§ Lords amendment: No. 2.
§ Dawn PrimaroloI beg to move, That this House agrees with the Lords in the said amendment.
§ Mr. Deputy Speaker (Sir Michael Lord)With this we may discuss Lords amendments Nos. 3 to 6, 12, 18 to 23, 33, 34, 37 to 40, 42, 45, 47, 49, 50, 52 to 64, 66, 72, 73, 75 to 78, 80, 81, 85, 86, 88, 91, 93, 99, 106, 108 to 113, 115, 118, 121 and 124.
§ Dawn PrimaroloThe debates that we will have as we proceed through the remainder of our considerations today will be on technical and drafting amendments that the Government believe will improve the Bill by clarifying and rationalising its provisions. I shall briefly introduce the purpose of each group, and many of the amendments are consequential.
This group of amendments deals with the interaction between awards and entitlement, and includes technical changes to the provisions on recovering overpayments and paying out underpayments when entitlement turns out to be different from the amount paid under an award during the year. In addition, it makes clear that awards are not revoked by a decision of the board, but are instead terminated by such a decision.
I shall briefly explain why these technical changes are necessary. The new tax credits introduced by the Bill are designed to target support according to the current circumstances of claimants within the context of a system that bases entitlement to tax credits on annual income and can respond by adjusting support if claimants experience a change in their level of income.
As the credits are designed to ensure support is delivered to claimants during the year, the Bill enables the Inland Revenue to make awards, and payments under those awards, during the year, and to adjust those awards and payments as claimants' circumstances change. That is precisely what we intended.
However, there were some technical problems—as there often are—with the relevant provisions in the Bill as it stood. The amendments do not change the basic operation of the Bill. Awards and payments under those awards are the vehicle for delivering support during the year. Entitlement is different. I am sorry that we need to be so precise, but legislation needs to be precise in these 917 circumstances. Entitlement depends on the underlying facts, some of which cannot be determined until after the end of the year. However, that distinction was not clearly drawn in the Bill as it stood, so we decided that a number of technical changes were necessary to clarify matters.
The key changes are the amendments to clauses 3 and 5. A considerable number of purely consequential amendments to later clauses were also necessary. That accounts for the bulk of the amendments in this group.
In addition, the Bill was unclear about the effect of income on awards and entitlement. As the new tax credits will respond to changes in income, entitlement cannot finally be determined until after the end of the year, when current year income is known. As the Bill stood, however, the lack of a clear distinction between awards and entitlement meant that claimants could face having their entitlement curtailed because of decisions taken by the board during the year based on expectations about income.
If the board decided not to make an award at all, in the expectation that a claimant's income would be too high for entitlement to any tax credits, that could cut across the claimant's entitlement. Awards will of course be finalised at the end of the year, once all the relevant details about income are known; but if no award was ever made there would be nothing to finalise. Someone might be entitled to receive money, albeit perhaps not very much, when his or her final income was determined according to the facts but the submission of expected income over the rest of the year had suggested no entitlement. To avoid that problem, amendments to clause 14 will allow the board to make awards at a nil rate.
The idea of someone receiving a notice telling them that their award is nil may strike some people as bizarre. However, the reason for that is that at the end of the year the assessment of entitlement against award allows for action if it is indicated that money is outstanding.
The group of amendments also contains minor drafting changes, the main change being replacement of references to the board's revoking awards with references to its terminating them. Once made, an award cannot simply disappear, which is what the reference to revoking awards might be taken to imply. If the award disappeared, it would not be possible to decide on the entitlement at the end of the year.
Provisions relating to both overpayments and underpayments are amended. That enables the board to recover overpayments before the end of the year when the person to whom the award was made never met the basic qualifying criteria for the tax credit, and also makes clear that the board is obliged to pay any extra tax credits to claimants when there have been underpayments. It was always clear in Committee that the Government intended to make such provision, but I was told that the technical definitions should be made clearer.
I am sorry that there are so many technical changes, but it was necessary to change every reference throughout the Bill to ensure that there could be no dispute about claimants' entitlements.
§ Mr. FlightWe support these technical amendments, which, along with others, correct drafting errors.
918 The many amendments tabled in the other place were, I think, largely tabled at the last minute. They seem to have been grouped into nine categories here, whereas there were five in the Lords. Essentially, however, they reflect a drafting muddle that occurred when the Bill went there—a muddle concerning both the definitions and the operation of awards and entitlements.
Lord Higgins, who contributed a great deal to sorting out the problem, was strongly vexed. He said it would be "far more appropriate" to describe the amendments as structuring amendments, because there were
fundamental inconsistencies…between the earlier and later parts of the Bill.He said the Bill was "fundamentally flawed", and addedRarely in almost 40 years in both Houses have I seen such a badly drafted Bill—in fact I probably never have."—[Official Report, House of Lords, 12 June 2002; Vol. 636, c. 266.]6.15 pmI must confess that it took me a long time and a lot of digging to establish the essence of the structural errors. I must also confess that in Committee I focused on the related territory rather than on specific drafting issues. The Revenue is being expected to make awards during the year, not necessarily based on adequate evidence, to check entitlement in terms of meeting all the qualifications and criteria at the end of the year, and then to recover overpayments.
I think that the mechanism remains questionable and potentially flawed. I remember making the crucial point that unless claimants completed the tax credit equivalent of a tax return at the end of the year, I could not see how the poor devils in the Revenue could easily obtain all the information they needed to confirm that the provisional awards they had made would be correct in terms of legal entitlement.
Let us consider the technical issues. The credits are designed to ensure that support is delivered to claimants during the year. The Bill enables the Revenue to make awards—and payments according to those awards—during the year, and to adjust the awards and payments as claimants' circumstances change and are confirmed. But because the credits will also respond to changes in income, entitlement cannot be finally determined until the end of the tax year when current-year income is known.
Awards, and any payments made according to them, are simply a vehicle for the delivery of support during the year. Entitlement, however, depends on the underlying facts, some of which—those relating to income—will not be determined until the end of the year. That distinction was not originally clear in the Bill, and gave rise to some technical problems.
In particular, there was a contradiction between clause 5 and the decision-making provisions in clauses 14 to 16. What were then subsections (3) and (5) of clause 5 were intended to make provision regarding claimants' entitlements. When people cease to meet the basic requirements necessary for qualification for one of the credits, it is sensible for their entitlement to stop. That was the aim of clause 5(5).
As couples will be jointly entitled to the new credits, it is axiomatic that the entitlement of a couple—as a couple—should stop if the partners break up. Similarly, the entitlement of a single person as an individual will 919 stop if that person takes on a new partner. That was the aim of clause 5(3). The provisions in clause 5, however, were cast in terms of the effect on awards rather than entitlement. They implied that awards would or would not end in particular circumstances. Clauses 14 to 16 make it clear that the existence of awards depends on decisions made by the board. Thus there was a conflict. The Bill as it stood left unresolved the question of what would happen in a case in which an award ought to end under clause 5, but the board had made no decision to end it under clause 16—or vice versa.
These, then, are technical amendments intended to correct the misdrafting. Clause 5, in particular, now makes clear that awards run until the end of the tax year, and end during the year only if terminated by a decision of the board.
I could bang on about the technicalities, but I think I have put on record what the technical issue was. The amendments relating to awards, entitlements, overpayments and underpayments are the key ones, although I believe that four other groups relate to those matters as well.
§ Mr. WebbIt may reassure the House and you, Mr. Deputy Speaker, to learn that I shall not try to catch your eye on any further group of amendments, unless goaded. The amendments relate to overpayments and underpayments and other technical issues, and one practical issue arises.
It would be helpful if the Minister would say how the system, which will come into operation in April 2003, will work in the following example of a typical person. We were told in Committee that the tax credits are modelled on the tax system and that they will bring benefits and taxes closer together. The tax liability for 2003–04 is based on income in 2003–04. My understanding is that eventually entitlement to tax credits for 2003–04 will be based on outturn income in 2003–04, which will obviously be known for sure only at the end of 2003–04.
What is the position of someone who makes a fresh claim in March 2003? I have a constituent who has had a letter from the Inland Revenue to tell her to hold on to her P60 for 2001–02. I have written to the Minister on this issue. My constituent is very concerned, because her income has fallen since 2001–02. She is worried that she might make a claim in March 2003, hand in her P60 for 2001–02, and be told by the Revenue that she had a high income and will not get much tax credit. The relevant adjustments would not be made until the end of 2003–04, when her income could be determined definitively. For someone who makes a claim in March 2003, the assessment of income should be based on a best guess for income for 2002–03, not on outturn income for 2001–02, which will be two years out of date by then.
§ Dawn PrimaroloWhen the system starts up in April 2003, we will not have P60s available for 2002–03. Therefore we will start, effectively, at P-1, so we will use the base year of 2001–02. In the circumstances the hon. Gentleman describes, when someone's income has fallen in 2002–03, we might move to current-year income. We would consider the actual income at that time. I am grateful that the hon. Gentleman has written to me, because I wish to consider his point, but that is my 920 understanding of the situation. In the first year, we have to use P-1, which will be 2001–02 and that should suffice, except in the circumstances that the hon. Gentleman describes of someone experiencing a fall in income.
§ Mr. WebbI am grateful to the Paymaster General for that constructive response, but unfortunately it raises several concerns. First, my constituent rang the WFTC helpline, but the staff did not have a clue about the system that will start in April. Many people will want to know how it will work, and I would be grateful for confirmation that the staff will start to give prospective advice on how the new system will work as soon as possible.
Secondly, when I have received the Paymaster General's reply, I will write to my constituent and advise her to point out to the Inland Revenue when she makes her claim that her income has fallen and that she wants to be judged not on the previous year's income but on the present year's. My constituent will know what to do, because she has talked to me, but many people will not. They will be asked for the previous year's P60, but if their income has dropped they will be underpaid for up to 18 months.
Thirdly, I do not understand why we will not always have that problem. In March 2004, we will not have P60s for 2003–04, so we will have to use P60s for 2002–03 for assessments for 2004–05, unless three months into every tax year, when the P60s are published, all assessments are revisited in one go.
§ Dawn PrimaroloI congratulate the hon. Gentleman's constituent on being ahead of the game in applying for something that the House has not yet decided will he available to be applied for. It is difficult for a helpline to advise on something that has not yet been agreed by the House. None the less, I apologise if his constituent has not received the advice that she should have received.
On the hon. Gentleman's second point, I agree that, once the House has agreed the new system, it is important that we start training programmes and put the helpline in place. I will certainly pay particular attention to that.
On the third point, the Bill allows for assessments to be made on a combination of previous year and current year. In Committee, we discussed the timing of the changeover of the rates so that it was in place with the issuing of the P60s. Although the claim is made from April, an increased payment might start a little later. That will even out the system. I realise that my intervention is too long, and I do not wish to try your patience, Mr. Deputy Speaker, so I will write to the hon. Gentleman on those points. If he agrees, I will send a copy to the hon. Member for Arundel and South Downs (Mr. Flight), because I am sure that he is interested in the same points.
§ Mr. WebbThe system will be introduced in nine months. My constituent has taken or is considering taking—I forget the exact circumstances—another job that will mean a drop in income. She is looking ahead and wondering whether she can take the job. She has rung up for advice on a system that Ministers have said will be available next April, so it is a little harsh to criticise her. It is not unreasonable to ring a helpline for advice on a system that Ministers have repeatedly mentioned and that will be in place next April.
Given that P60s are provided to everyone a couple of months into the new financial year and that, presumably, most people will need some adjustment to their rates— 921 because of overtime or whatever—will we routinely see millions of adjustments to tax credit awards in, say, June every year? Some will be overpayments and some will be cuts, so what certainty will people have that the money they start getting in April—presumably a continuation of the previous year's money—will continue?
I also wonder about the culture of the changes. We have been told that tax credits are supposed to be like income tax, but everybody's rates might change in June, whereas income tax rates apply for the year from April—although I appreciate that allowances have been changed mid-year in the past.
§ Dawn PrimaroloI certainly did not criticise the hon. Gentleman's constituent. In fact, I congratulated her on her forward thinking. In April 2002, the Inland Revenue published a document entitled "The Child and Working Tax Credits: The Modernisation of Britain's Tax and Benefit System, Number 10". Paragraph 4.5 on page 19 deals with how we would adjust the credit and the calculation. As we ran on past the beginning of the tax year, we would have information about what people had already had. We would then be able to make the calculation for the next year accordingly. However, I will write to the hon. Gentleman about that.
6.30 pm
I agree with the hon. Gentleman that it is vital that the correct advice is in place for people who want to plan for their futures and to take advantage of what will be an excellent source of support for them and their families as they enter the labour market or change jobs.
§ Mr. Flightrose—
§ Mr. WebbI thank the Minister, and give way to the hon. Member for Arundel and South Downs (Mr. Flight).
§ Mr. FlightI thank the hon. Gentleman for giving way. I simply remind him of the extensive debate on these matters in Committee. The central problem in moving to a system based on the current year rather than the previous year is how the Revenue can obtain the relevant information. That is not about income alone; it also involves the numbers of children involved, housing benefit details, and all sorts of other things. There is also the difficult problem of the number of hours worked.
The administrative process is not up to speed at present, and the hon. Member for Northavon (Mr. Webb) is right to point out that that problem will continue beyond start-up. The Revenue will have a nightmare working out entitlements at year-end against awards paid in the course of the year, and in its attempts to collect overpayments. That is one of the problems with the Bill.
§ Mr. WebbNot all the items listed by the hon. Gentleman are especially complex. For example, the number of children involved should be fairly predictable, and housing benefit does not feed into this calculation—rather, it is the other way around. However, the practical problem with the number of hours worked may be the big one.
922 My point about the amendments is that we are faced with 137 of them this evening. I sat through the Standing Committee debates and did not spot the problems that the amendments resolve. Will the Minister say something about how the problems came to light? The hon. Member for Arundel and South Downs implied that Lord Higgins spotted them, and brought them to the attention of the House. I am worried that the House allowed the Bill to go through without spotting the problems. By what mechanism were they brought to light, and are there any lessons about how that mechanism could be brought to bear earlier in the process? I am as embarrassed as anyone that we are having to discuss 137 amendments to a Bill that I waved through.
We support the clarifications and technical corrections in the amendments that remain, but I hope that the Minister will comment on how we reached this point.
§ Dawn PrimaroloWith the leave of the House, I shall respond to the points that have been raised.
The Government consulted widely on the Bill, which is far better as a result. We continued to undertake consultation, and then moved these amendments. Lord Higgins's complaint was that we tabled them.
§ Mr. FlightThe Government tabled them late.
§ Dawn PrimaroloNo, we did not table them late. The lesson mentioned by the hon. Member for Northavon (Mr. Webb) involves Governments who want to ensure that legislation going through the House is subject to constant scrutiny. This is a complex Bill, but it would have operated without the changes suggested in the amendments. The Government are very grateful for the continued contribution made by the experts involved. They have made the Bill better as a result, but we had to decide whether to table the amendments.
The other problem has to do with the point made by the hon. Member for Northavon—that the Bill has been eagerly anticipated by our constituents. Before the Government can put in place the apparatus for advice and support in connection with the Bill, and before we can publish the details about it, we need the House to agree it. I deeply regret that the amendments were tabled at such short notice in the other place. I should have preferred to avoid that, but they were purely technical in nature and everyone—including Lord Higgins and Lord Russell, who was extremely supportive and generous—agreed that the Bill would be improved by them. In the light of that, it would be a very poor House of Parliament—Commons or Lords—that stood on procedure and prevented the amendments from being agreed and improving the Bill.
I accept that inconvenience was caused to the House of Lords, but the situation is not unique. The previous Conservative Government often tabled, at the last minute, matters of substance in the other place. These amendments do not change the substance of the Bill, but, as a result of the partnership in the consultation, they do make it better.
Inland Revenue officials have worked tirelessly to ensure that all the information was available to Members of this House and the other place, and to those organisations outside the House that were actively helping us to design the Bill. I must even tell the hon. Member for Arundel and South Downs that the speaking note that 923 he read out and attributed to Lord Higgins was, in fact, prepared for Baroness Hollis. When we accepted that the amendments had been tabled late, the Government provided the House of Lords with all notes and ministerial speaking notes. We also provided all the technical details, and full explanations of them. We offered their Lordships meetings with officials, and I would even have honoured the meetings that were, rather baldly, set up with me. However, I am glad that that did not turn out to be necessary.
Amendments may improve a Bill, but it may be inconvenient for the House to deal with them. Ministers must decide the balance between those two factors. I decided that we should continue to improve the Bill as much as possible.
I apologise to both Houses for any inconvenience caused, but I remind hon. Members that most of the amendments are consequential. Lord Russell was very generous in his comments, and even Lord Higgins said that the Bill was improved by them. His objections therefore perplexed me.
§ Mr. WebbMy observation—it was not a criticism—was not that amendments were tabled late. If a problem is spotted, it should be corrected. However, why did not the mechanisms that allowed outside observers to spot the problems come into action earlier in the process? Legislation is under constant scrutiny after it has finished its passage through the House, but why did not the process of technical clarification happen earlier?
§ Mr. Deputy SpeakerOrder. I appreciate that the Minister is responding to questions that have been raised, but we are not at present dealing with the amendments that are before the House. I hope that she will respond briefly to the hon. Member for Northavon (Mr. Webb), but then she really ought to turn to the amendments.
§ Dawn PrimaroloIndeed, Mr. Deputy Speaker. The hon. Gentleman answered his own question, which is that legislation is normally scrutinised in detail after it has been passed. The option is to take much longer and have draft legislation available for years in advance, to do it as the Government have attempted to do, or to do as people suggested and table amendments once the legislation is finalised. Points on most legislation are made afterwards, causing amendments to be tabled.
I think that I have dealt with the point of the hon. Member for Arundel and South Downs about the amendment. If there were a criticism to be made of the Government—because it is the Government who found that changes needed to be made—it would be that they were trying to be too helpful. This may be a dangerous thing for a Minister to say, but long may the Government and their Ministers continue to be helpful in ensuring that legislation is improved.
I am grateful to the hon. Members for Arundel and South Downs and for Northavon for the positive way in which they have commented on the amendments. I look forward to their continued involvement as we roll out the tax credits up to April 2003; they have touched on important issues that can be dealt with only when the legislation is finalised.
§ Lords amendment agreed to.
§ Lords amendments Nos. 3 to 6 agreed to.