§ Order for Second Reading read.
§ 4.7 pm
§ The Financial Secretary to the Treasury (Dawn Primarolo)
I beg to move, That the Bill be now read a Second time.
I am pleased to have the opportunity to open the debate on the Bill's introdu0ction and to recommend it to the House. This short Bill's purpose is to provide authority for preparatory expenditure by the Inland Revenue and the Department of Social Security on introduction of the new working families tax credit and disabled persons tax credit.
As hon. Members will be aware, in his recent Budget, my right hon. Friend the Chancellor of the Exchequer announced the introduction of the working families tax credit, from October 1999. The new tax credit is central to the Government's major programme of tax and benefit reform, and will provide a very real incentive to move from welfare into work, by significantly boosting the earnings of low-income families with children, and providing extra help with child care costs. It will build on and replace family credit; similarly, a new disabled persons tax credit will build on and replace disability working allowance. Both the new tax credits will be assessed and administered by the Inland Revenue, and from April 2000 will be paid mainly by employers through the wage packet.
The working families tax credit proposal has been widely welcomed. It is designed to make work pay for families. By providing a clear link with employment, it aims to demonstrate the rewards of work and help people to move off welfare benefit and into work. As a tax credit rather than a welfare benefit, it should also reduce any stigma associated with claiming in-work support. We believe that that will encourage higher take-up.
When it is fully up and running, the working families tax credit will provide around £ 5 billion of help to about 1.5 million working families—equivalent to £70 per family per week. It will give almost £1.5 billion more in-work support than family credit.
The working families tax credit represents an important step towards greater integration of the tax and benefit systems. In particular, it will reduce the current wasteful overlap between the tax and social security systems, whereby almost 500,000 families pay income tax to the Inland Revenue while receiving family credit from the Department of Social Security.
The Bill seeks to assist with the preparatory work. Although the working families tax credit will not begin until October 1999, there is a great deal of work to be done, as I am sure hon. Members will appreciate. The importance of the measures, with their significant benefits to low-income families and people with illnesses or disabilities, means that it is particularly important to ensure that the system works efficiently and effectively from the start. That involves very careful preparation. An Inland Revenue project team, working jointly with the Benefits Agency and the Department of Social Security, has been set up to plan the new processes. 875 The legislation to enact the tax credits will be introduced in the next parliamentary Session and hon. Members will have the opportunity to debate the details at that time. However, the basic structure and purpose of the tax credits are clear. I shall summarise them briefly.
In general, families on low incomes where the main earner works more than 16 hours a week will be entitled to a tax credit of £48.80 in respect of the adult or adults in the household. They will also be entitled to a tax credit in respect of each child, ranging from £14.85 to £25.40 a week, depending on the age of the child. There will be an additional tax credit of £10.80 where the main earner works more than 30 hours a week. That is to encourage people to move from part-time to full-time work.
In addition, the working families tax credit addresses the problem posed by the cost of child care, a major obstacle to work for many families. The scheme will include a child care tax credit designed to make support for child care through the tax system more generous and more transparent than is currently the case with family credit.
The child care tax credit will be worth 70 per cent. of eligible child care costs, subject to an overall limit on those costs of £100 a week for one child and £150 a week for two or more children. So, through the child care tax credit, support for child care costs will be provided up to a maximum of £70 a week for a family with one child and £105 per week for a family with two or more children. That will be a significant increase on the maximum support currently provided through family credit.
It is important to explain at what point withdrawal of benefit will start, once the working families tax credit is operational. Withdrawal from a family will start when their net income, before adding working families tax credit, exceeds £90 a week. That is called the withdrawal threshold. After that, the withdrawal rate for each additional pound of net earnings will be 55 per cent. That is known as the taper.
The structure of disabled person's tax credit will be broadly similar, and will include an adult credit for single people and those who are married, a child credit and a child care tax credit to help with child care costs. The structure of the new tax credits reflects the priority that the Government attach to getting those who are out of work into work, and keeping them in work and on the ladder of job opportunity.
Another significant discouragement to work is the poverty trap, which arises when the combination of tax and the withdrawal of benefits gives rise to very high marginal tax rates. The working families tax credit alone will therefore ease the poverty trap by reducing the marginal rates for more than 500,000 families who currently receive family credit.
Both the working families tax credit and the disabled person's tax credit will be administered by the Inland Revenue on their introduction in October 1999. From April 2000, they will be paid in the main by employers through the wage packet. For working families tax credit, couples will have the right to elect to whom the credit is paid—the man or the woman.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
Is the Minister able to tell us whether some of the moneys 876 for which we will be voting tonight will assist the Government in contemplating whether that choice will be available only to married couples, or also to people who are living in relationships that are technically outside marriage?
§ Dawn Primarolo
The Bill is to assist in the development of the detail, planning and consultation that will be necessary in building on family credit, taking its best elements and transferring them to the working families tax credit. Since the hon. Gentleman is very knowledgeable on these issues, I am sure that he understands that the consultation and detailed work on answering the many questions, including the one that he has posed, needs to be clarified, so that, when the Bill is fully scrutinised, all necessary consultation and preparation has been undertaken. The House is being asked to agree that work can start on development of the proposals.
Having described in some detail the structure that we propose for the tax credits, I am sure that hon. Members will appreciate the extent of the work involved in preparing for the introduction of such a scheme, and the many, many questions that need to be answered. Given the improvement that the scheme will provide for a range of people on low incomes, it is absolutely essential that it works efficiently and effectively from the start.
Computer systems and processes need to be designed and ready to begin on the date of the introduction of the working families and disabled persons tax credits. That cannot be done overnight—hence the importance of starting the work as soon as possible.
In order to build on the success of family credit, it is clearly vital that the Inland Revenue work closely with the Department of Social Security, and that both Departments start work straight away to develop the necessary business processes—thereby providing another example of closer working between Government Departments. Until the legislation introducing the working families tax credit and the disabled persons tax credit has been sanctioned by Parliament, the costs for these aspects of development work are outside the current accounting remit of both the Departments involved—hence the need for the Bill, to allow them to spend money preparing for the introduction of the tax credits.
That authority is essential to enable the development work to begin, so as to meet the timetable for introduction set out by my right hon. Friend the Chancellor in his Budget speech; and so as to answer the many questions that hon. Members continue to pose about the working of the tax credits.
The Government expect that the programme of tax and benefits reform to make work pay will, like the new deals, help people to move off welfare and into work. The working families tax credit and the disabled persons tax credit are central to that programme, and the work on their development is essential to its success. The Bill will enable that vital work to go ahead. I therefore commend it to the House, and ask hon. Members to support it.
§ Mr. Michael Fallon (Sevenoaks)
I declare the interests registered in my name in the Register.
The Bill is a rather curious and sudden afterthought. It was the Financial Secretary who, launching the Finance Bill, told us that the Bill would take forward the 1998 877 Budget measures to reform the tax and benefits system. We of course looked at the Finance Bill, but could find in it nothing about the working families tax credit. Now we are told that there are to be two further Bills—
§ Mr. Andrew Mackinlay (Thurrock)
On a point of order, Madam Speaker. I apologise for interrupting the hon. Gentleman, but I was surprised to hear him say that he declared the interests in his name in the Register. I should have thought that insufficient; if he has an interest to declare, he should declare it in the House, not refer hon. Members to the Register. I hope that this is a matter of principle, not just of semantics.
§ Madam Speaker
The hon. Member for Sevenoaks (Mr. Fallon) has declared his interests. If they are of special interest to any Member, they can be immediately looked at in the Register.
§ Mr. Fallon
There appear to be two Bills involved: this Bill as a paving measure, and another one to be presented next year.
I described this Bill as a sudden afterthought. It could have been introduced last year. The basic structure of the working families tax credit was known last autumn. It seems to us that the Financial Secretary is leaving it very late to get a new system in place before October 1999.
We Conservatives welcome any measures to continue the progress we made towards easing the poverty trap, and improving the position of those on marginal rates. There is nothing wrong in principle with replacing benefits by credits—provided the new system is simple to operate; that it is easy to understand; that it does not impose excessive and unnecessary costs on business; and that it does not cut across the principle of independent taxation which we introduced when in government.
The working families tax credit, we believe, is going to fail a number of those tests. It will be an administrative nightmare for employers. There will be paperwork—from the recipient to the Revenue, from the Revenue to the employer, from the employer to the employee. The new system will cost millions to implement.
A number of extra costs will be incurred in introducing the tax credit, including the cost of moving the advantage further up the scale, and improving take-up. However, we are primarily concerned about costs to the employer and to the public purse.
On Budget day, we were told—I quote from the press release—that the measure was "good news for employers", but it now turns out that employers will have to do much of the work. They will have to check whether new employees are entitled to the working families tax credit and whether the certificate—or amendment to the tax code—that new employees bring with them has been correctly notified to the Revenue. That is one thing for personnel departments, but quite another for smaller businesses.
Employers will also have to know things that they did not have to know—and certainly do not want to know—about their employees. Why should companies have to find out what their employees' partners or spouses earn? Why should they have to know how many children there are in a household?
I draw the attention of the House to the evidence submitted to the Select Committee on Social Security—in appendix H of its report—by the Institute of Directors:
878No employer will want to have to collect that information. Furthermore, many employees will be reluctant to supply such information to their employers. Claimants currently supply the information to the Benefits Agency only on the clear understanding that it will not go any further.The Bill will take the tax man and the employer into completely new areas.
The measure will mean huge changes to the pay-as-you-earn system. Recipients of the new credit will often have higher net pay than gross pay. There will also be a considerable cash flow loss to employers and a cash flow advantage to the Government—happily for them. That can be illustrated by the simple fact that net pay will be increased and paid out at the end of the month, whereas the tax and national insurance contributions, which are paid on the 19th of the following month, will decrease. Does the Financial Secretary accept that that is the case? Will employers be compensated in any way for the cash flow damage they will suffer?
As well as costs to the employer, there will be huge costs to Government. The Budget press release said that the merging of the systems would produce better service and better compliance, and that the removal of the duplication of effort would increase efficiency. However, we now learn that there will be a huge cost, not increased efficiency—£15 million to £20 million will have to be spent simply on turning the Contributions Agency into part of the Inland Revenue. Will the Financial Secretary say whether the proposal will bring net administrative savings when it is fully implemented?
Will the Financial Secretary give us a breakdown of the £15 million to £20 million that she is asking Parliament for? She spoke rather airily of computer systems, but the sums she mentioned could not purchase many of those. How much is to be spent on computer systems, and how much on restructuring the Contributions Agency?
The Government said that 200 jobs might disappear. Six weeks on from that initial estimate, perhaps the Financial Secretary could confirm the figure of 200 jobs lost countrywide in the combined organisation, and tell us whether she rules out compulsory redundancies. It may be difficult to find the necessary retirements and resignations.
§ Dawn Primarolo
Perhaps I can help the hon. Gentleman. In the preparation for the working families tax credit, we are talking about the family credit unit, not the Contributions Agency, although that is associated with the work. The points about the transfer of the Contributions Agency into the Inland Revenue have been answered in detail to the hon. Members whose constituents are involved. The subject is not relevant to this debate, but I will be happy to send to the hon. Gentleman the information that I sent to all those hon. Members about the Contributions Agency.
§ Mr. Fallon
Unfortunately, the subject is relevant to the debate, because, as part of the new arrangement, the Contributions Agency is to be brought inside the Inland Revenue, with the loss of 200 jobs. It would be useful to the House if the Financial Secretary would confirm whether those jobs are at risk.
§ Dawn Primarolo
May I correct the hon. Gentleman? I realise that this is an important issue, but it is not connected with the paving Bill or with the development 879 of the working families tax credit. He is talking about a decision taken by the Government concerning operational efficiency, and I will be happy to send him the relevant information; but he should not confuse it with this debate.
§ Mr. Fallon
That is an interesting comment, because it is not simply a matter of operational efficiency. The press release referred to a new operation that will achieve a better service and better compliance, combining the tax and benefits system with the credit system. However, if the Financial Secretary intends to write to us with the details of the proposed job losses, that will be helpful.
An argument about the classification of the working families tax credit has been raging inside and outside Government, and in Select Committees, for about two months, and it is about time it was cleared up. The Red Book said that the classification was still to be determined. There is not much dispute between us that, in national accounting terms, 80 per cent. of the credit can be classified as public spending and 20 per cent. as a tax cut.
The argument concerns how one reports the net taxation figure. Has it has been agreed with the Office for National Statistics whether the working families tax credit can legitimately be scored for taxation purposes at 100 per cent.?
While we are on the subject of classification, perhaps the Financial Secretary could also tell us whether she accepts the Social Security Select Committee's recommendation that it would be helpful if the Treasury reported annually on the tax forgone as an element of the working families tax credit.
On the working families tax credit, we need answers to questions that the Financial Secretary has suggested remain unresolved. From the moment the tax credit was announced, Conservative Members asked again and again whether, if the man were the principal earner, the woman would have a veto. We were told that she sometimes would, but now we are told that the Revenue will develop the details of the new scheme over the coming months. Will the Financial Secretary say whether the Revenue will lay down rules to deal with disagreements?
The Paymaster General helpfully wrote to me on that point on 20 April:
The details of the new scheme, including the rules for dealing with particular situations such as disagreements between partners, will be developed by the Inland Revenue over the coming months.We must ask why the tax man has been drawn into disputes—perhaps across the breakfast table—between partners. Should we really allocate that role to the Inland Revenue?
Perhaps the Financial Secretary will answer more fully than she did when she answered the question of the Chairman of the Social Security Committee, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), about who would receive the credit. At one point we were told it would be the woman. Then we were told it would be the spouse. Now, I have been told by the Paymaster General that that is not so. His letter goes on:
The present presumption is that this would normally be paid to the partner who mainly cared for the children.That is not what we were told during the Budget debates. It raises difficulties about the veto that was originally promised to the woman. Will the Financial Secretary tell 880 us who is right? Will the woman in a relationship have a veto if the man is the main earner, or will it be up to the Revenue, and its rules, to decide who mainly cares for the children?
I can foresee some dispute arising over that. Men may argue that they care for their children in different ways, such as going out to work to bring home the bacon, rather than sitting at home looking after them. We must be clearer about whether women have the veto. If they do, it would be interesting to hear from the Financial Secretary whether women will be advised of that. Will the Government advertise to ensure that women know that they have a veto, or do the Financial Secretary and her colleagues hope that not all women will exercise the veto, because the benefit could then be classified not as a benefit, but as a tax reduction, which would assist their figures considerably?
I have put a number of questions to the Financial Secretary. I hope that she will be able to answer them, but, if she cannot do so tonight, it would be helpful if she did so before we go into detailed debate in Committee.
Successfully introducing the working families tax credit will require a great deal of good will and co-operation, not only across the Floor of the House, but among employers. The earlier the draft rules and details can be made available, and the fuller the consultation, the easier it will be for business.
This is not a simple matter, and it is not true that employers will face a simple adjustment to their pay-as-you-earn systems. If the credit is not introduced efficiently and effectively, not only will employers face additional costs, but a stigma will still attach to employees.
For example, two potential employees may be chasing one vacancy, one with the working families tax credit and one without. The one who has the credit on his or her tax code may lose out, because the employer, knowing all the extra costs of administering the new tax credit, prefers to choose the candidate who will not require alteration to the various payment systems.
There are therefore many difficulties ahead in the introduction of the working families tax credit. I urge Ministers to consult business as widely and thoroughly as possible. In the end, as with so much else prepared by the Government, the cost will fall on business if the gains that the Government see in the proposal are to be fully realised.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
I am pleased to be able to take part in this brief debate. It is important that consultations take place on the working up of the detail of this policy. It is a brand new area of public policy. The Government's intentions are sound, but as Chairman of the Select Committee, I have to say that the detail is not straightforward and simple. The devil will be in the detail. The intention of the policy could be thwarted if we do not get the detail right.
The Government are right to make proper provisions, not only for business. The hon. Member for Sevenoaks (Mr. Fallon) was right. Serious concern was expressed by the Institute of Directors and others about the policy. Consultation is essential. The Financial Secretary will probably be aware that the Select Committee proposes a 881 third phase of our inquiry into the integration of tax and benefits. We shall look specifically at the implementation phase. If Treasury Ministers and officials can assist in that process, that will be helpful to us. Mr. Martin Taylor, who has done so much of the thinking about the issue, has agreed to come back. If we can resolve all the complicated issues such as who gets the choice within a partnership after consultation, it will be in everyone's interests. They are not easy issues. Sometimes one has to make balanced judgments, but we must not rush the thing. We must get it right if the policy is to be of service to the people whom it is designed to serve.
I want to make a couple of points about House of Commons issues. I am nervous about the Bill. If Ministers introduce spending Bills such as this in anticipation of the approval of the House of the principal policy, they may set a precedent. I am extremely nervous about such a device. It takes for granted the decisions that the House of Commons will take when the principal legislation is introduced. As I have explained, a lot of the devil is in the detail, and if the detail cannot be resolved, the House may conclude, even though it supports the principle, that the outstanding problems are so complex that the principle is not worth pursuing.
It is a bit presumptuous of Ministers to assume that the House will give almost retrospective authority once the money is spent. It cannot be a positive outcome for anyone if we spend £15 million to £20 million of taxpayers' money in advance of the approval of the House and the House withholds its approval by rejecting the Second Reading of the main Bill.
§ Mr. Fallon
I wonder whether the hon. Gentleman has studied clause 1(2), which gives the Government authority to spend the money whether or not Parliament subsequently approves the principal legislation. That in itself is a considerable innovation.
§ Mr. Kirkwood
The hon. Gentleman makes the point more effectively than me. I am puzzled because the Minister seems to be shaking her head. My understanding is that the money will start to be spent from Royal Assent of the Bill. A computer system will be bought, applications will be put on to the hardware, and the system will start. If the Bill to introduce the working families tax credit fails to secure a Second Reading in the House, that money will not be recoverable. It will have gone. We had better be clear about this. The House of Commons is spending money in anticipation of the Government's success in getting the legislation through the House of Commons at a subsequent date.
All that I am saying to the Government is that the Bill could establish a precedent that might be available to less sensible Governments. In the wrong hands, ideas of this kind could be dangerous. I want the House and the Minister to understand that we should not give casual approval to the Bill. Such a device could be used for not merely £20 million but £200 million or £2,000 million if it came to it. I want some assurance that the Bill is really necessary.
Why cannot the Government bring forward a supplementary estimate—a device that Governments have used in the past? Perhaps that is difficult for the Government, because the working families tax credit is a new public policy area. If that is the reason for not using a supplementary estimate, why cannot the contingency fund be used to finance the project?
882 The hon. Member for Sevenoaks was getting confused. He was into the territory of national insurance funds. The Government have control of expenditure from national insurance contributions. The Bill would spend taxpayers' money, which is separate and distinct. If the money is needed—we have listened to the explanations that the Minister has given —I cannot understand why it cannot be raised from the contingency reserve. Such money could subsequently be paid back after the House approved the Second Reading of the principal legislation in the next Parliament.
Lots of things start occurring to me that worry me. Does the Bill produce money for the working families tax credit and no other, or are we devising systems that could be used for future tax credits? The Government have made clear their intention to introduce the working families tax credit, but does the £20 million produce a system that can then be used for other and better purposes, to introduce tax credits of which we have not yet heard? I am not saying that I would be against such tax credits, but I would be concerned if that happened.
It also worries me that the Bill is being introduced so fast. The Queen's Speech is the appropriate vehicle for the primary legislation that will put the substantive system in place. The Queen's Speech will be in October, and the legislation could be on the statute book with Royal Assent by the end of this calendar year. So all that we are winning from the £15 million to £20 million is a few short months. What is the rush? I would much rather take it slowly and get it absolutely right.
The Chancellor is a brave man. He likes to have a reputation for eating problems, and I am in favour of that in certain circumstances, but I would rather take the matter at a pace that was do-able. We should get the policy in place in an intelligible and workable way rather than rush at it, grab £20 million now, rush off to Tottenham Court road, buy a computer system and start beavering away. I should like to think that the process was a little more deliberative than that. I am obviously being facetious to make the point, but the timetable is not set in stone. The Chancellor bravely and grandly announced that the implementation date would be October 1999, but I have to ask questions about whether we should not be more sensible about the timetable.
If the Government came back and said, "We would rather have another six months or a year to get the advantages of the policy, because we are persuaded that we can get it right in that time," they would not have any difficulty from me. The Government should think seriously about that.
I should also like to know a wee bit more about the £15 million to £20 million. The hon. Member for Sevenoaks said, rather grandly, that £20 million does not buy much of a computer system. It is certainly time that we bought some of the benefits offices a better computer system, if that will mean that the benefits are produced in better order. Obviously some training will be required, but we are talking about professional staff and members of the civil service bureaucracy who already know how the systems work. There is not a great deal of difference between staff at the family credit unit at Preston and their Inland Revenue colleagues, so there will be no great culture shock involved in their training, even though it is possible to get quite a lot of training for £15 million to £20 million. It will not, in fact, be possible to do a great deal with that money between now and December, 883 which is when there will be a money resolution accompanying the substantive legislation. We need to know more about what the £15 million to £20 million is to be spent on.
We need to be reassured that some of the money will be spent on determining how this brand new policy will affect self-employed people and the business community. We also need to know what the take-up rates will be. I assume that the tax credit will have to be applied for in the same way as family credit, but there has been some misunderstanding of that point: there was a widespread assumption that, because it is a tax credit, take-up rates will automatically be improved because the tax system does not require applications to be made. In addition, we have to make sure that we do not lose some of the advantages of the current family credit system, such as the whole process and edifice of appeals standing behind the family credit system and the six-months carry-over once the benefit is in payment.
All those issues are crucial to the successful introduction of the new policy, and I hope that the Government will hasten slowly in order to get the system right. I am extremely nervous that the Bill is a symptom of the introduction of the policy being rushed. My last point, to return to where I started, is that the Government must be careful not to take the House of Commons for granted by introducing Standing Order No. 50 Bills of this sort. I shall be content only if I get a cast-iron assurance from the Minister that the device will not be used in future, unless it is absolutely essential in the long term for the promotion of public policy. If we get assurances on some of the issues that I mentioned, the Select Committee, too, will be reassured, and we can continue the arguments as the development of the policy unfolds.
§ Mr. David Ruffley (Bury St. Edmunds)
In our scrutiny of the Bill, we should remember that it is a paving Bill for a piece of legislation that will be introduced later this year. Many of us think that its provisions should have formed part of the Finance (No. 2) Bill, because the working families tax credit was the centrepiece of the Budget statement. When one ponders that, one realises why the Bill is now to be a social security Bill introduced in the autumn: it is because the working families tax credit had an unhappy start, mired in confusion. It is no surprise to Conservative Members to see the Government kicking it into the long grass and deciding to introduce the more detailed legislation later in the year.
That confusion was seen most spectacularly in the recasting of the Red Book numbers, which the Financial Secretary had to announce in a written answer published on 27 March. Hon. Members will remember that tables B5, B8, B9 and B24 in the Red Book were substantially recast as a result of an error, which related to the fact that 0.3 per cent. of gross domestic product was estimated to be the value of income tax credits, whereas the true number produced by the Financial Secretary was 0.8 per cent. of GDP. That was a colossal blunder, in the order of £15 billion over the years to 2002–03. The confusion has not really been cleared away, despite the publication of that written answer, because, as my hon. Friend the Member for Sevenoaks (Mr. Fallon) pointed out, 884 the Office for National Statistics does not appear to be entirely clear about what percentage of the working families tax credit will be scored as negative tax revenue; we do not know whether 100 per cent. will be so scored.
That is a tremendously important issue, and I should like the Financial Secretary to give a specific answer to that question. When the hon. Lady speaks on this technical issue, she always relies on the precedent of mortgage interest relief at source and how that is scored. She fobs off all our questions with words to the effect that MIRAS is the route that we shall take when scoring working families tax credit in the national accounts, but that is not an adequate answer. I should like to know what discussions she, other Ministers, or officials at the Treasury have had with the director of the ONS on that specific question. My hon. Friend the Member for Sevenoaks has asked that question and I asked it in a recent debate, less than two months ago. The debate on the paving Bill is an appropriate time to get a direct answer to that direct, detailed and specific question.
I have a second question that is deserving of a specific and simple response, which is whether the Financial Secretary is minded to accept the recommendation that the Select Committee on Social Security made in its pre-Budget report, that the Government should report annually to Parliament about the effects of any tax forgone arising from the introduction of the working families tax credit. I have asked two specific questions, and we should like to hear two specific answers from the Financial Secretary when she winds up the debate.
When we examine the details of this paving Bill, it is worth asking to what extent the initial expenditure will alleviate the clear and manifold problems that have already been mentioned by my hon. Friend the Member for Sevenoaks, in the context of the burdens, complications and new complexities that will be encountered by businesses—especially small businesses—in their PAYE calculations. It is clear that employers will be under new obligations to check the status of new employees and that they will encounter new complications when calculating weekly or monthly pay packets. I wonder whether the work being done by the Treasury, the Department of Social Security and the Inland Revenue specifically addresses those problems, which are all too apparent to those who bother to look at the issues and talk to business men and businesses, which I am sure the Government do. 1 wonder to what extent the initial expenditure that will be legitimated by the paving Bill will be helpful to businesses.
I want also to raise the extent to which the Inland Revenue is sufficiently tooled up to handle the child-related issues arising from the payment of tax credits to families. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) made that point well during the Budget debate when he said:
The Inland Revenue does not know anything about children."—[Official Report, 23 March 1998; Vol. 309, c. 67.]It has no experience of such payments. He pondered the lack of appropriateness of the Inland Revenue getting involved in such a payments system, which we all know is nothing more than an elaborate and highly expensive rebadging of family credit.
The grandiloquent claims made by the Financial Secretary and the Chancellor have not been supported to our satisfaction. I fear that the £15 million to £20 million 885 of expenditure that is the subject of the paving Bill will do little to alleviate the apparent structural deficiencies in the working families tax credit regime as it was set out in the Budget.
Chief among our concerns is the new stigma that will undoubtedly attach to many claimants of the working families tax credit. [Interruption.] If the hon. Member for Motherwell and Wishaw (Mr. Roy) wants to intervene, I shall be happy to give way, but I shall not respond to sedentary interventions.
§ Mr. Frank Roy (Motherwell and Wishaw)
Does the hon. Gentleman accept that for its recipients there is already a stigma attached to family credit?
§ Mr. Ruffley
I am delighted to respond to that point. I remember that when Lord Lawson introduced family credit in the 1980s, one of the arguments adduced by the then Labour Opposition was that it would be seen as a top-up and used as an excuse by unscrupulous employers to pay low wages. That never came to pass. There is no evidence that a stigma was attached to family credit or that it was used by employers to drive down wages. No serious commentator would accept that.
However, as my hon. Friend the Member for Sevenoaks has pointed out, under the new regime, businesses will receive information to which they ought not to have access.
§ Mr. Ruffley
Nor do they want it, as my hon. Friend points out. That is worrying. I have spoken to business men in my constituency, who say that many of their staff, in the pay-roll section and elsewhere, will have direct knowledge of what Mr. Smith, Miss Jones and Mrs. Jones are earning. There is certainly stigma attached to that. This is not a stigma-free measure, as Treasury Ministers would have us believe, but the reverse.
The chief structural problem with the measure, which has already been alluded to, is the purse-to-wallet argument. I have no desire to run around that track again—the arguments are well known and well understood. The questions have been posed many times, but unfortunately the answers are not so well known. I look to the Financial Secretary to provide a simple answer to a question that Conservative Members and independent commentators have been asking for some time. Will the woman partner in a household or family be able to veto any decision on who should receive or claim the working families tax credit?
We have a selection of questions for the Financial Secretary and a genuine concern that the expenditure that is the subject of the paving Bill may not be adequate to tackle the administrative problems that will be faced by businesses and, arguably, the Inland Revenue—the machinery of government issues. We may be permitted to be sceptical about the answer to that point. In that spirit of honest inquiry, I conclude my remarks.
§ 5.5 pm886
§ Dawn Primarolo
I beg your pardon, Mr. Deputy Speaker. I am grateful for your guidance. I seek the leave of the House to reply to the questions put to me by the hon. Members for Sevenoaks (Mr. Fallon), for Bury St. Edmunds (Mr. Ruffley) and for Roxburgh and Berwickshire (Mr. Kirkwood). The hon. Members for Sevenoaks and for Bury St. Edmunds seem unable to agree. One claimed that he was not sure whether we needed the Bill or any of the money involved and the other complained that we had not asked for enough money to do the work.
I listened carefully to the points made by the three hon. Members who spoke, and I shall do my best to respond. The hon. Member for Sevenoaks said that the system should be simple to operate and easy to understand, that there should be no extra burdens on business and that independent taxation should not be breached. I agree. We need to consult about making the system simple to operate and easy to understand, and about the impacts on business, to which the hon. Gentleman and the hon. Member for Bury St. Edmunds referred.
Hon. Members have to understand that they cannot have it both ways. They cannot ask detailed questions and insist on consultation and then not provide the Departments concerned with the tools to conduct the consultation. We need the paving Bill because the expenditure is outside the currently agreed vote for those Departments, and we need parliamentary agreement to authorise the work to develop the tax which hon. Members and the Government clearly want to be conducted. By introducing the paving Bill, we are following the correct legislative route for the somewhat unusual circumstances whereby two Departments are required to work closely together.
§ Mr. Fallon
The hon. Lady is responding to the point made by another hon. Member, and by me. Our query is not with the paving Bill. I understand that the hon. Lady does not have the authority within the Department's current vote to incur this expenditure. Our query concerns the fact that nothing in the Bill makes it dependent on subsequent legislation. Clause 1(2) says that the powers
shall be exercisable whether or not Parliament has given any approval".We want to establish that this is not a paving Bill because there is nothing in it to limit the expenditure to subsequent approval by Parliament through another Bill.
§ Dawn Primarolo
The paving Bill will provide for the two Departments to spend money to conduct the necessary development work for the introduction in the next Session of legislation to enshrine in detail the workings of the working families tax credit. That money would be subject to exactly the same accountabilities, through the accounting officers, as is all expenditure through any Government Department.
The hon. Member for Sevenoaks is trying to turn this into a chicken-and-egg argument. How are we to ensure that the legislation is drafted to the high standards that we all want, having answered the questions that have been raised relating to business and individuals, if we are not to be given authority to conduct the work? If it fell inside the current vote application of the Inland Revenue, the paving Bill would not be required, but it is, because it is about accountability of expenditure through Departments. 887 The Bill is not a devious tactic by the Government; it is necessary to allow Parliament to give its authority to spend the money.
Several questions were asked about—
§ Dawn Primarolo
No; I want to answer the questions that have been asked in this short debate. There will be other opportunities for discussion in Committee and on Report.
A series of questions was asked about which member of a couple would receive the tax credit. The hon. Member for Roxburgh and Berwickshire asked about that in an intervention, and I apologise if I did not give a clear enough answer; I shall try again. I believe that the hon. Gentleman is aware of the family credit form and knows that family credit need not be paid to the woman; the order book may be cashed by either partner. Therefore, we have said that the couple can choose to which partner the tax credit is paid.
We were asked what would happen if there was a disagreement. At this stage, our answer is that, when a couple cannot agree, the presumption would be that the credit would normally be paid to the partner who mainly cared for the children. Fifty-seven per cent. of main earners receiving family credit are women, and women are 60 per cent. of wage earners in the families that receive family credit. The fact that the problem has been grappled with in the family credit system has helped us to refine points about what we shall do when there is a disagreement. Consultation is now necessary to ensure that the principle is carried into practice.
§ Mr. Kirkwood
I know that this is difficult territory, but I was asking a slightly different question—about whether marriage made a difference.
§ Dawn Primarolo
I was coming to that point. The hon. Gentleman asked whether cohabiting couples will have the same choice as married couples of which partner receives the working families tax credit; the answer is yes. I should have used a much shorter answer last time.
I make it clear to the hon. Members for Sevenoaks and for Bury St. Edmunds, who asked a series of questions about employers, that employers will not collect the information. Employees will claim from the Inland Revenue. The Revenue will inform the employer of how much working families tax credit is payable. The employer will not have to calculate the working families tax credit and will not be told separately of the number of children or the partner's income. I have said that repeatedly, as clearly and succinctly as possible.
§ Mr. George Mudie (Treasurer of Her Majesty's Household)
§ Dawn Primarolo
Questions were asked regarding employers' cash flow. I can tell the hon. Member for Sevenoaks that procedures are already in place to deal with similar situations regarding statutory sick pay and statutory maternity pay. Obviously, we need to consult employers to discover 888 whether similar procedures would be appropriate for the tax credit, and how best to administer payments in those circumstances. That is another example of the need for the paving Bill.
The hon. Member for Sevenoaks asked why, as two Bills were necessary, we could not have passed the Bill last year. We could not have done so last year because the Chancellor's firm decision on the working families tax credit was announced in the Budget on 17 March 1998. The Bill before us was the first opportunity to proceed. It will allow us to do the preparatory work. I should also explain that the Finance Bill is not the vehicle; the Finance Bill is limited to measures that raise revenue, or that are associated with their administration. Frankly, I thought that everyone in the House understood, especially experienced Members of the House, and especially one hon. Member who has been advising the Treasury and another who is now a Treasury spokesperson.
§ Dawn Primarolo
I shall make this point on the Office for National Statistics before I give way.
A question was asked about the Office for National Statistics and classifications. Necessary discussions are continuing with the Office for National Statistics. Hon. Members may think that it is undesirable that they have not concluded, but the difference between the Conservative Government, who were defeated, and ours, who were elected, is that we genuinely engage in consultation and seek to achieve agreement.
§ Mr. Fallon
The hon. Lady has moved on from the subject that I wanted to ask her about. We were not the only ones who said that these measures should have been in the Finance Bill —she did. She said in a press release that the Finance Bill would
take forward the 1998 Budget measures to reform the tax and benefit system".It is no use if the hon. Lady says, "We do not know what should be in the Finance Bill." That was a quotation from her.
§ Dawn Primarolo
The hon. Gentleman does not really want to know why we need a paving Bill, and what the working families tax credit would do. He constantly claims to support it, then finds reasons to knock it down. During the debate, I have tried to be as clear as I possibly can be at this stage in the development of policy, and to be open with the House about the current position. I have answered the questions, in particular about the issues that are being raised by—
§ Dawn Primarolo
I shall not give way. I hope that the hon. Gentleman will allow me to make progress. He had 889 plenty of time to speak, and he made his arguments. He demands the answers to questions and then does not want to wait for the answers.
The expenditure that is requested in the paving Bill is to cover the costs of preparing to introduce the working families tax credit and the disability tax credit, with the authority of Parliament, when that piece of legislation passes. It covers, mainly, information technology changes; the provision to the public of information about the new tax credits; the advertising that might be necessary; how we ensure proper take-up of the working families tax credit; and the development of consultation with interested agencies and consultation on the business process side and on the training of staff.
§ Dawn Primarolo
I shall give way to the hon. Gentleman in a moment. Hon. Members appear to be saying that we have not asked for enough money. We are confident that we have asked the House for the money that we need to develop this proposal.
§ Mr. Kirkwood
I understand that the Minister is trying to be helpful, but I am filled with apprehension if she is saying that she proposes to advertise the merits of the benefit publicly before the House has a chance to approve it. That is what I understood her to say.
§ Dawn Primarolo
If I have given that impression, I am grateful to the hon. Gentleman for pointing it out. I was speaking about the development work to ensure proper take-up. In his encouraging and helpful contribution, the hon. Gentleman mentioned the need to deal with take-up. We must do that now. He also asked why we needed the paving Bill, and cautioned against taking the House of Commons for granted. I entirely agree.
I explained that, because the matter is outside the vote of the two Departments, the Bill is necessary. The expenditure arises from the working families tax credit and disabled persons tax credit, but the work will assist the Departments. It will be a learning experience for them in various respects, particularly in working closely together and examining how they administer their respective systems.
The hon. Members for Sevenoaks and for Bury St. Edmunds suggested that it might be helpful if the Treasury reported annually to Parliament on the tax 890 forgone as a result of the working families tax credit. That was part of the recommendations of the Select Committee on Social Security chaired by the hon. Member for Roxburgh and Berwickshire.
The Government will shortly respond in the proper way, as would be expected, to the Select Committee report and recommendations. We recognise the importance of keeping Parliament fully informed. The cost of the tax credits has already been published, and the tax forgone because of the working families tax credit will likewise be published.
§ Dawn Primarolo
In replying to the debate, I am not interested in responding to the silly little points made by some Opposition Members in order to disrupt the business. I am interested in explaining to the House why we require the paving legislation, why the consultation is necessary, and how we shall then be able to answer even the questions of the hon. Member for Bury St. Edmunds, if he will just be a little more patient and open-minded. I commend the Bill to the House.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Motion made, and Question put forthwith, pursuant to Standing Order No. 63 (Committal of Bills),
§ That the Bill be committed to a Committee of the whole House.—[Mr. Jon Owen Jones.]
§ Question agreed to. Committee tomorrow.