the new tax credits are covered by the relevant legislation. The effect of Clause 2 is substantially the same as that of Section 5 of the Tax Credits Act 1999.

The board's powers and responsibilities are derived, in the first instance, from the Inland Revenue Regulation Act 1890, as the noble Lord, Lord Higgins said. All of those powers and responsibilities relate to "inland revenue". The provision in Clause 2(3) is therefore necessary to ensure that the 1890 Act also extends to the board's tax credit responsibilities. The effect of the amendment proposed by the noble Lord would be to prevent the board administering tax credits since they would remain outside the scope of the Inland Revenue Regulation Act. The usual statutory framework under which the board operates would not apply to tax credit; for example, the power to appoint staff or responsibility to keep accounts.

Given that, we have been debating at length the question of whether tax credits are properly to be treated as tax forgone and how they should be accounted for, but this amendment would prevent the board administering child tax credit and working tax credit at all, whether or not for those who have tax to pay. It would be far-reaching and damaging in its consequences and I hope with those remarks the noble Lord will feel able to withdraw his amendment.

Lord Higgins

If I understand the noble Baroness correctly, I have a very simple question. Why does the expression "inland revenue" not have capital letters?

Baroness Hollis of Heigham

Pass, my Lords.

Earl Russell

Is this a case for my favourite quotation from John Locke? "Printers have ways all their own, not united by the general plan which should cement mankind."

Baroness Hollis of Heigham

Whether it is printers or whether it is anything to do with what happened within parliamentary reference I do not know, but I shall come back to the noble Lord on that. I do not know the answer.

Lord Higgins

I was not making a facile point, though it may have sounded that way. If I understand her original answer correctly, the noble Baroness is saying that it is a definition of the department which enables the department to administer the tax credits. That is not at all what appears on the face of the Bill. Clause 2(3) appears to relate to what is defined as "inland revenue". If it means the Department of Inland Revenue, it ought to say so.

Baroness Hollis of Heigham

It is not a printer's mistake. I have now been given some guidance on this. The reason "inland revenue" is not in capital letters is that it is not a reference to the department, it is a reference to what the department does. In other words, the powers are exercised under the 1890 Act in connection with "inland revenue" which, for the purposes of the Act is defined in Section 39 of that Act as, the revenue of the United Kingdom collected or imposed as stamp duties, taxes ֵ and placed under the care and management of the commissioners and any part thereof". In other words, it is referring to the revenues rather than the Inland Revenue.

Lord Higgins

In that case we have gone full circle, and the business about whether it meant the department and whether that meant they were unable to deal with the matter is a total red herring. We are now back to whether or not a tax credit is revenue, and a tax credit is not revenue. It is either expenditure or it is a tax deduction, but by no conceivable meaning of the word can it be revenue.

Baroness Hollis of Heigham

I want to be helpful to the noble Lord, but I am not sure what he is concerned about. I know he disagrees about the difference between whether this is a tax credit or a benefit, given whether one is in work or out of work. I know he disagrees about whether the Department for Work and Pensions or the Inland Revenue as a result should administer it. But he seems to be seeking to retain a distinction of chimneys, thus putting wedges between those out of work from moving into work.

However, it cannot be a point about scrutiny because we can pursue that through some of the remarks I made earlier about parliamentary scrutiny. It cannot be a point about the functions of the board in terms of its powers because without such powers the hoard cannot operate as regards tax credits in terms of appointing staff and checking accounts. Ultimately, I do not understand what it is the noble Lord is asking.

Lord Northbrook

My noble friend is saying that this is not revenue but money paid out.

Baroness Hollis of Heigham

That is theological. The effect of the amendment would be that the usual statutory framework under which the board operated did not apply to tax credits and that the board's usual powers—those I have already outlined; that is, to appoint staff and to keep accounts—did not apply to tax credit. I am not sure that I can help the noble Lord any further on this.

Lord Burnham

I suggest that the Committee adjourn for the Division?

[The Sitting was suspended for a Division in the House from 5.51 to 6.3 p.m.]

Baroness Hollis of Heigham

The noble Lord, Lord Higgins, was pressing me on what "inland revenue" means. The imprecise answer is that it means whatever we care to assume it means for these purposes. Perhaps I may give him a more precise description. In the 1890 Act, "inland revenue" is a reference to the scope of the board's activities. Even then, in the 1890s, the Board of the Inland Revenue would have had to dispense payments as well as bring in revenues—for example, for the War Department and so on—if Churchill was to have fun in the Boer War.

In order to apply the statutory framework under which the board operates, we use the term "inland revenue" to cover all the board's responsibilities. It will also be extended to include child benefit under Clause 49. The board's powers and responsibilities are derived from the 1890 Act. We therefore need to ensure that it also applies to tax credits, and this provision applies it. In other words, this is a device for expenditure and income and not only the acquisition of income, if I may put it in those terms.

Child benefit, statutory maternity payments and the like are clearly patterns of expenditure but come within the framework or the phrase "inland revenue". I do not know whether that helps the noble lord and it is why I have been baffled. It is rather like a trading account and the term "inland revenue" is used to cover both aspects of it.

Lord Higgins

I am grateful for that reply. I referred yesterday to the noble Lord, Lord McIntosh when in another context I mentioned the Red Queen in Alice in Wonderland saying, Words mean what I say they mean&". I hesitate to suggest where I might have cited that quotation previously in today's proceedings, but in any case I have been told by the noble Lord, Lord McIntosh, that it was Humpty Dumpty and not the Red Queen. In essence, what the noble Baroness could say—I would not dream of calling her Humpty Dumpty, although conceivably I could call her the Red Queen—is that the expression in the subsection means what it means and what the Treasury says it means, but I am not prepared to go along with that. It would be best to sort this out between now and Report stage because it would he singularly tedious not to have it resolved before Report. However, it may be that the draftsman will produce another 35 pages which will make the matter clear. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins

moved Amendment No. 16: Page 2, line 24, at end insert "and the amounts deducted by them from inland revenue The noble Lord said: This is a related amendment and seeks to clarify the position. Earlier the noble Baroness referred me to Clause 5 in order to reassure us with regard to subsection (2). In fact, we say here that, in expressing, the amounts of the several payments made by them 4317 or in respect of tax credits", we suggest that they should also include the amounts deducted by them from inland revenue. That may be an appropriate way of ensuring that the report to the hoard is comprehensive. I beg to move.

Baroness Hollis of Heigham

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 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. 16 continues the theme of Amendment No. 15, which we have just been discussing. If we do not know whether it comes from the Red Queen or Humpty Dumpty, always trust my noble friend Lord McIntosh. He knows more quotations and their sources than anyone else—from fictive sources as opposed to non-fictive sources; I make that distinction. The amendment would prevent tax credits from falling within the definition of "inland revenue" for the purposes of the Inland Revenue Regulation Act 1890. Consistent with that, the amendment of Lord Higgins seeks to make payments of tax credits be accounted for as deductions from inland revenue. Since, however, for the reasons we have just explored, it is necessary for tax credits to fall within the definition of "inland revenue" for the purposes of the Inland Revenue Regulation Act, the board will not have made any deductions from inland revenue for which it needs to account.

Amendment No. 19 probes the requirement for the board to account for tax credits it has received. This may look odd at first sight, but it is aimed at requiring the board to account separately for recoveries of overpaid tax credit, as it does for recoveries of tax underpaid. The idea is that amounts of tax credit recovered paid out and amounts recovered should be accounted for separately in the interests of transparency. In light of that explanation, I hope that the noble Lord will warm to the provision.

Amendment No. 16 makes a point which we have covered in some detail on other amendments. It is not an amendment that could have any substantive effect and therefore I urge noble Lords to resist it.

Lord Higgins

At least the recovery of overpayments might conceivably be regarded as inland revenue, having previously been expenditure for which they did not account. I do not want to persist with this. It is related to the earlier amendment and perhaps, if the noble Baroness is writing to me, she could refer to this as well. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Saatchi

moved Amendment No. 17: Page 2, line 25, after "expenses" insert "of the Board The noble Lord said: In moving Amendment No. 17, standing in my name and that of my noble friend Lord Higgins, I shall speak also to Amendment No. 18. The Government propose to impose on employers, regardless of their size or profitability, the whole burden of administering the tax credit scheme. I believe that large companies have the machinery and the people to handle this very well and can generally look after themselves. So my remarks are directed at employers who may be small or very small businesses, sometimes just one person.

Smaller employers do not have and cannot afford the substantial departments to administer this scheme. That is why our Benches in this Chamber and, I believe, the Liberal Democrat Benches also on previous occasions, have attempted to mitigate these burdens or to seek compensation for them from the Treasury in one form or another. There have also been many attempts during the passage of the Bill in another place to attempt to reduce, mitigate or seek compensation for these burdens but the Government have remained unmoved. Therefore, we have given up on the notion that the Government might consider help for small businesses in these matters and, instead, we propose what I hope the Minister will agree is a very modest amendment indeed.

The amendment seeks only to require the Treasury, at the very minimum, to assess and to record the estimates of the amount of the cost to employers or, if the Minister prefers, the cost to small employers, of carrying out the new tasks which the Bill will require of them. Why do we ask for this? Because we believe that such a responsibility being placed on the Treasury will have the healthy effect of focusing the Treasury's attention on the issue of the cost of the Bill to small businesses.

It is not only our Benches which have raised this point. During the investigation of the new child tax credit by the Social Security Select Committee in another place, similar concerns were expressed. It was said there that businesses should not be treated as a social welfare arm of the Government, and speakers pointed to the risk of invasion of employee privacy and also to the risk of distraction from the wealth-creating activity of those small companies.

I believe it is also true that the Government's own Better Regulation Task Force recognised the regulatory burdens associated with the predecessor, working families' tax credit. In that case, in a report on payroll burdens, they said that, businesses now see themselves becoming unpaid benefit offices That report noted the particular burden for small firms, which is what I am stressing here, as a result of the working families' tax credit. I believe that that task force calculated that of the £105 million of recurring costs for all businesses on the WFTC, £25 million would fall on companies with just one to four employees.

Most of the local businesses I know employ that number of people, yet those businesses represent the bulk of employment in the economy and are the true engine of its growth. Any government which wants that growth to continue should want those companies to employ more people. Yet there are fears that the Bill, as it stands, could act as a disincentive to employing people because it invites extra cost and red tape for doing so.

Members of the Committee will forgive me if I say that, if we put unacceptable burdens on the businesses that support those people, we risk destroying the mechanism that creates those jobs. Those jobs lie at the heart of any government's ability to generate wealth which is where the resources for all our public good come from.

This is not a matter of great principle between the Opposition Benches and the Government but it is a matter of balance. Therefore I look forward to hearing that the Minister takes the point.

The contrary view would be that the Government can see the very great charm from the Treasury's point of view of' making employers free suppliers to the benefit system. The problem is that the line and worthy aim of the Bill, to which I referred earlier, of helping people move from welfare to work, will not be achieved precisely because of the burden that the Bill places on business. For example, a report entitled Work in Progress on the working families' tax credit from the National Association of Citizens Advice Bureaux found that employers have sacked workers entitled to a pay boost, or cut their hours, because they want to avoid the red tape of paying WFTC through the wage packet. Apparently this report was based on more than 700 cases involving people affected by that new tax credit. The study cited an example of a lone mother with three children who lost her job when the tax credit was put in her pay.

According to those who are familiar with the situation in small companies, some people have found that receiving the tax credit from their employer is not worth the trouble it can sometimes cause. Some employers apparently consider the administrative burden to be too great for them to manage and, in a small number of cases, people have been sacked merely for claiming tax credits. We may think that that is monstrous, but it is an illustration of the pressures that small businesses are sometimes under. Other staff have put pressure on employers to reduce their hours so that they do not qualify for these credits and avoid being threatened with dismissal.

The House had previously voted by 161 to 121 for a Liberal. Democrat amendment to allow small employers to opt out of the system. On that occasion, it was decided not to risk a confrontation with another place by insisting on two amendments on which this House had defeated the Government. During that debate —although I was not present—I believe that the Minister urged this House to accept the decision of another place to reject the amendments. One of those amendments would have allowed employers with fewer than 10 employees to be exempted from paying the tax credit to their employees, payment being made instead by the Inland Revenue itself. On that occasion, the Minister said that that amendment would strike at the heart of the tax credit policy and was therefore unnecessary and inappropriate.

In response, the noble Lord, Lord Goodhart—while agreeing that this was not an appropriate issue on which to force a battle between the two Houses—made clear that he had called for an "opt-out" and not an exclusion. The noble Lord said that it would have prevented small employers having to fund the cost of administering the new system.

I have spoken at length because our Benches certainly have given up the hope of persuading the Government to compensate or find ways of dealing with this issue other than by requiring small companies to do the work for them. I do not know what is the view of the noble Earl, Lord Russell. We shall hear that in a moment.

I hope that the Minister will at least accept this very modest amendment, which, after all, seeks only the publication of regular information about the scale of the burden that is being placed on business so that people can focus on it as an aspect of the working of the Bill. I beg to move.

6.15 p.m.

Earl Russell

The noble Lord, Lord Saatchi, is right. We on these Benches feel a considerable sympathy with this amendment. My honourable friend, Mr Webb, in the debate in another place, attempted to achieve the same end by the much more far reaching device of giving up the method of paying through the pay packet. There is a whole range of issues here in which—as the noble Lord, Lord Saatchi, rightly said—there is a problem of balance.

When you are dealing with a small business which employs, perhaps, three or four people, and it has to take on an extra person simply to understand the paperwork, which is quite complicated, that may make a real change to the finances of the business and possibly even threaten its viability. We do not want to diminish the number of small businesses in this country because they are one of the vital parts of the economy and one of the sectors which are capable of growth. The Exchequer will be as much a loser as the small businesses if we do not get this right.

Though I have sympathy with the small business, I have also perhaps even more sympathy for those who are dismissed by businesses—some of them businesses which, if I may so put it, are big enough to know better—for either claiming working families' tax credit or still claiming statutory sick pay (cases of that are still coming in 12 years after the Bill went through), or, in spite of the fact that it is illegal, for pregnancy. The fact that dismissal for pregnancy is illegal seems to have done surprisingly little to deter employers from continuing to do it. One wonders whether either the enforcement is sufficiently rigorous or the penalties of sufficient size to act as a necessary deterrent.

Talking of employers who are big enough to know better, the last case of this sort that came to my attention was a threat of dismissal to somebody short of 12 months' service for taking one day off work with a slipped disc. I do not think that sort of thing is in employers' interests any more than it is in employees' interests. Labour is one of the raw materials of business. One would not treat one's other raw materials with that degree of indifference. If one does, it costs. Maybe the Minister will look again at my honourable friend Mr Webb's suggestion for moving away from the pay packet as the vehicle of delivery. They have gone a little way in that direction: possibly there is a little further that they could go. Possibly also before Report stage of the Employment Bill, the Minister might have a quiet word, of which I shall not need to know anything, with her noble friend Lord Sainsbury or Turville.

Baroness Hollis of Heigham

I am pondering the implications of that last remark. I do not think it is what is needed, but I shall perhaps have a conversation.

Amendments Nos. 17 and 18 together are aimed at bringing forward the issue of the compliance costs to employers of paying tax credits with wages. They insert a reference to the expenses of the board alongside the proposition that the board's accounts should include an estimate of the cost of tax credits to employers.

Members of the Committee opposite would like to impose a requirement to have the board's accounts reflect an estimate of employers' costs of administering tax credits. It would, of course, not be right to require the board to account for costs other than their own. The proper place to address employers' costs will be in the revised Regulatory Impact Assessment which is being prepared in the light of announcements made in the Budget.

I am sure that we will have considerable debate on the issue when we reach Clause 24 of the Bill, which I shall not seek to anticipate, except to remind Members of the Committee that savings of 1 million a year are expected from the changes to the system for employers, and that those changes have been welcomed by employer groups.

To confirm that point, consultation has shown that organisations have supported the move to streamline the system of payment via the employer. Admittedly, we quote from the CBI, which tends to represent the major employers, but the CBI states that its members: support and welcome the attempts made by the government to simplify the rules for tax credits. In particular&abolition of the need for employers to provide a proof of earning certificate—which should considerably reduce the number of routine administrative enquiries employers receive, simplification of the notice periods&providing automatic funding for employers who are already in receipt of advanced funding", and, support the principle of moving from a fixed 6-month payment of tax credits to a rolling 12-month period". I could quote from the Institute of Payroll and Pensions Management or from the Association of Convenience Stores, the Institute of Directors and other organisations. Clearly, all businesses would prefer not to be paying out student grants or being responsible for the introduction of orders on child maintenance and the like. Having said that, the changes the Bill introduces over the existing tax credit system, with its accompanying savings of 11 million and its simplification and streamlining of procedures, have been warmly welcomed.

It does mean, as the noble Earl, Lord Russell, suggested, that this is in part due to the fact that the child tax credit will be paid to the main carer and employers will now only be responsible for that element which is paid to the adult, the working tax credit, and therefore that too simplifies the situation.

A couple of specific quotes have been made by the previous speakers. The noble Lord, Lord Saatchi, echoed the NACAB point made by the noble Earl, Lord Russell, on Second Reading relating to improper or illegal behaviour by employers, given the use of tax credits to try to reduce people's hours, or even to dismiss them.

I said on Second Reading that such behaviour was illegal and could be pursued through the courts. I had only some very slight anecdotal evidence from NACAB, and certainly when I have been asked about it I have had no consistent evidence of this happening. However, once a person is an employee, he or she is protected against detriment or dismissal by the provisions in Schedule 3 to the Tax Credits Act 1999. Similar protection will be provided by Schedule 1 to the present Bill. I am happy to put that into Hansard so that NACAB in particular knows to which section of the Bill they can return.

Earl Russell

I know very well that the protection exists, and I am grateful for it. The question on which I hope the Minister might have a quiet word with her noble friend Lord Sainsbury of Turville is how that protection might be made more effective, because it is certainly not sufficiently effective at the moment.

Baroness Hollis of Heigham

Obviously any case is a bad case in that sense, but I am in a dilemma because I have seen no serious evidence that this is a sustained problem. I am not in any sense suggesting that the examples are not well-founded. However, I do not know how serious a problem this is. The point has never been made to me as I have gone round talking to groups of lone parent advisers for example. That it happens, on occasion, I do not doubt, but how serious or sustained a problem it is, I do not know.

All I can do at this stage is try to help make clear the legal rights and legal dependencies of employees in the situation. We should not reward bad employers by seeking to change the structure of the Bill, which in my view is so beneficial to everyone else. That would be absurd. It is like saying that if a man threatens violence you do not make him pay child support, and you reward violent behaviour. You cannot do that.

However, if I can help by making clear any of the legal provisions that protect employees in this situation, and indeed follow that discussion with Lord Sainsbury, as the noble Earl suggested, to see whether he has any DTI evidence of this happening, I am, of course, very happy to do so, because any case is a bad case.

The second point I wanted to raise was the distinction between small employers and larger employers. There are two points there. First, there is an assumption that somehow a cap in hand process is very difficult, and that we should therefore lift this burden off the shoulders of small employers. I do not accept that description of the situation facing them. Whatever the size of their company, all they have to do is to pay out what the tax credit office tells them to pay. They do not have to do any of the calculations themselves. If they need funds, and the funds that they are holding for national insurance are not sufficient to meet their bills, the Inland Revenue will provide those funds.

The arrangement in place with the Inland Revenue is as near to being automatic as one can get it. That has been recognised by employing companies.

On a more philosophical point, I am not comfortable about trying to draw lines between small and medium-sized companies —those of up to 15 or 20 employees, or whatever the noble Lord has in mind—and larger ones. That was the argument used to stop discrimination against disabled people. I am sure I will have the support of the noble Earl, Lord Russell here. Ever since the Conservative government passed the very important Disability Discrimination Act 1995, we have been seeking, with all-party consent, not to say that someone's right to disability protection depended on the size of the company that employed them.

In the same way here, we are concerned about making the move into work pay. It may not currently pay, because wage rates on entering work are often much lower than median wages. That problem is more likely to happen with smaller companies rather than large ones. It is therefore more important that the money is paid through the payroll for smaller companies than it is for greater ones.

The noble Lord, Lord Saatchi, may not share our approach to this, and obviously businesses might well prefer not to be involved with this at all. However, it could not be a simple procedure. We must ensure not only that work pays, but that it is perceived to pay. The technical point is that it would be unreasonable to expect the board to account for costs other than its own. I hope that with that explanation the noble Lord will feel able to withdraw his amendment.

Lord Northbrook

Can the Minister say where the figure of £11 million comes from for the savings of employers' costs?

Baroness Hollis of Heigham

The figure of £11 million has been provided by the Inland Revenue and accepted by the organisation, based on some of the changes being made. I shall be happy to write to the noble Lord about the particular improvements of this scheme over the previous one which will allow him to assess whether he feels the figure of £11 million is realistic.

6.30 p.m.

Baroness Andrews

I have listened with interest to what the Minister has said. I should declare an interest as an employer of a small business in the voluntary sector, which has grown from nothing to 35 to 40 people. During that time, many different evolutionary systems of tax credits have been introduced. They have been handled with great comfort and grace. Like any other small and, it is hoped, good employers, we see this is as very much part of being a good employer. In essence, these are support and benefit systems and tax credit systems which support a productive and effective workplace.

We employ many young people with children and we have not found it difficult to do so. From my experience in the voluntary sector, I can say that I have heard no complaints from organisations of our size. I support the provision and the general philosophical point that has been made; namely, that this is very much concerned with developing a positive culture of good employer/employee relations.

Baroness Hollis of Heigham

I welcome the support of my noble friend. If the argument of discrimination against particular employees and pressure on hours were to apply, it would be more likely to apply under the old working families' tax credit system that we currently have in place, because by definition it has tended to target lone parents. By applying the working tax credit to adults, irrespective of whether they have children, if the employer is seeking to discriminate then, if he is a low-paying employer, he is going to end up discriminating against his entire workforce.

Lord Saatchi

Did I understand the Minister correctly to say that the Inland Revenue had carried out a calculation?

Baroness Hollis of Heigham

I said that this figure was supplied to me and, I do not doubt, calculated by the Inland Revenue as a saving of £11 million in costs over the current compliance costs for employers for the existing tax credit system. As I said to the noble Lord, Lord Northbrook, I shall he happy to write explaining how that figure was arrived at.

Lord Saatchi

I am still puzzled about this. If the Inland Revenue is capable of making that calculation, it must be able to calculate the extra cost of administering the tax credit, deducting the beneficial savings of the workings of the new system, and therefore arriving at a net figure; that is, the figure of £11 million. Is that right?

Baroness Hollis of Heigham

Does the noble Lord mean for employers?

Lord Saatchi

Yes, for employers.

Baroness Hollis of Heigham

The point I sought to make is that it is not the job of the Board of Inland Revenue to determine the costs for employers except in so far as it is calculated through the regulatory impact assessment.

Lord Saatchi

I understand that, which is why I am puzzled by the fact that the Inland Revenue has made this calculation. I think that the noble Baroness said that it was not for the Inland Revenue to make these calculations. The noble Baroness said that they were made for the regulatory impact assessment.

Baroness Hollis of Heigham

It is not for the board to account for costs other than their own in terms of public statements. The RIA has been published with the Bill. When, as requested, the board publishes its reports and so forth, it is not for the board to account for costs other than their own. That is all I seek to make clear. That does not mean to say that we cannot estimate those; it is not for the board to account for them.

Lord Saatchi

If the Inland Revenue is capable of making this calculation of the saving, it means that it is capable of making the calculation and assessing whether there is a burden or—

Baroness Hollis of Heigham

It is not a question of capacity. It is a question of propriety.

Lord Saatchi

Since the noble Baroness is relying on the Inland Revenue's calculations to dismiss the argument that there has been a burden placed on business, it is obviously reasonable to rely on the revenue's estimates to find out whether there has been a burden or a saving. The amendment seeks only to ensure that the revenue will repeat on an annual basis the exercise carried out to arrive at the figure of £11 million.

Baroness Hollis of Heigham

The right place for the costs, as I sought to point out earlier, is in the regulatory impact assessment, not in the report of the board accounting for its own accounts. That is all.

The Committee will forgive me, but I suspect that again we may be considering angels on pinheads here. No one is suggesting that any attempt should he made to conceal or obfuscate the compliance costs for employers, although I hasten to emphasise that those compliance costs are substantially reduced and their reduction has been welcomed by employers. The question is: at what point and in what way and to whom does the board account for its activities? This is not the right format. It is almost as mechanical as that.

Lord Saatchi

I am happy to leave it at that, though what we have witnessed here is a consistent pattern on the Government's part to be unwilling to accept that this Bill places burdens on small companies. We can swap reports and evidence and quotations from different bodies.

I hope that the Minister understands that, according to the research that one sees, one of the reasons why businesses have grown slightly disillusioned with the Government is this very problem of excess regulation and red tape. Therefore, in the interests of her own Government, the noble Baroness would do better to show more sympathy with small businesses than to dismiss their concerns with the use of the phrase, "All they have to do is to—"

Baroness Hollis of Heigham

I was simply going to challenge the noble Lord about the whole issue of the Government's attitude to small and medium-sized enterprises. I shall write to him because this is important—rather than take up the time of the Committee now—setting out everything that this Government have done to support and help small and medium-sized enterprises, including having a stable economy, having low inflation, reducing corporation tax, helping cash flow, boosting investment, encouraging innovation and research work, encouraging the use of IT and so forth. I shall happily write him a 15-page letter setting out what the Government are doing to support small and medium-sized enterprises. I cannot let that statement go.

I am saying that small businesses should not find this at all problematic. It is a simpler procedure than the one they currently operate—and that is certainly simple. All they have to do is to pay out the figure from the Inland Revenue. As my noble friend said, this is part of ensuring that those businesses will be able to attract a wider labour force than might otherwise be the case. The wages that they would otherwise be paying, which are extremely low although they are the minimum wage, may not offer the best package into the labour market for people with children. They now have a wider labour force on which to draw because people with children can now afford to work as a result of the support for their children coming through the child tax credit.

That is the first point. My stats are out of date so I ask the Committee to forgive me if I am slightly inaccurate. When we last debated this issue of tax credits, I was able to point out to the noble Lord then that in the UK the non-wage labour costs represented an average of about 26 per cent ongoing costs to employers, compared with a figure in Europe which ranged between 40 and 50 per cent. I have seen nothing to suggest that that rough equivalent has changed. This country still has one of the best climates anywhere in the OECD for small businesses and enterprises to flourish. What this does is ensure that they have a labour force also suitably equipped to come into the labour market.

Lord Saatchi

I am happy to leave the matter there. I am sure we shall want to return to this very important subject in other stages but, for the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 18 and 19 not moved.]

Lord Saatchi

moved Amendment No. 20: Page 2, line 28, at end insert▀× () The treatment of the accounts kept by the Board shall conform to the standards established by the OECD. The noble Lord said: The background to this amendment can be found in box C2 on page 216 of the current Red Book. It is also dealt with in the exchange of correspondence that I have had with the Minister. The third point in my letter asked for confirmation that it was in fact the case that any money paid as a benefit—in other words, not as a reduction in tax—will be dealt with as public expenditure. This would represent a move to the OECD format for the public accounts. Box C2 deals with that, as does her reply to my letter, from which she quoted earlier. In her letter the Minister confirmed that, the Child Tax Credit and the Working Tax Credit will score in Treasury publications as negative tax … to the extent that the credits are less than or equal to the tax liability of the family, with the remainder scored as public expenditure". The Minister said earlier that the latest estimates for the total value of tax credits was £15 billion, of which about 10 per cent—it states in her letter 10 to 11 per cent, but I shall stick with the round figure—of the new tax credits will score as negative tax with 90 per cent scoring as public expenditure.

In order to explain why the amendment has been brought forward and has caused such difficulty I shall need to repeat a little history. I hope that the Committee will bear with me while I do so. The problem is that the Government have persisted for too long in a practice which many observers have described as "creative accounting". The background to this is that the UK adopted the 1995 European system of accounts, which is known as ESA/95, in September 1998. ESA/95 is an EU regulation that gives legal force to the internationally agreed 1993 system of national accounts, which is known as SNA/ 93. The UK had been required to make returns to Eurostat, which is the statistical office of the European Union, on an ESA/95 basis since April 1999. While the UK could have continued to publish national accounts data on that basis, it was decided by the ONS to adopt the ESA/95 for domestic as well as international purposes.

While the Treasury generally follows ONS practice in publications such as the Red Book, from which I have been quoting, and the pre-Budget report, there were points at which—for reasons which are not clear and which I hope the Minister will explain; it would be comforting to know what were the reasons— differences occurred between the Treasury and the ONS on the treatment of, in particular, the working families' tax credit.

Many people believe—I am sure that the Minister is aware of this—that the Government defied international conventions under the European system of accounts, ESA/95, which had been adopted by the ONS. They defied the ruling by counting all of the working families' tax credit as negative income tax in their measure of the national tax burden. That was thought by many to be a breach of international accounting standards. People felt, but did not know, that as only a proportion of the working families' tax credit related to relieving an income tax liability, and the other part related to claims which could not conceivably be described as negative income tax because there was no income tax liability to be relieved, that treatment was inappropriate.

I do not think that the critics then knew that the balance between those amounts, which one could describe as "illegitimate" as negative taxation, added up to 90 per cent of the total. Economists and others knew that there was a distinction, but I do not believe that anyone knew that the scale was as enormous as that. That is the background.

When people were looking forward to this Bill, those who were anxious about this point in terms of treatment thought they could see a situation in which large amounts of government expenditure were then being transferred to a tax net-off and other amounts were about to be transferred as a result of the Bill. People thought, though they did not know the scale, that by the time we reached the end of the Bill, there would be a very large sum indeed being dealt with in this way. The noble Baroness has confirmed today that it is a very large sum—£15 billion a year.

With a GDP of around £1,000 billion a year, £15 billion a year is 1.5 per cent of GDP. I believe the noble Baroness said earlier that the correct figure was £15 billion. I think she also said that the correct proportion of that 15 billion, which was to be treated as public expenditure rather than negative tax, was 90 per cent. What is puzzling—I am sure I have misunderstood this, but I would be grateful to understand it better—is that box C2 says that the change to treating the tax credits in line with OECD accounting principles adds about 0.5 percentage points to the tax GDP ratio for 1999–2000 onwards.

That does not seem to add up. If the figure is £15 billion, which represents 1.5 per cent of GDP, and 90 per cent of it is what had previously been classified as tax reduction but is now being classified as public expenditure, that ought to make a difference of 1.5 per cent to the tax GDP ratio. I would be extremely interested to be better informed about what we must remember is probably one of the most important political statistics in Britain. General elections have certainly been won and lost on the basis of the figure that I am talking about.

No doubt I am wrong, but I would like the noble Baroness to take the Committee through the calculation of the impact of the change described in box C2 on the calculation of the so-called tax burden. I am very glad to see the Treasury Minister return, because I remember his admonishment that our Benches should not refer to something called the "tax burden" on the grounds that the word "burden" was offensive, as it sounded painful, and that the correct and preferred phrase was "net taxes and social security contributions as a percentage of gross domestic product".

Taking the noble Lord's preferred wording, I wish to ask the noble Baroness to take the Committee through the previous treatment of tax credits, the new treatment that is proposed and the figures that go from one treatment to another. That is the purpose of the amendment. I beg to move.

6.45 p.m.

Baroness Crawley

Is the noble Lord saying that the Treasury has been acting illegally in its accounting methods?

Lord Saatchi

I do not know enough about such matters to comment on that, but the answer is almost certainly that it has not.

I suggest that the treatment that has existed in the Red Book for some time has not been consistent with OECD principles. The noble Baroness said today that the Government would move to bring the treatment in line with OECD principles, which we would very much welcome. The most important aspect about the treatment of these tax credits is that they are dealt with on a consistent basis from year to year so that readers of the public accounts can discover what is going on. So any change in accounting practices is a red light to readers of public accounts.

Baroness Hollis of Heigham

Perhaps I may give the noble Lord an explanation. If I am obscure or ill-informed on any points, then I am sure that noble Lords will draw it to my attention.

On the first point about OECD guidance, this has only recently been finalised following a long period of consultation. The Government have therefore decided to follow best international practice.

Turning to the point about the 0.5 percentage point rise—the discrepancy between that and the £15 billion/90 per cent figure—this is the tax GDP ratio for 1999–2000. In other words, this is about re-classifying retrospectively the existing WFTC system under the new rules, as opposed to what would happen when the new tax credits come into play.

Lord Saatchi

The phrase used is that this change adds about 0.5 percentage points to the tax GDP ratio for 1999–2000 onwards.

Baroness Hollis of Heigham

Yes, but these figures are in fact for April 2003.

Lord Saatchi

Is it possible for the Minister to write to me? What we would very much like to see is for the "before" and "after" treatment of tax credits to be spelt out, along with the "before" and "after" impact on the tax GDP ratio. I believe that many people outside this Chamber would like to see that as well.

Baroness Hollis of Heigham

All we are doing is revising previously published figures to be consistent with the new OECD guidance. That is all. The figures apply to the existing system. However, of course the noble Lord knows that I like nothing better than sending him letters.

Lord Newby

The amendment deals with how one treats a tax credit which is partly—indeed largely—a benefit, as we have discovered this afternoon. We have grappled, as the Government have, with what is the most intellectually and politically satisfactory way of dealing with this. I suspect that all Members of the Committee would agree that the ONS/OECD definition—which the Government have now adopted—that tax credits are treated as tax credits and benefits as public expenditure, is the logical way forward. It allows us to see clearly where the balance lies between the two parts of these credits/benefits.

Where the Government have been criticised—and retain a residue of criticism—is over the long time it has taken to reach this point. I agree entirely with the noble Lord, Lord Saatchi, when he described the previous system of accounting as creative accounting. The main purpose—at a time when the Government were seeking desperately to prove that they wore an even thicker hair shirt than their predecessor—undoubtedly was to show that the tax burden, or tax rate, or level of taxation in the economy was low, and therefore the economy was safe in Labour's hands.

One of the methods it used was this classification of the working families' tax credit in a way that was misleading—to the extent that no one could understand the figures at all. Therefore, on this side of the Chamber we welcome the fact that we have now reached a point at which it will be absolutely clear where the balance of benefit and credit falls.

As Members of the Committee will know, I say those words as a member of a party which has not shied away from accepting levels of taxation which may be higher in order to achieve certain public policy goods. From the start we would not have found it difficult to accept that a slightly higher level of taxation was needed in order to deliver what the Government and other Members of the Committee would consider good, sensible benefits in many other respects.

Having adopted the OECD guidelines and recommendations, I have sympathy with the amendment. We only hope that the Government now stick to them and, two years down the track, when other things may be happening to make life difficult for them, they do not seek to reclassify them and go back to their previous unsatisfactory practice.

Lord Freeman

Perhaps the Minister could help the Committee. I refer to a point that I raised earlier. As I recall, the Minister said that the portion of total tax credits we are talking about which effectively reduced the taxation of a household to nil would be treated as a tax repayment and the balance—approximately 89 to 90 per cent—would he regarded as public expenditure. That apportionment, incidentally, creates real administrative problems and the much simpler solution of my noble friends Lord Higgins and Lord Saatchi, of treating it all as public expenditure, would not create this simple problem; namely, that the apportionment must be an estimate.

The Minister may have received advice earlier on this. If the calculation is to be made on the basis of P60s, it would be consistent with having the figures on public expenditure—and a 1 per cent variance is £150 million. The Minister talks about 10 to II per cent which is a difference of 150 million; a significant sum. If we rely on the employer's P60 calculation, it will reflect accurately as far as the employer is concerned where tax has been reduced to nil and therefore where the cut-off is. That is the only practical way forward that I can see. If we rely on the accurate figures, which is what the taxpayer returns—that could be a year later—we have first to calculate the household tax as opposed to the individual's tax. We will therefore have a timing difference. It is perhaps a technical point and the Minister may like to write to me if that is helpful. But will she accept that this apportionment is an estimate?

Earl Russell

Perhaps I might add a few more words. I agree with the points that have been made all round the Committee about the need for a consistent standard of counting. But I want to take up two points made by the noble Lord, Lord Saatchi. First, he said that the proportion of GDP going on public expenditure is perhaps the most important political figure there is; or words to that effect. That is confusing the shadow with the substance. The proportion of spending counted as public spending is not an objective question.

As this discussion illustrated, it is always a matter of classification. For example, when I first came into the House, health insurance added 400 dollars on to the price of every Chrysler car. That is not public expenditure but it was just as big a burden on the American economy as if it had been. When Mr Robin Cook paid a visit to Singapore shortly after this Government came into office, it was reported that Singapore's public expenditure was 18 per cent of GDP. It then emerged that if the Singapore Provident Fund was included, out of which all old age pensions were paid, the correct figure would have been 38 per cent.

This is a purely subjective question. Thus, a lot of expenditure is a burden on the economy regardless of whether it comes out of a pocket labelled "private" or a pocket labelled "public". That is too easily lost sight of on both sides of the discussion.

The other point I want to take up is the remarks of the noble Lord, Lord Saatchi, about the noble Lord, Lord McIntosh, rebuking him for using the phrase, "tax burden". I remember when I first arrived in this House I said that I had never in my life protested about my level of taxation and was not going to do so now. I remember the faces of absolutely blank astonishment on the Benches opposite. What they seemed not to understand—and I say this only in order to increase mutual understanding and not to change anybody's mind about anything—is that I feel about this exactly the same sense of repugnance that many people on the Conservative Benches feel about criticising the policy of a British government in time of war. That is something which I am prepared to do. I know it serves in Conservative Benches a sense of utter repugnance, even if they may in private think the criticism justified. I just ask them to understand that similar feelings exist in other parties, though they may take a very different form. If that is understood it will ease communication between us.

7 p.m.

Lord McIntosh of Haringey

Since I became a taxpayer 45 years ago it has always been my principle that Labour governments, which I think ought to have taxed me more heavily, have taken several years to get around to taxing more heavily, and Conservative governments, which I think ought to tax me more heavily, have done it immediately on coming to office.

Baroness Hollis of Heigham

I will seek to be brief. I confirm what was said in the letter that the noble Lord, Lord Saatchi asked me about. He is correct that the new tax credits will be accounted for as negative taxation to the extent that they are less than or equal to the tax liabilities of the adults in the household. Otherwise it is public expenditure. That is consistent with the OECD guidance.

Secondly, the noble Lord, Lord Freeman, asked me to confirm that this was an estimate. Yes, it is an estimate, but that should not be surprising. The split between tax and public spending is based on an estimate using FRS and FES survey data, and that will be revised upwards or downwards in the light of new evidence. This process has been held to be satisfactory for OECD purposes. Obviously, we will also use the same procedure to estimate the total cost of new tax credits and other tax and benefit changes. All the time in social security we are estimating how much we are going to put in for what used to be called unemployment benefit. It may not turn out to be that precise figure, but it is an estimate. I do not see why that should be surprising.

Finally, I would like to reinforce the point made so eloquently by the noble Earl, Lord Russell, and by my noble friend. The burden of taxation has been mentioned. I believe that tax credits are an investment in our children to help them overcome poverty, above all by making it financially viable for their parents to work. The noble Lord's burden is my investment. I suspect we have different readings of how society should be organised. I hope none the less that he will feel able to withdraw the amendment.

Lord Saatchi

Having heard what the Minister said, I was going to ask the opinions of others on the Committee on whether the noble Baroness would have any difficulty accepting the amendment if I did not withdraw it. It simply says what she has said at the Dispatch Box and in her letter. The aim is simply that the treatment of the accounts kept by the board shall conform to the standards established by the OECD. Having heard what the noble Baroness has said, we welcome her late conversion. Therefore, instead of my withdrawing the amendment, would the Minister consider accepting it?

Baroness Hollis of Heigham

If the amendment is redundant, why should we accept it?

Lord Saatchi

If the amendment does nothing other than reassure people such as the noble Lord, Lord Newby, that there may be some other change of heart, given the Government's past practices in this area, that would be reason enough to agree to it, so everyone would know where they stood.

Baroness Hollis of Heigham

The amendment relates to the board's accounts. OECD treatment is a matter for Treasury figures. Obviously the Inland Revenue reports to the Treasury. I do not see the point. I would certainly resist putting additional words on the face of the Bill that do not add to the OECD accounting methods. As it stands, the amendment is redundant in terms of its policy thrust. In practice it would be flawed because the amendment relates to the board's account.

Lord Saatchi

That is a pity. I am sure we will want to come back to this, perhaps later in Committee stage or on Report. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 21: Page 2, line 30, leave out from "office)" to "the" in line 31. The noble Lord said: I beg to move Amendment No. 21. This is a rather technical amendment which suggests that the passage in parenthesis in Clause 2(6) should be deleted. It states that: In any declaration for the purposes of section 6 of the Taxes Management Act 1970 (c.9) (declarations on taking office), whether made before or after the commencement of this section, the reference to an offence relating to inland revenue is to be taken to include a reference to an offence relating to a tax credit". However, as I understand the parenthesis, it is suggested that that should apply whether this declaration is made before or after the commencement of this section.

I am not clear how that will operate in practice. Let us suppose that this section had not yet come into effect, how could it refer to a tax credit which did not exist, albeit that the expression "a tax credit.' is rather ambiguous because we have about 39 different tax credits—I have lost count of exactly how many—some of which are being abolished and some of which are being introduced. Is this to include reference to all tax credits? In any case, how is it to be operated retrospectively? I beg to move.

Baroness Hollis of Heigham

I am happy to explain the purpose of the provisions. Under the Taxes Management Act 1970, Inland Revenue staff and the Commissioners must make a formal declaration that they will not disclose any information received by them in the execution of their duties, except for the purposes of those duties, or in the prosecution of certain offences, or where disclosure is otherwise required by law.

This obligation of confidentiality will extend to information received in connection with tax credits. This clause accordingly amplifies the relevant provision in the Taxes Management Act. The general duty of non-disclosure, tempered by the fact that disclosure is permitted in certain circumstances in the Bill—for example, prosecution of offences and so forth—it does not place retrospective requirements on staff, although I understand why the noble Lord, Lord Higgins, might well think so.

The declaration taken by existing staff already imposes a general duty of non-disclosure in relation to the execution of their duties. These duties may, of course, change from time to time. Clause 2(6) relates to the scope for disclosure for the purposes of the prosecution of offences. All it does is to ensure that once the Tax Credits Bill takes effect, existing staff who deal with the new tax credits are subject to precisely the same confidentiality requirements as they already have in relation to tax matters.

I hope that noble Lords will agree that it would make little sense for existing staff who started to work on tax credits to be unable to disclose information for the purposes of prosecuting a tax credit offence where they could do so in the case of an offence relating to an income tax matter. This provision avoids that situation and ensures that, as with similar provision made in earlier legislation, Inland Revenue staff are under the same obligations of confidentiality in relation to all the information they may receive in the course of their work. I hope that the noble Lord will feel comfortable with that explanation.

Lord Higgins

I am grateful for the explanation. I have suddenly realised that I probably proposed the original Section 6 in the Taxes Management Act 1970, which is slightly worrying. I believe that I understand the point made by the noble Baroness. I would like to look very carefully at precisely what she has said since she was clearly reading it out rather than making it up as she went alone—

Baroness Hollis of Heigham

I always read it out—

Lord Higgins

As a consequence I am sure that the words were prepared adequately by the revenue. One of the great virtues of the Minister is that she does not always read out her brief, and therefore sometimes we understand what has been said. In all events, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Lord Saatchi

moved Amendment No. 22: After Clause 2, insert the following new clause— "SUBMISSION OF REPORT TO TREASURY BY BOARD (1) The Board shall submit a monthly report to the Treasury giving an account of its care and management of tax credits. (2) Among the matters the Board shall include in its monthly report are—

  1. (a) the Board's estimates of the total possible take-up of each tax credit, and the statistical and other assumptions upon which such estimates are made;
  2. (b) the Board's estimates of the total practicable take-up of each tax credit, and the statistical and other assumptions upon which such estimates are made; and
  3. (c) the actual take-up of each tax credit.
(3) The Treasury shall publish the monthly reports of the Board and, where the take-up of any tax credit is less than 80 per cent of the estimate of the total practical take-up of the tax credit, shall lay before Parliament a report setting out the Treasury's estimate of the amount of moneys not spent by reason of the deficiency of take-up in the month to which the estimate relates. (4) The Treasury shall cause a sum equivalent to the amount in subsection (3) to be paid into a special account to be called "The National Tax Credit Take-Up Assurance Fund". (5) The Treasury shall lay before Parliament each year accounts of the Fund and proposals for its disbursement by way of improvements to the take-up of tax credits. The noble Lord said: In moving Amendment No. 22, I shall speak also to Amendments Nos. 23 and 235. Amendment No. 22 would require the submission of a monthly report to the Treasury giving an account of its care and management of tax credits by the Treasury. In particular, the report would contain the board's estimates of the total possible take-up of each tax credit, and the statistical and other assumptions upon which such estimates are made.

The board's estimates of the total practical take-up of each tax credit and the statistical and other assumptions upon which they are made would be the main part of the report. Together with that would be the actual take-up of each tax credit.

The board's monthly reports would be published by the Treasury. If the take-up of any tax credit was less than 80 per cent of the estimate of its total practical take-up, the Treasury would lay before Parliament a report setting out the Treasury's estimate of the amount of money not spent by reason of the deficiency of take-up and the months to which the estimate related.

Amendment No. 23 would add a requirement for the board to include in its reports the amount of tax that has not been paid as a result of tax credits that have been paid to persons otherwise not liable to income tax.

Amendment No. 235 would insert a new clause requiring an annual report to Parliament. The key elements of the annual report would be a total estimate of the take-up of the working tax credit and an estimate of the take-up of the child tax credit, and the number of these in both cases. The report would also contain an estimate of the cost to employers of operating the working tax credit and the child tax credit.

At Second Reading, we discussed at length the central problem that, worthy though the aim of the scheme is, it may fail if take-up is too low. We know that the take-up problem is endemic to the system that the Bill puts in place. I am sure the Minister accepts that this is perhaps the fundamental problem. Many cities have a high level of social mobility and high population turnover. For many people in houses in multiple occupation, getting the post is a nightmare. Readership of local newspapers is low compared with the consumption of other forms of media. The multiplicity of media means that it is more difficult than ever to get a message through to people. Many languages are spoken in our major cities, so it is particularly difficult to reach minority communities, which are often among the poorest.

The take-up of the working families' tax credit is estimated at 62 per cent and that only 72 per cent of entitled families with children had claimed the children's tax credit by December 2001. If those figures are wrong or out of date, I am more than happy for the noble Baroness to correct them.

The result of those low take-up figures is that it has been estimated that £2.6 billion of budgeted expenditure on tax credits this year will go unclaimed. Again, if that figure is wrong or out of date, I would be grateful for the noble Baroness's view of what is the correct figure on the amount saved as a result of the non-take-up of tax credits.

We are curious about where this money is and who has it. We are anxious to discover where that money is in the national accounts and whether it is possible for it to be earmarked and retained by those people who are meant to be its ultimate beneficiaries.

I shall not dwell on the issue any longer at this hour. Those are the purposes of this group of amendments. I beg to move.

7.15 p.m.

Lord Newby

We are discussing three amendments. We have sympathy with two of them, but not as much sympathy with the first. I have major doubts about the sense of trying to pull this particular plant up by its roots every month. We have seen the report. It is not the kind of regime that is susceptible to sensible review on such a short timescale.

I am also doubtful about the benefit of setting up the kind of assurance that the noble Lord, Lord Saatchi, refers to. I am not a great expert on the way this credit will work in practice, and I am not sure how far payments of credit can be backdated. However, as long as there is provision for that to happen within a reasonable period, I doubt whether there is a necessity for a separate fund to be established.

Where we have sympathy with the noble Lord, Lord Saatchi, is when it comes to the submission of an annual report. One of the great problems generally with legislation is that huge amounts of effort are spent in this Chamber and another place discussing how it will work and very little effort is then spent looking at how well it does work. In this case, there are a number of key potential and actual problems with the working of the credit which deserve to be reported upon and considered by Parliament.

The take-up is an absolutely key point. The question of fraud is another obvious point and the cost to employers, which we have already discussed, is another area which should he kept under full review. Therefore, while we have some serious problems with the first of these amendments, the second and third are eminently sensible and we hope that the Government will feel able to accept them.

Baroness Hollis of Heigham

Amendments Nos. 22, 23 and 235 attempt to impose an obligation on the Board of Inland Revenue to produce and publish an annual report on its care and management of tax credits and to submit to the Treasury monthly reports on the take-up of tax credits. As I am sure Members of the Committee are aware, it is not appropriate for that kind of commitment to appear on the face of the Bill. There are other methods of scrutinising the impact of policy and how it is administered.

Indeed, there are already well-established ways for Parliament to scrutinise precisely the information that noble Lords wish to be reported. The Board of Inland Revenue currently publishes an annual report covering all that department's activities and from 2003 it will also cover tax credits. That report is presented to Parliament by the Paymaster General, so it may he that that addresses the point raised by the noble Lord, Lord Newby.

Amendment No. 22 attempts to impose an obligation on the board to produce a monthly report on the care and management of tax credits, including take-up and so forth. Again, that is not appropriate. In addition to the annual report laid before Parliament. Parliament may also, if it wishes to pursue the items listed in that amendment, further scrutinise the chairman of the board when he appears before the Public Accounts Committee, and I rather suspect that the noble Lord, Lord Saatchi, may have done something similar in the past.

The Inland Revenue also produces quarterly statistical reports specifically covering W FTC and DPTC. I do not know whether Members of the Committee receive those automatically but I do and they are extremely long. They show exactly what is happening to payments and movements. A typical one is the quarterly report on working families' tax credit with all the relevant stats. It is always in the Library and in the Printed Paper Office, to the best of my knowledge, and is always available. So that information is already there and we expect to continue to provide it.

Therefore, I should have thought that Members of the Committee already have an annual report as well as a quarterly report with very full information on the workings of the proposed tax credits.

I turn away from the issue of scrutiny to the issue of take-up, which is at the heart of this new clause and also appears in the first half of Amendment No. 235. The take-up of WFTC is encouraging; 1.3 million families benefit from WFTC; over 500,000 more benefited from family credit. Those families on average are receiving £35 per week more on WFTC than they would have done on family credit.

As I said at Second Reading, take-up takes time to build. We saw that with family credit which went up from about 60 per cent in cash terms, to nearly 80 per cent and, in people terms, 75 per cent before it was replaced by WFTC. Again, the build-up of WFTC has been very satisfactory, including the fact that many of those who were eligible but did not apply for family credit went on to apply for WFTC because—and this is the main reason for them not applying—the benefit was worth more. Therefore, although we can have statistics about the number of people applying, we also need to see what the cash value is too. Many people, particularly if they are earning £50,000 a year, may decide that it is not worth applying for the family element of, say, £2 or £3 a week, and decide not to do so.

In regard to the take-up of child tax credit, we are assuming that around ¾ million families with children will claim and benefit from it. We are publicising that extensively. I do not believe that we need special funds for it, but we are certainly publicising it extensively.

We know already who many of the recipients will be. They are families who are currently claiming WFTC, DPTC and the child tax credit. Those families will be sent a form directly later this year. We also know, obviously, the families on IS and JSA who will be eligible. So there is a lot of automaticity in the process in addition to the publicity campaigns and working with voluntary organisations and so on.

Finally, the amendments would require the board to lay an annual report before Parliament to give an account of its care and management. I had hoped that I had addressed this issue when I referred to the report already presented to Parliament by my right honourable friend the Paymaster General.

Amendment No. 235, also seeks to impose upon the board an obligation to set out an annual report on the cost to employers of operating tax credits. We discussed this issue on a previous amendment. We do not think that it is appropriate. We believe that it is a part of the regulatory impact assessment.

I am seeking to reassure the Committee that the mechanisms of reporting, scrutiny and ensuring take-up are well in place. Obviously, if noble Lords have any queries or wish to press me further on any of those three issues, I shall do my best to respond.

Earl Russell

Somewhere in some kind of platonic heaven where Sir Humphrey keeps his inner Cabinet, there is, I suspect, a model government answer of a speech opposing an amendment for an annual report. One day, some time on, some future historian will have a great deal of fun going over the different models of that standard speech and trying to work out what change brought about which revision and whether they happened once a year or once every 50 years.

In this instance, perhaps there is a case for a revision. I know perfectly well that the Inland Revenue issues an annual report, but we are asking here—and this is part of the glory—for a considerable change of culture in both of the departments involved. If it does not produce that it will not be the success which we on these Benches hope and believe that it will be.

It is perfectly possible for the Inland Revenue to produce an annual report which is very full, very detailed, and a great burden on the Minister's desk, but which does not really concentrate on the points involved in Amendment No. 235. One way of bringing about the cultural change that we want would be to invite the production of an annual report which concentrates on precisely those points where we are looking for cultural change.

One sees in any public service job the effect of being constantly asked for information on some particular issue. It may create resentment but it also creates the desire at least of producing an appearance of doing something in that area. That may, in a kind of ritual manner, sometimes enter into one's soul and influence the way one thinks. That is a part of the argument for an annual report. Perhaps I may put a suggestion to the noble Lord, Lord Saatchi. I hope we may be seeing this amendment again on Report. Is there any chance of the last clause of Amendment No. 235 reading: An estimate of the cost to employers of operating the child tax credit and the risk to employees of claiming it"? That is perhaps the balance for which the noble lord, Lord Saatchi, has called.

The Earl of Northesk

Can I briefly tempt the Minister back to the issue of parliamentary scrutiny of fraud? Is it not the case that the Government have already conducted an investigation into fraud within the working families' tax credit and further indicated their intention that this report would be available to Parliament round about September 2001? Yet here we are, eight months later, with no sight of the report. Does that not in fact justify the principle of there at least being an annual report to Parliament on the basis of scrutiny into fraud and take-up?

Baroness Hollis of Heigham

Let me reflect on the last point and not get in the way of a negotiation between the two Opposition Front Benches on joint amendments to which they may sign up on Report. I agree with the noble Earl. I have never yet dealt with a Bill, either in Opposition or in Government, in which there have not been amendments calling for annual reports, for every negative regulation in sight to be affirmative and, as far as possible, for every affirmative regulation to be on the face of the Bill. I agree that, not necessarily in Heaven, but certainly in some purgatory, there are model speeches for all three of those issues.

What matters first that the department—that is the Inland Revenue and, to some extent the DWP, because our concern is with abolishing child poverty—knows what is happening and that that information should be obtained in a properly researched, evidence-based way. Secondly, that information should be in the public domain so that the Government can be held to account for their success or otherwise in meeting the objectives.

I have tried to suggest to the Committee that both of those requirements are indeed the case. We currently monitor WFTC and DPTC regularly from administrative data captured on forms and so on. We supplement this information with data from surveys, such as the Family Resources Survey, the Labour Force Survey and the Families and Children Survey. We also work with the controllers of those surveys to include questions and ask whether the household is receiving WFTC, DPTC or children's tax credit. In addition to that, every quarter we publish those surveys on take-up. That information is there now.

We also have the benefit of the annual report from the Inland Revenue. It would be helpful, if Members of the Committee wish to pursue this, if they could say what precise information is required, which will be quantitatively available. I do not mean risk, because that cannot be quantified in this sort of report. I can make a statement or an assertion, but this does not lend itself to counting. The sort of reports we are talking about lend themselves to counting. However, if there is any further information that noble Lords feel we should scrutinise, I would be very happy to reflect on that. However, I ask noble Lords to understand that surveys and quarterly inquiries require statistics, and statistics require countable units. I am not saying that they are more or less valuable than qualitative information, but we can only count what is countable. Therefore, in terms of reporting in that way, we are dealing with information that is secure and reliable, in the public domain and open to public scrutiny.

If noble Lords wish to write to me and suggest that there are other things that are countable and should be counted, I would be very happy to see whether that was a reasonable request.

Lord Saatchi

I thank the Minister for her reply. The noble Earl was trying to say that, although there are matters here that are capable of being counted, and should be counted and should be published on a regular basis—and we can agree about what the period should be—some statistical matters are capable of being treated in that way and published, with full disclosure. We will certainly wish to pursue these concepts of disclosure on Report.

Perhaps an even more important point, as the noble Earl was saying, is that part of the job of Parliament and the Committee is to focus the minds of Ministers, officials and those who are responsible on the priorities. As much as these clauses are about statistics, they are also about psychology and focus. I hope we will come back to these on Report. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 23 not moved.]

The Deputy Chairman of Committees (Lord Lyell)

We now come to Clause 3.

Baroness Hollis of Heigham

I apologise. We were moving notes between us and I was led by the noble Lord, Lord Higgins, to believe that we could not take a new amendment after 7.30, but perhaps I am wrong on that. In response to a note sent me by the noble Lord, Lord Higgins, I was happy to suggest that the Committee reconvene.

The Deputy Chairman of Committees

I received no instructions. Does the noble Baroness wish to adjourn the Committee, as it is 7.30?

Lord Higgins

I understood that the procedure here, which many of us are not familiar with, was such that we were not supposed to begin a new amendment after 7.30. I may have been misinformed, so I am not going to take responsibility for imposing the rules. We have made considerable progress, so it would seem sensible to adjourn.

Baroness Hollis of Heigham

If the noble Lord was misinformed, so was I. I am happy to suggest, if the Committee so wishes, that we reconvene at 3.30 p.m. next Tuesday.

The Deputy Chairman of Committees

The Committee stands adjourned until Tuesday 21st May at 3.30 p.m.

The Committee adjourned at twenty-nine minutes before eight o'clock.