HL Deb 21 May 2002 vol 635 cc55-132GC

[The Deputy Chairman of Committees (Lord Brougham and Vaux) in the Chair.]

The Deputy Chairman of Committees (Lord Brougham and Vaux)

I remind your Lordships of what was read to you on the first day. We will go through the Bill clause by clause. Noble Lords will speak standing. It has been agreed that there will be no Divisions in Grand Committee. If there is a Division in the Chamber, we will adjourn for 10 minutes as soon as the bell starts.

Clause 3 [Claims]:

Baroness Hollis of Heigham moved Amendment No. 24: Page 2, line 35, after "credit" insert "for the whole or part of a tax year The noble Baroness said: In moving Amendment No. 24, I shall speak also to Amendments Nos. 25 and 27. These amendments to Clause 3 are part of a larger package of technical amendments designed to clarify and rationalise the distinction between "award" of tax credits and "entitlement" to tax credits.

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 for claimants who experience a change in their level of income.

Because the credits are designed to ensure that 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. But because the credits will also respond to changes in income, entitlement cannot finally be determined until after the end of the year, when current year income is known. In short, awards—and any payments under those awards—are simply the vehicle for delivering support during the year.

Entitlement is different. It depends on the underlying facts, some of which—income—cannot be determined until after the end of the year. But this distinction is not clearly drawn by the Bill as it stands, and this gives rise to a number of technical problems.

Most obviously, as drafted, the provisions in the Bill that ought to deal with the finalisation of entitlement after the end of the year—in particular Clauses 17, 18 and 19—focus on the finalisation of awards. So Clause 17 currently deals with decisions about the correctness of an award; Clause 18 deals with inquiries into awards; and Clause 19 deals with discoveries about awards. We shall discuss these provisions, and government amendments intended to clarify them, in more detail later.

However, the straightforward point is simply that some people may have more than one award in any given tax year—for example, if they stop working and so stop receiving the working tax credit for a period before returning to work later in the year. At the moment, the end of year provisions I have mentioned would apply to each award separately. This means that the Inland Revenue could have separately to require information from claimants in respect of each award in the year, rather than being able to ask a claimant once for a single set of information and to finalise their entitlement for the whole year on the basis or that information.

In addition, there is a contradiction between Clause 5 and the decision-making provisions in Clauses 14 to 16. Clause 5(3) and (5) are actually aimed at making provision about claimants' entitlement. When a person ceases to meet the basic requirements necessary to qualify for one of the credits, it is sensible that their entitlement to that credit should stop. This is what Clause 5(5) is aimed at. And because couples will be jointly entitled to the new credits, it is axiomatic that the entitlement of a couple, as a couple, will stop if the partners break up. Similarly, the entitlement of a single person as an individual will stop if that person takes on a new partner. This is what Clause 5(3) is aimed at.

However, these provisions in Clause 5 are currently cast in terms of the effect on awards rather than entitlement. They therefore imply that awards will or will not end in particular circumstances. However, Clauses 14 to 16 make clear that the existence of awards is dependent on decisions made by the board. Thus, there is a conflict, and the Bill as it stands leaves unresolved the question of what should happen in a case where, under Clause 5, an award ought to end but no decision to bring it to an end has been made by the board under Clause 16, or vice versa.

I could go on. A number of technical amendments are required to straighten this out. It will be made clear in Clause 5 that awards run until the end of the tax year, and end during the year only if they are terminated by a decision of the board. These amendments make the first such necessary changes to the Bill.

Amendment No. 24 makes clear that a claim to a tax credit is needed each year. The amendment is needed because once a proper distinction between awards and entitlement is drawn, the requirement for a new claim each year will no longer be implied by Clause 5(1) and (2), which provides that an award on a claim ends at the end of each tax year.

Amendment No. 25 inserts a new subsection (1A) into Clause 3 to make clear that, where the board decides not to make an award or to terminate an award, any subsequent entitlement is dependent on the making of a new claim. This makes clear that the position for second and subsequent claims is the same as that for new claims.

Finally, I have already mentioned that Clause 5(3), which is intended to provide that entitlement ends when a couple splits up or a new couple forms, incorrectly refers to the effect of such a change on an award. It will be stripped out of Clause 5, re-cast in terms of entitlement and moved to Clause 3, where it more properly belongs, by Amendment No. 27.

With that technical explanation of the re-drafting for clarification of the distinction between reward and entitlement, I hope that Members of the Committee will feel able to endorse these amendments. I beg to move.

Lord Higgins

I begin by congratulating the noble Baroness on a record for the course. It is almost impossible for anyone taking it at that speed to comprehend what was being said.

This is an extremely complicated matter. It is also the case that we are talking here of Clause 3, but the Minister referred to numerous other clauses at the same time. One could not possibly have switched back and forth from one clause to another to get any real sense. When we come to the later clauses, we will need to come back to the points which the noble Baroness has made at that stage.

I am not quite clear whether these amendments are what one might call part of the general restructuring of the Bill, about which we complained at the beginning of our proceedings last time, or whether they are normal amendments which might anyway have been necessary on reflection. In any event, these are matters which presumably could have been dealt with in another place. It would be helpful to know on what date the Government became aware that it would be necessary to make these particular changes because, increasingly, we seem to be getting into a situation where these matters are not scrutinised in the House of Commons and the House of Lords is then given the function of sorting out the matters after the Bill has been through the House of Commons.

Having said that, I wish to concentrate on Clause 3. No doubt we shall come in due course to the matters which arise on Clause 5 and later clauses. In essence, the Minister has said that it is important to make the distinction between awards and entitlements. However, I understand that part of the problem is that the entitlement may change during the year. No doubt the noble Baroness will correct me if I am wrong about that. If there is a fall in income during the year, then that is taken into account during the course of the year. I presume that is what she meant when she referred to entitlement. On the other hand, if the income rises by less than £2,500, then no adjustment is made. If it rises by more than £2,500, then an adjustment is made. I am not sure whether the whole of the increase of £2,500 and above is taken into account, or only the marginal amount over £2,500. Perhaps the noble Baroness could clarify that point.

Baroness Hollis of Heigham

Yes, I am happy to give that clarification. It is only the marginal amount above £2,500.

Lord Higgins

This seems to be a very strange arrangement because it is not the kind of allowance—if that is the right word—which would be made by the Inland Revenue. If one's income suddenly rises by, say, £2,700, it is not normally the practice of the Inland Revenue to say that they will only make a charge on the £200. Since this whole matter is being transferred from the Department for Work and Pensions to the Inland Revenue, it is important that some degree of consistency is achieved between one taxpayer/ beneficiary and another. The Bill appears to create a situation where that is not the case. Taxpayers, who are nothing to do with the benefit system, are being treated somewhat more harshly than those on a tax credit. This is not very desirable. So much for entitlement.

I turn now to the issue of awards, which the noble Baroness has said needs to be kept distinct from entitlement. Presumably, the award is finalised only after the end of the year rather than during the course of the year. Again, if that is not so, perhaps the Minister could clarify that point. Or does the board make decisions on the award in the course of the year; at the beginning of it; on expectations about what is likely to happen about the individual circumstances; or at the end of the year when the information is available?

Of course, there are some comparisons here with the tax system and the whole issue of self-assessment although I presume I am right in saying that, as far as the award is concerned, there is not anything comparable to self-assessment in the income tax system. So this is far from being a simple arrangement for those involved in it—either for those who pay tax and get deductions or for those who are merely having a straight benefit paid by the state. We will no doubt give further consideration to this issue in due course.

Again, I am not clear whether the situation we mentioned with regard to changes in a person's circumstances apply equally whether they are receiving a benefit or receiving a tax deduction. So, as an initial run on the points the Minister has made, it would be helpful if the issue could at least be clarified to that extent.

Earl Russell

I thank the Minister for letting us have her speaking notes. As I had already read them several times and found them extremely clear, I am perfectly happy to overlook the speed with which the Minister delivered her speech. It was fairly familiar material. The Minister has, I am sure, read the CAB report by Janet Albeson entitled Benefits and Work. There is a whole chapter in that report which is devoted to the fact that the social security system rests on the premise that people are either in work or out of work. That premise is now very firmly and clearly out of date. Janet Albeson came to the bleak conclusion that there is no solution to that problem, like Hilaire Belloc's doctors who are called to attend Henry King.

Professionally, the Minister cannot of course take that view. I admire the imagination and the ingenuity with which the Minister attempted to tackle this issue. Whether we have the final answer I take leave to doubt. I am sure that the Minister shares those doubts and will be on the alert for any way in which we may not have done quite as much as anybody else. These are minor and technical amendments which are designed to make addressing that problem easier.

When I hear the noble Lord, Lord Higgins, speak about the treatment of an increase in income, I am again reminded that he was not in this House (luring the Parliament of 1992–97, when we discussed the effects of poverty traps on the incentives to work. The Minister has an imaginative and practical— and I very much hope successful—way of tackling that. I have enough hope in it to be very willing indeed to give it a fair wind.

Baroness Hollis of Heigham

I apologise for the speed at which I spoke. I had thought that my remarks were covered by the speech notes that I had sent in advance. There could be nothing more boring for the Committee than to hear me recite, very slowly, a speech about technical amendments, a copy or a version of which it already had in its hands. I was trying to save the Committee undesirable hardship. Perhaps in future I should expose the noble Lord to the full rigours of a very slow explanation of very technical amendments.

The noble Lord, Lord Higgins, and the noble Earl, Lord Russell, are correct: these are all part of the group of technical amendments separating out award and entitlement. Broadly speaking, the noble Lord, Lord Higgins, was right about the distinction between award and entitlement. Awards are what you get on an almost pay-as-you-go basis. Entitlement is the end of the year balancing of the accounts to see whether the sums are properly paid to you. Entitlement cannot therefore be settled until after the end of the year, but awards can be, and may need to be, adjusted during the year to reflect changes that claimants expect or receive in their annual income, both up and down. It is worth perhaps emphasising that, for the most part, awards would start off being based on the previous year's income—hence the P60. Thus they go into the current year based on a previous year's income but, of course, if their income falls by any amount or, as the noble Lord, Lord Higgins, rightly identified, rises by more than £2500, we would expect them to want to adjust their awards as they go rather than to wait for an end-of-year entitlement.

The second area that the noble Lord, Lord Higgins pressed me on was the asymmetry of the losses and rises in incomes. There are some very good reasons for that. It is clear that of the 5.5 million families to be helped through the new tax credits system, approximately 1.3 million increase their incomes by up to £2000 in the course of a year, while a further 1.3 to 1.5 million will increase their incomes up to the £2,500. Only about 0.7 million will reduce their incomes by a similar amount. Therefore a substantial proportion of people in receipt of tax credits will expect to see an increase in their incomes.

What we have done, and I believe this is wise, is to have a headspace so that we do not seek to claw back the adjustment at the end of the year. However, if the increase in income is substantial—namely; more than £2.500, perhaps because there has been a change of job or a second earner in the family has moved into the labour market—then at the end of that year we will seek to adjust it and use the new income in total, including the increases below £2,500 and increases over £2,500, as the basis of the assessment for the forthcoming year.

I believe the asymmetry is extremely decent, generous and proper. It ensures that if the incomes or hours of work of, for example, a vulnerable man who may have problems with poor health or a lone parent whose childcare arrangements may collapse, suddenly decrease, we can pick them up and offer support without those people feeling the need to drop out of work altogether and go onto benefits in order to get a secure income. Equally, the asymmetry says to people, "If you are able to increase your income in the course of the year, we are not going to be interested in the small sums; we are delighted that you can, and we will use this current year's income in total as the basis for next year. Only if in this year you earn more than £2,500 above your award will we seek to take it into account—and we can do that at the end of the year". In my opinion, it is both decent and generous. It reflects the reality of the amount of income and job churning that goes on for people on low incomes, who very often are in part-time work, full-time work, or no work, according to the circumstances of the labour market.

If I have missed any points then I shall be happy to write in more detail. With that explanation, I hope that both the noble Lord, Lord Higgins, and the noble Earl, Lord Russell, will agree with me that behind the technical amendments is something really important to which we are giving all the support we can. We recognise that this is a grey area. People are not just in work or out of work for tidy periods of the year. They revolve and rotate in the labour market. We 'want to give them the support and financial security they need to encourage them to stay in the labour market. I believe that the asymmetry of these arrangements does precisely that.

3.45 p.m.

Lord Northbrook

I appreciate what the Minister has said. What extra costs might he incurred in terms of Inland Revenue manpower in adjusting PAYE codes to take into account changes in circumstances during the year? There could be some extra work involved.

Lord Higgins

We are grateful to the noble Baroness for her further explanation. Our objective on both sides of the Committee is to improve the legislation. To that end I have repeatedly thanked the Minister, and indeed do so again, for the help which she has given as far as that is concerned. It was helpful to be given some indication by way of the speaking notes. However, the speaking notes to which the noble Earl referred had only a few lines on this particular set of amendments; the rest of them were related to later clauses. Of course I accept that there is also a relationship between the two.

Baroness Hollis of Heigham

I apologise to the noble Lord. Before the Committee meets on Thursday, if it would help our proceedings, I shall circulate my speaking notes on the remainder of the technical amendments so that noble Lords can follow them as I speak.

Lord Higgins

That is an interesting innovation and in some ways helpful. At the same time, however, it is important to put on the record all the various relevant arguments for the benefit of those who may subsequently read our proceedings.

Perhaps I may pursue one or two points. First, I am still not clear on what date it became apparent that these amendments were necessary. One of the reasons why I did not refer to her speaking notes was that, in some which she has circulated—but did not read out today—the views expressed on the original drafting of the clauses were perhaps a little critical.

On the substance of the matter, the noble Baroness refers to the proposals relating to increases and decreases in income of the individuals affected as "generous". Of course, that generosity is paid for by other taxpayers, so one needs to keep a balance on that. If we could all spend vast extra sums on people who are in relatively poor circumstances, that would be fine, but one has to take into account the fact that someone will have to pay for that generosity. One cannot simply say that this is something about which we can all he happy and generous.

I am not quite clear about the adjustments. The noble Baroness says that if there is a change in income it will be taken into account at the end of the year. I presume that does not mean it will be clawed back at that point. I presume there will be an adjustment for the next year, but if someone has gained from an increase of, say, £1,800 in the year, that will remain as a gain for them.

Baroness Hollis of Heigham

For that one year, the £2,500 headspace will not be clawed back. In other words, it is headspace. Only money that someone earns over and beyond that £2,500 will be clawed back the following year. However, the next year's income basement on which the award is made will include both the £2,500 that has not been clawed back and any money beyond that.

Lord Higgins

I understand that, but if someone continually, year after year, gets an increase of £1,800, then each year they get the benefit of that. That is, no doubt, a highly desirable situation for them, but it is not the situation for income tax. We are treating people in receipt of tax credits in a quite different way.

I am also still not clear as to whether this generosity, as the noble Baroness called it, applies to those for whom the tax credit is a deduction against tax or simply to those who are receiving benefit. We now know that 90 per cent of the total spending will effectively be benefits and only 10 per cent will be deductions against tax. Do the proposals affect both groups: those who are genuinely in receipt of a tax deduction or tax credit, and those who are in receipt not of a tax credit, but of a benefit payment? No doubt, as we go through these successive clauses, the situation will become a little clearer. We need to know at what stage the Government changed their mind on these proposals.

Baroness Hollis of Heigham

On the substantive policy point, there will be a number of people who are on benefit or who stay in the same job with the same income and same hours, whose previous year's income and current year's income remain the same. Therefore, their award and their entitlement will not change. Those will be people on benefit or people with steady work—perhaps a lone parent working 16 hours a week on the minimum wage. Their income and award entitlement will not change.

Secondly, there will be a group who will be in work and whose income will increase. We have gone through those figures. Up to £2,500 will not be affected and money over £2,500 will be clawed back. When they go on to the following year, they will start on their full income base of the previous year as the basis of the new assessment.

The third group are those who have run out of the working tax credit and the children's tax credit, who will get just the family premium, which at the moment we call the children's tax credit. That kicks in, according to family circumstances, between £15,000 and £20,000, depending on size of families, and will go up to about £50,000, at which point it starts tapering out to £58,000, when one is left with child benefit. Between that figure of about £20,000 and about £50,000, it does not matter what happens to a person's income, they still receive the same amount of money, because they get the children's tax credit—now, of course, the family element—as well as the child benefit. So we have people whose award and whose previous year and current year does not change; we have people whose award does not change, although their income has changed; and people whose incomes have changed substantially and therefore attract further changes. Finally, we have those at the upper end of the income scale who will be receiving the children's element and who, whatever happens to their income between the range of £20,000 and £50,000, it will not affect the award and therefore the entitlement that they will receive from the Government. I hope that that is acceptable to the noble Lord, Lord Higgins.

It will depend on which of the awards one is receiving—working tax credit and children's tax credit, or only the family element—as to how much headspace there is and how much movement up and down the income there can be without it affecting one's award and entitlement.

The noble Lord, Lord Northbrook, then asked me about the implications for staffing where payments are administered by the tax credit office. Claimants will be able to telephone the Inland Revenue and changes can be put into effect. The Inland Revenue will be expanding the network of advice and contact centres to deal with any changes of circumstances in tax credits. However, I cannot tell the noble Lord how many extra staff are to be employed. I will write to him with that information if I obtain it.

Finally, the noble Lord pressed me on when we found out that we needed to change these amendments. It became clear that some amendments would be needed to correct technical problems with the end-of-year provision after the Bill had finished its passage through another place. The noble Lord— who, I think I am right in saying, may be the only Member on the Front Bench who has spent time in the other place—is thus uniquely positioned to criticise the other place for its possible lack of scrutiny to that effect. The rest of us have no such authority to comment.

Lord McIntosh of Haringey

There is the noble Lord, Lord Freeman.

Baroness Hollis of Heigham

I apologise to the noble Lord. He has had a very distinguished Front Bench career. However, the amendments required to resolve this problem were complex and all of a piece. Because they hinged on changes to Clause 17, it took some time to prepare them. The amendments are inter-related and had to be worked on as a whole. There has been no change of mind here, merely that these were complex amendments. I have apologised for their late arrival but, if it would be of help to give Members of the Committee my speaking notes—as re-cast, now that we have re-grouped these amendments—I shall be very happy to do so. It is important that the Bill is as transparent, accurate and clean in its drafting as Members of the Committee can help it to become.

Earl Russell

I should like to make a very small point. Am I right in saying that criticising another place is not open even to those of us who have been Members there, or Members of Front Benches in another place? When there is a quarrel between the Houses, no authority can adjudicate upon it since both Houses are sovereign over their own procedure.

Finally, am I summarising the Minister's underlying premise correctly if I say that she is arguing that incentives matter to the poor as well as to the rich?

Lord Higgins

There has been a slight misunderstanding on the issue of the relationship with the House of Commons. In no way did I seek to criticise the House of Commons, but it appears that the Government have raised this matter only at a very late stage. I sought merely to establish the Government's position, not what happened in the House of Commons. That is a legitimate point to make.

Lord McIntosh of Haringey

For the benefit of good order, there is no objection whatever to criticising the House of Commons in this House. Adverse personal criticism of an individual is undesirable, but anything else is fair game.

4 p.m.

Lord Higgins

That will worry the noble Earl, Lord Russell, more than it worries me.

I should like to raise two points. First, so far as concerns the relief—that may be the best way of putting it—for increases below £2,500, am I right in thinking that, if children are left totally on one side, this may benefit those with incomes up to a very substantial level; that is, over £50,000? The noble Baroness will tell me if I am wrong.

Secondly, she mentioned it will be possible to telephone the Inland Revenue for a very rapid adjustment. I am concerned throughout these deliberations about the fairness between a person receiving a tax credit and a taxpayer not in receipt of a tax credit. If one fills in a self-assessment form and one's income changes during the year, can one telephone the Revenue and say, "I am sorry, my self-assessment was wrong. Can you make an immediate adjustment to my payslip next week?". That appears to possible with a tax credit. However, I do not think that that is the case with regard to income tax.

Baroness Hollis of Heigham

I am sorry that I have failed to make clear the position with regard to the bands of income. As this goes to the core of the Bill, it is important that we share the information now.

The £2,500 applies to those people who are getting the new tax credits, but clearly—given that only those getting working tax credit and children's tax credit normally will be getting high value tax credits—that is where the benefit of the £2,500 incentive comes into play. The noble Earl, Lord Russell, was absolutely right to use that phrase. It applies to all claimants, but those on higher incomes are likely only to be receiving the family element of child tax credit, so in practice they are unlikely to benefit because that demerit is the relatively modest one.

It most helps those who are on the taper with working tax credit and children's tax credit. Thereafter, it tapers and then flattens for those receiving only the children's element—from £20,000 to £50,000. Then a smaller, final, gentle taper of about seven pence in the pound is available for those coming off the family element before they come on to child benefit. The main groups of people who will benefit from the asymmetry are those on modest incomes, those who may be going up from £10,000 to £12,000, or from £12,000 to £14,000. Over that three or four year period, if they receive regular increases of that kind, they will in any event move out of that taper and be on the family element alone.

If the noble Lord, Lord Higgins, would like me to write him a more detailed explanation of how these bands are to work, he might find that helpful before we return to this issue at Report stage. I shall be happy to copy that letter to the noble Earl, Lord Russell.

The Deputy Chairman of Committees

Is it your Lordships' pleasure that this amendment shall be agreed to?

Lord Higgins

Can I seek clarification? I thought we were withdrawing all amendments in the course of this, not moving them and accepting them.

Baroness Hollis of Heigham

Obviously I will defer to the Chairman. I understand that, provided that there is no dissent, government amendments can be accepted by the Committee and incorporated into the Bill. If there is dissent, that does not happen and we would revisit the issue on Report.

Lord Higgins

This circumstance did not arise at our sitting the other day. I think I am right in saying that we went through the entire sitting with all the amendments being withdrawn. Given the scale of government amendments to the Bill, I do not think I would wish to agree them. We may well wish to return to the matter on Report.

Lord McIntosh of Haringey

There must be some misunderstanding. Historically, Grand Committees have always been used for the specific purpose of carrying government amendments. We once had a Grand Committee which did nothing else but consider government amendments in order that the Bill could be produced, as it came out of Committee, in the form in which it was intended it should go forward for Report. It would be very undesirable indeed if we were to start opposing government amendments in Grand Committee because we would end up with a Report stage which was unduly delayed and based on a false impression of the Government's intentions.

The Deputy Chairman of Committees

Any issue on which agreement cannot be reached should be considered again on Report when, if necessary, Divisions may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.

Lord McIntosh of Haringey

I do not say that the noble Lord, Lord Higgins is not within his rights to oppose the amendment. However, I do say that this is not the understanding between the usual channels about Grand Committees. We have found it helpful for government amendments to be carried so that the Bill can be considered better on Report.

Lord Higgins

I am inexperienced in these matters, as indeed is the noble Baroness. The noble Lord, Lord McIntosh, is of course very experienced in these matters and it is helpful to have his views.

However, this amendment raises matters of considerable complexity which we shall wish to debate on Report. That is true of a great many of the amendments for reasons we well know; namely, that so many amendments have turned up at the last minute and have not been discussed by the Commons at all. If we were to agree to it, it would then become part of the Bill, and if we wanted to raise the matter again on Report, we would have to table an amendment to change that.

Baroness Hollis of Heigham


Lord Higgins

In that situation we would end up with a huge list of Opposition amendments. Clearly our sole objective—there is no partisan point in any of this—is to improve the structure of the Bill. However, if we go along with what the noble Lord, Lord McIntosh, suggests is normal practice—we are in a somewhat unusual situation on this Bill because of the vast mass of government amendments—then we would end up with the onus of moving amendments on the Opposition side rather than on the Government side, though in fact the Bill is being amended by the Government.

A real problem arises here. The circumstances are not entirely normal but, in any case, unless there is general assent to the amendments—and those we have just been discussing raise considerable questions with regard to equity between those people receiving tax credits and those not receiving tax credits—we need to consider how best to proceed. If, however, the Government are proposing that this whole wodge of amendments, which have not been considered at all by the Commons and which we are now having put before us, should simply go into the Bill leaving the Opposition to table an equally long stream of amendments to knock them out, that is not a very satisfactory way of proceeding in the scrutiny of the Bill.

Baroness Hollis of Heigham

Perhaps I can make a substantive point and then leave the process point to the noble Lord. It is simply this: some government amendments arise later which are based on shared care. They were propelled into the domain absolutely rightly by the noble Earl, Lord Russell, and do have a policy implication. I can understand the noble Lord having reservations; a lot of amendments were indeed tabled late. But in practice it is now seven or eight days after those amendments were tabled and, had we been on the Floor of the House, I would have been amazed had there been any suggestion that government amendments of a technical and drafting sort—even if they were quite numerous because they were repetitive—should be resisted by the Opposition. All that does is make a distinction between awards and entitlements.

This is not a policy point; it is a drafting point. Naturally I expect Members to come back on Report to push me on whether £2,500 is the appropriate cap or £1,500, or whether asymmetry was a proper principle to pursue. Unless we have the Bill in a shape to which those amendments can be added, we shall have a double problem on Report. On the one hand I am moving technical amendments while on the other the noble Lord is trying to move amendments to my technical amendments which address the policy substance. I should have thought it would have been for the greater convenience of the Committee if we got the technical drafting out of the way. That would allow us to revisit on Report the policy issues over asymmetry in rises and falls in income.

Earl Russell

As the Minister knows, these amendments cause no trouble to these Benches. I agree with the Minister's assessment of the convenience of the Committee, but if the noble Lord, Lord Higgins, does not consent to these amendments he is within his rights. I suggest therefore that, rather than consuming more time on this matter, we proceed to the next business. I would say to the noble Lord, Lord Higgins, only that the exercise of one's rights is something which is capable of becoming addictive.

Lord McIntosh of Haringey

Perhaps I can help.

Lord Higgins

The noble Lord is being extremely helpful. Can I be clear about this? Our objectives are all the same. It is merely a question of procedure. The House of Commons has not considered these amendments at all. They have all been tabled after the Bill has arrived here. If we go along with the procedure that the noble Baroness is suggesting and put them in the Bill, will the House of Commons consider those amendments when the Bill goes back there?

Baroness Hollis of Heigham


Lord Higgins

As amendments?

Baroness Hollis of Heigham


Lord Higgins

Rather than simply being part of the Bill?

Baroness Hollis of Heigham

The House of Commons has to agree any changes to the Bill made by your Lordships, whether from the Government or the Opposition.

Lord Higgins

Thank you.

Lord McIntosh of Haringey

I wanted to confirm that the noble Earl, Lord Russell, is right. Unless an amendment achieves universal consent, it cannot be made in Grand Committee. However, from the beginning, one of the purposes of Grand Committee has been explicitly that government amendments can be made, and when the Bill goes from Grand Committee to the whole House on Report, noble Lords can see the Bill as the Government wish it to be presented on Report.

On one occasion——perhaps the Clerks will remind me; it may have been the Commonhold and Leasehold Reform Bill—there were so many government amendments that a whole session of Grand Committee was devoted entirely to doing nothing else but passing government amendments. Government amendments have been agreed to on virtually every Bill that has gone before a Grand Committee since the procedure was adopted.

The noble Lord, Lord Higgins, is right. This is not a partisan point at all. It has been found to be helpful if the House on Report can consider the Bill as the Government would wish it to be presented. There is still the opportunity for the Opposition or anybody else to propose amendments to those matters which have been inserted into the Bill in Grand Committee. My noble friend Lady Hollis is right in saying that any amendment, whether it is made in Grand Committee or on Report, goes back to the House of Commons and has to be considered. There is no difference whatsoever; it is simply a matter of the convenience of the House that this convention has been established.

Lord Northbrook

Are there any unofficial rules on whether the lateness of the tabling of amendments affects how they are treated in Grand Committee?

Lord McIntosh of Haringey

That matter has been raised. It was debated at our last meeting. As my noble friend Lady Hollis says, it is seven or eight days since the amendments were tabled. They have not been seen by the House of Commons, and it is clearly undesirable that government amendments should be considered less than seven days after they are tabled. However, they are being considered more than seven days after they have been tabled and additional support has been provided in the form of the speaking notes. That cannot be considered an objection. However, we are on the hands of the noble Lord, Lord Higgins.

The Earl of Northesk

I defer, of course, to the greater experience of the noble Lord, Lord McIntosh of Haringey, but I had always understood that one of the pillars on which scrutiny in Grand Committee was based was a lack of controversy on the Bill. The fact that, inadvertently, we have ended up with some controversy bubbling up because of the late tabling of amendments makes it much more difficult for us to deal with these issues than might have otherwise been the case.

Lord McIntosh of Haringey

The noble Earl, Lord Northesk, cannot have been at the Employment Bill Grand Committee. Controversy is of the essence of consideration of legislation, whether in Grand Committee or on the Floor of the House. Nobody is trying to avoid controversy; we are trying to avoid the time of the House being taken up in repetitive consideration.

The Earl of Northesk

I should have said "non-contentious".

Earl Russell

Speaking of time being taken up, may I ask that we proceed to the next group of amendments?

Baroness Hollis of Heigham

Before we do so, does the noble Lord, Lord Higgins, recognise, on reflection, that the amendments simply make a distinction, which nobody has criticised, between awards and entitlement? That is all that they do. On Report, everybody, including the noble Lord, Lord Higgins, will be able to see the Government's intent. As a result, they will be able to move any substantive amendments of policy then. Given that, I wonder whether the noble Lord is happy to see these amendments put into the Bill.

Lord McIntosh of Haringey

It happened under the last Government as well.

4.15 p.m.

Lord Higgins

The Front Bench on this side of the House finds itself having to make instant decisions on a matter that they had not previously contemplated. I still have some cause for concern, because noble Baroness' explanation gives rise a number of genuine points of principle, in particular the relationship between taxpayers on the one hand and people in receipt of tax credits on the other.

We will wish to table an amendment on Report. The procedure merely changes the onus of proof one way rather than the other. Since it is clear that we will need to table such amendments, we will do so, but it seems to put an undue burden on the Opposition, rather than letting the Government move their own amendments and defend them on the Floor of the House. Having said that, I would not wish to dissent further on this group.

Baroness Hollis of Heigham

The noble Lord has not challenged the need to distinguish between awards and entitlement, which is the point of the amendments. I am sure we will wish to revisit the substance on Report, as he has said. I thank him for his helpful response.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 25: Page 2, line 35, at end insert— (1A) Where the Board—

  1. (a) decide under section 14 not to make an award of a tax credit on a claim, or
  2. (b) decide under section 16 to terminate an award of a tax credit made on a claim,
(subject to any appeal) any entitlement, or subsequent entitlement, to the tax credit for any part of the same tax year is dependent on the making of a new claim. On Question, amendment agreed to.

[Amendment No. 26 not moved.]

Baroness Hollis of Heigham

moved Amendment No. 27: Page 2, line 41, at end insert— (2A) Entitlement to a tax credit pursuant to a claim ceases—

  1. (a) in the case of a joint claim, if the persons by whom it was made could no longer jointly make a joint claim, and
  2. (b) in the case of a single claim, if the person by whom it was made could no longer make a single claim."
On Question, amendment agreed to.

Lord Saatchimoved Amendment No. 28: Page 3, line 1, leave out paragraph (b). The noble Lord said: The aim of the amendment is to gain clarification from the Government on how they intend to know whether the separation between a couple is permanent. The Bill currently says that a married couple would not be considered to be married if they were, separated in circumstances in which the separation is likely to be permanent". We would be grateful if the noble Baroness would give us a little more information on how the Government would know the likelihood of the permanence of separation. I beg to move.

Baroness Hollis of Heigham

I may need the noble Lord, Lord Saatchi to help me a little more. When people are separated is well established in social security law. The judgment of that is that they maintain separate households, although it is possible to have separation within the same household. The normal tests would be whether there is a separate household, whether there is a sexual relationship, whether there are children, whether the relationship is stable and whether there is a financial sharing of resource. Those are the tests of whether two people are operating as a heterosexual couple for social security purposes. Separation is normally where people have separate households, although it is possible to be separated within a house if those tests of a sexual relationship, a financial relationship and the stable relationship are not in play. I do not know if there is anything further I can tell the noble Lord.

Obviously there is a lot of debate sometimes from lone parents as to whether a boyfriend is a cohabitee. We are not establishing any new principle from that already in place in social security. The Inland Revenue already has experience of that with the existing tax credits. If we do not have such a rule, a cohabiting couple will be treated more favourably than a married couple. I am not sure the noble Lord, Lord Saatchi, would wish to advocate such a position.

Earl Russell

If it is any help, the noble and learned Lord, Lord Simon of Glaisdale, who used to be President of the Family Division of the High Court, once rehearsed the answer to precisely this question. His answer was identical to the Minister's. This, like weather forecasting, is an uncertain art, but nobody, so far as I know, proposes that either of them should stop.

Lord Saatchi

I am most grateful for that description. It prompts me to ask how the characteristics of the separated couple, or the couple deemed to be permanently separated, are elicited from them. How do they answer those questions about the nature of the relationship and so on?

Baroness Hollis of Heigham

There is a very simple answer to that—if it is not the one the noble Lord is seeking, perhaps he will press me further—which is that the working tax credit and child tax credit forms are jointly signed. Therefore, if they are jointly signed, the presumption is that those two are acting as a couple. If it is not jointly signed, then we are possibly dealing with a lone parent and a non-resident parent or maybe a child in two separate households. The fact that it is a joint claim should overcome the noble Lord's concerns.

Lord Saatchi

I am grateful for that response. However, notwithstanding what the noble Earl, Lord Russell, said, with 50 per cent of marriages now ending in divorce the transition period between the first stage of separation and divorce must be a long and complicated one, affecting a great many people. I am slightly puzzled, therefore, as to how the Government extract the information that they require. However, I shall not press the point and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Northesk moved Amendment No. 29: Page 3, line 5, after "prescribed" insert "by reference to the time absent from the United Kingdom The noble Earl said: Amendment No. 30 is grouped with Amendment No. 29, so for the convenience of the Committee I shall speak also to that.

Amendment No. 29 is based on the premise that individuals in receipt of British non-contributory benefits or tax credits should ordinarily be physically in the United Kingdom. As my noble friend Lord Higgins observed, the benefits and supports so conserved are a direct product of the generosity of the British taxpayer. It is therefore unreasonable that persons in receipt of such payments should be overseas except on one ground only: that is, limited periods of absence from our shores.

Accordingly, Amendment No. 29 is designed to limit the exceptions. Excuses of having to deal with family affairs overseas will in many cases be plausible but would be impossible to police. Logically, therefore, the only fair and practical rule is to exclude any exception, save for reasons defined by short periods of absence. The amendment leaves it open to the Government to prescribe the period but, by limiting the grounds of exception to a period only, it prevents the construction in regulations of complex arrangements which make exceptions for all manner of reasons. That would replicate the horrifically complicated and almost impossible-to-regulate provisions of Regulation 4 of the Income Support General Regulations 1987 as amended. Bluntly, is it too churlish to suggest that the system of tax credits is already complicated enough without adding to its complexity?

I have one final thought in this context. The Minister, during our debates last week, defined the tax credit system as a structural reorganisation and moved away from separate chimneys to a horizontal arrangement. Fair enough. But as my noble friend Lord Higgins intimated, it will take some time for us to assimilate the full implications of this. Within this reorganisation there has to be an explicit aspiration that over time and in order to deliver the Government's policy of encouraging people into employment, more and more people will be in work. That, together with poverty reduction, is the primary thrust of the Government's policy. The Minister emphasised that point again today. In such circumstances, there is every reason to assume that they should ordinarily be in the United Kingdom.

Amendment No. 30 merely seeks to probe whether the provision in subsection (5) is intended to apply equally to couples, whether or not married, submitting claims for tax credits as to individual claimants. I beg to move.

Earl Russell

I think this is the appropriate place to raise what is a fairly major question, of which I have given the Minister notice; that is, whether this Bill is in accord with the provisions of European law. Within the terms of this Bill, nationals of other European Union countries working in this country are eligible for the tax credit but British subjects working elsewhere in the European Union are not eligible for the tax credit. The Minister will I hope, before we go further, confirm that that is the correct understanding of what the Bill does.

I understand why the Government may have wished to do it in this way. The question is whether the Treaty of Rome actually permits it to be so done. I have been looking first at Article 7 of the Treaty, which states: Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited". One may say that this is a discrimination on grounds of location and not on those of nationality.

I looked then at the section on freedom of movement. At Article 48.2 of the Treaty it states: Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment. remuneration and other conditions of work and employment". So, if I have read that correctly, it means that it is not legal to pay the tax credit to EU nationals working here and not to British subjects working elsewhere.

Article 51 of the Treaty also bears on this point. It states: The Council shall, acting unanimously on a proposal from the Commission, adopt such measures in the field of social security as are necessary to provide freedom of movement for workers; to this end, it shall make arrangements to secure for migrant workers and their dependants: (a) aggregation, for the purpose of acquiring and retaining the right to benefit and of calculating the amount of benefit, of all periods taken into account under the laws of the several countries; (b) payment of benefits to persons resident in the territories of Member States". Article 51(b), in particular, seems to bear very directly and explicitly on the provisions in the Bill to ensure the payment of benefits to persons resident in the territories of Member States.

When one thinks about the constitution of the labour market within the EU at the moment, it is very difficult to divide it according to the old traditional national categories. Most people in today's labour market are not merely neither regularly in work nor regularly out of work; they are also neither regularly working in one country nor regularly working in another.

Consider, for example, someone who is employed by one of the holiday tour firms. They may be regarded as resident in this country if they come home for the winter, but every now and then these tour firms need someone to stay over the winter in the holiday place abroad to oversee building work, repair work, furnishing work and so on. If such a period of absence should be over 12 months, as it may well be, then some difficult questions may arise under the Bill.

If one considers the Tower of Babel that was the rebuilding of Berlin, which gave rise to a great many cases under the habitual residence test—which members of the department may well remember—there again, saying that someone was a national of one country and therefore working in that country tended to lead one very much astray.

One only needs to look at those who are working in the Gatwick Airport Hotel, to take an example that comes into my mind at random, to realise that globalisation has, to a very large extent, come to the labour force as well as to capital. In fact, looking at the situation, I am beginning to wonder whether the national state is as out of date as the forum for fixing laws on these matters—and, indeed, for the management of economic policy—as the parish now is for the operation of poor relief. It may indeed have been out of date by 1601, but the Minister and I can keep that to discuss in private.

I like the Bill. This is a serious question and I should like to see it answered. But I do not at present see, other than by agreeing to pay the tax credit to British subjects working elsewhere in the EU, how it could be answered to the satisfaction of the European Court of Justice.

4.30 p.m.

Baroness Hollis of Heigham

I wonder whether I would be answering the question of the noble Earl, Lord Northesk, first if I were to say that it will; that Clause 3 provides that to claim tax credits a person must be in the UK—in other words, ordinarily resident. That is the first point.

The second point was about couples. The situation depends whether we are talking about someone under immigration control. A partner who is not subject to immigration control can make a claim, but no second adult element is available in respect of the partner. However, income from both partners is taken into account. I hope that addresses the two specific points that the noble Lord raised. If not, I shall come back on that.

The noble Earl, Lord Russell, was kind enough to give me notice of his concerns relating to the Treaty of Rome. I am not sure that I am using the appropriate Home Office language—I hope Members of the Committee will forgive me if I am not—but we are talking about three categories of person: British nationals resident in this country; EU nationals working in this country; and people who are subject to immigration control who are working in this country. Those are our three starting categories.

A claimant, of whatever nationality, who is an EU national and is resident and working in the United Kingdom will be eligible for child tax credits at the moment, on the grounds that it is a family benefit under EC Regulation 1408/721. That is what we presume, although it is still being consulted on and my comments should have a lot of health warnings attached. Working tax credit is outside the scope of Regulation 1408/721, but we believe that it may be within the scope of Regulation 1612/68, which protects the rights of migrant workers. Our regulation will coexist with these rules. I do not know whether that is helpful to the noble Earl.

Insofar as there is a family benefit involved, EU nationals are treated in exactly the same way as British nationals. Equally, if someone is subject to immigration control at the moment and working in this country, there is no expectation. They may he seeking asylum or they may be from a country such as Australia and be working here with a work permit and have come here on the grounds that they will not have any recourse to public funds. At the moment they are not eligible to WFTC or DPTC. I expect that situation to continue. I do not know whether that addresses the points raised by the noble Earls, Lord Russell and Lord Northesk, but I shall come back on that if necessary.

Lord Northbrook

Would there be any advantage in using the words "resident" or "ordinarily resident" in the United Kingdom, which I understand to be income tax jargon? Would that be of any help?

Baroness Hollis of Heigham

That would be different. This system uses the phrase "habitually resident", and the tax system, I understand, uses "ordinarily resident". Although in practice the two are virtually the same, habitual residence assumes that someone was here at the point at which the investigation was made. "Ordinarily resident" might cover some of the examples that the noble Earl, Lord Russell gave—that, at that point of inquiry, they might not have been habitually resident for the previous six weeks, but there is no doubt that this is their ordinary home.

Earl Russell

The Minister has taken us a little further forward, but the odd man out in the Minister's three categories is the British subject working in other EU countries. That person's freedom of movement within the EU is undoubtedly being discouraged by the fact that he will lose the tax credit on going abroad. The Minister cannot very well deny that if she regards the tax credit as an incentive to work within this country, which is, after all, the basic purpose of the Bill.

Time has not permitted me to follow the Treaty of Rome down into the provisions of the Single European Act. This is the examining season as well as the Bill season. However, I have no doubt that, were Ito look at the Single European Act, I would find a whole range of material intended to discourage people from discouraging people from working as migrant workers within the EU. One must not discourage the free movement of labour within the Community.

Because this Bill is currently very likely indeed to have the effect of discouraging the free movement of labour within the Community, I hope the Government will take the maximum possible amount of advice on European law before letting the Bill go ahead. I wish the Bill to succeed and I do not want it to crash down in flames in the European Court of Justice.

Baroness Hollis of Heigham

We have taken quite considerable advice on this. The test for what I call the high value benefit—child tax credit—is residence in the UK, not nationality within the EU. That is why we avoid discrimination; we are treating like for like. So an EL national working in the UK is treated in the same way as a UK citizen. If a UK citizen is abroad for more than a temporary period—obviously that has to be determined following consultation and guidance; we are not trying to get at somebody who is away for a matter of a few weeks—we would treat them as a national of another country working in their own home. That is the basis. It is residence and not nationality.

I am advised that that is what the Treaty of Rome provides for; that a worker moving abroad will be entitled to support from the host state on the same basis as a national of that host state. It is residence and not nationality that counts.

Earl Russell

If the Minister has avoided Scylla, has she not charged straight into Charybdis? If she avoids discrimination, is she not therefore, by the very act which avoids discrimination, taking herself straight into the face of the charge that she is discouraging freedom of movement of workers within the EU? Those are both legitimate objectives in European law.

Baroness Hollis of Heigham

I suspect—though I may well be wrong—that the logic of the noble Earl's position is that if tax credits were to follow a British citizen to a long-term placement in Germany or France, we would have no grounds to stop us paying to German and French citizens the same tax credits, otherwise we would be distinguishing in favour of British citizens working in Germany. I do not think the noble Earl wants to take us down that route.

Earl Russell

I hope that the Minister will take further advice on this. I cannot see that the present position will stand up to legal scrutiny. I should like to see the Bill drafted in a way that does. I am not capable of doing that entirely on my own; I doubt if the Minister is either. I hope we will discuss this matter further. Meanwhile, I have taken it as far as I can at present, and I am content to leave it there.

Baroness Hollis of Heigham

I shall write to the noble Earl.

The Earl of Northesk

I am grateful for the two specific answers given by the Minister. Perhaps I can press her a little further on one specific point. Is it the intention that the circumstances in subsection (5) are to be horrendously complicated or relatively simple? Perhaps she would clarify that point.

Baroness Hollis of Heigham

I am sure the intention is that they should be relatively simple. The noble Earl would not expect me to give any other answer. This is being carried by regulations. The regulations are obviously in the process of consultation with the relevant bodies. This is rather technical and I should like to follow it up by writing to the noble Earl, Lord Northesk. Again, if he feels that my answer is not full enough, or if he feels that there are still obscurities, I invite him to probe it on Report.

The Earl of Northesk

I am grateful to the Minister and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 30 not moved.]

Clause 3 agreed to.

Clause 4 [Claims: supplementary]:

The Earl of Northesk moved Amendment No. 31: Page 3, line 12, after "manner" insert ", whether or not before an official of the Board who is satisfied that all facts necessary to establish the claim have been made out, The noble Earl said: I should begin by acknowledging that Amendment No. 237 in the name of my noble friend Lord Freeman in this grouping achieves my intended purpose far more effectively and elegantly than Amendment No. 31. Nonetheless, there are issues here of underlying principle that I hope the Minister will comment upon in due course.

Self-evidently, the purpose of the amendment is to make allowance for a claimant, or someone acting for him, to meet an official to provide necessary information to establish a claim. It would, of course, be inappropriate to commit officials to having to conduct face-to-face interviews in all cases. Nonetheless, there are a number of reasons why it is important that the lines of communication between claimants and officials need to be buttressed.

I start with Clause 3(1) of the Bill, which states: Entitlement to a tax credit is dependent on the making of a claim for it. The logical inference of this is that, notwithstanding the increased use of means testing, the Government could be said to be moving towards a system of self-assessment of benefit entitlement. The responsibility and onus of proving a right to and obtaining a tax credit is, in the main, imposed on the individual claimant. No doubt the Inland Revenue will be proactive in offering assistance to those seeking to submit their claims. Indeed, the assurances offered in this respect by the Paymaster General and the Financial Secretary in another place afford some comfort. It is a source of anxiety, however, that there is little enough on the face of the Bill to this effect. Here we should not lose sight of the Government's stated determination to instil a greater focus on customer service and satisfaction, as delineated in the Performance and Innovation Unit's report, Reforming the Public Services: Principles into Practice, which states on page 11 that: The starting point must be that the public has a right … to income support, and that it is the duty of the Government to secure these rights on their behalf". Taken at face value, therefore, the Revenue has a "duty" to do as much as it can to facilitate the delivery of tax credits to those who qualify—a duty that is magnified by the Government's proposal to integrate benefits and tax. The Revenue will, in effect, be delivering an essential public service that, according to the Government's thinking, needs to be focused towards customer satisfaction.

Of course, the logic of face-to-face interviews is underpinned by the two important issues of take-up and fraud. The system of tax credits introduced by the Bill is undeniably complex, especially for the client groups at whom it is aimed. Of itself, this argues in favour of proactive involvement by the Revenue to enhance take-up. Here the significance of the Government's proposition to integrate benefits with the tax system should not be under-estimated. It opens up the possibility of deploying the supposed boon of data matching and the myriad other analytical tools that are now possible, provided of course that the relevant software is programmed and written properly. In passing, I merely make the point that at the same time it introduces the potential bane of infringement of rights to privacy. It is intriguing that the Government feel able to cite figures on the take-up of tax credits with relative precision, however they may be calculated. Indeed, as the Minister observed last week: 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". [Official Report, 16/5/02; col. CWH51] In other words, it could be inferred that one of the potential rewards of integration is that it opens up the Orwellian possibility of the Government being able, via data matching techniques and so on, to identify claimants almost on an individual basis. That being so, the Revenue could and perhaps should be more actively involved in enlightening potential claimants of their entitlement, thereby improving levels of take-up. Equally, the Revenue could—and again, perhaps should—be using the data available to it to identify instances where claims are likely to be on the cusp of entitlement or potentially fraudulent. Insofar as this analysis is accurate, it is all the more extraordinary that the Government have been so reticent in providing information about the levels of fraud that have been identified in the working families' tax credit—a matter to which I alluded last week. After all, despite indicating that their investigation into a benchmarking exercise on this would be available in September 2001, here we are eight months later still faced with an uneasy silence.

Be that as it may, there is legitimacy in the argument that against this background, face-to-face interviews would work to the benefit of both claimants and the Revenue. It would empower claimants who are uncertain or confused as to their eligibility and would afford the Revenue a valuable filter to establish the legitimacy of claims. I beg to move.

4.45 p.m.

Lord Freeman

I shall speak to Amendment No. 237, standing in my name. As this is the first amendment that I am speaking to, I refer the Committee to my declaration of interests already registered, although none is pertinent to this debate. What is relevant is the fact that I salute and march alongside in sympathy with the views of the low incomes tax relief group, from which I have sought guidance and advice on this Bill and, as the Minister will recall, on the working families' tax credit Bill two years ago.

I very much agree with what my noble friend has said about Amendment No. 31. My amendment deals in part only with what my noble friend said, but it is a matter of principle, not procedure. It may look like procedure but underlying it is an important point.

The background to the point is that a great number of additional claimants—and this is most welcome—are being drawn into the right to claim these tax credits. An even larger number of claimants will need their rights re-assessed because they are already claiming one of the predecessor tax credits.

We are dealing with a large number of people and a matter that is quite complex, as the proceedings of the Committee have already borne out. Where one has a large number of people—and therefore a lot of money and complication—there lies the seeds not only of misdirection by the claimants but of inequity.

I raised a number of issues prior to and during Second Reading and the Minister kindly wrote to me on 8th May. In her letter the Minister referred specifically to the subject matter of the amendment. She stated: As well as the comprehensive guidance notes that will be supplied with the form, help in filling, it in will he available over the phone or on-line""— I assume that means by reference to the website— Claimants will also be able to get help at their local Inland Revenue Office". That is not enough with legislation of this complexity. It is directly at odds with the system that prevails in the social security offices that I have to deal with for my former constituents where there is, de facto, a right of audience with an official. Indeed, those who served in another place will remember going with constituents to help them in their discussions—and, indeed, negotiations—with officials.

That is not the case with Inland Revenue offices. I refer to an earlier answer given by the Minister to my noble friend Lord Northbrook. She said that there will be an extension of the network of local Inland Revenue offices, but I wonder whether we are doing the claimants proper justice by not giving them an absolute right to a face-to-face interview to answer some or all of the points that I have put in my amendment. There is a big difference between the procedure which we are now abandoning and the system to be administered by the Inland Revenue.

I hope that the noble Earl, Lord Russell, will help me. I cannot conclude my brief contribution without seeking to emulate him, very badly, with a quote. I suggest that we should move from the situation —I believe that I am referring to the American revolution—of no taxation without representation to the one which I believe should apply now—that is, no completed claim without explanation. That would protect both the claimant and the Government.

Baroness Hollis of Heigham

Again, I can give a full reply, but I wonder whether we are making somewhat heavy weather of this. Most of those coming over to the new benefits will either be existing recipients of benefits, as the noble Earl, Lord Northesk, identified when he talked about automaticity, or will be currently claiming WFTC or DPTC, and therefore we will be able to help them. We will also know of course the case load for children's tax credit. Given that, we will be able to send claims forms to all of those households. The number of new and additional families which are currently unknown by the system will be relatively modest. If I can help your Lordships with the scats on that, I will do so.

Alongside that, we will also be running a publicity campaign. Once that is in place, people will be able to make their claims on line, over the phone or, at their request, in an interview at either a DWP job centre office or an Inland Revenue office. It does not seem sensible to impose an interview on people who do not want it. What is important is that anyone who wants it has access to it. When they fill in their forms—particularly if they make inquiries over the telephone—if it is clear that they would find a face-to-face interview helpful, then that will be made available to them.

Do I need to go on much beyond that? If I do, I shall happily come back to it. I am thinking about the procedures of the House and trying to expedite matters if I can.

Lord Freeman

I am grateful to the Minister. There is a difference between what the Minister explained, which is that there is a panoply of ways in which the rights of a claimant can be explained, and Amendment No. 237 which says that every claimant who wishes it has the right to a face-to-face interview with officials from the Inland Revenue. That is different.

Baroness Hollis of Heigham

Anybody who wishes an interview—either with the Inland Revenue or, if it is more appropriate, at the job centre club—will be encouraged to have an interview. I do not see that there is a problem here. It is not the sort of thing we put on the face of a Bill but whether it takes place with the DWP or with the Inland Revenue depends where they are coming from.

Going back to the automaticity, it is indeed as I suspected. The only two groups for whom we will not have some information already are those who are newly eligible for child tax credit, because they are single earners over about f41,000—there are not many of those—or indeed those receiving just WFTC, the single adults or the childless couples, of whom there are some 300,000. Given that we can get information to well over 5 million or so of the 5.7 million who will he eligible for child tax credits automatically; given that we have an extensive publicity campaign; given that people can fill in their forms online, over the telephone or in an interview; and given that there will be a helpline that people can call which will certainly make it clear that they can come in for an interview, I wonder whether the noble Lord will agree that there is abundant information and help for potential claimants.

Lord Freeman

I am sorry to labour the point. If the Minister is saying that every claimant does have the right to a face-to-face interview with an official from the Inland Revenue, that takes us a long way forward.

Baroness Hollis of Heigham

The proviso I made there was DWP. Many people will currently be receiving benefits and their natural home will he the Job Centre Plus rather than the Inland Revenue. Without exception, anyone who seeks an interview will, I am assured, be offered one.

Lord Higgins

With whichever department they prefer?

Baroness Hollis of Heigham

With whichever one is appropriate. If somebody is on benefit and will be receiving the child tax credit because they are on income support, and they are not a taxpayer and have no dealings with the Inland Revenue, it would not be particularly sensible to suggest that they went along to the local tax office. Their natural point of contact would be DWP. However, if there were some peculiar circumstances in which they felt it was more appropriate, I do not see why that would be a problem.

The Earl of Northesk

I thank the Minister for that reply. That assurance is extremely useful. The substantive point I was trying to tease out with my amendment is that my perception of the structure of the Bill is that it is weighted very much in favour of the Revenue, rather than understanding that the Revenue sits there with a duty of care, almost, to claimants. That was the substantive point I was trying to get at. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawan.

Lord Saatchi moved Amendment No. 32: Page 3, line 13, at end insert ", provided that no tax credit claim form shall exceed a single page of A4 paper The noble Lord said: In moving Amendment No. 32 I shall speak also to Amendments Nos. 33 and 236. These amendments, and particularly Amendment No. 32, lie at the heart of our concerns about the Bill I shall give a moment's background to the amendments if I may.

Amendment No. 32 obviously seeks to replace the present formidably complex claims systems with something simpler. Amendment No. 33 seeks the Minister's thoughts on the fact that BUPA and many other insurers have abandoned the old-style claim form approach and replaced it with making claims by speaking to an operator with a computer, who asks them the necessary questions and inputs only the necessary answers. The modern approach of large insurers involves having someone of experience and knowledge asking only the relevant questions and directly putting the answers onto the computer system. The Government could do this by providing either an interview with an official, as my noble friend suggested in a previous amendment, by telephone or by e-mail. Ultimately the savings to the Government could be great if they can make their computer systems live up to their promise.

Our main point, also made by my noble friend on the previous amendment, is that this procedure would help the applicant. Amendment No. 33 seeks a response from the Government and asks what is the stumbling block to the introduction of such a system for tax credit.

I would like to dwell for a moment on Amendment No. 32 in order to put it into context. Although the amendment concerns simplicity, I am afraid I shall have to speak to it at some length. I am embarrassed about that. My only comment in defence of the length of what I am going to say is to repeat a line Winston Churchill liked to quote from Mark Twain's letter to a friend: I wanted to write a short letter, but I didn't have time". Perhaps I may try to put Amendment No. 32 into context. Most people believe that the tax system now takes around 39 per cent of GDP, but that is just the end result of the system. The total system collects a staggering total of 53 per cent of GDP. The citizen is then obliged to claim back 14 per cent of GDP, around £143 billion, by navigating a mass of over 250 complex tax allowances, reliefs, exemptions, credits—the subject of the Bill—tapers, indexations, disregards and so forth. I have details of some of the means by which the citizen makes those claims. I have here a pile of the claim forms used by the Department for Work and Pensions, amounting to a total of 1,158 pages.

The charm of such a complicated tax system, from the point of view of the Government, is the scope it allows for hidden tax increases via reduced allowances or, in the case of the Bill, the reduced value of tax credits. Under this structure the Chancellor can increase the tax burden without ever announcing a tax rise. People simply wake up and find they are in a higher tax bracket, with the result that tax as a percentage of national income creeps up invisibly.

Economists call this "fiscal drag", and it is part of the reason why, over the past three years, the Government's tax revenues have risen three times faster than average earnings. The basic tax allowance of £4,365 should now be £10,000 to keep pace with earnings growth. We have to remember that this is no longer a problem affecting only a small minority of people. As my noble friend Lord Freeman said a moment ago, it affects a very large number of people and concerns a very large sum of money.

The Bill will ensure that around 40 per cent of all families in this country will be on means-tested benefits of some kind. Tax credits will go to 56 per cent of those in retirement. The introduction of the pension credit will further extend means testing amongst pensioners. By 2025 it will increase the proportion of people being means tested to approximately 65 per cent of single pensioners and 51 per cent of couples. In fact, 90 per cent of all households in the country are now eligible for a credit or benefit of some kind.

Let us consider pensioners for a moment. In response to the Government's pension credit proposals, this is what Age Concern had to say: The good intentions behind the pensioner credit could yet be thwarted by its complexity…Older people already feel lost in the means-tested maze, resulting in up to three-quarters of a million families failing to claim their income support. Unless people feel encouraged to claim it will simply not reach those it is designed to help. It is far too complex and over-elaborate. We need a system which is simple, understandable and which accords a proper dignity to pensioners". The difficulty that Age Concern describes about its pensioners is not an aberration, and it is not a condition which applies only to the pensioner credit. The problems that it describes are central to the system with which the Bill deals. That is because the requirements for income tax have never reached so far down the income scale. So today people suffer not just because their incomes are too low, but because even people on low incomes have their already low income further reduced by tax.

Under the present system, the Government first taxes people on their income; then it means tests their income; then it offers them a 40-page application form to claim credits or benefits. Yet every year billions of pounds—that is the point of this amendment—of budgeted expenditure on tax credits go unclaimed by millions of citizens who cannot fathom out how to claim them.

We should remember that the working families' tax credit had a take-up of 62 per cent. Only 72 per cent of entitled families with children had claimed the children's tax credit by December 2001. This year it is estimated that £2.6 billion of budgeted expenditure on tax credits will go unclaimed.

That is why we believe it is incumbent on us here in Parliament to simplify the procedure wherever we can. We all know about stealth tax. That is a tax charge which is unknown or incomprehensible to its victim. I put it to the Committee that without Amendment No. 32 or something like it, the Bill is in danger of introducing us to a new and even more insidious form of tax raising; that is, the non-payment of a tax relief or tax credit. One might call it a stealth credit or tax relief which, by accident or design, are unknown or incomprehensible to their beneficiaries.

There is one crucial difference between a stealth tax and a stealth credit which I should like to draw to the attention of the Committee. The stealth tax is unerring in its reach. It achieves 100 per cent "take-up". The stealth credit, on the other hand, reaches only 60 per cent of its beneficiaries.

The table on page 154 of the Red Book illustrates to the Committee the importance of this point. This table shows, very helpfully, the impact of Budget changes. It shows a £4.6 billion tax rise—namely, national insurance contribution increases and personal tax rises—and a £4.6 billion tax reduction in the form of tax credit. The problem is that, unless the take-up of the tax credit is as high as the take-up of the tax payment, the £4.6 billion of tax rise in the last Budget from NICs will be paid to the Government. However, our fear is that the £4.6 billion of tax reductions from tax credits will not be paid by the Government. That is unfair, and this amendment will help to correct that injustice.

Perhaps I may continue for a moment on what we believe to be the crucial nature of the direction of this amendment. The Government, I am sure, do not wish to be accused of taking advantage of the poorest and neediest people in our society and there is no need for them to put themselves in that position. The noble Lord, Lord McIntosh of Haringey, said—I am sure the noble Baroness has said this also—that child and pensioner poverty is an obscenity in the 21st century, especially in a country like ours with the fourth largest economy in the world. I do not need to labour the point.

The Government are right to put poverty at the centre of their social and fiscal policies and I can see that tax credit legislation like this can be an important tool to achieve that end. However, if the Government are sincere in that wish, they should heed perhaps not the words of the Opposition Front Bench on this amendment, but their own Members in another place. For example, the Member for Hampstead and Highgate, Glenda Jackson, said in another place: There is a gap in people's understanding of the working families' tax credit, how they can apply for it and the benefits that it can bring."—[Official Report, Commons, 12/2/02; col. 31WH.] Diane Abbott, the Member for Hackney North and Stoke Newington, the constituency with the highest number of single parents in the country, commented in another place that as an Inner London MP she found that the working families' tax credit had not had the impact on her constituents that she would have liked. She went on to draw attention to the disparity between what the Government had said about the new schemes and the experience of her poorest constituents: There was a mismatch between the bulging files of press releases announcing new Government initiatives in my office and people's perception of what was being delivered".—[Official Report, Commons, 12/2/02; col. 34WH.] I know the Minister will say that she and the Government are looking at the problem of take-up, that they are very conscious of it and are consulting various stakeholders. I gather that the Government are carrying out a wide-ranging evaluation programme on the problem of take-up. Perhaps she will confirm that point. No doubt her officials will continue their dialogue with key groups which can help. I hope that she will tell us about the status of that work so that we can learn from the results. We would very much like to know the views of the Minister on how to tackle the problem of take-up, if not via this amendment, then something like it.

In closing, I offer an area that she might want to address in her response. Many Members of another place said that in their constituencies, when they spoke to people about tax credits, they found that there was profound ignorance, for example, of the WFTC. People simply did not know whether they were eligible for it. The quality of advice given in employment offices was often variable, and not many people went to the Employment Service or other agencies to receive better assessments. They simply did not have the figures to show them whether they would be better off with the credits.

This point was underlined by the publication of the latest Government statistics on benefit take-up. As other noble Lords have done in our debates, it drew attention to the root problem of complexity. For example, the report entitled Income Related Benefits: Estimates of Take-up in 1999/2000 showed that the take-up of income support was lowest for pensioners at between 64 per cent and 78 per cent by caseload, and between 74 per cent and 86 per cent by expenditure. There was also evidence that the percentage of entitled pensioners taking up income support fell between 1999 and 2000.

The report also showed that last year, 500,000 eligible pensioners were not receiving income support; this year, the figure has risen to 580,000. Last year, 150,000 eligible pensioners were not receiving housing benefit; this year, that figure has grown to 210,000. Last year, there were 1,070,000 eligible pensioners not receiving council tax benefit; this year the figure is 1,215,000.

I apologise again for the length of this introduction to the amendment. Our starting point for Amendment No. 32 is a tax system of "paralysing complexity" according to the editor of the Financial Times. "A monstrous thing" says the editor of the Economist. In our opinion, simplicity, such as the simplicity we seek in a claim form, is the outcome of technical subtlety. It is the goal, not the starting point. It requires what I believe the noble Earl, Lord Russell's father called, the painful necessity of thought to make it simple. The Government like to say that the Bill is a simplifying measure. We would very much like them to prove it by accepting the amendment. I beg to move.

5 p.m.

Lord Freeman

I wish to speak to Amendment No. 236, which has been grouped with Amendment No. 32 and with which I am in full agreement. I shall take up the point made by my noble friend about the degree to which individual citizens with rights properly claim them and take them up. I suspect I might be pushing at an open door here, but I invite the noble Baroness to look through the other end of the telescope at the semantics used by the claimant, the individual.

There is a difference between an "application",—a word used in the draft forms from the Inland Revenue, which I am sure she has read and on which her officials will have briefed her—referring to an application form, which implies discretion, and a claim, which is on the face of the Bill, which implies not a discretionary matter, but an absolute right.

It seems to me that all the literature that will emanate from this legislation when it becomes an Act—as I hope it will after proper reform of the Bill—will refer to the "right" to a claim and not to an "application". Perhaps I should remind the Members of the Committee that when you draft—or when your accountant drafts—your tax refund form, you are not making an application but an absolute claim. I believe that that is the word we should use.

Earl Russell

In tabling Amendment No. 32, the noble Lord, Lord Saatchi, has been too trusting. It reminds me of a Bill which was tabled in another place in 1606. Clerks then used to be paid by the line. Some of them attempted, unilaterally and arbitrarily, to increase the rate per line at which they were paid. A Member tabled a Bill to restrict them to a specific number of pence per line. Another Back-Bencher got up and said, Watch out. If you pass this Bill, all they'll do is have fewer words in each line?"! If the amendment of the noble Lord, Lord Saatchi, is agreed to, all we will get is very much smaller print—which I, for one, will find very difficult to read. The Bill was withdrawn; I hope that the amendment will be also.

Lord Higgins

My experience on other Bills suggests the contrary. We will get a one page sheet to fill in and a 200-page explanatory memorandum.

Baroness Hollis of Heigham

All of these propositions are tempting. Again I shall be very brief. I am sure that the Committee will understand if I stay with the amendment that is on the Marshalled List rather than be tempted into the broader issues of the fiscal drag and so on raised by the noble Lord, Lord Saatchi, which he argued very eloquently at Second Reading.

If there is a particular concern about take-up it might be valuable if the noble Lord could bring forward an appropriate amendment to open-up this issue at Report stage, when I will come back very specifically on take-up. If I can give him any particular information in regard to our assumptions on take-up and how we seek to overcome any problems, I will be happy to do so.

Taking the amendments back to front, the noble Lord, Lord Freeman, is probably right in regard to Amendment No. 236. However, given that the words "application form" and so on have been used by the Inland Revenue, I should like to ask the officials to discuss this with the appropriate voluntary groups with whom we are consulting in order to discover what terminology is preferred by their clients. I will then come back to the noble Lord on the outcome of those discussions. He may well be right, but let us look to see what we end up with in terms of consistency with existing tax practices as opposed to the outcome of consultations with the group.

The first two amendments—I have dealt with the third, I hope—would restrict the length of any claim form to one page of A4. They would provide that a claim may be made by means of an interview, conducted in person, over the phone or by electronic means. The noble Lord did not say very much about that.

As to the point about the one page, I have here a draft, a mock-up of what the claim form may look like, which consists of some 12 pages of print. Even with my poor eyesight, it is big enough to read. The noble Earl, Lord Russell, is quite right: a one page A4 form would allow you to list, in fairly small font, your name, your partner's name, address, nationality and phone number. If you had only one child he or she would be included on page one, but any more would be left off altogether, I suspect.

It would have to exclude all reference to disability, hours, wages and employer; it would have to exclude all questions about any other income and savings; it would have to exclude all reference to preferred method of payment; and it would have to exclude all reference to childcare. There is no conceivable way that that could be put on such a form.

The noble Earl, Lord Russell, will help me, but I think it was the Victorians who used to be rather good at producing a Bible on rice paper measuring about an inch and a half by an inch and giving a magnifying glass with which to read it. On the substance of the amendment, I hope the noble Earl will realise we cannot do as he asks.

Having said that, just as the MIG forms were rightly reduced from 40 or 50 pages—with questions on subjects from pregnancy to pensions—to 10 or 12 pages, partly as a result of pressure from your Lordship's House, so this form is a model of clarity and simplicity. I would be happy to circulate draft copies to your Lordships.

We have taken up the point about interviews being available if people want them, but it is sensible that people start by filling in a claim form—unless they expressly do not wish to do so—and then follow that by going through to a help line and an interview on any parts that they may find difficult. If we say that all claim forms have to be filled in at an interview, we can be sure as little kittens that the applicant's capacious shopping bags—or my capacious shopping bag or the capacious shopping bag of the noble Earl, Lord Russell—will not have all the papers and other things that they need for the interview. A simple form such as this—which is simpler than the housing benefit form that most pensioners fill in, infinitely simpler than the JSA form introduced by a previous administration and about as simple as the new MIG forms that underpin pension credit—is the way forward, with the further option of either a helpline or interview for those parts that people need further help on, such as what counts as income or what level of savings should be taken into account.

I hope that your Lordships agree that we are going the right way on this. It is a very simple form with plenty of back-up and plenty of publicity. I would be very disappointed if the amendments were not withdrawn. These benefits are remarkable in terms of their decency and their problem-solving ability in helping those who are poor without reducing the incentive to go into the labour market. We have come up with some extraordinarily effective solutions, such as looking at gross rather than net income. If I can help by sending out further information to your Lordships, I would be happy to do so.

5.15 p.m.

Lord Freeman

I am grateful to the Minister. Circulation of the latest draft of the claim form to Members of the Committee and to those who spoke at Second Reading and have not been able to join the Committee today will be much appreciated.

Baroness Hollis of Heigham

The draft will come with a health warning, because obviously the final draft is determined in consultation with user groups and voluntary organisations, but if it would be helpful to your Lordships, I will do my best to get it circulated.

Lord Freeman

I thank the Minister for that, and for regarding noble Lords also as a user group.

Baroness Hollis of Heigham

I would be amazed if any of your Lordships qualified, apart from for child benefit, which is not dealt with under this clause. None the less, I regard this as a consultative body.

Lord Saatchi

I am grateful to the Minister for that reply. As my noble friend Lord Freeman said, it would be helpful to see that draft. Perhaps it meets some of the objections.

I am surprised by the Minister's response. I have been most deeply impressed by her radiant sincerity about the merits of the Bill and her passionate belief in what it is trying to do. However, I am surprised that she does not find it completely unacceptable that 40 per cent of the people who have a right to these credits do not receive them on the grounds of complexity.

Baroness Hollis of Heigham

I do not know where the noble Lord, Lord Saatchi, is getting his stats from. It is certainly true that the original survey, conducted about nine months after WFTC had been introduced, showed that there was a 62 per cent take-up. The latest figures we have, which I gave on Second Reading, show a further 14 to 16 per cent increase on those figures. That is why I am baffled by the noble Lord's stance. We are talking about a cash take-up of over 80 per cent and a case take-up of something like 76 per cent. From our research, we also know that those people not claiming are those who are due very small sums, perhaps £1 or £2.

I also said that approximately 25 per cent of those who were entitled to family credit but did not claim it went on to claim WFTC.

I also argue that it takes time to build up but we expect 85 per cent plus take-up at the very least of the new tax credits for those who will be claiming both working tax credit and children's tax credit. What we cannot give is a figure for the 300,000 who will be eligible only for the working tax credit simply because we do not have any experience of targeting this benefit at that group. If, however, we fail to reach those figures, then the noble Lord is absolutely right and I shall certainly be one of the most disappointed and distressed parliamentarians in your Lordships' Chamber. However, I have no reason to think—from the degree of automaticity and the fact that almost all of those who will come within reach are already within either the tax revenue system or the DWP system— that we will not meet those figures and, I hope, overtake them.

Lord Saatchi

I am grateful to be brought up to date on the figures. Would the Minister be able to bring me up to date on the latest view of the amount of money involved in tax credits not taken up? In my remarks I used what I believed to be the current figure, which is that the Government will save £2.6 billion by not paying tax credits to those who are eligible to receive them. Could the Minister confirm that figure?

Baroness Hollis of Heigham

I cannot confirm that figure because I do not have it in the form I have been talking about. What is put in the accounts is not actually a statement of the cost of 100 per cent take-up; it is based on the previous year's estimate with possibly a little head space to manage the expected expenditure pattern. We would have to do some work on that. If I can obtain that figure, I shall certainly give it to the noble Lord.

Lord Saatchi

Will the Minister say what is the take-up assumption behind the £4.6 billion cost of tax credits in the Red Book?

Baroness Hollis of Heigham

I am sorry, I thought I had given the noble Lord that just now. We were expecting to see 85 per cent take-up of tax credit. The figure is not higher than that because there are 300,000 people who live in childless families—either single adults or couples—who currently are not eligible for any financial support. We do not know how many of those we shall be able to reach.

Lord Saatchi

Were there to be a shortfall on the 85 per cent figure, can the Minister say whether there is a mechanism by which those who are eligible and have the right to those tax credits, but who have not taken them up and therefore are not part of the 85 per cent, could receive them?

Baroness Hollis of Heigham

We shall come later to an amendment about back-dating—the noble Lord will understand the provisions of back-dating the Bill—and we can discuss it then. At the moment our intention is that back-dating applies for about three months for those who have failed to claim. For those who have over-claimed, it would go back to the point at which the claim was started.

Lord Saatchi

The reason for my disappointment with the Minister's response is that I believe that the Prime Minister likes to say that we all have rights and responsibilities. As my learned friend said, it has been determined that the citizens, the people, have the right to these tax credits. The responsibility falls on the Government to make sure that they receive them. I did not have the impression from the Minister's remarks that she really takes the point that the claim forms are a deterrent to 100 per cent take-up. Nevertheless, I am happy to leave the point there. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 33 not moved.]

The Deputy Chairman (Baroness Nicol)

I must inform the Committee that if Amendment No. 34 is agreed to, I shall be unable to call Amendment No. 35.

The Earl of Northesk moved Amendment No. 34: Page 3, line 24, leave out paragraph (f). The noble Earl said: In moving Amendment No. 34 I shall speak also to Amendment No. 35. These are probing amendments. Amendment No. 34 leaves out paragraph (f) of Clause 4(1). I simply ask whether the Minister could, for the record, give examples of situations in which the Government believe that one person may act for another in making a claim for a tax credit.

Amendment No. 35 seeks to ensure that the Revenue satisfies itself as to the identity of a person making a claim on behalf of another, and that that person is acting genuinely in that capacity. In other words, this is a belt and braces approach to limiting opportunities for fraudulent claims. I beg to move.

Earl Russell

Believe it or not, I wish to speak to Amendment No. 100 in this grouping. It is an amendment in my own name. It is the first time this has happened in the course of the Bill. It also deals with the question of joint action, but this one comes from much further on, page 17, dealing with the giving of notices by the board. The cause I want to take up states that, Regulations may— provide that, in prescribed circumstances, one person may act for another". What interests me is the extent of this part of the Bill. As drafted, it is of pretty unlimited potential application. The amendment I have tabled—I assure Members of the Committee that I would have no intention of pressing it, even if we were not in Grand Committee—is that, when the claimant is tit and of sound mind, no such circumstance may be prescribed without the consent of the claimant". The question is, of course, how far anybody has the right to refuse to allow another person to act for them. I can think of circumstances dealing with couples who have separated perhaps during the tax year and perhaps under highly contentious circumstances, or even under potentially dangerous circumstances, where they would not in the least wish to have anyone else acting for them. Because of the use of the word "may" about communicating information, I need not ask for any further amendment of the Bill.

I merely want to ask the Minister, first, what is actually intended with this power. Secondly, is there any way in which it could be drafted it to make the vires a little less unlimited in their extent, to restrict their intention, which I am sure is a good one, to something a little closer to the words of the Bill so that it does not authorise a whole mass of actions which it does not really want to authorise? I await the Minister's reply with interest and with a certain degree of optimism.

Baroness Hollis of Heigham

The noble Earl, Lord Northesk, asked about the nature and scale of the issue. It may be helpful if I can give him some information. Currently, working families' tax credit and disabled person's tax credit claims may be made on behalf of a person unable to act by themselves by an "appointee". An appointee is someone appointed as a receiver by the Court of Protection or as a guardian, tutor or curator by another court of law, or someone who has been specifically appointed by a Secretary of State or Board of Inland Revenue to act on behalf of that person for the purposes of claims for benefits or tax credits. Regulation 33 of the Social Security (Claims and Payments) Regulations 1987 sets this out in detail. The provision is of particular benefit to those with severe disabilities or learning difficulties who may not be able physically to complete a claim form, but who may be eligible.

At this point I may be able to give the noble Earl some further information. My understanding is that around 1,000 DPTCs—disability awards—are currently made in cases where an appointee acts on the claimant's behalf. That is quite a small proportion, only about 3 per cent of the total, with three-quarters of those being appointee cases made by the Secretary of State or Board of the Inland Revenue. The rest are court order appointments. Around 20 per cent, 200 of those cases, are spouses appointed on their partners' behalf, but those cases are all investigations considered to be cases where the claimant is genuinely unable to act.

I have checked and none of the staff in our unit can recall a case where a spouse was appointed when the other spouse could have acted on their own behalf. We have no evidence at all, therefore, to suggest that the issue of appointment and appointees has at any stage been abused. The numbers are so small and the procedure so rigorous that that has not occurred.

If the noble Earl has any evidence to the contrary, then he should let me know. However, I have pursued the matter in some detail because it seemed very important. I was concerned about undue pressure, given that these are high value benefits. Given the procedure, we have no evidence that this has occurred under the existing benefit claims, except entirely to the advantage of the claimant. I hope he will agree that we do not need to elaborate on the procedures we already have, because they seem to be working. The noble Earl, Lord Russell, asks us to introduce a safeguard into the provisions. In this case it is where an appointee is responding to an end-of-year notice under Clause 17. I stress that no appointee would be appointed by the Board of Inland Revenue if it is not in the best interests of the claimant to do so.

Amendment No. 100 would not allow appointees to act on a person's behalf in response to a Clause 17 notice if the person was fit and of sound mind, unless the person consented. I do not think that provision is necessary, because it is already the case. I shall check with my advisers and see whether, either through wording on the face of the Bill, or through regulations, we need to allay the noble Earl's fears by greater clarity of wording.

5.30 p.m.

Earl Russell

I am most grateful for that reply. Greater clarity of wording would give me everything for which I can legitimately ask.

The Earl of Northesk

I am entirely satisfied with the Minister's response and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 35 and 36 not moved.]

Earl Russell moved Amendment No. 37: Page 3, line 31, at end insert— () The Secretary of State shall have discretion to extend such times as are prescribed under subsection (1)(a) owing to illness or other circumstances of the claimant not under his control, or to delays by other parties over whom the claimant has no control. The noble Earl said: It is addictive, it has happened a second time: I am actually moving another amendment. This deals with the time in which claims for tax credits can be made. They are to be made in a prescribed manner and within a prescribed time.

Some of your Lordships may remember a Bill that was drafted by the Law Commission and raised at Question Time in the Chamber and discussed in various other ways about a year or so ago. It was a Bill to repeal the clause in the Statute of Gloucester of 1278, which said that a case cannot be counted as murder if death should happen more than a year and a day after the original injury was inflicted. Life support machines have made that out of date.

That serves to remind us that even the most carefully and generously thought-out time limit may occasionally turn out to be irrelevant to the facts of the case. There may be cases in which people do not make a claim because they are on a life support machine and are not capable of reasoning, hearing or working out anything for themselves. Mental illness can also create such a condition. It is unfair that such serious disadvantages should also prevent those who suffer from them putting in a claim for a tax credit to which they might be entitled.

I put down an amendment along roughly these lines to the Child Support Act 1991. I did not move it because it would have come up at 2 a.m. I found to my intense surprise that for the next stage of the Bill the amendment was down in the name of the noble and learned Lord, the Lord Chancellor. I was not quite as fortunate in 1995. On the other hand, the principle was accepted in the regulations that we discussed last Tuesday, which were, happily, passed. As a general principle it has been accepted twice by government. Doing the hat-trick is rather nice. I hope it might happen this time. I beg to move.

Baroness Hollis of Heigham

I appreciate the noble Earl's concerns, which will give the Secretary of State discretion to extend the time limit for claims in particular circumstances, such as the claimant having been ill or other circumstances outside the claimant's control. Of course, the Secretary of State does not have authority over tax credits, which will be under the care and management of the Board of Inland Revenue. Nevertheless, the principle of the amendment is clear.

I am not sure whether the noble Earl, Lord Russell, is pressing me on the issue of time limits or whether he envisages other categories of need that are not covered by the existing wording of Clause 4., which provides, that a claim for a tax credit is to he treated as made by a person or persons in such other circumstances as may be prescribed. That prescription includes physical or mental illness.

I wonder to what extent the noble Earl, Lord Russell, is seeking to push me on time limits, or whether he is seeking to push me on circumstances that he thinks would not be covered by mental or physical illness. Perhaps he can help me on this.

Earl Russell

I was thinking of circumstances that might not be covered. One of the commonest delayed claims that I have to put in is failure of my P60 to appear when it should, and that sort of thing may delay a claim for reasons which are in no way the fault of the person who is making the claim. Is it possible to give any consideration to that type of case?

Baroness Hollis of Heigham

Yes. I have a comment on the life-support machine. It would be difficult to conceive of circumstances in which that would come into play. That individual would not be responsible for a child and would not be working, and therefore would not be eligible for tax credits in that particular situation. They may be one of a couple, and in those circumstances the other partner would claim on behalf of both of them; in other words, we get back to the "appointee" discussion we have just had.

The noble Earl was concerned about forms which go astray. At present, for the most part, under the general rules for income support, JSA, and so on, claims take effect the day they are made, and they can, in very limited circumstances, be back-dated for up to three months for severe illnesses. Currently, in other limited circumstances the claim may be hack-dated for one month; for example, in cases of transport or postal difficulties.

These provisions introduce three-months backdating, which is considerably more generous. It is also the case that if, for example, claimants find their entitlement curtailed, despite the fact that they have done their best to comply with the rules—perhaps for technical reasons because one benefit hinged on —another—we would treat the claim as made on the date earlier than the date on which it was actually made in order to prevent claimants losing out on a technicality. For example, eligibility for WPTC depends on a qualifying benefit, and if that was delayed someone might lose out on the timing of their eligibility for WPTC. We now handle that.

It is very hard to envisage postal and such delays going on beyond three-months. I am floundering slightly because I cannot think of a circumstance that the noble Earl's case would cover. The life-support machine was dealt with; postal delays would surely be caught by the three-months limit. If a benefit depends on another benefit and is delayed due to that, then the regulations would cover that situation as they do now. Can the noble Earl, Lord Russell, give me some other help that physical or mental disabilities would not cover?

Earl Russell

I am most grateful to the Minister. On the matter of post I can quote the case of three envelopes which were posted to me at the Huntington library and reached me three years later. I take the point that the person on the life-support machine is not going to be caring for a child at the time, but they might have tax credits due to them at the time when they went onto the life-support machine.

Basically the Minister is relying here on Humpty Dumpty, who has ridden gallantly to the Minister's rescue. I wonder whether she might rely on that Humpty Dumpty case about treating a claim as being made at a time other than when it was actually made. I am sure she has very much enjoyed making me admit the virtue of the Humpty Dumpty clause. If so, she is entitled to. I believe she has given me about as much as I am entitled to ask for, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Freeman moved Amendment No. 38: Page 3, line 40, at end insert ", including any information about benefits and services provided by government departments to which the claimant or claimants have access by virtue of their entitlement to tax credits The noble Lord said: I live in hope and expectation that the Minister will accept this amendment for two reasons. First, it is not mandatory. It is an empowerment for the Inland Revenue to offer advice on passported benefits that are linked to the claim for tax credits.

Secondly, it is very much in line with the present Government's thinking about joined-up government. We have a situation where the Inland Revenue offices, using modern IT, have to link both to local government and to the offices of the Department for Work and Pensions, in order not only properly to assess any claim but, through the means of this amendment, to provide information about other benefits.

I am grateful to the Minister for her response sent on 8th May to my question about the IT systems to be used by the Inland Revenue. Perhaps I may read for the record the two relevant sentences: You also expressed concern about the Inland Revenue's ability to deliver such a demanding IT project on time. This is the project to prepare for the revision in the method of delivering tax credits: I can assure you that the Revenue is aware that delivering this policy places a huge requirement on that department to deliver an IT system that is both intricate, containing a number of cross government interactions, and capable of dealing with the large number of customers entitled to tax credits. It is the reference to the number of cross-government interactions that this amendment seeks to probe. I hope that it will commend itself to the Minister. I beg to move.

Baroness Hollis of Heigham

As the noble Lord, Lord Freeman, has so clearly explained, the amendment would require the Inland Revenue to provide claimants with details of other benefits they may become entitled to by reason of their entitlement to tax credits. By that I mean entitlement to the so-called passported benefits. I believe that those are what the noble Lord has primarily in mind.

I would suggest to the noble Lord that the amendment is not necessary. That may be good news, but the bad news may be that the amendment would not do what he hopes. Let me begin by seeking to assure Members of the Committee that the Revenue will be doing what it can to help people with the issue of the passported benefits. The aim is to provide basic advice on them through the tax credit helpline, and to direct claimants to where they can obtain more information. The Inland Revenue, however, cannot advise claimants on whether they will be entitled to passported benefits.

As the noble Lord knows very well, passported benefits are the responsibility of a variety of government departments or organisations, each of which sets its own entitlement criteria. Using entitlement to certain benefits and tax credits as a trigger is merely a way of cutting down on administration by using a ready-made income test to target those benefits, such as free school meals or free prescriptions. But they also include benefits not provided by government departments, such as reduced charges for utility services.

Because this is a complex area, the Treasury and the Inland Revenue have been discussing their needs for information from the tax credit system with the departments and organisations responsible. Claimants need to be able to access advice about passported benefits, but that advice must be the best and most reliable advice available. In that case, it must come mostly from the department or organisation directly responsible for the benefit. To support that, the Revenue will be looking to see how it can facilitate wider access to advice for claimants and how it can support the departments responsible for the benefits with the information they need to target those who are eligible.

I hope the noble Lord is reassured that we are taking what steps we can within the constraints of what is practicable. We cannot expressly provide entitlement to passported benefits in this Bill because it is not for us to determine entitlement to them. However, we are doing all we can to facilitate access to information about the benefits and to work with other departments to provide the relevant information. With that explanation, I hope that the noble Lord will think that we are at least at one with the push of his amendment, if not with the wording.

Lord Higgins

I am slightly surprised by that reply. The amendment refers not to entitlement, but whether people may have access to particular benefits. It refers specifically to government departments and not to benefits outside government departments, to which the Minister appeared to refer. One cannot help but feel that the Revenue, perhaps unlike the Department for Work and Pensions, is not enthusiastic about the broader aspects of giving information on passported benefits to those individuals who may be entitled to them.

Lord Northbrook

This amendment is worthwhile because, according to the Office for National Statistics, the take-up of means-tested benefit has been declining. Looking at the figures produced between 1998–99 and 1999–2000, the total of unclaimed means-tested benefits was £2.5 billion. As I understand it, that has increased to £3 billion. The amendment would help people's understanding of the system and encourage them to take up benefits of which they may currently not be aware.

5.45 p.m.

Baroness Hollis of Heigham

We cannot turn the Inland Revenue into a welfare rights organisation taking legal responsibility for the advice that it gives when those benefits—free school dinners and so on—are run and handled by other departments. That seems inadvisable. Providing power to disclose information on passported benefits adds nothing to what is already in the Bill. I have made it clear that the Revenue is working with other departments on the mechanics of passporting. It will also provide basic information and direct people to the source of more detailed information. It would not be reasonable to expect the Inland Revenue to express a view on entitlement to passported benefits. That is a matter for the departments responsible for them.

Lord Higgins

The amendment does not say "entitlement".

Baroness Hollis of Heigham

The amendment states: any other information which is relevant to any entitlement to tax credits pursuant to the claim.

Lord Higgins

I am sorry. I misunderstood.

Baroness Hollis of Heigham

Am I not right?

Lord Higgins

Yes. I am sorry.

Baroness Hollis of Heigham

Thank you. I hope that the noble Lord, Lord Freeman, will accept that the Inland Revenue cannot take responsibility for determining or giving information about an entitlement to a benefit which is run by another department. It can try to make sure that people have the relevant information through an advice line and a referral-on, where appropriate, and obviously this will be backed by relevant literature, but, ultimately, it is a question of functional responsibility.

Lord Freeman

I am disappointed but not surprised by the response, which is more in keeping with the language and attitude of the Inland Revenue than of the Minister's distinguished self, and perhaps even of the Department for Work and Pensions.

My noble friend Lord Higgins put his finger on the point. This is not about the determination of entitlement or even the payment of other benefits. The amendment seeks to provide that the board may distribute information about other passported benefits. A mere telephone number—which I think the Minister suggested might be available—does not seem to be in the spirit of joined-up government.

This relates to an amendment to which I spoke earlier. I did not move it because it was not in sequence. I will have an opportunity to move it later in the proceedings. That amendment concerned better-off calculations, which is the obverse of what I am suggesting here because you may lose some passported benefits and certain other payments through being entitled to claim, and receiving, tax credits.

It is a very modest amendment. I hope that we will return to it, although not necessarily in this form.

Lord Saatchi

Before my noble friend withdraws the amendment, the Minister said earlier that she did not have to hand the figure for none take-up of tax credits. Can the Minister confirm that the correct figures for none take-up of income support, housing benefit, council tax benefit and jobseeker's allowance are as shown in the ONS document—in other words, that the correct figure for the money saved by the none take-up of those four benefits is £3.015 billion in 2000.

Baroness Hollis of Heigham

I do not want to be unhelpful but I do not think that it is appropriate to go back and revisit an amendment that has already been disposed of. I am very happy to respond in writing to any queries the noble Lord may have, but we have moved on from that group of amendments to the current one, which is about passported benefits and the Inland Revenue.

Lord Northbrook

The noble Baroness said that the amendment placed a legal obligation on the Inland Revenue, but it did not seem to me to be couched in such direct terms. It was about passing on information, but not creating legal obligations.

Lord Freeman

Technically, it is my duty to ask leave to withdraw, bearing in mind that I would like to return to the issue at a later stage. I beg leave to withdraw.

Amendment, by leave, withdrawn.

The Earl of Northesk moved Amendment No, 39: Page 3, line 40, at end insert— (3) Notwithstanding the generality of subsection (2), the Board may supply to a person in receipt of a tax credit (whether or not jointly with another)—

  1. (a) any information relating to the claim, to an award made on the claim or to any change of circumstances relevant to the claim or such an award,
  2. (b) any communication made or received relating to such an award or any such change of circumstances, and
  3. CWH 97
  4. (c) any other information which is relevant to any entitlement to tax credits pursuant to the claim or any such change of circumstances,
in the form of an annual statement to the relevant claimant at the end of each tax year. The noble Earl said: I hope that the purpose of the amendment is straightforward. It would empower the Revenue to issue annual statements of tax credit entitlement, changes of circumstance and payment to individual claimants, if it so wished. Of course, this returns us to territory covered in previous amendments, in particular the duty of the Revenue to secure people's rights to benefits and tax credits.

I begin with what I hope is an obvious point. It is likely that a number of individuals who operate under self-assessment of their tax liability could also be entitled to tax credits. The Revenue already issues annual statements to these individuals. It should follow that their annual statements will include, whenever relevant, the effect of tax credits. This is an inevitable consequence of the integration of the benefit and tax systems. To this extent, it is reasonable to suppose that the purpose of the amendment would be achieved quite naturally within the system.

However, there are more telling reasons as to why the issuing of annual tax credit statements would be useful. Once again, this relates to issues of take-up, fraud and the complexity of the system.

The Paymaster General commented on Third Reading in another place: The annual nature of the credits will simplify the income assessment process".—[Official Report, Commons, 7/2/02; col. 1115] Would that it were that easy. There is a contrary view, expressed by, among others, Andrew Dilnot of the Institute for Fiscal Studies, who has said that yearend adjustment reduces certainty and increases complexity for all". It may make it somewhat easier administratively for the Revenue, but particularly insofar as we may be moving towards a system of self-assessment for tax credit entitlement, there are serious doubts that it will make life easier for claimants. There are a host of potential problems here. As my honourable friend Howard Flight observed, at the heart of the issues are our concerns about the complexities of the arrangements and our anxiety that the need for claimants to keep detailed records and monitor the number of hours worked, the amount of income earned and child care costs will lead to a much-increased risk of non-compliance".—[Official Report, Commons, 7/2/02; col. 1119.] That leaves aside Liberal Democrat concerns—and our own—in respect of over-payment problems. In other words, it is reasonable to suppose that the end of any given tax year is likely to prove a particular sticking-point, even in a period of anxiety and worry, for many claimants.

Surely it makes sense to use the occasion to inform claimants of the immediate history of their entitlement and those sets of circumstances that may impact on the levels of their entitlement. Based on the dual assumptions that the system of reporting envisaged in the Bill works and that the Revenue is intending to use data analysis tools actively, it should be possible to target specific categories of claimant. In turn, this should make it possible, via the expedient of selective use of annual statements, to impact beneficially on the accuracy of claims in the interests of claimants and the Revenue. Claimants would be in a position to assess whether their past entitlement had been accurate and what their likely entitlement would be for the coming year, as well as, if necessary, volunteering information about over-payment or changes in circumstances that might have had an effect on their previous entitlement. They would also be able to assess what sort of future changes in their circumstances would have an effect.

The Revenue for its part would be assured that all claimants in the client group had received a statement of account—a baseline from which the legitimacy of claims could be measured and against which future claims could be error-checked. Moreover, insofar as the Revenue would be able to use them to demonstrate detailed knowledge of the entitlement of individual claimants, such annual statements could potentially have a deterrent effect on those seeking to defraud the system.

There is also the issue of record-keeping. As a generality, for reasons of which we are all painfully aware, those in receipt of tax credits will tend not to be too focused on the management of their finances. Accordingly, the service the revenue could provide by issuing annual statements should not be underestimated. It would afford claimants a simple and straightforward means of having access to some measure of financial record of their circumstances. I beg to move.

Earl Russell

I want to raise one point which is perhaps oblique to this amendment but which I think comes within its purposes. The amendment concerns itself with the supply of information. What concerns me is that information should not be distributed where it is to the detriment of a woman who is in danger of facing domestic violence. That is a situation probably a good deal more common than most of us know and certainly serious enough when it happens. I have not felt the need to table any separate amendment because of the presence of the word "may", which occurs, first, in the opening section of Clause 4(2), page 3, line 32 and, secondly, at the beginning of the noble Earl's own amendment.

To do what I am asking the Government to do probably does not require any changes in the wording of the Bill. I am simply asking for assurances that information about the whereabouts of the woman who is or has been in danger will not be communicated in ways in which it may reach the man from whom the danger arises. Such ways are more numerous and often more devious than many of us allow for. I have known it passed quite unwittingly and in all innocence through friends and relations of the man concerned in the local police station. They had no idea they were being accomplices to any such thing, and the cunning which goes into pursuit when exercised by men of property with their minds on the job can be quite fiercesome.

Clearly there is a vast apparatus here for the communication of information. The problem we have is that it is a need recognised by all people of goodwill but that a big cultural change is needed to make most of us think of it at the top of our minds at the moment when it is needed. I know that the Minister and I have been over this on a great many occasions. She probably understands the problem as well as anybody in the country does and certainly as well as anyone in politics does. All I am really asking is for her to try to communicate that awareness, probably in the form of guidance, to those who will be working on this Bill on the provision of information to make sure that they stop to ask the question. I await the answer with optimism.

Baroness Hollis of Heigham

I hope that I shall be able to make the noble Earl, Lord Northesk, happy tonight, even if I cannot make other members of his Front Bench team happy. What we are proposing under Clause 17 does almost exactly what he is proposing. In other words, his amendment is similar to the annual notice that we will be providing for every case under Clause 17. It may be worth stating what that does and then, if the noble Earl, Lord Northesk, feels that it does not do enough we can come back to it.

Under Clause 17, the Inland Revenue must send a notice to each claimant, and in a joint claim to both claimants, at the end of the tax year. That notice will specify the circumstances upon which the award was based and the income upon which it was based. When circumstances have changed, the notice shall cover all the relevant circumstances that have applied over the course of the award—this is covered in Clause 17 itself. The claimant must then confirm the details in the notice or amend them if they are incorrect—this is his point about fraud—as the award is finalised. This is also treated as the basis of the claim for the subsequent year. Clearly, the notice will also state how much tax credit has been paid over the year.

Thus the process ensures that claimants will get a clear statement of the basis of their award at the end of the year. It also further simplifies things for the claimant because their claim for the following year does not start from scratch; the revenue produces or re-uses the notice with all the information it contains on the claimant. I hope the noble Earl will agree that we have covered the points he raised. He was concerned about tile other side of this matter, when there are possibilities of domestic violence and the way that, by going back to a couple, information may be given to a violent or former partner that could be used to endanger his former partner.

While Clause 4(2) allows information on a claim to be given to either partner, there is no question of supplying new information to a former partner. When a couple split up, the entitlement of that couple as a couple ceases. From that point on, anything that happens to one partner is irrelevant to the other and there is no question of supplying information to a former partner which goes beyond information relating to the claim made by the couple when they were living together as a couple. For example, information on the working hours of one partner at the time when they were a couple may be relevant, but employment details since the couple split up are not relevant.

What would happen if one partner is in a refuge, for example? What protection would she receive in those circumstances? Clearly, she would need to tell the Inland Revenue or DWP her new address in order that she could continue to be eligible. The Inland Revenue will want to help her to put a new claim in place, but information about her whereabouts will not be disclosed. There will be separate communications.

I am very happy to look at the noble Earl's suggestion to ensure that our guidance about the handling of such information takes into account the concerns he has raised today. If I am not satisfied, I will seek to ensure that it covers the points he has raised.

Earl Russell

I am not at all surprised to find that the Minister has already thought through the problem. I am extremely grateful to her for her answers. I have confidence in the Minister's ability to carry them forward and I would like to thank her for what she has said.

The Earl of Northesk

I, too, am extremely grateful for the Minister's response. I shall re-read the provisions in the Bill to see precisely what Clause 17 does.

Baroness Hollis of Heigham

Perhaps the noble Lord will wait until after our deliberations.

Lord Northesk

Absolutely. I make no apology for being confused by the complexity of the Bill. For the moment, however, I am quite happy and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

6 p.m.

Clause 5 [Periods of awards]:

The Deputy Chairman of Committees

If Amendment No. 40 is agreed to, I shall not be able to call Amendments Nos. 41 and 42.

Baroness Hollis of Heigham moved Amendment No. 40: Page 4, line 4, leave out subsections (3) to (5) and insert— (3) Subsections (1) and (2) are subject to any decision by the Board under section 16 to terminate an award. The noble Baroness said: Amendments tabled by noble Lords opposite seek to remove subsections (4) and (5) of Clause 5. As I mentioned when we considered the government amendment to Clause 3, the Government have reached a similar conclusion. As part of the package of technical changes needed properly to distinguish between entitlement and award, government Amendment No. 40 removes those subsections. It would also remove subsection (3).

As I explained when we were considering Clause 3, we do not want claimants to have to make a new claim whenever their circumstances change. That would defeat one of the main purposes of moving to an annual system. That is why Clause 5(4) states that awards do not end when there is a change which may affect the rate of entitlement. On the other hand, when a person ceases to fulfil the basic qualifying conditions for the credits—where a person claiming working tax credits stops working, for example—it is sensible that their entitlement should stop. That is why Clause 5(5) currently states that an award ends if entitlement ceases because of a change of circumstances.

I have already explained the fact that these provisions refer incorrectly to awards and are inconsistent with the provisions later in the Bill about decision-making. They are therefore removed. Subsection (3) is moved to Clause 3 and subsections (4) and (5) are replaced by the provision which makes clear that an award is brought to an end during the year only by a decision made by the Board to end it, subject to a right of appeal. Thus, by virtue of this amendment, Clause 5 will be properly confined to making provision about the period for which awards last. It would no longer trespass onto entitlement, nor would it any longer be inconsistent with Clauses 14 to 16.

I hope that Members of the Committee will agree that Amendment No. 40 makes a technical but important change that will improve the Bill, and will feel able to support it. If that is the case, then Opposition Amendments Nos. 41 and 42, with which we otherwise would have sympathy, become unnecessary.

Finally, Amendment No. 43 deals with the making of notifications of changes in circumstances in advance of the changes actually occurring. Subsection (2)(c) provides for regulations to be made allowing for advance notifications in prescribed circumstances. This amendment would prevent advance notification from being allowed. It may be helpful if I gave an example to make sense of this.

The regulations will follow the approach taken by the regulations made under Clause 4(1)(d), which deals with advance claims. We intend, for example, to allow someone taking up a new job to make a claim for working tax credit up to seven days in advance of starting that job. The claim would take effect from the date the job was taken up and would, of course, be contingent on that job being taken up. This provision is to ensure that those who do take up a new job see the full benefit of that job—that is, the wage plus the top-up from the working tax credit—straight away.

Regulations under subsection (2)(c) of Clause 6 will follow that approach for changes of circumstances that are related to taking up a new job or increasing hours where the claimants are already eligible for working tax credit by working the requisite minimum number of hours.

The specific circumstances that these regulations will relate to are, for example, where one person in a couple is already working, and therefore an increase in hours to 30 or more per week means that they receive a higher rate of WTC. Or where, for example, a second earner starts to work at least 16 hours per week, which may entitle the couple to the 30-hour element if they add their hours together, or it may entitle them to the childcare element of WTC. Or, again, for a single person, an increase in hours to at least 30 hours per week would mean that they were eligible for the 30-hour element.

All of those changes may be related to a person starting a new job, and it is right that the person can see the benefit of taking that job from the outset. Therefore the regulations will allow notification of those changes to be made up to seven days in advance but will be subject to the change actually taking place. The change would have effect from the date it actually happened rather than the date of notification. We want to encourage people to tell us about changes as soon as practicable so that they can get the right amount of support when they need it.

I hope with that explanation your Lordships will be happy to accept the Government's amendment. I beg to move.

Lord Higgins

I shall say something later on about the very helpful attitude the noble Baroness has adopted as far as regulations are concerned. Of course it is right, as she said, that a number of the points which arise on these amendments have already been discussed in considerable detail on earlier amendments and I certainly do not wish to detain the Committee unnecessarily.

Having said that, these are not technical or drafting amendments in the normal sense. They are fundamentally restructuring the Bill. As the noble Baroness rightly pointed out, as the Bill stands at the moment there are contradictions between Clause 5 and some of the later provisions of the Bill; for example, Clauses 14 and 16. It is quite extraordinary that what is fairly apparent if one looks at the Bill did not become apparent earlier. I must ask the noble Baroness again at what stage it was apparent to the draftsman that the way in which the Bill had been structured involved a clear internal contradiction. We have been over the ground quite a bit already, but it is not a satisfactory situation and, as I suggested earlier, we obviously need to have a clearer investigation as to what happened.

I make one additional point. I am not clear—alas, I do not have the relevant document to my hands at the moment—to what extent, when the Bill returns to the Commons, it will be time-constrained. The Commons now has a passion for programming measures, and some of that programming involves the amount of time which may be spent on your Lordship's amendments. Can the noble Baroness give us absolute assurance, in the light of all that has happened on the various government amendments, that restraints will not be put on the amount of time which the House of Commons may spend on considering government amendments?

Baroness Hollis of Heigham

I again defer to people who have more experience of the House of Commons than I have, but it seems to me that the timetabling of these matters is organised through the usual channels and it would be quite impertinent if the House of Lords tried to determine how much time the House of Commons should take to discuss their Lordships' amendments. I have every confidence that the House of Commons will decide for itself an appropriate amount of time for consideration of Lords amendments, given the number that I hope the Bill will receive.

Lord Higgins

Have any restraints already been imposed on the amount of time that the Commons will spend on the amendments?

Baroness Hollis of Heigham

No. At this stage I am not certain. We have an understanding between the usual channels about when the two Report days will be. I certainly have no knowledge of when a Third Reading may take place. The noble Lord, Lord Higgins, has the say on the timetabling of these things. He may be able to tell me when the Third Reading of the Bill is going to take place. Therefore, I do not know when it is going to another place. I am sure that the business managers cannot possibly have done any timetabling on how long the discussions may take. My understanding is that these things are arranged through the usual channels and I cannot be more helpful to the noble Lord than that.

Lord Higgins

Alas, that is no longer so. It used to be so, but, with their huge majority, the Government now impose programme Motions in another place, which curtail the amount of time available for discussing Lords amendments. That happens, not infrequently, against the will of the Opposition, against the usual channels' normal decisions and on a Vote. The noble Baroness can assure us in due course what the Government's policy is on these matters. Given how much time is inevitably going to be taken up in discussing the government amendments, it is important that there should be adequate time in another place in due course for the amendments to be discussed.

I am desperately concerned about the way in which, over the past few years, the programme and so-called modernisation process has resulted in the amount of time that the Opposition have to debate these matters being constrained. This is not an unimportant matter. It is beginning to result in legislation not being considered in the way it ought to be.

Having said that, the other two amendments in my name, as the Minister rightly points out, were probing amendments. I would certainly not wish to argue strongly in favour of them, but the way in which matters are developing definitely ought to give concern to anyone interested in the proper consideration of legislation.

Earl Russell

The noble Lord, Lord Higgins, is quite right about the danger that he spies. On the other hand, the Minister would be extremely imprudent to attempt to give any answer, because this is simply not a matter within the Minister's responsibilities.

Baroness Hollis of Heigham

Or this House.

Earl Russell

I agree, it is not within the responsibility of any of us in this House. If the noble Lord, Lord Higgins wishes to pursue it, the press is an appropriate place to do so. I would join him in doing that, as long as he would be prepared to make clear that our complaint is of government and not of government of any one particular party. Meanwhile, it is not our business here and we might for the time being leave it where it is, but with recognition of its due seriousness.

On Question, amendment agreed to.

[Amendments Nos. 41 and 42 not moved.]

Clause 5, as amended, agreed to.

Clause 6 [Notifications of changes of circumstances]:

[Amendment No. 43 not moved.]

Baroness Hollis of Heigham moved Amendment No. 44: Page 4, line 34, leave out paragraph (a). The noble Baroness said: I shall be exceedingly brief. This is a drafting amendment, needed in consequence of the changes to Clauses 3 and 5 made by government amendments that we discussed earlier. Clause 6(3)(a) refers to Clause 5(3), which says that an award ends when a couple breaks up or a new couple forms. It allows regulations to be made requiring that such a change be notified to the Inland Revenue. The provision made by Clause 5(3) is to be moved to Clause 3 and recast in terms of entitlement. Because the equivalent provision in Clause 3 will refer to entitlement rather than to the ending of an award, it will be covered by the power to make regulations covered by Clause 6(3)(b). Paragraph (a) is therefore redundant and is removed by this amendment. I hope that the Committee will be happy to accept it. I beg to move.

On Question, amendment agreed to.

Clause 6, as amended, agreed to.

6.15 p.m.

Clause 7 [Income Test]:

Lord Higgins moved Amendment No. 45: Page 5, line 11, leave out subsection (2). The noble Lord said: Amendment No. 45 stands in my name and that of my noble friend Lord Saatchi. Clause 7 is concerned with the so-called income test, and subsection (2), which this amendment seeks to discuss, is concerned with the way in which income is determined in relation to people who are entitled to any social security benefit which is prescribed for the purpose of this subsection.

Effectively, as I understand it, the purpose of this subsection is that in calculating income account should be taken of other social security benefits. What I am not clear about as the Bill now stands is the extent to which it is intended that these benefits shall be taken into account and which benefits should not be taken into account. We would be grateful if the Minister could explain this to us.

Baroness Hollis of Heigham

I shall do my best. This amendment would remove the provision for regulations to effectively suspend the tax credits income test for families in receipt of income support or income-based JSA.

Let me explain how the regulations will work. Clause 7 establishes the important principle that tax credits are based on the income of a tax year. This provides a fairer measure of income and is less prone to manipulation and fluctuation than the existing one for WFTC, which is every six months. It is also more closely aligned with income tax, enabling people to use the information which they already get or provide for tax purposes to be used for their tax credits claims.

For most families this provides the straightforward way of assessing entitlement to tax credits and targeting support according to need. However, we recognise that for the poorest families there needs to be a safety net. Currently that safety net is provided by IS or income-based JSA and both benefits include elements for children in the household.

From 2004, when existing IS and JSA claimants with children will be transferred to the child tax credit, the child-related elements of those benefits will cease. Families on IS and JSA will be brought into the single seamless system of support provided by the child tax credit.

However, the Government want to ensure that those families continue to receive at least the same levels of overall support as they do now. If these families were subjected to a test of their annual income while claiming IS or JSA, it is possible, although unlikely, that they would not receive the maximum CTC due to their income across the whole year, including periods when they may not have been claiming IS or JSA, being more than the £5060 income threshold announced in the Budget.

Therefore, regulations under subsection (2), in conjunction with Clause 13(1), will make clear that for any period of entitlement to income support or income-based JSA, entitlement to tax credits will be at the maximum rate and shall not be subject to a test of annual income. This will ensure that the poorest families continue to receive the appropriate safety net support on a weekly basis. For any other period in the same tax year where the family is not claiming IS or JSA, entitlement to tax credits will be based on annual income as usual.

This is what the regulations to be made under subsection (2) shall achieve. I am sure the Committee can appreciate the importance of this provision in ensuring that weekly support for the poorest families continues to be provided at the right level. I should point out that the subsection does not itself specify IS and income-based JSA because flexibility is needed for the regulations to include any other safety net benefits. For example, the safety net for pensioners is provided by the minimum income guarantee. In future that same purpose will be served by the pension credit but it is not listed as a possible renaming.

I hope that in the light of that explanation the noble Lord will not press the amendment further.

Lord Higgins

I fear that we are—at least I am—again suffering a little from the speed of delivery of the Minister. I am not at all sure that I now understand this particular section. That may be compounded by the constant use of initials rather than referring to the individual benefits involved.

I am particularly puzzled—I look with increasing suspicion at the drafting of this Bill—as where the regulations referred to in this section appear in the Bill. The Minister has been extremely generous in providing us with regulations on a number of other aspects of the Bill and I pay tribute to her for that. I cannot recall any previous occasion where a Government Minister has provided regulations in such a way. It will be of great help not only to us, but also to those in another place when they come to look at how the Bill has been drafted. It is remarkable that the noble Baroness has been so helpful in this. She attempted to do so on previous Bills, but she has never actually succeeded in providing us with the regulations before the Bill had completed its passage through this House. Nevertheless, she has succeeded in this case.

Despite that, however, I still do not understand where the regulations which govern Clause 7 appear. In the subsection we seek to amend it states that persons, entitled to any social security benefit prescribed for the purposes of this subsection". However, I am not clear where the power to prescribe arises in the Bill or, more particularly, in this clause. It is of course true that in the previous clause endless regulations may be used either for this purpose or another, but this clause does not seem to include regulation-making powers. Perhaps the Minister could clarify that and then I shall come back to the point of substance, which concerns what is to be prescribed.

Earl Russell

Before we go any further, perhaps I may associate myself with the thanks that the noble Lord, Lord Higgins, has offered the noble Baroness for making these regulations available. It is very welcome indeed. I must confess that I have not yet finished reading them but, on the progress that I have made so far, I am encouraged and grateful for the content as well as for their availability. In either case, it is a very welcome precedent indeed.

Baroness Hollis of Heigham

I am not sure whether I can respond precisely to the noble Lord. I turn to Clause 60, entitled "Regulations, orders and schemes", in Part 3. Subsection (1) states that: Any power to make regulations under sections 3, 7 to 13, 38 and 39, and any power to make regulations under this Act prescribing a rate of interest, is exercisable by the Treasury". That is where the power to make regulations comes from. In Clause 62, on page 34, line 5 states, 'prescribed' means prescribed by regulations". Those two provisions are put together and brought to bear on Clause 7(6), (7) and (8).

Lord Higgins

I still do not understand what the draftsman is playing at. In Clause 6, for example, it states that, "Regulations may provide" and so forth, but when we come to Clause 7, it is buried in Clause 60, stating that powers, to make regulations under sections 3, 7 to 13, 38 and 39", may be this, that or the other. Why is a totally different drafting technique applied in the case of Clause 6 as against Clause 7?

Baroness Hollis of Heigham

I have not taken advice on this, but my immediate response would almost certainly be that, at the moment, we are moving from DWP to Inland Revenue and the powers therefore need to be exercised by the Treasury. At the moment, the Secretary of State at the Department for Work and Pensions has powers to make regulations affecting social security benefits and we would not need to change that, whereas if we were making those the responsibility of the Inland Revenue, we would. Thus power to make the regulations the noble Lord is inquiring about is informed by Clause 7(2) itself because it says, prescribed for the purposes of the subsection". Thus the power resides with the Treasury in Clause 60(2), and it affects Clause 7(2) which states: prescribed for the purposes of this subsection". It then goes on to say what it does. I am not sure what the noble Lord is worried about.

Lord Higgins

It is a simple point. The way in which regulations are introduced into the Bill is quite different in Clause 6 than it is in Clause 7. The department which makes the regulations simply says, "regulations may provide", and so on. Then, when we come to Clause 7, it is covered by Clause 60. I do not understand why that is so. We shall need to give some further thought to it.

Having said that, let me come back to the point of substance. Subsection (2), which we are now discussing, says that, Subsection (1) does not apply in relation to the entitlement of a person or persons to a tax credit for so long as the person, or either of the persons, is entitled to any social security benefit prescribed". The noble Baroness has not provided us with those regulations. We do not know what social security benefits are going to be prescribed for this section.

Baroness Hollis of Heigham

I provided them in my reply to the noble Lord.

Lord Higgins

I am not clear why these particular benefits are prescribed. Perhaps I can deal with this on a simple basis. Are we saying that the entitlement of persons of any description to a tax credit is dependent on the relevant income? But are we also saying that none of the social security benefits to which the noble Baroness, Lady Hollis of Heigham, referred are relevant income? Is that what we are saying?

Earl Russell

There are moments when the noble Lord, Lord Higgins, reminds me of the literal Vicar of Hurst, who said that, St Luke says the last shall be first. I've therefore a mind to linger behind to be first to be last to be first".

Lord Higgins

What social security benefits are going to continue to be paid even though someone is getting a tax credit?

Baroness Hollis of Heigham

The purpose of the subsection is to ensure that those who are in receipt of one of those weekly means-tested benefits—at the moment the ones we are contemplating are income support and income-based JSA, but those could be re-labelled in some future Utopia—continue to receive support. That is why they are not listed as such on the face of the Bill.

The importance of the subsection is to ensure that those in receipt of one of those benefits continue to receive maximum support for their children. Suspending the income test, which is what the amendment would do, while the claimant is entitled to IS or JSAIB, means that the claimant can get maximum CTC for that period regardless of their annual income. If the annual income was relied on at all times, it may be possible for a person on IS or JSAIB to receive less than the full CTC due to the amount of annual income they had, possibly because they earned extra money in a different period. It is to try to ensure that when they fall back on to IS or JSA, the fact that they have so far had income possibly in work or through other forms of saving does not destroy their capacity to obtain support for their children while on the basic benefit.

We suspend the income tax as a key feature as an adult on income support or JSA automatically gets full CTC for their children without a further income test.

I do not believe that I can help the noble Lord any further. It seems fairly straightforward.

Lord Higgins

I will study what the noble Baroness has said when it is apparent in writing. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 46 not moved.]

6.30 p.m.

Baroness Hollis of Heigham moved Amendment No. 47: Page 5, line 29, at beginning insert "In this Part The noble Baroness said: Amendments Nos. 47 and 48 are needed as a consequence of government amendments to later clauses, in particular to Clause 17 and the arrangements for finalising claimants' entitlements to tax credits after the end of the year when details of current year incomes will be known. I do not want to go too deeply now into an explanation of Clause 17 and I shall write to the Committee on that because I recognise that it is not easy receiving quite detailed, technical information at some speed. However, I hope that you will allow me to look forward to that clause for a moment.

Clause 17 provides for the Inland Revenue to issue a statement of information to claimants at the end of the year, setting out the basis on which an award was (or awards were) made during the year. Claimants will either then confirm that their circumstances and income were as set out by the board on that notice or correct that information. They will also provide details of the income for the year just ended. The Inland Revenue will use that information to finalise their entitlement for that year on the correct basis and make any necessary adjustments. It will also use that information to establish the correct amount of their award for the coming year.

At the moment, Clause 17 requires the board to ask claimants—

Lord Higgins

Why are we discussing Clause 17? I am not clear.

Baroness Hollis of Heigham

Because Amendments Nos. 47 and 48 have implications or are a consequence of the changes in Clause 17. They are part of the refining of the notion of relevant income and splitting it between current year income and previous year income, which has a meaning beyond Clause 7, to which they are currently confined.

Lord Higgins

I am under the impression—I may be quite wrong—that we are actually discussing Clause 7, Page 5, line 29, at beginning insert 'In this Part'", and I am not the least bit clear what that has to do with Clause 17.

Baroness Hollis of Heigham

Originally, in this part, Amendments Nos. 47 and 48, were a large group of government amendments which I understand were degrouped presumably in part as a result of discussions. There was a large group of government amendments so they were ungrouped. The current year income and previous year income are defined in Clause 7 but currently they are defined only for the purposes of that clause. The proposed changes to Clause 17 mean that those terms will also now be used in Clause 17. For this reason, Amendments Nos. 47 and 48 make clear that the definition of those terms is applied for the purposes of Part 1, rather than being confined to Clause 7. I beg to move.

Lord Higgins

Clause 7 is in this part.

Baroness Hollis of Heigham

Perhaps I can help the noble Lord. At the moment Clause 17 relates to relevant income. Relevant income is confusing because, for the claimant, it could mean either the current year income or the previous year income. We are disentangling the two. Therefore we have to make consequential adjustments and this is part of those adjustments. I beg to move.

Lord Higgins

So in other parts, does "current income" mean something else?

Baroness Hollis of Heigham

No. I am trying to refine the words "relevant income" as opposed to "current year income". At the moment, relevant income can be used in situations where it can appear to imply both current year and previous year.

Let us step back a little. Each year there will be an assumption that the previous year's income will be the base as notified for the forthcoming year—that is, the current year that people are going into—although there will obviously be a few weeks of overlap time. Therefore, the words "relevant income" appear to cover both those sets of information: a person's previous year's income, on which they expect to claim in the future year, and their expectation of what their current year's income may be. Separating that out makes it easier for the claimant.

The terms "current year income" and "previous year income" need to be defined for the purposes of Part 1 because of the changes to Clause 17. Hence, in this part, as inserted, at the moment these terms are defined only in Clause 7. We need to be able to extend it to Clause 17. The reason is to split the words "relevant income" and make it clearer so that people understand whether we are talking about current year or previous year's income. At the moment we use "relevant income" to cover both those, which can be confusing for the claimant.

Lord Higgins

The amendment would insert "In this Part" at the beginning of line 29 on page 5. Subsection (4) would then read: In this Part the "current year income" means— (a) in relation to persons", and so on. I repeat, if that is the definition in this part, is there a corresponding and different definition in another part of the Bill?

Baroness Hollis of Heigham

No, there is not. Part 1 is bigger than Clause 7. Without "In this Part" the definitions refer only to Clause 7. By saying "In this Part", we refer to Part 1 of the Bill. In answer to the noble Lord's query, there is not.

Lord Higgins

I begin to understand what the draftsman is seeking to do. He is seeking to say that this definition will apply in the whole of Part 1 and there is no corresponding definition in Part 2.

Baroness Hollis of Heigham

No, not quite. To go back a step, we are seeking to insert two main drafting amendments, with the consent of your Lordships. The first, which we discussed earlier, makes a distinction between awards and entitlements. The second disaggregates the concept of relevant income into current year and previous year's income. That is required by the changes in Clause 17. At the moment we have that distinction in Clause 7, but it does not apply to the rest of Part 1. Inserting "In this Part" ensures that the definitions in Clause 7 apply to the whole of Part 1. That is needed in order to make sense of the amendments to Clause 17.

Lord Higgins

We will have to return to this on Report. I hesitate to think how we are going to try and sort the matter out on the Floor of the House. Having said that, I suppose we must go along with what the Government propose. We will try and work it out when we can read it.

Baroness Hollis of Heigham

I think I understand what is going on here, but if my explanations are not sufficiently clear and if any further information is needed, I shall be very happy to write an extended letter explaining the implications of Clause 17. I thought that sending out speaking notes might be helpful, but I warned your Lordships that this was devilish, with complicated technical cross-readings going on. This is one such that the noble Lord, Lord Higgins, has picked up.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 48: Page 5, line 35, at beginning insert "In this Part On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 49: Page 5, line 41, leave out "Circumstances may be prescribed in which" and insert "Regulations may provide that, for the purposes of this Part, The noble Baroness said: We are still on the same theme. Clause 7 is an important part of the Bill. It provides that entitlement to tax credits will depend on the income of the claimant or claimants. In particular, entitlement will be based on the income of a tax year. This group of amendments—Amendments Nos. 49, 50, 52, 53, 54 and Amendment No. 158, which concerns Clause 24—is concerned with Clause 7(6), (7) and (8), and relates to the computation of income: the period in which income is taken into account, what counts as income and when the Inland Revenue can treat a person as having income or not, as the case may be.

Amendments Nos. 49 and 50 are short technical amendments which are intended to clarify the scope of the Inland Revenue's regulation-making powers under Clause 7(6) and (7). These subsections allow regulations to be made about how income is to be allocated between particular tax years. The regulations may provide that income of a particular type from the last year but one is to be treated as previous year income of that type instead of actual income of that description for that year.

Subsections (6) and (7) both refer to "prescribed circumstances". However, regulations under these provisions are more likely to be concerned with the calculation of income and an allocation between years. As such, the references to "prescribed circumstances" are inappropriate and should be removed. This is achieved by these amendments, which I commend to the Committee.

Amendment No. 52 has not yet been moved. Perhaps I should stay for the moment with Amendments Nos. 49 and 50 and allow the noble Lord, Lord Higgins, to move his amendment No. 52. I beg to move.

Earl Russell

This group includes Amendment No. 158, which stands in my name. That amendment provides that for the purposes of the Bill student loans should not be counted as income. The case for that is perfectly simple—they are not. You have to pay them back again. When Tennyson was once introduced to the Fellows of King's Cambridge, he was introduced to Oscar Browning, who came forward and said, "I'm Browning". Tennyson, knowing another Browning, looked at him and said, "You're not". That is the case for that amendment. It is a simple one.

I would rather not be led into a discussion of student finance as a whole. It is a subject on which I find it increasingly difficult to express myself with that moderation appropriate to parliamentary debate and I would rather not spoil the atmosphere of the day. I shall therefore let the case stand as it is, in isolation.

Lord Higgins

The noble Baroness invites me to move Amendment No. 52. I am happy to speak to it but I may or may not move it at a later stage.

Amendment No. 52 suggests that we should leave out subsection (8). Any views I may have had on the draftsmen up to now are not greatly improved by subsection (8), which states: For the purposes of this Part income is to be calculated in a prescribed manner"— and we now know that the powers to prescribe appear in Clause 60— and circumstances may be prescribed in which a person is to be treated—

  1. "(a) as having income which he does not in fact have, or
  2. "(b) as not having income which he does in fact have".
I see that this has caused some amusement. I am not sure that it is all that funny a matter. I increasingly have the view that whoever drafted this was a very strange person indeed. What on earth is this supposed to mean? Given the width of powers of this prescription, can the Government prescribe almost anything so far as concerns the income relevant to these clauses?

Lord Freeman

I wish to speak to Amendment No. 54 in the anticipation that it will not take out of sequence the thoughts in the Minister's mind.

Perhaps I may follow on directly from my noble friend Lord Higgins who essentially has dealt with the point. Amendment No. 54 rests on the principle that income for tax credits should be calculated in the same way as income for revenue purposes, or, perhaps more accurately, the other way round. Again this is an example of moving responsibility for administration, assessment and payment from the organs of social security to the Inland Revenue.

I have one specific concern on subsection (8) in Clause 7. It is drafted in too broad a fashion. My amendment would ensure that the regulations, when issued and passed, would be based on Inland Revenue rules. I shall give noble Lords one practical example of subsection (8)(a); that is to say, making sure that the assessment for the purposes of income tax—income which he does not in fact have—could relate to benefits in kind.

The principle behind the amendment is to ensure that we do not allow the regulations to be drafted too generally. I would welcome the comments of the Minister on this. It may be that in subsequent parts of the Bill there is delineation and therefore I might be prepared to accept that argument. However, this clause looks too broad and we ought to ensure that Inland Revenue rules are used to calculate the basis for payment of tax credit in the same way as income.

6.45 p.m.

Baroness Hollis of Heigham

I am grateful to those noble Lords who have spoken to the amendment. Let me start with Amendment No. 158, moved by the noble Earl, Lord Russell. I understand the thrust of his argument. At the moment it is the case, as he stated, that under the current WFTC and DPTC schemes, student support in the form of loans and grants is taken into account as income with limited disregard for the cost of books, equipment and travel, on the basis that primarily the education system, not the social security system, helps students. The noble Earl, Lord Russell, refrained from going down that path, and I believe that I should do likewise.

The consultation paper issued on tax credits last summer invited views on whether to continue this approach. We have considered the issue and taken account of the views of colleagues at the Department for Education and Skills. As a result of part of a wider alignment of tax credits with the income tax system, we have decided that, in principle, student support such as loans, grants paid to meet the cost of tuition fees and income-related bursaries should be disregarded from income for new tax credits. This was set out in the Explanatory Memorandum accompanying the draft regulations on income which we published recently. The draft regulations will be amended to reflect this decision, which I am sure will he greatly welcomed by the noble Earl.

I should also highlight the fact that student nurses will in principle be able to claim the child tax credit. The Inland Revenue will be in touch with the Department of Health shortly to determine the extent to which bursaries received by student nurses should be taken into account as income for new tax credits. This will also apply to other students in similar situations; namely, those who are in work but with children. Having the disregard of student support in secondary rather than primary legislation will give the Inland Revenue flexibility to respond quickly to any changes in student support. Given that explanation, I hope that the noble Lord will not feel it necessary to press his amendment.

Perhaps I may return to Amendment No. 52. I am grateful to the noble Lord, Lord Higgins, for explaining his purpose here. Basically, in all such Bills, one needs what we call Humpty Dumpty clauses: when income should be deemed to be capital, capital deemed to be income, or income that should be treated as not being income when under other circumstances it may be. We have made it clear that the definition of income will be based broadly on annual income, taking into account income tax and therefore including earnings from employment or self-employment, certain social security benefits and pensions, and any other income from savings, property, trusts and overseas sources.

If accepted, the amendment would do much to weaken the Inland Revenue's paths not only to find income in connection with claims to tax credits, but to counter potential attempts by some claimants to manipulate that definition to their advantage. Perhaps I may develop that point. Sub-paragraph (a) is an anti-avoidance provision, which also appears in the rules for WFTC and DPTC—in fact I remember us debating those—and before that it was also in the rules for family credit and disability working allowance, as introduced by the previous Conservative government. Sub-paragraph (a) provides for the regulations defining income to identify when a claimant may be deemed to have income which at first sight he or she may not possess—those Humpty Dumpty clauses. They come into play if the Inland Revenue finds that a claimant has deliberately deprived himself or herself of income in order to claim or increase their entitlement to an award, for example, by transferring an interest-bearing savings account to a child or to someone outside their household when the claimant is still treated as receiving that income. There are equivalent provisions for tax to prevent people diverting their income through trusts or settlement to someone who pays income tax at a lower rate.

Alternatively, if a claimant fails to apply for income to which he or she is entitled, then apart from certain exceptions, he or she is treated as having received that income from the date on which he or she could have obtained it.

Sub-paragraph (b) serves a different purpose. As under the current rules, it will allow the regulations defining income to accept certain types of income, either in whole or in part, when assessing awards of tax credit. This is subject to continuing discussion with the interested parties, following publication of the draft regulations. However, in order to align the definition of income for tax credits as closely as possible with the tax system, we propose, for example, to provide that claimants in receipt of some tax exempt social security benefits, such as war widows' pensions or most payments of income support, will not have to report such income on their claim forms. Similarly, as the government announced at the time of the Pre-Budget Report last November, we shall disregard child maintenance payments in the hands of recipients, as we currently do in WFTC to help single parents going back into work. To avoid cutting across our efforts to encourage savings on pension credit by those on lower incomes, the draft regulations provide that income from special tax-free savings vehicles such as ISAs need not be mentioned in tax credit claims. That was of interest in previous debates.

I hope the Committee will agree that I have sought to clarify the purpose of the powers in subsection (8) and that they are certainly not unprecedented. They have a track history going hack to family credit. I hope that as a result noble Lords will agree to withdraw the amendment.

I am grateful to the noble Lord, Lord Freeman, for his explanation of his Amendment No. 54. I entirely agree with the emphasis he placed on the need to align the definition of "income" for new tax credits as closely as possible with the income tax rules and to counter the possibility that a small minority of claimants may try to manipulate their income in order to claim or increase their entitlement to tax credits. However, the amendment is unnecessary. As the noble Lord is aware, the Government are bringing forward a technical amendment that will clarify the scope of the Inland Revenue's powers to define income for new tax credits.

In addition, the draft regulations that we published last week for consultation and to inform our debate contained detailed provisions to address the noble Lord's concerns. The Explanatory Notes pick up cases about how capital is treated, including companies' stock dividend and the like. It may be that rather than take up the Committee's time, it would make sense if I write to the noble Lord, but he will find that information there.

Amendment No. 53 is a technical amendment designed to clarify the scope of the Inland Revenue's power to define income for new tax credits by way of regulations. I have probably covered that already, but to make sure I am moving Amendments Nos. 49, 50 and 53, which I hope noble Lords will feel able to accept.

Earl Russell

I am delighted by what the Minister had to say about student loans and I thank her very warmly indeed. I will not be moving Amendment No. 158 in its place in the Marshalled List or bringing it forward on Report. Perhaps I might say a brief word about Amendment No. 54.

The noble Lord, Lord Freeman, has heard the Minister, as it were, impale me on the lance of Humpty Dumpty earlier this afternoon, in the case of people on a life support machine. Humpty Dumpty has his uses. They are usually beneficent, but the noble Lord, Lord Freeman, asked whether the vires could be drafted in a slightly tighter manner. That is a very moderate request and one to which I hope the Minister in future may pay attention. It would narrow the gap between us on this subject considerably, but the overwhelming note on which I end my remarks is that of facts.

Lord Northbrook

I am not sure if this is the time to raise the matter, but is the definition of "income" clearly enough defined for any self-employed person who is claiming the benefit?

Lord Higgins

Perhaps I may say once again how immensely helpful it was to have the draft regulations which the noble Baroness provided. It enabled us, ahead of our discussions this afternoon, to be aware of the Government's intentions in relation to student income.

The noble Baroness referred to the need to relate what is in the Bill to more normal Inland Revenue practice, and presumably tax law. I now notice, but I had not previously realised, that we are both agreed that subsection (8) as it stands is not satisfactory and the Government's Amendment No. 53 makes some changes to that. If it is indeed to be aligned with tax law more generally, can the noble Baroness give us any idea where in particular in the tax law we might find the corresponding provisions, and also whether there is some degree of case law which might limit the apparently unlimited ability of the Inland Revenue in this case to decide what is or is not income?

Baroness Hollis of Heigham

The scope of income definition has been discussed with key interest groups, including the Low Income Tax Reform Group, with whom I think the noble Lord, Lord Freeman, has been in contact. We are aware that they have further points to discuss and officials will be taking those discussions further.

On the point raised by the noble Lord, Lord Northbrook, on the definition of self-employed, I can confirm that it will be clearly defined for the self-employed. Indeed, they will benefit from the alignment of the definition with tax, so that they will be able to use their tax accounts.

Lord Freeman

I could not hear that.

Baroness Hollis of Heigham

The self-employed will be able to draw on and use their tax accounts for these purposes, and that is one of the great advantages of the new tax credit scheme.

I do not know whether I can immediately give the noble Lord, Lord Higgins, the exact reference in tax law that he sought. If I cannot do so this evening I shall certainly write to him.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 50: Page 5, line 43, leave out "circumstances may be prescribed in which" and insert "regulations may provide that On Question, amendment agreed to.

[Amendment No. 51 not moved.]

The Deputy Chairman of Committees (Lord Haskel)

If Amendments Nos. 52 and 53 are agreed I cannot call Amendment No. 54.

[Amendment No. 52 not moved.]

Baroness Hollis of Heigham moved Amendment No. 53: Page 6, line1, leave out subsection (8) and insert— (8) Regulations may for the purposes of this Part make provision—

  1. (a) as to what is, or is not, income, and
  2. (b) as to the calculation of income.
(8A) Regulations may provide that, for the purposes of this Part, a person is to be treated—
  1. (a) as having income which he does not in fact have, or
  2. (b) as not having income which he does in fact have."
On Question, amendment agreed to.

[Amendment No. 54 not moved.]

The Deputy Chairman of Committees

If Amendment No. 55 is agreed I cannot call Amendment No. 56.

Lord Higgins moved Amendment No. 55: Page 6, line 6, leave out subsection (9). The noble Lord said: This provision gives the board power to estimate the amount of income of a person, or the aggregate income of persons, for any tax year for the purpose of making, amending or revoking an award of tax credit. I am not clear why it is necessary for the board to have that power, or indeed how it would set about such a task. In the latter part of the clause there is a limitation of that; that such an estimate does not affect the rate at which he or she, or they, are entitled to a tax credit, in which case I am not clear what the purpose of the estimation is. Perhaps the noble Baroness could enlighten us. I beg to move.

Baroness Hollis of Heigham

Clause 7 establishes the principle that tax credits are based on the income of the tax year. As I sought to explain earlier, annual income may be either the income of the current or the previous year. However, current year income cannot be known until the end of the year and so the system would not really be responsive if adjustments to reflect current year income were only made at the year end. Those who need more help because their income has dropped would have to wait until the end of the year on a lump-sum payment, while those whose incomes have risen significantly would be overpaid and would then have to pay back much of that money at the end of the year. That would be a far from sensible way of targeting money on those who most need it.

I am not going to return to the old question about what is entitlement. I could do so, but I wonder whether I have already given the noble Lord sufficient information. Without it, we cannot adjust the awards in the process of the current year. If the noble Lord would like a more detailed explanation, I shall be happy to give it to him.

Lord Higgins

I understand the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 56: Page 6, line 8, leave out "revoking" and insert "terminating The noble Baroness said: Amendment No. 56 is a drafting amendment which forms part of the package of changes distinguishing between entitlement and awards. At this point I have to remember to refer for a moment to Clause 16, although I know that the noble Lord, Lord Higgins, will be cross with me. However, it is necessary for me to do so in order to explain the reason for the amendment.

Currently, Clause 16 provides that the Board may decide to amend or revoke an award where it has reasonable grounds for believing that the award is incorrect or that the person to whom it has been made, has, or they have ceased to be, or never been, entitled to the tax credit". In the light of the necessary changes to the Bill in relation to awards and entitlement, which we have already discussed when considering Clauses 3 and 5, it has become apparent that it is inappropriate for the Bill to use the words "revocation of awards". As I explained earlier, awards and any payments under those awards are the vehicle for delivering support during the year, prior to entitlement being finalised at the end of the year when all the relevant facts are known. Viewed in that light, it is clear that once it has been made, an award cannot simply disappear, which is what the reference to the revoking of awards might be taken to imply. Using the word "terminating" seems a more accurate description of what is going on. I beg to move.

On Question, amendment agreed to.

Clause 7, as amended, agreed to.

Clause 8 [Entitlement]:

7 p.m.

Baroness Hollis of Heigham moved Amendment No. 57: Page 6, line 16, leave out "this Part" and insert "child tax credit The noble Baroness said: Clauses 8 and 9 of the Bill provide the framework for entitlement to child tax credit. Members of the Committee will be aware that we have made available—I am grateful to noble Lords for their appreciation of this—the draft child tax credit regulations to indicate the detailed provision that will sit within that framework.

I could go into some detail as to why we are doing this, but we have discussed the matter fairly thoroughly in terms of seeking to offer support for children independent of support for adults. In particular, we are making payment for the support of children go to the primary carer, since they usually bear the everyday responsibility for a child and meet his or her everyday expenditure. It is vital, especially for families of low income, that enough support is directed to that family to lift or keep the child out of poverty.

I refer now to the point made by the noble Earl, Lord Russell, on Second Reading. There is increasing recognition that many more families now share responsibility for children than was previously the case. This occurs in particular where families have split up and where there is encouragement from the Child Support Agency, the Lord Chancellor's Department and the like, that even though partners may split up, parenting continues. We seek to encourage the ability of children to retain contact with both of their natural parents as much as possible.

The increase in shared responsibility between families therefore raises the question of whether, in the future, directing support solely to the family mainly caring for a child will continue to be the right approach when more than one family has responsibility for that child.

We are taking a reserve power. We do not want to move too quickly on this. It has major read-acrosses for other benefits, such as housing benefit, as the noble Earl, Lord Russell understands. It would require extensive consultation with the relevant groups, who might otherwise be apprehensive about some of its implications. It also involves expensive IT changes.

None the less, in response to the legitimate and proper issues raised on Second Reading, it seemed right to make some protective changes to the Bill at this stage to equip us to deal appropriately with shared care cases if in the future it seems right and proper that we take a different approach. I could go into detail about the individual clauses if that would be helpful, but they allow us to take that power. I hope that noble Lords will accept the amendments. I beg to move.

Earl Russell

I am most grateful to the noble Baroness, Lady Hollis of Heigham, for this. As she says, it recognises the shift in the direction of government policy on family law, which is all towards encouraging contact with both parents and encouraging the sharing of responsibility wherever possible. It is not, of course, the right treatment for every child in every broken marriage. There is no such thing as the right treatment in every case. However, where a choice exists it is clearly to be encouraged and where care is shared, often on nearly an equal basis, clearly the financial rewards should also be shared as far as possible.

I entirely understand the case for flexibility that the noble Baroness has made. It is a stronger case in this Bill than in most others. We are in a rapidly moving landscape. The future of the CSA is in question, as is the future of much of the Family Law Act 1996 and a great deal else, including housing benefit. Were the noble Baroness to attempt to lay anything down in tablets of stone, she might find that stone is a rather more fragile material than we sometimes think, as most quarrymen know.

I understand why the noble Baroness wants flexibility. It is the right way to go about it. I hope she will keep in touch with her noble and learned friend the Lord Chancellor and his department on this, and I look forward to any future developments on this front.

Finally, the assumption that there is such a thing as the primary carer is not necessarily valid in all cases. I remember one cheerful group of people in which the parents had swapped partners. They spent the summer together in a very large farmhouse. The primary carer was whoever happened to arrive first when a child fell over and cut their knee. It is not always as simple as that, but the assumption that there is a primary carer in all cases should not be made lightly.

I thank the Minister very warmly for what she has done and look forward to developments with a great deal of interest.

On Question, amendment agreed to.

Clause 8, as amended, agreed to.

Clause 9 [Maximum rate]:

Lord Higgins moved Amendment No. 58: Page 6, line 35, after "credit" insert "up to a maximum of £545 in any tax year The noble Lord said: We come to a series of extremely arithmetical but none the less important amendments. We have sought to write on the face of the Bill the proposals made by the Chancellor in his Budget. We may or may not have been successful in that attempt. No doubt the noble Baroness will tell us whether that is so. The key to the argument is on the face of the Government's own documentation, in Table 3.4 on page 16 in Child and Working Tax Credits—Modernisation of British Tax and Benefits System which was published in April 2002. It is apparent from that table that there is to be a massive increase in the extent of means-testing.

Baroness Hollis of Heigham

Could the noble Lord repeat the citation?

Lord Higgins

I refer to page 16, table 3.4, of the document Child and Working Tax Credits - Modernisation of the British Tax and Benefits System, which gives marginal rates. I said "means testing"; I should have said a massive increase in the numbers of people affected by high marginal rates. It looks as though there will now be a marginal deduction rate of more than 60 per cent and that the number of people subject to that will increase from 94,000 to 1,450,000, which is certainly a startling achievement. The increase in numbers facing the marginal deduction rate of more than 60 per cent is evidently largely due to the extension of in-work support for those without children through the working tax credit.

Overall, if one looked at the Budget, the increase in expenditure on this overall exercise was something like £2.7 billion. It is a rather strange aspect of the Budget. If one looks at the changes that the Chancellor made, effectively the impositions on business would pay for the increase in National Health Service expenditure. The other increases in taxation are effectively all going towards the proposals made in the Bill. In terms of the orders of magnitude—although not necessarily the allocation between raising and spending tax revenues—broadly speaking, that is the situation.

We see here a massive increase not only in the number of people subject to high rates of marginal taxation—or, alternatively, benefit withdrawal—but we see also a very big increase in the extension of means testing. I know that the Minister does not like the expression "means testing" and would prefer to use the expression "targeting". None the less, the effect of the Bill is fairly apparent so far as concerns what is really happening.

There is a huge redistribution of income here. We have gone from new Labour to old Labour. A rather curious feature of it—perhaps the Minister can give the Committee some explanation—is that this applies only to people over the age of 25. As I understand it—I may be wrong—the effect of this redistribution of income does not apply to those under 25. We are not quite clear why this arbitrary line has been drawn at that particular level.

The overall effect of the proposals is clearly very radical indeed, extremely expensive, and it has the undesirable side effects that I have mentioned. It is also the case that the tapers run right the way up the income scale to £58,000. Is it £58,000?

Baroness Hollis of Heigham

It can be before the tables finally taper out.

Lord Higgins

To £58,000. So we get this huge extension of the taper into those who have previously been beyond the scope of this kind of Government action.

On Second Reading I said that the gap between those who were not involved with the Inland Revenue at all because they did not complete tax returns—but who were going to be in the benevolent scope of the Department for Work and Pensions—and, at the other end of the scale, those who were subject to the Inland Revenue because they paid tax, seems to have disappeared altogether. Perhaps it has not disappeared altogether, but could the Minister give some idea of what percentage of the population at the moment is not involved with the Inland Revenue at all, and what percentage of the population will no longer be involved with the Inland Revenue if these proposals are adopted? The gap appears to be growing smaller and smaller.

Baroness Hollis of Heigham

I would need an abacus to work that out.

Lord Higgins

The noble Baroness does not need an abacus or a computer—hand-held or otherwise. It is not a laughing matter. It means that the amount of form-filling intervention and so forth which is going on is vastly increased. We have grave doubts about the way in which the Government's proposals are working. More and more people are being drawn into the clutches of the Inland Revenue. That is perhaps a rather pejorative way of putting it, but it is the case that the extent of government intervention in people's day-to-day lives—or more exactly the extension of the number of people with whose everyday lives the Government are directly concerned—is increasing very rapidly indeed.

Having said that, we have sought to write it onto the face of the Bill. No doubt the noble Baroness will say one ought not to do that; one can do it all by regulation and so forth. But it is important to bring home to people exactly how far the Government are now going in extending the scope of their activities. I beg to move.

7.15 p.m.

Earl Russell

I agree with the noble Lord, Lord Higgins, that the Bill does have a redistributive effect. I would regard that as neither Old Labour nor undesirable. We on these Benches are not raving egalitarians. On the other hand, we have noted that over the past 20 years inequality has increased faster in this country than anywhere else in the developed world except New Zealand. We think the pendulum has swung too far and that it is time it swung the other way. The fact that the Bill does have a redistributive effect is one of the reasons why on these Benches we are prepared to welcome it.

I take the point that it must involve an extension of means-testing in the use of these very long tapers. But we have already been through the fact that we cannot avoid poverty traps except by the use of very long tapers. We worked that out in Labour and in vain in the Parliament of 1992–97. The conclusions we reached then appear to be sound.

There is also a major tactical disadvantage in the amendment of the noble Lord, Lord Higgins, if he should think at any future stage to press it. He is writing the amounts of these credits into primary legislation. If he has any means of uprating them I have not seen it, and if I failed to spot it. I make my apology. Incidentally, the matter of uprating is one that I hope we may address in a future amendment. As things stand, these sums could only be uprated by primary legislation, and if I were a Member of the Legislative Committee of the Cabinet—which, thank God, I am not—I would not welcome such a proposal because I would expect to be bombarded with more requests than I could comfortably accede to.

Baroness Hollis of Heigham

The noble Earl, Lord Russell, has made the substantive point in response to this amendment, which is that it is daft putting figures on the face of a Bill because we are going to need primary legislation to keep amending it—unless the noble Lord thinks he seeks to end redistribution by freezing the amount in perpetuity until Parliament can find more time.

Perhaps I can reassure him, however. Under Amendment No. 214 tabled in my name, to which we will come in due course, he will see that the Government are effectively committing themselves to an annual uprating assessment of these awards. He will also know that the Chancellor of the Exchequer made it clear that the child tax credit, which is the high value benefit in all of this, will for the life of this Parliament be uprated in line with earnings. I hope that he will take on board the serious point made by the noble Earl, Lord Russell, that it is never desirable to put figures that properly need to be regularly amended and updated on the face of a Bill because of the method of seeking to overcome them.

The noble Lord also asked why we were excluding the under 25 year-olds. He is right; that is exactly what we are doing. That is because, first, there is a well established precedent in social security law that we make a distinction between those under and those over 25 years of age.

What we know is that while the under 25 year-olds may be poor but for the most part their poverty is not created by difficulties of access to the labour market. In those aged over 25, however, twice as many proportionately are in the bottom quintile of income compared to the under 25 year-olds. They are poorer because, in part and for various reasons, they find access to the labour market more difficult. They may suffer a mild disability or they may be under-skilled. The under 25 year-olds, however, are both less poor and have easier access to the labour market. In practical terms they are more likely to be living at home and receiving parental support. That is the reason why, when making this major expansion for the first time to make work pay for single and couple families without children, it is being introduced for those aged over 25.

Secondly, the noble Lord asked me how many families would now be subject to means-testing, as he referred to it, by the Inland Revenue. Leaving aside that I regard paying tax as means-testing by the Inland Revenue, though I am not sure that the noble Lord would embrace that, if we are dealing with some 25 or 30 million or so households—units of assessment—in this country, then 5.75 million come within the framework of this Bill. Many others are pensioners who come within the framework of pension credits, but that is not a relationship handled by Inland Revenue, but by the Department for Work and Pensions.

I wonder whether those remarks have met all the points made by the noble Lord, Lord Higgins. I do not want to move on to debate about marginal deduction rates. I shall happy to do so if the noble Lord wishes, but given the hour, it may not be wise. He rightly identified that the main increase in the greater numbers was both the increased generosity of the tax credits and their extension to those who are single and without children. That accounts for the much greater number coming within it.

That may relate to a subsequent amendment tabled by the noble Lord confining those recipients of tax credits to no more than 25 per cent of the population, which in a way it would have been sensible to have grouped with this because that would have the equally perverse effect of limiting the redistributative push of these tax credits. I have to say that the noble Lord and I have very different views on this.

I am proud of the fact that not only are we tackling child poverty, but we are making work pay for families for whom life is always precarious and whose lives are always churning out of work and into work. They worry whether they can cope. It is magnificent that we are able to achieve both objectives in a way that simplifies and streamlines the amount of support we will give to families in need. I hope that any amendments pursued by the Opposition benches will not seek to reduce the element of bringing support to children in poverty and helping and encouraging their parents both to move into work and to stay in work. Only in that way will those children have a chance of a decent future.

Lord Higgins

If this were all cost free, that would of course be a highly desirable situation, but one cannot overlook the fact that this has to be paid for by someone. One needs to look at both sides of the coin.

Perhaps I may pursue one final point with the Minister. Until now, a large group of people has not been involved with the Inland Revenue at all. They do not fill in tax returns and consequently they are excluded from the system. How many people does the Revenue estimate it will now be dealing with compared with the number it was dealing with before the passage of this Bill?

Baroness Hollis of Heigham

I am not sure whether my response will answer precisely the noble Lord's question. At the moment, of the 5.7 million families with children expected to be in receipt of new tax credits, some 1.7 million currently are not liable for tax or NICs.

Lord Higgins

No doubt we will wish to return to some aspects of this later on, but for the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 59 not moved.]

The Deputy Chairman of Committees

If Amendment No. 60 is agreed, then I shall not be able to call Amendments Nos. 61 and 62.

Lord Higgins moved Amendment No. 60: Page 6, line 41, leave out subsection (4). The noble Lord said: At this stage, I shall not move this amendment.

[Amendments Nos. 60 and 61 not moved.]

Lord Freeman moved Amendment No. 62: Page 6, line 42, at end insert ", with a view to ensuring that the amount of credit paid to all claimants supplements their household income to a broadly equivalent degree having regard to the different income levels and personal and domestic circumstances of different households The noble Lord said: In moving Amendment No. 62, which stands in my name, I shall speak also to Amendment No. 72 which is a mirror image of Amendment No. 62. Mindful of the hour, it might be helpful to the Committee—because this is something of a technical amendment in that it deals with the equivalency rules and relates to the anomaly between assessing individuals for income tax, but for social security purposes, households—I ask the Minister simply to put on record comments that the Government might have on this amendment. That may enable us to proceed fairly quickly and allow me, subsequent to the Minister's contribution, to return to this matter at a later stage, if the Minister is willing. I beg to move.

Baroness Hollis of Heigham

I need more help than that. Given that this is a wonderful Bill and set of proposals, I cannot possibly think what objections the noble Lord, Lord Freeman, may have to it, and therefore what additional clarification he may seek. I guess, but I could be wrong, that he feels there is an inequity of treatment between different types of family, for example, in which case it would be helpful if he spelt out for me where he thinks that inequity may lie.

Lord Freeman

I am grateful for the Minister's comment. In the circumstances I shall return to this matter at greater length perhaps at another time. I beg leave to withdrawn the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 63: Page 7, line 8, after "person" insert "or according to any such other factors as may be prescribed On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 64: Page 7, line 16, at end insert— (7) If, in accordance with regulations under section 8(2), more than one claimant may be entitled to child tax credit in respect of the same child or qualifying young person, the prescribed manner of determination may include provision for the amount of any element of child tax credit included in the case of any one or more of them to be less than it would be if only one claimant were so entitled. (8) "Claimant" means—

  1. (a) in the case of a single claim, the person who makes the claim, and
  2. (b) in the case of a joint claim, the persons who make the claim."
The noble Baroness said: I beg to move.

Lord Higgins

Have we had any explanation of this amendment?

Lord McIntosh of Haringey

It has already been debated with Amendment No. 57. It is grouped with Amendment No. 57.

Lord Higgins

I realise that; I just wondered whether we had had any explanation of it.

Baroness Hollis of Heigham

I spoke to it, and no Member of the Committee queried it at the time. What is the noble Lord, Lord Higgins, concerned about?

Lord Higgins

I cannot understand it, and I cannot recall us having discussed it.

Baroness Hollis of Heigham

At the time, the only person who spoke to it apart from myself was the noble Earl, Lord Russell, who responded warmly. I am sorry if it passed the noble Lord by. Where there was more than one claim received for a particular child or children, Amendment No. 54 enables us to pay a reduced amount of any element payable in respect of any particular child. It is part of a bundle on shared care. As I tried to explain to the Committee at that time, it is part of the Government's taking a reserve power to address this issue as and when necessary. I reminded the Committee that, given the complexity and read-across to other benefits such as housing benefit; given the problems of IT and given other developments, what we needed at this stage was a reserve power rather than seeking to spell it out. This is part of that group.

On Question, amendment agreed to.

Clause 9, as amended, agreed to.

7.30 p.m.

Earl Russell moved Amendment No. 65: After Clause 9, insert the following new clause—

"PASSPORTING () A person shall be entitled to—

  1. (a) specified social security benefits;
  2. (b) the maximum rate of certain social security benefits; and
  3. (c) specified public services free of charge, as may be prescribed.
() A person's entitlement under this section shall be subject to whether—
  1. (a) he is entitled to maximum child tax credit and is not in full time work as prescribed, or
  2. (b) his income is at or below a threshold as may be prescribed and he is in full time work."

The noble Earl said: I had not expected us to reach this amendment tonight. I am afraid it is going to take a little longer than perhaps Members of the Committee would wish to spend on it, but I will try to be as brief as I can. The amendment is of quite considerable importance.

The passported benefits between them, especially in the light of the continual and rather rapid increases in prescription charges, are a very important part of the value of social security to most claimants. It has been one of the weaknesses of the CSA that it did not carry passported benefits forward when people came off income support and came on to the CSA maintenance. That was a result of the failure of the House to carry an excellently drafted amendment in the name of the noble Lord, Lord Carter. I am sorry for his failure on the application, and I hope that he still remembers how good his arguments were.

I was a little taken aback to hear the Minister say a moment ago that it was not within the Bill's authority to deal with this. I appreciate that the Treasury cannot deal with social security matters, but the Bill has been managed by both departments throughout, and the Minister can hardly be in a position to deny that the Department for Work and Pensions has been very deeply involved in the Bill from the beginning.

Baroness Hollis of Heigham

I would not dream of denying that, and it is indeed the case that this is a joint Bill, though led, obviously, by Inland Revenue and Treasury. The point I was making is that quite a lot of benefits were not for DWP or Inland Revenue, they were for other departments. The big value one, which is pre-school meals, is the responsibility of the Department for Education and Skills, and others are the responsibility of the Department of Health. The DWP connection was not the problem; it was the fact that other departments have to rethink what income flags and income eligibility they are going to attach to existing bids for these passported benefits, given the new financial structure for tax credits.

Earl Russell

I was aware of the concession on preschool meals, which I welcome and which I was just about to come to. For the rest, since we do have a sovereign Parliament, which may do whatever it likes, one ought occasionally to take advantage of that fact. While we have got it, let us use it.

Whether something is done about this will make a big difference to the success of the Bill in achieving the objectives that the Minister and I share. I appreciate the point that the Government have already made that because the tapers are so long, this will bring passported benefits to people far higher up the income scale than have normally received them, or than we would expect to have any reasonable, equitable claim to receive them. Some sort of clawback arrangement would have to be worked out.

I can see that the problem is extremely technical. I am rather glad that I am not in charge of trying to work out the answer. One possibility, which I am sure has occurred to the Government, although I do not know what they think about it, is making any passported benefit that comes to people who are higher up the income scale a taxable benefit at the higher rate of income tax, but not at the lower rate. That would he one way of making sure that we were not using such a benefit simply to subsidise the more prosperous upper middle classes. However, if' it was not done for the people who are using the tax credit instead of income support, I think that the Bill, very sadly, would fail in its purpose. I beg to move.

Lord Higgins

I certainly agree with the noble Earl, Lord Russell, that this amendment raises very important issues. Two particular aspects give me cause for concern. One of them arises from the earlier debate we had on the extent to which individuals are notified of the whole range of benefits that are being provided by the Government.

The second point that gives me some cause for concern is partly about the level of income at which these benefits become available given the length of the taper. A third point, which has just occurred to me, is that the noble Baroness referred to the fact that many of these benefits are the province not merely of one department, be it the Department for Work and Pensions or Inland Revenue, but of a number of other departments as well.

In one sense, the Bill ought to adopt the same policy which Ministers in this House adopt; namely that they should speak for all departments. Presumably, we cannot leave the issue in the air and at some stage, if adjustments are to be made to other benefits as a result of the Bill, then we are entitled to know what will be those adjustments. They may be extremely important.

Because it is so important, perhaps we may return to the matter on Report. For the time being, I should like to ask her exactly which benefits does she think may have to be modified by the departments responsible for them as a result of the Bill? In what way are these changes to be made since, presumably, some of them may require primary legislation, or at least secondary legislation? If the Bill is going to have an effect on other benefits then clearly we shall need to know that, otherwise we will have a false understanding of the extent to which this legislation will affect individuals. It would be helpful if the noble Baroness could give us a brief list of which benefits will be affected by the introduction of the Tax Credits Bill.

Baroness Hollis of Heigham: It does not quite work like that. It is not that benefits will be affected by the Tax Credits Bill. At the moment, here is a system of financial support for out-of-work families, along with some for in-work families. Here too is a system of passported benefits, which I am happy to describe. There is a read-across between certain levels of benefit, entitling people to certain passported benefits which, for the most part—with only one or two exceptions—would not apply to in-work benefits.

Because we are seeking this structural reform, child tax credit will brigade the out-of-work and the in-work benefits. Therefore, the links through to the passported benefits have be reconsidered. What it does not do, however, is alter the passported benefits as such. Those will remain the responsibility of the individual departments which provide them. For example, free school meals are provided by the Department for Education and Skills, while free prescriptions and dental treatment are provided by the Department of Health.

Those are the big benefits, but some minor ones are provided by my department, including bereavement benefits, maternity allowances, funeral grants, social fund payments and so forth. Issues like that must be considered, but it is the big ones, about which noble Lords, including the noble Earl, Lord Russell, are most concerned. Those must include free school dinners, because that is a high value benefit. Those benefits, and many more, use entitlement to current key social security benefits and tax credits as a peg for deciding who should have access to them. They flag up an entitlement. This is a way of cutting down on administration and targeting passported benefits on those whom the department wishes to help.

Those passported benefits—the noble Lord, Lord Higgins is right in that we are revisiting an earlier discussion—remain the responsibility of the departments which administer them, not the Treasury or the Inland Revenue or, for the most part—except where specified—the Department for Work and Pensions. It is those other departments which set the rules for entitlement. They decide what level of income brings a family into entitlement for support and it is therefore usual for the department in question to set down eligibility in its own legislation.

The noble Lord, Lord Higgins, is absolutely right to point out that this is obviously a Government matter, not simply one for the Inland Revenue or the Department for Work and Pensions. Officials from the Treasury, the Inland Revenue and the Department for Work and Pensions have been in discussion with the departments responsible for passported benefits for some time. We are all aware that decisions need to be made and Members of the Committee will be told as soon as we have confirmation of the detailed proposals for entitlement. While I do not believe that it would be right for the Bill to determine entitlement to passported benefits, it does contain provisions to allow departments to make the administration of passported benefits run smoothly.

Schedule 5 to the Bill includes provisions to allow the Revenue to share information with the Department of Health and the devolved administrations for health purposes, for obvious reasons. In addition, Schedule 3 ensures that, where entitlement to passported benefits is set out in primary legislation and the departments concerned have agreed, amendments to their primary legislation are made so as to replace the links currently in place with WFTC or DPTC with links to the new tax credits.

I have already referred to funeral payments and maternity grants. I wonder whether my remarks have met the points raised.

As I say, I cannot be more helpful at this stage as to what precisely the income level will be for people to achieve entitlement to what are currently passported benefits. That I cannot tell the Committee. We are still in discussions on that. As soon as I have that information, I shall bring it to the Committee. Ultimately, it is for those departments to determine because it is part of their budgets and part of their responsibilities.

Lord Higgins

I understand that it is for those departments to take the lead on these matters. Am I right in understanding the noble Baroness to say that, following the consultations between the departments, if it does require changes in legislation, those changes will be incorporated in the Bill? I do not see where else it could be done.

There is also the issue that if someone now becomes entitled to a tax credit then, dependent on the extent that that raises their income, they will either be entitled to a lower level of benefit if that benefit is income-related or, if it is a free benefit at the moment, they may find that they are excluded from it altogether. Again, I am not clear how, following the consultations, this is likely to take place in practice.

The other point I am not clear about is whether the noble Baroness is saying that these consultations will be completed before Report stage and that we should get various government amendments at that stage which implement the very important issues that the noble Earl, Lord Russell, has rightly raised.

Earl Russell

I am most grateful to the noble Lord, Lord Higgins, for his support on this issue. He is right that we need to know the answers to these questions before the Bill becomes law, otherwise we are simply incapable of judging what will be the effect of the Bill.

I must apologise for keeping the Committee from its dinner, but if this matter is not settled a great many people will be kept from a great many dinners for a very long time.

The case I had most in mind was free prescriptions. From going into my local chemist since the latest increase in prescription charges, I have noticed that it has become over the chemist's counter an extremely contentious subject, and the chemist shows signs of visible anxiety whenever the subject is mentioned. That indicates a real difficulty of which we ought to be aware.

Can the Minister make a few slightly more precise comments? Can she first say that there will be an entitlement to passported benefits which will be connected with the Bill? Can she say that it will be settled before the Bill becomes law? Can she say that there will be a mechanism for a clawback so that the benefit does not go to people on incomes of £58,000 a year—which I believe we all agree it should not. If the Minster can say "yes" to all these questions, then we could rest in peace and go and have our dinner. Can she?

Baroness Hollis of Heigham

No—because on the third of those questions there would be no intention, certainly on my understanding, of an eligibility for free school dinners, for example, which takes a family up to £50,000 being clawed back. I am reasonably confident that one way of proceeding would be, in some cases, to use existing benefit levels—for example, the adult IS or JSA level might be one such trigger—otherwise one will have to go for a defined income figure at which the benefit cuts off. That would be one approach. That was the noble Earl's third question.

As to his other two questions, there certainly will be passporting. My dilemma is that I cannot tell the extent of the income scale to which passporting will go, whether it will be the same for all benefits or whether there will be a symmetry, partly to act as a form of taper, if I can put it that way. So one could go up the income scale for one benefit rather than another. How far up that income scale it will go, and whether it will simply replicate the existing income cut-off, that I cannot yet tell the noble Earl. That decision is awaiting further confirmation from the other departments.

Lord Higgins

Are we to know before Report Stage?

Baroness Hollis of Heigham

I do not know when I shall know.

Lord Higgins

We cannot let the Bill go through without knowing.

Earl Russell

I agree. We cannot let the Bill go through without knowing, but I do not think that we are going to know tonight.

Earl Russell

We cannot let the Bill go through without knowing, but we will not know tonight. We will hear more of this on Report because it is a major issue. If any private conversation between us could narrow the area of disagreement between us, if any, then I would welcome it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees

The Committee stands adjourned until Thursday 23rd May at 4 p.m.

The Committee adjourned at fifteen minutes before eight o'clock.