HL Deb 23 May 2002 vol 635 cc133-84GC

[The Principal Deputy Chairman of Committees (Lord Brabazon of Tara) in the Chair.]

Clause 10 [Entitlement]:

Lord Saatchimoved Amendment No. 66: Page 7, line 22, leave out subsection (2).

The noble Lord said: I beg to move Amendment No. 66, which seeks information. In moving the amendment, perhaps may I repeat the gratitude expressed by my noble friend Lord Higgins', to the Minister for succeeding in giving us the regulations together with the Bill, which has been much appreciated. Can the Minister say why the Government feel the need for regulations to prescribe what is or is not remunerative work? It appears difficult to define remunerative work and we wonder whether this is an unnecessary complication. Perhaps we have misunderstood.

We wonder whether anyone in remunerative work would not already be associated with the Inland Revenue. Therefore it would be on record who is and who is not so engaged. Perhaps the Minister could give some examples of situations where work is not to be classified as remunerative work. I beg to move.

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

I am glad that the noble Lord has found the regulations helpful. This morning I re-read them with a view, to reading across to our discussion. It is probably true to say that the question about qualifying remunerative work is one of the more difficult technical issues to be dealt with under the Bill. I use the term "technical" because it needs to take account of interactions with equivalent definitions used in the social security system; for example, for the purposes of income support and income-based JSA, but also to reflect people's working patterns, which may change over time.

One reason why we need to set it out in this way is that, under the terms of the Bill, we are changing the approach to remunerative work compared with the existing WFTC model. The draft regulations do not follow the current model, which states that hours of remunerative work must be calculated around a particular cycle or a period around the date of the claim. That approach works for the current tax systems, which are fixed for six months at a time, but are not suitable for the new system. We want people to benefit from the working tax credit as soon as they start to meet the specified hours test and cease to benefit once they no longer meet that test. So the hours test as set out in the draft regulations takes into account the flexible working patterns and fluctuating hours of so many of today's workforce. The qualifying remunerative work test will be based on a person's normal or typical working hours, with the expectation that the person will continue to work enough hours per week to qualify for working tax credit for at least four weeks. The regulations will also protect people who receive statutory payments in connection with the birth of a child or on account of a temporary break in work caused by illness.

Perhaps I may cite some examples which may help our discussions. The term is traditionally defined in regulations for WFTC and DPT'C but there are various reasons why it needs to be redefined. For example, it must be made clear that work done without the expectation of payment does not count as remunerative work. I should like to follow this up with a little more detail. Issues may also arise where someone is working for, say, a voluntary organisation and thus we may need to protect them against putative assumptions of payment. That is where my mind was going as the noble Lord was talking. If I can enlarge on examples, I will either write to him or come back at Report stage.

Lord Saatchi

Does that mean that qualifying remunerative work would be work as defined in the regulations as being for a certain number of hours?

Baroness Hollis of Heigham

Exactly that.

Lord Saatchi

I thank the noble Baroness. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Freemanmoved Amendment No. 67: Page 7, line 28, at end insert ", and in particular whether the disabled person is returning to work during, or following, a course of medical treatment

The noble Lord said: It is clear that Clause 10(3) allows more flexibility than under 'working families' tax credit and disabled person's tax credit in drawing up regulations governing the circumstances in which a person is to be treated as engaged in remunerative work. So my amendment goes to the definition of the term "engagement". My noble friend Lord Saatchi asked about the definition of remunerative work. This new flexibility is particularly welcome. It will enable people who suffer from an illness or disability to adjust their working hours during periods of treatment or convalescence. That is the issue that the amendment seeks to address. It would give greater clarity to subsection (3), in particular to the reference to disabled people in paragraph (b).

I shall give two examples of the greater clarity that my amendment would give to the interpretation of the Bill in relation to disabled people. I am not sure that my question has yet been answered in the review of the draft regulations that I have seen. If I am in error, the Minister will correct me. First, at present, unless a person is working at least 16 hours a week, they are not entitled to claim disabled person's tax credit. That

sometimes has the effect of denying in-work support for those who need it. For example, a patient who needs renal dialysis is in hospital three times a week, leaving them with two remaining days in which to undertake remunerative work—a total of 14 hours. I am well aware that in Committee in the House of Commons, Ministers said that they were not prepared to relax the 16-hour requirement for working tax credit, but they gave the welcome assurance that, in cases such as that of a disabled person returning to work, they would consider spreading hours worked over the year and assessing entitlement to WTC on a weekly average. That is a step in the right direction, but more flexibility will be needed if the maximum benefit is to be achieved for the claimant and in terms of work incentives.

A second brief example is relevant to the present rather inflexible and unwieldy rules governing the disabled person's tax credit fast track. The Minister recalls that under this procedure a person who becomes sick or disabled while in work may claim DPTC if as a result of their disability their earnings fall by more than 20 per cent—for example, if they move to less arduous duties or work for fewer hours—but in order to qualify it is necessary to be off work for 56 days, though not necessarily in a continuous period. Medical treatments have so advanced that 56 days, even if not a continuous period, may be too long and therefore too restrictive.

I am well aware that this new flexibility is much to be welcomed. I am just seeking even greater flexibility and greater clarity. I beg to move.

Baroness Hollis of Heigham

The noble Lord asked me a couple of questions. Amendment No. 67 would mean that regulations under Clause 10 could provide a different definition of qualifying remunerative work for disabled people, depending on whether they were or were not returning to work during or following a course of medical treatment. We believe that the amendment is unnecessary. Subsection (3)(d) already provides the power for regulations to have regard to other factors in determining whether a person is engaged in remunerative work. If at some stage the Government were to be persuaded to make the differential provision for which the noble Lord argues, that could be done using the powers within the Bill. If, however, he is using it to say that someone should be entitled on a regular basis to qualify for working tax credit by working less than 16 hours a week, which was an argument raised by the noble Lord, Lord Rix, on Second Reading, I would not wish to go along those lines. We are seeking to incorporate the response to disabled people not with a separate benefit labelled DPTC but in the working tax credit system. Sick and disabled people who are on incapacity benefit or SDA will be allowed to go for permitted work for 26 weeks, maybe longer, earning up to £66. If it is supported permitted work, they can continue that permitted work rule of £66 indefinitely.

In addition to that they have the earnings disregard, as the noble Lord will know. Taken together, I think that we have rightly put in place a supportive regime for disabled people to be able to undertake work which is to their benefit, but which would not be at the expense of under-eligibility for working tax credit. I would be sorry to see us trying to tackle through the back door whether or not the 16-hour rule should be a trigger for working tax credit.

I turn to the noble Lord's second point, which concerned the averaging of hours over the course of the year—he cited somebody on renal dialysis perhaps temporarily falling below the hours rule, perhaps for a month or so, and for the rest of the year being well above it. There will not be an averaging of hours over the year. If there was, a person who worked 16 hours a week for 51 weeks of the year would not qualify for any working tax credit if they did not work during the final week. It could also mean that we were taking working tax credit away retrospectively because in the last month of the year people failed to sustain the required hours. That could affect, say, a lone parent who suddenly dropped out of work over the Christmas holidays. However, we will look at people's normal working hours, so they would not necessarily be disqualified if they could not work 16 hours in a particular week for some reason.

We do have a modest discretion. We have powers to address this situation should it prove to be more of a problem than we anticipate. In addition, we have generous financial support regimes for disabled people in relation to what is disregarded. So we are well aware of the issues associated with the amendment moved by the noble Lord. Therefore I hope he will feel able to withdraw his amendment.

Lord Freeman

I found that answer extremely helpful, and the record will show clearly the constructive spirit in which the Minister has approached this issue. The motive for the amendment is the former not the latter reason the Minister cited. It is a matter of being willing under the definition of any other factors to be flexible to changing medical conditions. On the basis of that most helpful response, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham

moved Amendment No. 68: Page 7, line 31, at end insert— (4) Regulations may make provision for the purposes of working tax credit as to the circumstances in which a person is or is not responsible for a child or qualifying young person.

On Question, amendment agreed to.

Clause 10, as amended, agreed to. Clause 11 [Maximum rate]:

[Amendments Nos. 69 to 74 not moved.]

Clause 11 agreed to.

Clause 12 [Child care element]:

[Amendment No. 75 not moved.]

Baroness Hollis of Heigham

moved Amendment No. 70: Page 8, leave out lines 30 and 31 and insert "so much of any relevant child care charges as does not exceed a prescribed amount. (2A) "Child care charges" are charges of a prescribed description incurred in respect of child care by the person, or either or both of the persons, by whom a claim for working tax credit is made The noble Baroness said: This is a drafting amendment but nonetheless it is not part of the package associated with Clause 17. It is a different issue. It clarifies the structure of the childcare element of working tax credit. Clause 12 provides for working tax credit to include an element in respect of childcare charges to be known as the "child care element". That element will be based on the existing childcare tax credit in WFTC.

As with the existing childcare tax credit, the childcare element will represent a proportion of eligible childcare charges. My right honourable friend the Chancellor of the Exchequer announced in the Budget that the maximum rate of the element will be 70 per cent of eligible charges up to maximum charges of £135 for one child and £200 for two or more children. The first half of this amendment—that is, the amendment to the body of subsection (2)—makes clear that such proportions may be set out in regulations.

The second part of the amendment, the new subsection (2A), makes clear that regulations may provide for how "child care charges" are to be calculated for the purposes of the childcare element. The regulations will provide that childcare charges will be calculated by looking at average weekly charges over a four-week period. This is similar to the formula currently applied in WFTC but is somewhat simpler. It is simpler so that parents can easily recalculate their weekly charges and have their award amended when the charges change because, as noble Lords may be aware, the new tax credit system will respond to changes in entitlement.

Perhaps I have said enough about the amendment. If so, I hope that noble Lords will be happy to accept it. I beg to move.

4.15 p.m.

Lord Higgins

The noble Baroness has explained the amendment very carefully. I presume that the way in which regulations come into operation varies in the Bill. Sometimes it says it in the clause and sometimes it is referred to way back in a later part of the Bill. I presume that these prescriptions are prescribed, if I can put it that way, in the later way—namely, some later section of the Bill says that the Government should have power to make such prescriptions. Having said that, the amendment clarifies the position somewhat and I do not believe we would wish to object to it.

On Question, amendment agreed to.

Clause 12, as amended, agreed to.

Clause 13 [Rate]:

[Amendments Nos. 77 and 78 not moved.]

Earl Russell

moved Amendment No. 79: Page 9, line 21, at end insert— () Regulations shall provide that all recipients of housing benefit and council tax benefit will receive in full any increase in their entitlement to tax credits. The noble Earl said: The Minister will, I am sure, have spotted that the intention of this amendment is probing. One of the problems that has to be settled before the Bill can be an efficient instrument of business is how it is going to impact on housing benefit and council tax benefits and how are those tapers will be affected. If this is not got right, then as soon as anybody gets any extra money out of the tax credit an immediate new poverty trap will be created out of a possible loss of housing benefit and increase in council tax benefit. The housing benefit tapers are, of course, moderately steep, certainly by the standards that the Bill is introducing.

There is also a further problem about the requirement for information. The requirement of information for housing benefit is, of course, already a complex business, because it has to be supplied both to the local authority and to the Department for Work and Pensions. The question will arise, as it has already done over passported benefits, of whether we have sufficient authority in the Bill to deal with the information required by the local authority for housing benefit, or whether people are going to be required to supply two different lots of information, perhaps involving two different periods of measurement—in fact, precisely that sort of precise information that those who are in need of social security benefits tend to be particularly ill-equipped to provide, especially if it is true that the level of illiteracy in this country is somewhere around 10 per cent.

I am not certain exactly how the housing benefit tapers should be adjusted, but they will need to be adjusted if the Bill is to work. My main purpose in tabling this amendment is to find out the Minister's thinking on the subject. I beg to move.

Lord Higgins

This amendment is concerned with the rate at which the tax credits should be made available either by way of deduction or by way of benefit payment.

I make one very trivial point in passing. I am slightly puzzled by what the printer has been up to. We suddenly get these little tiny printed headings, "Rate" and "Decisions" and so forth, which if one refers to the contents page at the front are in fact rather major headings. I am not clear why "Rate" appears in such small print in the centre of the page—it is not, as I understand, it part of the Bill—and then again in much bigger print further down. It seems to be the wrong way round. However, I leave that for further consideration.

The noble Earl, Lord Russell, has rightly raised the important question of housing benefit and the extent to which the tapers in the housing benefit and council tax regulations relate to those in the tax credit system that the Government are seeking to introduce. I imagine this is going to be pretty complicated, although the amendment has a clear-cut variation on the possible solutions.

I am rather more concerned about the other points which the noble Lord raised—that is, where is this information coming from? The Minister will know from many previous exchanges that we have always been rather concerned about the extent to which information related to housing benefit is obtained and the fact that the questionnaires put out by one local authority may be vastly different from those put out by another.

I do not know whether this would be an opportunity, yet again, to press for some standardisation of these forms as presumably they will also need at least to include a question asking whether the individual is in receipt of a tax credit. This will be a fairly major task because of the disparity of practice between individual local authorities and the fact that this is shifting away from the Department for Work and Pensions to the Treasury. Local authorities will on the whole have been dealing previously, in relation to other social security benefits, with the Department for Work and Pensions and not with the Treasury. This will require quite a large readjustment of relationships as far as local authorities are concerned. Perhaps the Minister could comment on that point and on the question of how the papers inter-relate.

Lord Northbrook

Are housing benefits and council tax benefits counted as relevant income?

Baroness Hollis of Heigham

No. It is the other way around. WTC will count as relevant income for housing benefit.

If regulations were made to prescribe that claimants to housing and council tax benefits should receive tax credits in full—which is what the amendment seeks—this would mean that people in work would have increased entitlement to housing and council tax benefit. It would certainly be to their advantage, perhaps, but there are quite serious read-acrosses.

I would not dispute the importance of housing benefit. Given that it is a high value benefit, matters will be complicated once one seeks to integrate housing benefit tapers with all other forms of support, whether tax credits, pension credits or other benefits. As we have discussed on previous occasions, introducing housing benefit tapers and council tax tapers to the other forms of tapers will certainly raise the marginal deduction rates. That is undeniably true. A family with children could receive a combination of child benefit, working tax credit, child tax credit and housing and council tax benefits on top of their earnings, and they would all be tapering out.

Given this amendment, therefore, what are our considerations? A key factor is consideration of the effect on withdrawal rates. A person now on the tax credit taper and on the housing benefit and council tax benefit tapers would, under the Bill, have a marginal deduction rate of a little over 90 per cent. If, however, the working tax credit was not taken into account in housing and council tax benefit, there would be a withdrawal rate of around 125 per cent. So people would be worse off for working harder.

The second implication of the amendment is that we open up even greater disparity of treatment. Those on maximum benefit—income support or JSA together with CTC— currently receive maximum housing benefit and ISMI—help with interest payments on their mortgage. Once someone moves into work they are expected to pick up all of the costs for buying the house themselves, irrespective of their level of income, apart from a very brief rollover period. Accepting the amendment would mean that anyone receiving working tax credit, or indeed children's tax credit—which might go quite some way up the income level—would receive all of that disregard for the purposes of housing benefit, while someone on a much lower income would find that their expectation that they would be paying for their own mortgages would fall far behind the provision of giving rental support. That disparity would be unfair.

The third problem, which is by no means minor, is the cost of the proposal. We estimate that the cost would be £1.2 billion in 2003–04, rising to £1.4 billion by 2006. Even if it were limited to disregarding only the working tax credit. the cost would be several hundred million pounds, and we do not feel that that money would be well targeted.

Disregarding working tax credit in housing and council tax benefit calculation goes against the principle of taking into account income in the income-related benefits. That was the point raised by the noble Lord, Lord Northbrook. Disregards are in fact the exception, and other than a small disregard—the £10 or £20 that we might give to a lone parent or disabled person—net earnings are taken fully into account in housing and council tax benefit calculations. Therefore it does not make sense to treat working tax credit more favourably than earnings; to take earnings into account, but not the top-up of those earnings based on family benefit. In other words, we are following the practice already established in both family credit and working families' tax credit.

For all those reasons, I hope that Members of the Committee will be reassured that we have fully considered those issues.

I was pressed on a point of information exchange, and I agree that one of the considerable difficulties facing the department is the fact that local authorities, though they act as a kind of post box for a national payment of a national benefit, nonetheless have very different methods of delivering their letters, almost literally so in many cases.

As the noble Lord will know through exchanges in the House, the House produced model forms which local authorities are increasingly using for housing benefit calculations. Individuals will need to provide their financial circumstances both to local authorities and the Inland Revenue, but—and this is worth saying—on the figures that I have had calculated, only around 5 or 6 per cent of all the families on the new tax credits will be experiencing the housing benefit taper. Anyone on JSA or IS together with CTC will be receiving maximum housing benefit, child tax credit, and therefore will not be subject to a taper. Anyone further up the income level, from £12,000, £15,000, £18,000, depending on family size, will not be still eligible for housing benefit taper, and equally, of course, many people are buying their own homes and are therefore not eligible for any financial support.

It means, therefore, that local authorities will be dealing with only about 5 per cent; that is, some 0.3 million or so of those in receipt of working tax credit and children's tax credit are likely to come within the remit of coming down the taper so that they are experiencing both a withdrawal of housing benefit from the maximum they would get if they were on income support or JSA alone. Only about 5–6 per cent will experience that taper in which they will have been tapered out of the tax credit at the same time as they were also being tapered out of housing benefit and council tax benefit.

Given that, while I accept that people will have to give information both to local authorities and to the Inland Revenue, only 5 per cent of those in receipt of tax credits will experience both the effect of pretty high marginal deduction rates and the problem of giving that information twice. It also means that local authorities will not be dealing with a problem of monstrous proportions. Those currently tapering out of housing benefit are largely the same client group already under the WFTC, so we are not producing an additional load for them, except at the edges.

With that explanation and given the substance of the amendment—that it should be disregarded altogether—I hope that the huge cost and unfairness in treatment between those seeking to buy their homes, and the fact that it would break all the existing methods of treating income for the purposes of assessing housing benefit, will enable the noble Earl to withdraw his amendment.

Lord Higgins

I do not propose to criticise the noble Earl, Lord Russell, for proposing an amendment which would cost —1.4 billion and still involve marginal withdrawal rates for 125 per cent. It is a rather useful amendment on which to examine the question of housing benefit.

Before the noble Earl replies, could the Minister clarify one point? Am I right in thinking that in the light of what she says, there is no information flow from the local authority to the Treasury? Is it simply that the information on tax credits will be conveyed by the individual to the local authority?

Baroness Hollis of Heigham

That is my understanding.

4.30 p.m.

Earl Russell

I am grateful to the noble Lord, Lord Higgins, for recognising that the purpose of the amendment was to generate a debate. I did not expect the Minister to he particularly happy with the wording. But if one is a seasoned parliamentarian and one sees an open goal, one cannot resist putting the ball in the net. I express no surprise at that.

However, do I understand correctly that the Minister is not proposing any further change in housing benefit taper as a result of the Bill? Was that in fact the purport of what she was saying? That would not satisfy either my colleagues in this place or my colleagues in another place. My honourable friend Mr Webb expressed his feelings on the matter strongly during debates in another place.

The Minister said dismissively that only 5 or 6 per cent of those claiming working families' tax credit would be affected. That is a classic maid's baby argument. It may look like a small proportion, but it is in fact rather a large amount of people. It is a bit like the chap in Ruthless Rhymes who collided with a goatherd and by the time his car got through they were all defunct but two. The fact that two were not defunct is not an awfully good excuse.

There is a considerable problem here. We will have to address it a good deal more thoroughly than we have done at present. We will have to come back to it at the next stage of the Bill, but, I assure the Minister, not with this particular amendment. I listened to her criticisms of it. However, it has elicited that the Minister is not intending any further change.

The Minister mentioned ISMI. Do the Government have any intention of changing the practice of the previous government, under which ISMI is not available for the first nine months? That is quite a long period of time and it severely limits the usefulness of ISMI. If she wants to quote that as a mitigating factor she might think of changing that while she is about it.

I should also like the Minister to look again at the operation of the system of RATS. I do not mean the ones in cellars; I mean the remote access terminal system for exchanging information between the Department of Social Security as it then was—the Department for Work and Pensions as it is now—and local authorities. I have a lot of evidence that that system is not working nearly as well as the Minister believes it to be. Perhaps she could look again and check her sources on that. If she has anything to say on that or the point about ISMI, I shall give way to her.

Baroness Hollis of Heigham

I should like to intervene before the noble Earl decides what he wants to do with his amendment. He asks for an assurance that we are not changing the taper rates for housing benefit. No, indeed, we are not. We are changing the applicable amount, because it reflects the new structure of support for children. We are separating out the children's element from IS and JSA, because that is going to be the new child tax credit.

The noble Earl asked whether there were any plans to change ISMI. I am not aware of any current proposals to change ISMI. On the point about the small numbers, I was not trying to suggest for a moment that a third of a million is a small number. In terms of the additional work load for local authorities, I was trying to put this into proportion by saying that it represented 5 to 6 per cent of those on tax credits. My judgment is that almost all of them would currently already be receiving housing benefit under the existing WFTC scheme. Therefore, the argument about new complexity and new workload for local authorities—I was not talking about the significance for individuals—should not be overstated.

Earl Russell

I thank the Minister. We have not heard the last of this subject. We need more thought on it, but, for the time being, I beg leave to withdraw this amendment.

Amendment, by leave, withdrawn.

Clause 13 agreed to.

Earl Russell

moved Amendment No. 80: After Clause 13, insert the following new clause— "REVIEW AND ALTERATION OF RATES OF TAX CREDITS Section 150 of the Social Security Administration Act 1992 (c. 5) shall apply with like effect to tax credits and paragraph 28(2) and (3) of Schedule 3 to this Act shall amend section 150 accordingly. The noble Lord said: I have never been more pleased in my life to be overtaken. I move Amendment No. 80 in order to give the Minister an opportunity to speak to Amendment No. 214, which I am very glad to see in its place in the Marshalled List. I imagine the Minister would prefer to speak to it now rather than taking that debate very late in our proceedings. I beg to move.

Baroness Hollis of Heigham

As the noble Earl says, we are essentially doing the uprating that he is calling for. I do not know how specific he needs me to be. It is not right to apply the provisions in Part X of the Social Security Administration Act 1992 to the new tax credit, as the amendment would do, because they are not part of the social security system. However, he may be concerned with the principle that there will be regular uprating. The Bill is designed to strike the balance between parliamentary scrutiny and flexibility. We believe that Amendment No. 214 is more appropriate than attaching tax credits to the provisions of Section 150 of the Social Security Administration Act. Under the proposed new clause the process of setting and reviewing the rates of the new tax credit will be highly transparent and visible. This year the rates and thresholds of the new tax credits were properly a matter for the Chancellor's Budget and the Budget process is already the subject of an enormous amount of scrutiny. This will be true year after year. The new clause on annual review takes the Government's commitments further. It requires the Treasury annually to review the monetary amounts in the Bill against appropriate measures of prices, to prepare a report on that review and to lay that report before the House. I hope that that will meet the noble Earl's concerns.

Earl Russell

I expected to find the Minister's reasons for thinking her amendment better drafted than mine persuasive. I have found them persuasive. It is therefore with great pleasure—

Lord Higgins

May I ask a question?

Earl Russell

I give way to the noble Lord, Lord Higgins.

Lord Higgins

Does the noble Baroness intend to speak to Amendment No. 214, which is related to this? My list has Amendments Nos. 214 and 222 in the same group as Amendment No. 80. Amendment No. 214 is a rather massive new clause on annual reviews.

Baroness Hollis of Heigham

I thought I had spoken to that point. Amendment No. 214 is in this group. I believe the annual review gives the assurances that the noble Earl, Lord Russell, is seeking.

Lord Higgins

The noble Baroness dealt with it so briefly that I did not even see it going past me. I have one point to raise on Amendment No. 214. It is effectively an annual uprating and refers to each tax year, but it is in relation to prices. It is not—and I imagine that this is not what the noble Earl was hoping for—guaranteed to retain its value, but there will be a report if it does not fully maintain its value in relation to prices. That would leave a slightly strange position. It is like neither the minimum income guarantee, which is uprated in relation to earnings, nor the basic state pension, which is uprated in relation to prices. Apparently, as far as tax credits are concerned, it will be uprated in relation to various considerations that are set out here, but not necessarily fully uprated in relation to prices. Will the Minister say if that is so?

Baroness Hollis of Heigham

It is slightly more complicated than that. We are dealing with three elements in tax credits. First the expectation is the basic working tax credit will be reviewed annually in line with prices. The Chancellor of the Exchequer has already made a commitment that the uprating of children's tax credit, to my delight, will be in line with earnings, which is better than prices. However, the situation is slightly more complicated because we do not want automatically to link the third element, which is the childcare element, to price inflation, because childcare costs do not necessarily follow those same trends. That is the reason for the form of wording.

Earl Russell

That is a very good reason for that wording and I am glad to hear it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14 [Provisional decisions]:

Baroness Hollis of Heigham

moved Amendment No. 81 Page 9, line 32, leave out "it is to be awarded" and insert "to award it The noble Baroness said: We have already engaged with your Lordships the package of what I call the technical amendments that came in that rather large bundle. I hope that the noble Lord, Lord Higgins and the noble Earl Lord Russell have received a package of speaking notes to those individual groups. Rather than going through long speeches, which are technically descriptive in an attempt to be accurate, I wondered whether it might be helpful to try another approach, if your Lordships were content. I shall say now what the overall package of amendments does, and set out the four main themes that operating throughout, and then simply indicate as we go which government amendments fall into those groups. I wonder whether that might be more helpful.

The Principal Deputy Chairman of Committees (Lord Brabazon of Tara)

I am sorry to interrupt, but there is a Division in the Chamber of the House. We will therefore adjourn the Committee.

[The Sitting was suspended for a Division in the House from 4.40 to 4.52 p.m.]

Baroness Hollis of Heigham

Given that we are dealing with a very large bundle of technical redrafting amendments, it may be for the greater convenience of the Committee if I make a few introductory comments about what the package will do overall. If the Committee is content, as we come to each of the amendments I will say, "This refers to that bit and that refers to that hit". It may save us considerable time and allow more time to be spent on the policy scrutiny issue.

All of these amendments, going right up through to Amendment No. 240, fall into four categories. If I take this fairly slowly it may allow me to cross-refer back and keep it all together. We have already trespassed on some of these amendments. The first category concerns destroying the distinction between the award of tax credits, under which payments are made during the year, and entitlement, which is settled after the year end when current year income is known. As the Committee will recall, we discussed earlier, in regard to Amendments Nos. 24, 25 and 27, the distinction between awards, which are the payments in the process of the year, and entitlement, which is the balancing of hooks. At present there is some drafting confusion between the two.

There are also some technical changes to the provisions in respect of recovering overpayments and paying out underpayments when entitlement turns out at the end of the year to be different to the amount paid under awards during the year. I am probably incorrect on this, but it is almost like the difference between the code as you go along and the end of year tax adjustments. That is one issue that threads through some of these amendments.

The second issue relates to the fact that awards are not "revoked", which implies they never existed—which is not quite right—and that that should be substituted by the use of the word "terminated", if the board decides they should be. That links such awards to the end of year process. I suggest to the officials that an analogy might be between "revoking", which suggests an annulment of a marriage on the grounds that it had not taken place, and "termination", which is more like divorce. That is the second issue that will thread through. We have already had an example of that in regard to Amendments Nos. 40 to 43 in Clauses 5 and 6.

The third issue that comes up is making it clear that at the end of the year, the claimant needs to tell us about income for the year just ended; current year income for the year being finalised. At present, the Bill would require the claimant to compare previous year and current year income and the claimant does not need to be put to that trouble, the Revenue will do it. In other words, this will break down the concept of relevant income into current year and previous. If we keep relevant income, the client or the customer has to make those distinctions and they may be inaccurate. As I have said, the Revenue will do it, so that is a simplification. This issue has been picked up in Amendments Nos. 47 and 48 to Clause 7 of the Bill.

Finally—and this is the substance of Clause 17—we are unscrambling Clause 17 into new Clause 17 and a new Clause 17A. That will divide two distinct aspects of the process: the notice, which is the end-of-year statement provision from the decision the board makes on entitlement after the year, to make Clause 17 less unwieldy. We could have one five-page clause, but we are separating out the procedures associated with giving out the notices and sending them back. Then, for clarity of drafting, we shall have the subsequent new Clause 17A, which will be the decision-making process.

So we have four scenes: the first is between award and entitlement; the second substitutes for the word "revoked", the word "terminated"; the third breaks down the concept of relevant income into current and previous year's income; and the fourth, splintering Clause 17 into two clauses—the first dealing with notice, the second dealing with decision-making. However, these are all inter-related because they refer to the in-year and end-of-year processes. They all form a package, which is why they have taken time to finalise and, of course, they reiterate through the rest of the Bill. That sets out what we are doing here.

I shall turn now very briefly to Amendments Nos. 81 to 83. Here we are allowing for awards at a nil rate. We shall keep them within the system rather than saying that, because they have a nil rate, they will fall out of the system and have to start all over again. It means, for example, that someone whose earnings rise higher in the year would otherwise fall out, or someone in receipt of a different benefit such as invalidity benefit, might fall out of the system. The phraseology, "awarding a tax credit'', in essence has the effect of keeping an entitlement going even though no money is in payment or in process. It makes it easier for the claimant and it makes it easier for us.

I hope that, with those brief explanations of Amendments Nos. 81 and 83 within the context of the four scenes running through, the Committee will accept that these are technical amendments, designed to be helpful in clarifying the Bill. I beg to move.

Lord Higgins

The noble Baroness has made an extremely helpful speech which goes some way towards clarifying what is a very confused position. It will be helpful to divide them into those four categories. Otherwise, every time one comes to an amendment concerned with award and entitlement, the Minister will have to make exactly the same speech she made earlier in the week. It would be absurd to go over them time and time again.

We are clear which are the lead amendments we have either taken already or will reach later. Given that, it would be acceptable if she simply confirms that this is a further redrafting of the award and entitlement problem, or further redrafting of the notice as against the decision-making problem. Thus, unless a particular point relates to a specific amendment, which is other than restructuring—and "restructuring" is probably a better word than either "technical" or "redrafting"—as long as the Minister tells us into which category it fits, we can probably deal with the matter very much faster. It will also make it a great deal easier for those reading Hansard to comprehend.

Baroness Hollis of Heigham

Those were very helpful responses from both noble Lords and I am most grateful. If it is satisfactory to noble Lords, I should like to proceed on that basis.

Earl Russell

It is entirely satisfactory to me. However, perhaps I may ask the Minister one question. Were those responsible for putting the Bill together influenced in what they have done by the practice of the Inland Revenue in assessing Schedule D taxation? Of course they have a degree of familiarity with the problem of varying earnings, which is precisely what we need to import into this Bill.

Recently I have been preparing my own tax return. As I did so, I recognised things that the Minister is coming across and having to revise her drafting to meet. That appears to be the case. If so, it is a sensible place to draw on for experience.

5 p.m.

Baroness Hollis of Heigham

It is a version of that situation, where there is fluctuation and where people might otherwise drop out of the system for a period because their earnings are uneven. That would certainly come within this type of amendment.

On Question, amendment agreed to.

The Earl of Northesk

moved Amendment No. 82: Page 9, line 40, at end insert ", provided that the date specified shall not be less than thirty working days from the date of receipt of the notice The noble Earl said: In moving Amendment No. 82 on behalf of my noble friend, Lady Byford, I shall speak also to the other amendments in the group.

The amendments relate to the work of the board in reaching a provisional decision on the award of a tax credit, in reaching a revised provisional decision and inquiring into an award already granted.

The Bill provides that the board may require the provision of information or evidence from a prescribed person. Any list of such individuals will necessarily include employers. Large companies will have whole departments for personnel, payroll and pensions. They will have sophisticated computer systems for providing answers in respect of both present and past employees. But in many companies the owner/manager is the personnel, payroll and pensions function. Paying the wages is probably simpler than producing the papers. Year-ends are a nightmare. Extraneous queries, especially about previous employees, cause very real and time-consuming problems.

This burden is particularly onerous for companies with marked seasonal variations and a high staff turnover. This obviously includes the farming sector, but also seaside hotels and boarding houses, country pubs and B&Bs, agricultural and landscape contractors and so on. In many of these, the owners, in the season, work non-stop from the crack of dawn until the small hours. They deserve protection from unreasonable demands.

Indeed, government departments themselves know the difficulties of responding to queries that they do not control. In a Written Answer in another place on 22nd April this year, Mr McCartney gave the following information about the time taken to provide information under the Data Protection Act 1998. Over the period of 1st March 2000 to 23 October 2001, the Department for Work and Pensions responded to 91.4 per cent of information requests within 40 days—the amendments seek only 30 days' grace—8.6 per cent took more than 40 days, and the largest interval was 120 days.

There is a further point here. Until and unless government departments and agencies start mailing their post within 24 hours of the date on the letter, there should be an acknowledgement that date of receipt is regularly anything up to eight working days later. Unfortunately, this seems to apply particularly to correspondence from the Inland Revenue.

The amendments seek merely a modest period of grace of 30 days. I beg to move.

Baroness Hollis of Heigham

I wonder whether the noble Earl, Lord Northesk, is correct. I believe that his very last statement was that this amendment seeks 30 days. The difference between us is the difference between 30 days and 30 working days. If the noble Earl is not seeking 30 working days, I do not know that his amendment does anything. Could I ask him to confirm that?

The Earl of Northesk

Unfortunately, I am not in a position to confirm that because my noble friend Lady Byford did not tell me precisely what was the thrust of her amendment on that particular point.

Baroness Hollis of Heigham

Perhaps I can help the noble Earl. The department is proposing a 30-day limit. That is absolutely standard. The amendment seeks 30 working days. The hinge was on the word "working", which would allow extra time.

I accept most of the noble Earl's argument. Obviously, the time starts clicking-in only after informal inquiries have pursued information on the claim form and so on. In the light of that, is the noble Earl content that there will be the 30 days he requested at the end of his speech?

The Earl of Northesk

I take the Minister's point. I obviously cannot speak for my noble friend Lady Byford, but no doubt she will read what the Minister has said. In the circumstances, I am quite happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham

moved Amendment No. 83: Page 9, line 40, at end insert— (3) The Board's power to decide the rate at which to award a tax credit includes power to decide to award it at a nil rate.

On Question, amendment agreed to.

Clause 14, as amended, agreed to.

Clause 15 [Revised provisional decisions after notifications]:

[Amendment No. 84 not moved.]

Clause 15 agreed to.

Clause 16 [Other revised provisional decisions]:

Baroness Hollis of Heigham

moved Amendment No. 85: Page 10, line 22, leave out "revoke" and insert "terminate The noble Baroness said: This comes into category two. I beg to move.

Lord Higgins

Following our extremely helpful discussion earlier, does this fall into one of the four categories that were mentioned, and if so, which one?

Baroness Hollis of Heigham

Number two. It says that awards are not revoked, but terminated.

On Question, amendment agreed to.

Baroness Hollis of Heigham

moved Amendment No. 86 Page 10, line 35, leave out "revoke" and insert "terminate On Question, amendment agreed to.

[Amendment No. 87 not moved.]

Clause 16, as amended, agreed to.

Clause 17 [Final decisions]:

Baroness Hollis of Heigham

moved Amendment No. 88: Page 10, line 42, leave out from beginning to "the" in line 46 and insert—

  1. "(a) for awards made on single claims, the Board must give a notice relating to the tax year to the person to whom the tax credit was awarded, and
  2. (b) for awards made on joint claims, the Board must give such a notice to the persons to whom the tax credit was awarded (with separate copies of the notice for each of them if'
The noble Baroness said: I shall defer to noble Lords on whether we call this redrafting or restructuring, but this is where we do the work of pulling out of Clause 17 all the references to decisions and put them into the new clause. We can see the effect on the provision as a result.

The clause simply deals with notices. No policy changes follow. It is simply a disentanglement of the substance of that clause into two clauses. I wonder whether I have said enough for noble Lords to be satisfied. I beg to move.

On Question, amendment agreed to.

Lord Saatchi

moved Amendment No. 89: Page II, line I, after "must" insert "not require the provision of information which is already in the possession of the Board. () Subject to this it must The noble Lord said: As with previous amendments, we are seeking to reduce the burden on businesses of providing information to the board. The amendment would do that by ensuring that the notice given by the board must, not require the provision of information which is already in the possession of the Board". The amendment assumes that if the Inland Revenue already possesses particular information about a person, it may not be necessary for it to be requested a second time. I do not know whether that is practical, but that is the thrust of the amendment.

Businesses, particularly small businesses, are subject to an excess of red tape and bureaucratic burdens of all kinds as it is. The amendment would help to relieve them of a very small part of that burden. I beg to move.

Baroness Hollis of Heigham

I sympathise with the amendment and I wish I could be more helpful. However, as the noble Lord, Lord Saatchi, has rightly identified, there are practical problems. The noble Earl, Lord Russell, says he has been doing his tax statement. As an ex-academic—decidedly ex in my case—I will not be able to complete my tax statement until the summer, because of the flows of different sorts of income, including book royalties, public lending rights and all the things that tend to come through at different times during the year, even though it refers to the preceding year.

It takes time for the income tax system to get all that information. Employers must return details of employees by 19th May and details of taxable benefits in kind by 6th July. In addition, there are many other forms of income, such as profits or the income of the self-employed, who may take time to drav, up their accounts. People such the noble Earl, Lord Russell, with a number of distinguished books to his record and his credit, will often get details of their royalties quite late, particularly if those royalties are coming back from the United States, for example.

The amendment would result in the suspension of the payment of tax credits from the beginning of the financial year until all the tax statements have been finalised. We do not believe that that is the correct thing to do and therefore it seems right that we should go for separate forms of information. However, I do not believe that that will impose any burdens on business.

Clause 17 is concerned with asking claimants to confirm details of their income and circumstances. I do not believe it will add to the employer's burden, hut it may take time for the Inland Revenue to co-ordinate all the information it has to hand other than PAYE systems. If we were to wait for that there would be periods of time in which some would not receive their payments. So I am afraid we are stuck. Though we sympathise with what the noble Lord is seeking to do, we cannot deliver it.

Earl Russell

Before the Minister sits down, I should like her to withdraw one phrase from what she said; that is, her description of herself as an "ex-academic". That is grossly premature.

Lord Higgins

I apologise to my noble friend Lord Saatchi for intervening on what is his amendment. It will become apparent why I am stimulated to do so in just a moment.

I am quite incapable of filling in my own tax return and in fact in 1973 refused to accept the whole system of self-assessment which the Inland Revenue then tried to persuade me to introduce as a Minister. It is a dreadful system. It puts all the onus on the taxpayer and it is deplorable.

To come to the point of the amendment, which may well be technically difficult, the thrust of my noble friend's argument is that the Revenue should not ask again for information which it already has. The reason why I am provoked to intervene at this stage is that a day or two ago a form P161 came to my attention, which the Inland Revenue had sent to someone. On the top of the form it had the tax reference and the national insurance number, yet proceeded to ask for an unbelievable amount of information which it surely must already hold; namely "What is your date of birth?", "What is your first name?" and so on.

It also asked, "If you are receiving, or about to receive a state pension enter details below". For goodness sake, the Revenue must know whether or not the person is receiving a state pension, or at least one hopes it does. Another question was, "What is the weekly amount of your state pension?". The Revenue must also know that.

I could go on. But I believe that Form P161 should be withdrawn forthwith to set an example to those in the Inland Revenue administering the tax credit system that they must not go on badgering people for information which they already have, and that if they only took a bit of time to sort out their computer system they would not have to trouble people in that way.

Baroness Hollis of Heigham

I say "Amen" to the whole of Whitehall sorting out its computer system! As somebody trying to integrate child support and income support computers, I am well aware of the problem.

To go back to the substance again, let me just say that a note sent to claimants under Clause 17 will set out all the details of the family circumstances and income that are currently held by the Inland Revenue. The claimant must then check the notice and if any of the details are incorrect or not up to date, the claimant must amend the notice and send the amendment back to the Inland Revenue within a specified time. If the details are correct, then the claimant need only confirm that and in some cases need do nothing else. The final award is based on details set out in the notice. Those details will also form the basis of the claim for the next year under the provisions of Clause 4 already discussed.

We cannot wait until the Inland Revenue has collected in all the assessment information and then use that as the basis for doing the tax credit award simply because other adjustments to income may need to be taken into account. Therefore, we are going to have to run the two systems in parallel in order to ensure that tax credits are in payment as soon as possible at the beginning of the financial year.

As for the concern of the noble Lord about self-assessment, I am dismayed. I felt that the new method of self-assessment was infinitely simpler than any preceding system once one had gone through the first year. As the person who organised that is now running the new Child Support Agency and the new assessment methods for that, I have high hopes indeed for its simplicity, transparency and workability. But of course the noble Lord, Lord Higgins, will not come within the remit of the Child Support Agency.

Lord Saatchi

One of the Minister's charms is that she is invariably deeply sympathetic with the amendments that we put forward but, on the other hand, is unable to support them. We look forward to the time when some of our amendments on these issues—which all seek to deal with the issue of complexity—receive a reaction a little warmer than sympathy. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendments Nos. 90 to 99: Page 11, line 9, leave out from "than" to end of line 13 and insert "income) affecting—

  1. (a) the entitlement of the person, or joint entitlement of the persons, to the tax credit, or
  2. (b) the amount of the tax credit to which he was entitled, or they were jointly entitled,
for the tax year.` Page 11, line 16, leave out "relevant income or estimated relevant" and insert "current year income or estimated current year Page 11, line 21, leave out "relevant income or estimated relevant" and insert "current year income or estimated current year Page 11, line 26, leave out from first "the" to second "income" and insert "current year income or his or their estimate of the current year Page 11, line 31, leave out subsection (6) and insert— (6) The notice may—
  1. (a) require that the person or persons must, by the date specified for the purposes of subsection (4), declare that the amount of the previous year income was the amount, or fell within the range, specified or comply with subsection (6A), or
  2. CWH 153
  3. (b) inform the person or persons that he or they will be treated as having declared in response to the notice that the amount of the previous year income was the amount, or fell within the range, specified unless, by that date, he complies or they comply with subsection (6A).
(6A) To comply with this subsection the person or persons must either—
  1. (a) state the previous year income, or
  2. (b) make the declaration specified in subsection (5)(b)."
Page 11, line 42, leave out from "to" to "income" in line 43 and insert "estimated current year income (or the range within which estimated current year Page 11, line 45, leave out "relevant" and insert "current year Page 11, line 46, leave out "relevant" and insert "current year Page 11, line 47, leave out "relevant" and insert "current year Page 12, line 1, leave out subsections (8) and (9).

On Question, amendments agreed to.

[Amendment No. 100 not moved.]

Baroness Hollis of Heigham

moved Amendments Nos. 101 to 103: Page 12, line 23, leave out "to that member Page l2, leave out line 25. Page 12, line 26, leave out subsection (12).

On Question, amendments agreed to.

Clause 17, as amended, agreed to.

Baroness Hollis of Heigham

moved Amendment No. 104: After Clause 17, insert the following new clause— "DECISIONS AFTER FINAL NOTICE (1) After giving a notice under section 17 the Board must decide—

  1. (a) whether the person was entitled, or the persons were jointly entitled, to the tax credit, and
  2. (b) if so, the amount of the tax credit to which he was entitled, or they were jointly entitled,
for the tax year. (2) But, subject to subsection (3), that decision must not be made before a declaration or statement has been made in response to the relevant provisions of the notice. (3) If a declaration or statement has not been made in response to the relevant provisions of the notice on or before the date specified for the purposes of section 17(4), that decision may be made after that date. (4) In subsections (2) and (3) "the relevant provisions of the notice" means—
  1. (a) the provision included in the notice by virtue of subsection (2) of section 17,
  2. (b) the provision included in the notice by virtue of subsection (4) of that section, and
  3. (c) any provision included in the notice by virtue of subsection (6) of that section.
(5) Where the Board make a decision under subsection (1) on or before the date referred to in subsection (3), they may revise it if a new declaration or statement is made on or before that date. (6) If the person or persons to whom a notice under section 17 is given is or are within paragraph (a) or (b) of subsection (7) of that section, the Board must decide again—
  1. (a) whether the person was entitled, or the persons were jointly entitled, to the tax credit, and
  2. (b) if so, the amount of the tax credit to which he was entitled, or they were jointly entitled,
for the tax year.
(7) But, subject to subsection (8), that decision must not be made before a statement has been made in response to the provision included in the notice by virtue of subsection (7) of section 17. (8) If a statement has not been made in response to the provision included in the notice by virtue of that subsection on or before the date specified for the purposes of that subsection, that decision may be made after that date. (9) Where the Board make a decision under subsection (6) on or before the date referred to in subsection (8), they may revise it if a new statement is made on or before that date. (10) Before exercising a function imposed or conferred on them by subsection (1), (5), (6) or (9), the Board may by notice require the person, or either or both of the persons, to whom the notice under section 17 was given to provide any further information or evidence which the Board consider they may need for exercising the function by the date specified in the notice. (11) Subject to sections 18 and 19 and regulations under section 20 (and to any revision under subsection (5) or (9) and any appeal)—
  1. (a) in a case in which a decision is made under subsection (6) in relation to a person or persons and a tax credit for a tax year, that decision, and
  2. (b) in any other case, the decision under subsection (1) in relation to a person or persons and a tax credit for a tax year,
is conclusive as to the entitlement of the person, or the joint entitlement of the persons, to the tax credit for the tax year and the amount of the tax credit to which he was entitled, or they were jointly entitled, for the tax year.
The noble Baroness said: This comes into category four of the four themes I proposed earlier, which is the separation of notices from decisions. This is the clause that lays out decisions. I beg to move.

Lord Higgins

As we have already agreed that this is related to the earlier amendments we discussed, I do not think there is any point in going over the same ground time and time again.

On Question, amendment agreed to.

Clause 18 [Power to enquire into awards]:

Baroness Hollis of Heigham

moved Amendment No. 105: Page 12, line 37, leave out from "into" to "if" in line 38 and insert—

  1. "(a) the entitlement of a person, or the joint entitlement of persons, to a tax credit for a tax year, and
  2. (b) the amount of the tax credit to which he was entitled, or they were jointly entitled, for the tax year,"
The noble Baroness said: Amendments Nos. 105, 106 and 108 to 122 are consequential on changes made to Clause 17, again dealing with the separation out of notices from decisions. I seek to incorporate them into the Bill. I beg to move.

On Question, amendment agreed to.

Baroness Hollis of Heigham

moved Amendment No. 106: Page 12, line 39, leave out ''to whom the award was made On Question, amendment agreed to.

[Amendment No. 107 not moved.]

Baroness Hollis of Heigham

moved Amendments Nos. 108 to 119: Page 13, line 1, leave out from "decide" to end of line 2 and insert—

  1. "(a) whether the person was entitled, or the persons were jointly entitled, to the tax credit, and
  2. (b) if so, the amount of the tax credit to which he was entitled, or they were jointly entitled,
for the tax year. Page 13, line 3, leave out "in the case of an award Page 13, line 4, leave out "17" and insert "(Decisions after final notice) Page 13, line 6, leave out "award is made" and insert "enquiry relates Page 13, line 13, leave out "17" and insert "(Decisions after final notice) Page 13, line 14, leave out from "decision" to "in" in line 15 and insert "must be made under subsection (6) of section (Decisions after final notice)" Page 13, line 15, leave out "period to which the award" and insert "tax year to which the enquiry Page 13, line 17, leave out "(6)" and insert "(1) Page 13, line 18, leave out "period" and insert "tax year Page 13, line 21, leave out "that section" and insert "section 17 Page 13, line 23, leave out "award" and insert "tax year Page 13, line 27, leave out "award" and insert "tax year

On Question, amendments agreed to.

5.15 p.m.

Baroness Hollis of Heigham

moved Amendment No. 120: Page 13, line 42, after "the" insert "General Commissioners or Special The noble Baroness said: I wish to move this separately because it addresses a different issue. It is not part of the technical groupings. The amendment concerns transitional arrangements for tax credit appeals. The main amendment in this grouping is Amendment No. 250, which provides the transitional arrangements for hearing tax credit appeals. Amendment No. 251 makes a consequential change to Clause 60, but obviously it is preceded by Amendment No. 120.

Tax credits are part of the tax system. It has always been our belief that it is right in principle for tax credit appeals to be heard in the same way as tax appeals. This has not changed and the Bill provides for it in Clauses 36 and 37. However, when the Bill was debated in another place, a number of concerns were raised about the current suitability of the General Commissioners to hear tax credit appeals brought by claimants. Those concerns did not relate to the dedication of the Commissioners, nor to the quality of their decisions, but tax credit claimants will form a new and, in many ways, very different client group for the General Commissioners, for reasons we have already discussed; namely, that approximately 90 per cent of them will be receiving moneys that form part of public expenditure. Therefore, the question whether the general commissioners currently have the necessary experience and training to deal effectively with tax credit appeals were legitimate and the Government

have carefully considered the matter. I should add that at the moment the appeals are dealt with within the social security system.

Both the Tax Law Review Committee and Sir Andrew Leggatt have identified the need to modernise the handling of tax appeals. The Lord Chancellor's Department is currently considering the options for modernisation and reform through an interdepartmental project, options to be worked out for consideration later this year. Those options will cover all aspects of the system and include such issues as appointments, training and administration—in other words, when the whole of the appeals system is integrated across different departments. The question remains, therefore, whether it would be appropriate to transfer the tax credit appeal to the tax commissioners in advance both of the reforms that are going on internally to the department and the Inland Revenue, and before final decisions have been made about the extent of the Leggatt review.

In the light of concerns raised in the other place and following extensive discussions between the Inland Revenue, the Department for Work and Pensions and the Lord Chancellor's Department, as well as with representative bodies from outside government, we propose that tax credit appeals by claimants should continue, as now, to be heard by the social security appeals service until those reforms are in place. The new clause introduced by Amendments Nos. 250 and 251 provides for such transitional arrangements of the new tax credit appeals from 2003. Only when reforms of the system for handling tax appeals are in place will tax credit appeals by claimants be transferred to the reformed system.

I should add that employer appeals remain unaffected by this amendment and will continue to be heard by the tax commissioners. We think that is right as it will enable employer appeals about PAYE, national insurance contributions and so forth to be heard by the same body. Here we are concerned with appeals by employees and other claimants.

I hope that, with that explanation, the Committee will be happy to continue the current arrangements for a further transitional period until both the internal reform or review or restructuring of the appeals system with the Inland Revenue is complete and wider Whitehall decisions have been made about the Leggatt review. I beg to move.

Lord Higgins

The interesting question is whether the transition arrangements will continue permanently. In effect, these proposed changes reflect the move away from the Department for Work and Pensions to the Treasury. As the Minister has rightly pointed out, considerable criticisms and reviews are taking place so far as the review system or the Treasury itself is concerned. The Bill will come into effect, so to speak, at the point the arrangement into which the system is being transferred is itself generally regarded as not being satisfactory.

The Minister referred to the general commissioners. It would be helpful if she would distinguish between the general and the special commissioners. I presume it does not involve the special commissioners as far the tax credit system is concerned.

The appropriate question here is this: given that 90 pet' cent of what we are dealing with here concerns payments of benefits, while in broad terms only 10 per cent could reasonably be regarded as a genuine tax credit—that is, a deduction against tax that would otherwise be paid—would it not be more appropriate not to have these transition arrangements and thus not eventually to shift the system on to the Inland Revenue system, which is already deficient and may well not be ideal when the review is completed? Should it not remain within the social security or work and pensions appeal systems rather than move to the Inland Revenue system?

In particular. I ask how much more rigorous—from the point of view of an individual who may be on low income and dealing normally with work and pensions—is it going to be for him to go to appeal to the special commissioners? The atmosphere is probably not as user friendly, since usually they deal with highly technical matters, as the existing appeals procedure for social security matters. Since there are others in the House who are far more expert on such matters than I am, and perhaps other colleagues, we shall probably need to return to this on the Floor of the House. If the noble Baroness will clarify the situation on those points at this stage it would be helpful.

Baroness Hollis of Heigham

I am not sure that I can help the noble Lord but I shall write to him about special and general commissioners. I dispute the assumption behind his remarks that 90 per cent of the payments are really benefits and therefore should remain with DWP in perpetuity. We are anxious that they should be regarded as part of the seamless way in which people move out of work; into work; they move up the income ladder; they may continue to receive just the family element for a large swathe of their income and then fall back again.

We are anxious that they should move and, given that the Inland Revenue is administering the whole of the tax credit range, it is right that, if at all possible, the administration of the appeals should also move over to the Inland Revenue. However, given that the Inland Revenue is in the process of reviewing its current structure of appeals and given that there are more profound questions about the integration of the appeals system across Whitehall, it seemed sensible to continue the current arrangements that apply to WFTC for at least a transitional period. How long that transitional period will be I cannot say, but I would expect them to come within the responsibility of the Inland Revenue as soon as those considerations have been resolved.

Lord Higgins

Is the end of the transitional period to be determined by positive or negative resolution?

Earl Russell

Before the Minister replies, I entirely agree with her about the inappropriateness of dividing it into 90 per cent benefit and 10 per cent tax, or vice versa. It reminds me of the times when people say that a child takes 90 per cent after his father and 10 per cent after his mother, or vice versa. It is the sort of thing that is only said during a quarrel and is usually regretted afterwards.

Baroness Hollis of Heigham

As on so many points in the Bill, I entirely agree with the noble Earl, Lord Russell. I cannot help the noble Lord, Lord Huggins, about how long the transitional period may be, but the changes would certainly be introduced by negative regulation.

Lord Higgins

So we would not automatically have a chance to debate them.

Baroness Hollis of Heigham

Noble Lords can choose to debate them if they so wish. All negative resolutions are in that sense available to your Lordships. This is not an uncommon transitional arrangement.

On Question, amendment agreed to.

Baroness Hollis of Heigham

moved Amendments Nos. 121 and 122: Page 13, line 46, leave out from beginning to "is" and insert "Where the entitlement of a person, or the joint entitlement of persons, to a tax credit for a tax year has been enquired into under this section, it Page 14, line 3, leave out from "a" to end of line 5 and insert "tax year is conclusive as to the entitlement of the person, or the joint entitlement of the persons, to the tax credit for the tax year and the amount of the tax credit to which he was entitled, or they were jointly entitled, for the tax year.

On Question, amendments agreed to.

Clause 18, as amended, agreed to.

Clause 19 [Decisions on discovery]:

Baroness Hollis of Heigham

moved Amendment No. 123: Page 14, line 9, leave out "an award of a tax credit made to him" and insert "his entitlement to a tax credit for a tax year The noble Baroness said: In moving Amendment No. 123, I shall speak also to Amendments Nos. 124 to 135. Again these are consequential technical changes to Clause 19. In other words, going back to my original schema, they are substantially about splits between decisions and notices. They also imply readjusting the terminology of "awards" and "entitlement". I hope that, with those assurances, the Committee will feel able to accept the amendments.

On Question, amendment agreed to.

Baroness Hollis of Heigham

moved Amendments Nos. 124 to 135: Page 14, line 10, leave out "amend or revoke the award" and insert "revise that decision Page 14, line 40, leave out "amendment or revocation" and insert "decision Page 14, line 41, leave out "correctness of the award" and insert "person's entitlement Page 14, line 46, leave out from first "to" to "is" in line 47 and insert "the entitlement of a person, or the joint entitlement of persons, to a tax credit for a tax year Page 15, line 1, leave out from "on" to end of line 4 and insert "the part of the person, or of either of the persons, or on the part of any person acting for him, or either of them, Page 15, line 5, leave out "amend or revoke the award" and insert "revise that decision Page 15, line 6, leave out "amendment or revocation" and insert "decision Page 15, line 7, leave out "correctness of the award" and insert "entitlement, or joint entitlement, Page 15, line 10, leave out "award" and insert "conclusive decision Page 15, line 11, leave out "an award" and insert "the entitlement of a person, or joint entitlement of persons, to a tax credit for a tax year Page 15, line 12, leave out "17(6) or (8)" and insert "(Decisions after final notice)(1), (5), (6) or (9) Page 15, line 19, leave out from third "a" to end of line 21 and insert "tax year is conclusive as to the entitlement of the person, or the joint entitlement of the persons, to the tax credit for the tax year and the amount of the tax credit to which he was entitled, or they were jointly entitled, for the tax year.

On Question, amendments agreed to.

Clause 19, as amended, agreed to.

Clause 20 [Decisions subject to official error]:

Baroness Hollis of Heigham

moved Amendment No. 136: Page 15, line 24, leave out "17(6) or (8)" and insert "(Decisions after final notice)(1), (5), (6) or (9) The noble Baroness said: This is a technical amendment which refers directly to the separation of decisions and notices. I beg to move.

On Question, amendment agreed to.

5.30 p.m.

Lord Freeman

moved Amendment No. 137: Page 15, line 26, at end insert ", provided that the effect of the regulations shall not be more restrictive than would be the case if Extra-statutory Concession Al9 were to apply The noble Lord said: There has been a great deal of running between legislative wickets over the last few minutes. Perhaps I can deal with something that is not a technical point and pause for breath.

As the Minister will appreciate, Clause 20 is unique in the sense that in tax law there is no reference to an official error and therefore some tax history will be written if we pass this Bill.

There is a clash of two cultures here. As the Minister will understand better than most, in social security legislation the regulations deal with detail, almost exhaustively. In tax law, the extra-statutory concessions amount in total to several Finance Bills put together. They are not submitted to Parliament. They may be commented upon but they do not pass through Parliament.

Perhaps I may give the noble Earl, Lord Russell, an example of an extra-statutory concession which he will not find written down in regulations. When he is completing the tax return to which he referred earlier, is he allowed to deduct the bus fares from Parliament, one place of work, to his publisher, another place of work, and offset the bus fares against the royalty income for the preceding year?

Baroness Hollis of Heigham

If he is self-employed, yes. If he is not self-employed, certainly not.

Lord Freeman

The Minister is providing free advice, but I can assure you that she will not find that in regulations. It is in fact in an extra-statutory concession. The point of principle is how shall we draft the regulations under Clause 20? I have not seen a draft of these yet. Will we follow the social security model? That is contained in Regulation 1999/991, the Social Security and Child Support (Decisions and Appeals) Regulations. Or will we follow the Inland Revenue practice, where the relevant extra-statutory concession is A19? That sounds like a road, but that is in fact the definition of official error. It describes in what circumstances and how it is to benefit the claimant.

I make a plea to the Minister that we should follow the extra-statutory procedure. That is the purpose of the amendment. In other words, I would not like to see the regulations be more restrictive than can be found in the extra-statutory concession A19. I beg to move.

Earl Russell

These Inland Revenue regulations are not totally uncontrolled. Every now and then they suffer from the intervention of the courts. The noble Lord may recall the case of Inland Revenue v.Woolwich Building Societywhere the Inland Revenue's demands were quashed by the House of Lords, in the person of the noble and learned Lord, Lord Goff of Chieveley, who said that some might argue that the regulation might be left to Parliament to alter, but since caution—otherwise known as the Treasury—would never permit it, the court would do it itself. So far as I know, that has been left to stand. Let us not leave in anybody's mind the idea that the Inland Revenue has this power without any control being exercised over it.

Baroness Hollis of Heigham

This is an extremely interesting amendment and I am grateful to the noble Lord, Lord Freeman, for his explanation of it. As he pointed out, ESC A 19 provides, for example, that arrears of income tax or capital gains tax may be given up if they result from the Inland Revenue's own failure to make proper and timely use of information given by the taxpayer and employer, or, where taxable social security benefits are concerned, the Department for Work and Pensions. Tax will only normally be given up where the taxpayer could reasonably have believed that his affairs were in order and had been notified of arrears of tax more than 12 months after the end of the tax year in which the Inland Revenue had received information showing that more tax was due. This concession also provides for over-repayments of tax by the Inland Revenue to be given up in broadly similar circumstances.

That may be appropriate, but I am not persuaded that ESC A19 provides an appropriate basis for imposing conditions on the Inland Revenue in cases of official error made when considering tax credit claims. ESC Al9 deals with waivers of tax that strictly, in law, remain due. It is no more than an extension of the Inland Revenue's long standing practice of remitting tax in cases where payment of tax arrears is likely to cause hardship and is part of the Inland Revenue's care and management of the tax system. However, we are still talking about legally due tax.

In contrast, Clause 20 is concerned with payment of tax credits which are properly due to the claimant but which, because of official error, have not been made. The Clause makes clear that any decisions in such cases are to be revised in favour of the claimant. It is also worth noting that if an overpayment of tax credits arose because of an administrative mistake, the Inland Revenue would not seek to recover the overpayment in the interests of fairness to the claimant.

I defer to the noble Lord on this, but his amendment might be more appropriate in Clause 27, which deals with overpayments of tax credit. On that basis, we would he prepared to accept in principle that the conditions governing overpayments of tax credits should not be more restrictive than those contained in the concessions dealing with waiving arrears or incorrect repayments of tax. I wonder whether, with that, the noble Lord is content.

I hope that the noble Lord would not want to put this on the face of the Bill. The noble Earl, Lord Russell might be concerned about that as well, because it would effectively permit Henry VIII-type activity, with regulations subsequently overturning primary legislation. Worse than that, it would be possible not just to change primary legislation through secondary legislation, but to change primary legislation with circular. In other words, it would not have to come back to the House at all. Given the procedural points and the restrictive nature of the substance on Clause 20, I hope the noble Lord will not wish to return t o that issue. However, he might wish to accept that we are willing to move to some extent on Clause 27, where his proposals might be more appropriately targeted.

The noble Lord also asked which system of official error we would follow. The answer is neither. The regulations will need to reflect the structure of the system as set out in this Bill. However, the approach shall not be more restrictive than ESC A19, which is the Inland Revenue approach. This was the reassurance he was asking for.

Lord Northbrook

Do I understand the noble Baroness to say that if there were an overpayment, in no circumstances would there be an attempt to recover that overpayment in the interests of equity for the taxpayer?

Baroness Hollis of Heigham

Yes, where it is an official error, but no further than that.

Lord Freeman

I am very grateful to the Minister. For the first 80 per cent of what she said, our two speaking notes seemed to be at variance, but I found the last part of her comments most helpful. I will study the record. Redirection to Clause 27 is probably right. The spirit in which the Minister answered the point is helpful and will reassure a great many people. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20, as amended, agreed to.

Clause 21 [Information etc. requirements: Supplementary]:

Baroness Hollis of Heigham

moved Amendment No. 138: Page 15, line 30, after "16(3)" insert ", (Decisions after final notice)(10) The noble Baroness said: Amendments Nos. 138 and 140 return to the fourth theme about the separation of decisions, initially from decisions consequential on the restructuring of Clause 17. With that very brief explanation, I hope that noble Lords will be happy to accept it.

On Question, amendment agreed to.

The Earl of Northesk

moved Amendment No. 139: Page 15, line 33, at end insert— provided that such manner and form must allow for the supplier of the information, evidence, declaration or statement to do so without recourse to electronic or telecommunication equipment The noble Earl said: On behalf of my noble friend Lady Byford, I beg to move Amendment No. 139. The purpose of the amendment is clear. It seeks to ensure that responses to Section 17 notices do not have to be communicated by electronic means.

The Government have no compunction about the possibility of using the benefit system to enforce behavioural outcomes that they believe to be desirable, as with the proposal of the Prime Minister to withhold child benefit from parents of unruly children. In a similar vein, it could be argued that the Bill advances the proposition that tax credit payments could be refused to enforce a specific commercial outcome. I do not doubt the benefits of IT in modern communication systems, but it is entirely credible that employers who calculate their wages and accounts by hand will be resistant to using, if I can put it this way, the newfangled technology. They may well not even have an accounts machine, let alone a computer. Accordingly, any hint of compulsion on them to communicate with the Revenue by such means is simply wrong. I beg to move.

Earl Russell

I should like to add my support to this amendment. A case with some parallels to this arose in the Chamber last Tuesday when the Government published the report of the Patients Information Advisory Group only in the form of publication on a website without any notice that they had done so. The Minister, generously, fully and freely admitted—under pressure—that this was an entirely unsatisfactory form of publication.

It should be remembered that we are in real danger, if we are not careful, of creating a new underclass of those who are incapable of using these electronic means of communication. Since we are considering a Bill which seeks to deal with poverty, quite a number of poor people will be involved in it. For that matter, it will also concern quite a number of employers engaged in small businesses—one thinks of sub-postmasters, among others—who may be at an economic level which is genuinely and properly classified as poor.

A considerable amount of capital equipment is needed for using these services which some people might have difficulty in paying for. I do not think they should be put at a fundamental disadvantage because they cannot acquire such equipment. In a party policy meeting, my honourable friend Mr Webb once proposed to classify all those without access to the Internet as poor. I told him that the definition would classify me as poor. "Yes", said Mr Webb, "information poor". I do not think we should make that condition compulsory.

Baroness Hollis of Heigham

I am slightly baffled by this. Perhaps it may be useful if I explain how we seek to produce information and see whether that allays the noble Earl's concern, because that was not how I understood the amendment. We have already talked about the claims process; in Clauses 3 and 4 we have already ensured that the process will allow claims to be made on paper. The claim form comes through and is filled in on paper. Where, in a minority of cases, people have on-line access to fill in the claim electronically, they can do so. If claimants or third parties such as appointees are called on to provide further information or evidence, they can do that electronically, by telephone or by correspondence. Equally, many may prefer face-to-face contact with officials who have been trained to help them. Thus, information can be provided in writing, by personal interview at the Inland Revenue inquiry centres, or indeed at the Jobcentre Plus.

Given that the process is informal—it starts off with a claim form; it may require further information solicited by telephone; it may then move on to a formal notice only if that fails—I am not sure of the push of this amendment. Certainly the expectation is that there will be informal requests for information. If they are not effective, formal requests for information and response by the claimant may be in any form the claimant wishes—by writing, telephoning, going online or by going for an interview. I do not know whether there is a dispute between us. I look to the noble Earl, Lord Northesk, for some help on this.

5.45 p.m.

The Earl of Northesk

I am grateful to the Minister. Part of the problem is that there is a tendency within government at the moment to over-hype the benefits of IT. In turn, the noble Earl, Lord Russell, put his finger on the point that the client groups of tax credits will not have access to IT methods of communication. Nonetheless, the Minister has reassured me that there are no intentions to make it the primary method of communication. On that basis, certainly at this stage, I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham

moved Amendment No. 140: Page 15, line 35, after "17" insert ", (Decisions after final notice)(10) On Question, amendment agreed to.

[Amendment No. 141 not moved.]

Clause 21, as amended, agreed to.

Clause 22 [Notice of decisions]:

Baroness Hollis of Heigham

moved Amendment No. 142: Page 15, line 37, leave out "17(6) or (8)" and insert "(Decisions after final notice) (1), (5), (6) or (9) The noble Baroness said: Amendment No. 142 goes back to the fourth category of themes running through the government amendments which is the separation between notices and decisions. I beg to move.

On Question, amendment agreed to.

Baroness Hollis of Heigham

moved Amendment No. 143: Page 15, line 41, at end insert— (3) Notice need not be given of a decision made under section 14(1) or (Decisions after final notice)(1) or (6) on the basis of declarations made or treated as made by the person or persons in response to the notice given to him or them under section 17 if—

  1. (a) that notice, or
  2. (b) in the case of a decision under subsection (6) of section (Decisions after final notice), that notice or the notice of the decision under subsection (1) of that section,
stated what the decision would be and the date on which it would be made. The noble Baroness said: Amendment No. 143, together with Amendment No. 210, are new amendments dealing with notices of decisions and the exercise of the right of appeal. This again is about information and comes from the same group of concerns about the fourth theme covered by the separation of Clause 17 into Clauses 17 and 17A. Again, I ask Members of the Committee to accept the amendment. I beg to move.

On Question, amendment agreed to.

Clause 22, as amended, agreed to.

Clause 23 [Payments]:

The Earl of Northesk

moved Amendment No. 144: Page 16, line 19, leave out "Subject to section 24, The noble Earl said: I beg to move Amendment No. 144 and, with the leave of the Committee, speak also to Amendments Nos. 149, 152, 157 and 159.

Amendment No. 149 deals with what I hope is a relatively narrow point. Whether or not payment of tax credits are filtered through employers, ultimately they have to be paid by the board. It could, therefore, be argued that the conditionality of the phrase "subject to Section 24" is redundant and should be deleted; hence the amendment.

Amendments Nos. 149 and 152, taken together, allow employers to recover the full economic costs they incur in making working tax credit payments through the wage packets.

Amendment No. 157 applies the same logic to the requirement of employers to provide tax credit information to their employees.

Amendment No. 159, in the name of my noble friends Lord Higgins and Lord Saatchi is supposed to be a little more sophisticated and more modest. It offers companies that have incurred a cost in administering tax credits through their payroll a discount of £10 per employee from their corporation tax liability.

As my noble friend Lord Saatchi said during our first day in Committee, we have given up on the notion that the Government might consider help for small businesses in these matters. Nonetheless, I make no apology for affording the Committee the chance to debate it further. During our first day's proceedings in Committee, the Minister asserted that the changes this Bill introduces over the existing tax credit system, with its accompanying savings of £11 million and its simplification and streamlining of procedures, have been warmly welcomed.

That may well be so. But as we all know, the Government's proposed arrangements for tax credits fall disproportionately upon small businesses. In respect of WFTC, fewer than 10 per cent of claimants paid through the wage packet worked for companies with fewer than five employees, and yet those self-same companies bear around a quarter of the annual administration costs.

What matters here is the context in which this imposition is being made. On the Government's own admission, in a Written Answer in another place from an employment Minister, business has been obliged to spend an extra £5 billion a year on red tape since new Labour came into office, with the burden once again falling disproportionately on small business.

Moreover the Budget's increases in national insurance contributions, insofar as they are a tax on employment, are far from benign. The cumulative effect of all these factors should not be underestimated. Such levels of bureaucracy, of which the administration of tax credits through the payroll is a significant part, stifle economic growth. As the CBI president, Sir lain Valiance, has said recently, Enough is enough. You cannot keep digging your hand into the business till without squandering the UK's advantage as a country in which to do business. Indeed, particularly in the small business sector, it is entirely credible that the Government's proposal will act as a barrier to further recruitment, in direct contradiction of the Chancellor's policy of encouraging people into employment.

There is also a point of principle here. There is a very real sense in which the businesses are unpaid national insurance, income tax and VAT collectors. The tax credit system has made them unpaid benefit agencies as well, and yet in light of the Performance and Innovation Unit's report Reforming the Public Services: Principles into Practice, such a proposition is wholly inconsistent with government thinking. I repeat the passage that I quoted earlier in our proceedings. The starting point must be that the public has a right … to income support, and that a is the duty of the Government to secure these rights on their behalf. The inference is that benefits, whether or not they are delivered in the form of tax credits, are wholly and exclusively the responsibility of the Government. Palming off their administration on to business is an abnegation of a public duty.

In sum, why should employers act without any recompense as the agents of the Treasury? Small employers especially, the great rising house of enterprise and hope for the future, simply cannot and should not be undermined in this fashion. I beg to move.

Earl Russell

In expressing a cautious sympathy with this group of amendments, I would not wish to be taken to be expressing sympathy with all the rhetoric with which the noble Earl, Lord Northesk, surrounds them, but I am sure he would not have expected that.

It has been a weakness of government for as long as governments have existed that they have wanted to get someone else to do their dirty work for them. The tendency to delegate the enforcement of government legislation to other people who are not the Government's appointed agent is very long-standing.

In one of the most extreme cases, Cardinal Wolsey thought to still the disturbance in the City by commanding all husbands to keep their wives indoors. Needless to say, the attempt was a failure. Such attempts often are. A similar debate has been had about carrier's liability on immigration. Any noble Lord who is a friend of British Airways will know all about that and will have heard about it very often.

The issue arose first in 1990 in the debates on the Education (Student Loans) Bill, which is, so far as I know, the only occasion on which the Government have conceded what the noble Earl, Lord Northesk is asking. They arranged for a payment to the universities for the costs of administering the Education (Student Loans) Bill. Since in my college that has meant the setting up of a separate office with a staff that must cost at least as much as one lecturer, or the books for six undergraduates to write their essays every year, it was extremely welcome.

I suspect the Minister might have rather more trouble with the words "full economic cost" in the proposal of the noble Earl, Lord Northesk, because the question of who is going to assess the full economic cost is bound to arise. Everybody is capable of putting their full economic costs down in a way that is either restrictive or expensive, and that is not necessarily a purely objective figure. I would not expect the Treasury to wish to accept somebody else's assessment of their full economic costs without any checking.

The solution that was reached in 1990 with the Education (Student Loans) Bill was a flat-rate payment, which, while it fell short of the full economic cost, made a very helpful contribution.

Having made those somewhat cautious remarks, I should like to address two amendments of my own, one of which, Amendment No. 154, is in this grouping. The other, Amendment No. 153, I ask to be considered with it if no Member of the Committee objects. The two amendments are consequential on each other and neither will make sense without the other.

As my honourable friend Mr Webb made very clear in the House of Commons, we think that the method of payment through the pay packet is itself an unsatisfactory method. We would like it in all cases to be paid direct to the carer, thus cutting the employer out of the business altogether. It is possible that the Opposition may feel sympathy with this proposal.

The only reason given by the Government for insisting on payment through the pay packet was to teach people the importance of work. However, I think that it is a lesson that most people do not need to be taught. However, since I have argued the case with the Minister so often, I will not elaborate it now. The effect of these two amendments will be to remove the word "may" in line 31 and replace it with "shall". It would cut out paragraph (a), which requires employers to make payments for working tax credits or prescribed elements of working tax credits, in accordance with notices given to them by the Board. It would have to say "shall" thereafter—it said "may" because there are two options. If one takes out one of the options and leaves only one, a "shall" must be attached to the remaining option, otherwise they would not have to pay any working tax credits at all. I am sure that that is not the Minister's intention, or mine or, indeed, that of anyone else. That is why these two amendments have to be taken together.

Bringing the employer into it has caused a great deal of trouble. That is not only because employers feel a sense of burden—as has my own employer—but also because it must be admitted that there are cases of employers failing to do justice to their employees. I have already mentioned that cases are known to the CAB of employers who dismiss employees for claiming working families' tax credit.

One does not want anyone to profit from crime. On the other hand, since it is an inefficient system which necessarily goes through people who are not trained in doing the particular business required, there are bound to be errors along the way. I hope that the Government will remember—I have made this point before so I shall not spend time on it—to pay attention to those employers who do not pay statutory sick pay, or who dismiss women as a result of pregnancy. Both are far too common and it appears that the penalties do not deter. In the spirit of balance, therefore, while taking the burden of paying working families' tax credit away from employers altogether, I should also like to see pressure put on employers to discharge those liabilities which they have. Whether they ought to have them is a question on which the noble Earl, Lord Northesk, might fruitfully engage me in discussion on another occasion. It is not for now.

Lord Northbrook

I support my noble friend's amendment. In the Tax Credits Act 1999 and accompanying regulations, along with the regulatory impact assessment of December 1999, table 3, page 10, the cost to employers of administering the WFTC shows a total figure of £105 million for recurrent costs, and £44 million for non-recurrent costs. By April 2003, when the WFTC will be replaced, the total cost to employers of administering the benefit will have been almost £0.4 billion, even on the Government's figures. This has fallen disproportionately on small businesses. Although fewer than 10 per cent of WFTC claimants paid through the wage packet work for companies with fewer than 5 employees, around a quarter of the annual administration costs relate to companies of this size".

6 p.m.

Lord McIntosh of Haringey

As one who took part in the discussions on this part of the Tax Credits Bill of 1999, I am very familiar with the arguments and I respect their origins. These appear clearly to reflect genuine concern by employers' organisations about the fact that working families' tax credit and now working tax credit are to be paid through employers. It is a familiar debate but it is entirely legitimate that we should have it again. But there are things that I have to say about the changes being made in the Bill which I hope will modify the already modified rapture with which the noble Lords opposite address these matters.

Let me start by agreeing with the noble Earl, Lord Northesk, about the implication of the various amendments in this group. Amendment No. 144 seeks to remove the board's power to make regulations requiring employers to pay tax credit to their employees. That is clearly the most fundamental of them all. Amendments Nos. 149 and 152 taken together would mean that the Government would have to reimburse employers for the full economic cost of paying tax credit through the payroll. The amendment of the noble Earl, Lord Russell, Amendment No. 154, would remove the provision for regulations to require employers to pay working tax credit to their employees in accordance with the start notices sent to them by the board. His Amendment No. 153, which he now wishes to have considered with this group of amendments, is designed to freeze the regulation-making power contained in this part of the Bill.

Returning to the amendments of the noble Earl, Lord Northesk, Amendment No. 157 would require the board to reimburse employers for the full cost of providing tax credit information to their employees. The noble Earl, Lord Russell has referred to the difficulties of that. Amendment No. 159 would enable employers paying tax credit through the payroll to deduct from their corporation tax liability the sum of £10 per employee in each tax year, or more if actual costs were higher. That goes back, in a sense, to the crudity of the concession that was made on student loans in 1990.

I have said that the arguments are familiar, but perhaps the changes that are being made in the Bill are less well known. The Committee is well aware of the Government's position on payment through employers, just as we are well aware that there are some who are prepared to be persuaded that we are right. Payment through the wage packet is a vital ingredient of reinforcing the message that work pays and of emphasising the rewards of work. With working tax credit, the message will be even stronger: working tax credit is what you get for working and there it is, in the wage packet, along with the rest.

Let me explain how the system will work and how the new scheme will differ from the present one. Employers will, when notified to do so by the Revenue, pay working tax credit to their employees through the payroll. They will not be required to assess the amount of tax credit to be paid. The Revenue will do this and will tell employers when to start paying tax credit and how much to pay, giving them at least 42 days' notice to adjust their payrolls. Employers will then pay the appropriate amount of tax credit on each subsequent pay day, showing the amount as a separate item on the employee's pay slip until either the employee leaves or the Revenue tells the employer to stop or to vary the amount.

Employers will fund the tax credit payments out of the PAYE tax, national insurance contributions and student loan deductions they are due to pay to the Revenue each month or quarter. If these amounts are not expected to he enough to cover the tax credit amounts to be paid, employers will be able to apply to the Revenue for advance funding. This issue of cash flow was considered in very great detail when we discussed the 1999 Bill. Employers will account to the Revenue for tax credit paid either monthly or quarterly and in their end of year returns.

We fully expect the vast majority of employers to carry out these tasks correctly and on time. Payment through employers has been in place since April 2000 and works well in the majority of cases. But it is clearly also vital to ensure that any fraud by employers is tackled effectively. So Clause 24 provides powers on the lines of the established measures for monitoring PAYE, national insurance contributions and the current tax credits to identify and put right noncompliance. Penalties will be charged for persistent non-compliance.

Before I leave that point, the noble Earl, Lord Russell, suggested that employers might be dismissing employees who are on tax credits. If they did that they would be acting illegally. The Bill includes provisions in Schedule 1 to protect employees. Not only that, since 2000 there has been no evidence of that happening on a large scale. No employees have yet approached an employment tribunal to complain about being dismissed on those grounds.

While this general framework is broadly familiar to many employers, I want to emphasise that there are four important ways in which the new scheme will be simpler for both employers and for claimants. Mao Tse-Tung had the four modernisations; I have the four simplifications, and those four simplifications are going to be the theme of debate over the next few groups of amendments.

First, claimants will not routinely have to ask their employers to verify their earnings. Because tax credit awards will normally be based initially on annual income for the previous year, people will already have the information necessary to make a claim; for example, on their P60 or self-assessment tax return.

Secondly, if an employee who is receiving working tax credit leaves, the employer will simply stop paying the tax credit. There will be no need for him to complete a certificate of payment, as happens now under working families' tax credit and disabled person's tax credit fixed awards where entitlement continues for six months even if the recipient stops working. If the employee remains entitled to working tax credit because he has another job, he will be responsible for telling the Revenue about the change of employer.

Thirdly, because the new tax credits will be awarded on an annual basis, there is no longer the six-monthly stops and starts which have proved to be a troublesome feature of the current system.

Fourthly, the application procedure for employers who need funding will be greatly simplified. Employers will apply at the beginning of each tax year and the Revenue system will adjust the funding amounts paid to an employer if there is a change in-year to the amount of tax credit the employer has to pay.

The noble Earl, Lord Northesk, referred to the amount of burden on business as estimated in the Regulatory Impact Assessment of 1999. Those figures are now at least two years old. A new Regulatory Impact Assessment is being prepared and will be available later this year. I can say now, 'without anticipating what the final figures will be, that the four simplifications I have been describing are expected to reduce the compliance cost to business by £11 million a year compared with the current system. 'That is quite apart from the savings to claimants, which are clearly an important part of the four simplifications. They have been welcomed by the CBI and others in their response to our consultation document.

In the light of that, and in the light of the fact that the use of employers to collect tax has been a part of our system not just since 2000 when working families' tax credit was introduced, but since the introduction of PAYE after the war, the Government are not willing to concede on the principle of payment of tax credits through the employer. However, I hope it is clear that we have listened to what employers have had to say and in designing the new system we have looked for opportunities to simplify administration for employers. I hope it is clear from that that we cannot accept these amendments.

Earl Russell

For some reason I never thought of the noble Lord, Lord McIntosh of Haringey, as Don Quixote; but he has found a splendid windmill to go tilting at. All that about teaching people that work pays. My experience is that if work does pay there is no difficulty whatever in making people aware of the fact. In most areas, the difficulty is finding work for people to apply for. The latest research shows that the number of claimants has dropped most slowly in those areas where it is already largest. That is what I would have expected.

That takes rather more attention than this business of teaching people that work pays. The Bill will assist in ensuring that work pays, but that news will pass very rapidly indeed round the grapevine. It does not need this whole cumbersome mechanism of doing it all through the employer and putting it all into the pay packet in order to make it work. This is taking a hammer to crack a nut—and I do not think it will even crack the nut very effectively.

The noble Lord showed a little innocence of the ways of the world in what he said about the practices of unfair dismissal. Most of the cases that I have come to me through the National Association of Citizens Advice Bureaux, which is a reputable and reliable organisation—I have never met anyone who has denied that. I am sure that the noble Lord, Lord McIntosh of Haringey, knows very well the reason why people do not go to a tribunal. People who are dismissed are usually employed for less than 12 months, or are on a short-term contract, or have the sort of employer who follows the practice of dismissing them just short of 12 months and then re-employing them on a new contract a week later, thus destroying their continuity of service. Under those circumstances, no claim can be made for unfair dismissal. I am sure that the noble Lord knows this as well as I do. The fact that no cases have gone to an employment tribunal is not nearly as impressive as he would wish it to be.

If the noble Baroness, Lady Hollis, consulted her officials, she would find records of a time when the noble Viscount, Lord Astor, was a Minister, when I took a deputation to see him about dismissals as a result of statutory sick pay. He was perfectly aware of the extent of the problem. The situation has improved somewhat since then, but it has not stopped. In fact I am aware of a case at this very moment—aware as of personal knowledge and not through any third party.

I must ask the noble Lord, Lord McIntosh, not to hide behind these beautiful official phrases, but to look at the world as it actually is, as I know he is capable of doing. Meanwhile, I am sorry to hear him take so intransigent an attitude to these amendments, but I cannot cast him as both Don Quixote and King Canute in the same speech, so I will not try.

Lord McIntosh of Haringey

If the noble Earl, Lord Northesk, is going to reply in general, then I should reply specifically to the noble Lord, Lord Russell. In a sense, he has replied to himself, because he criticised me for using the phrase "teaching people that work pays" but he acknowledged—and this is surely far more important—that we are making work pay. That is exactly the effect of tax credits. The fact that tax credits are paid in the same way as income tax and PAYE are received, through the Inland Revenue, is a simplification rather than a complication. Surely we should be much more concerned with the reality than with the teaching. If I allowed myself to be more impressed by the teaching, by the lesson, than by the reality, then I apologise, because this is an area with which the noble Earl, Lord Russell, is much more familiar than I am.

The reality is that people are in jobs because it is worth their while because of tax credit, whereas it was not worth their while before. That is to the benefit of the people concerned and it is also to the benefit of employers, because it increases the pool of suitable labour from which they have to draw to make appointments to jobs. On that basis alone, the benefit to employers well justifies what is in fact the simplest way of making these payments.

As to the illegality of dismissing employees who are on tax credits, there are many illegitimate and illegal reasons why employers want to dismiss employees. No doubt that the noble Earl, Lord Russell, is right to point out that certain employers use the 12-month cutoff in a way intended to frustrate employment rights.

However, I find it a curious to think that the very fact that somebody is on a tax credit should be a significant reason for dismissal. It cannot be because the employer is concerned that his employee has such a low income that he is entitled to tax credit because, of course, it is the responsibility of the employer as to how much he pays. Also, it cannot be that there is any public discredit on someone entitled to tax credit because none of these matters are made public.

I do know the reality of citizens advice bureaux; my sister works for one. I am not at all innocent about these matters, but it seems to me prima facie that it is difficult to believe that this would be an important one of the many illegitimate reasons why employers would seek to dismiss employees.

6.15 p.m.

Earl Russell

If the Minister will permit me, he has heard the speech made by the noble Earl, Lord Northesk. He has heard from that how a number of employers feel about this obligation being placed upon them. Does he not find it a conceivable consequence—I am sure one as little desired by the noble Earl as by myself—that employers, feeling so cross about it, might occasionally take it out on their more powerless employees rather than on the Government?

On the question of making work pay, the point between us is simply this: is it essential for people to learn what we both agree we want them to learn; that the money should come to them through the pay packet? Neither I nor my honourable friend, Mr Webb, is in any way persuaded of this point.

Lord McIntosh of Haringey

The noble Earl, Lord Russell, thinks employers are more spiteful and irrational than I do. There are some spiteful and irrational employers, but I do not believe anybody thinks they are in the majority. He also ignores the fact that Schedule 1 to the Bill improves on the 1999 Act specifically on the point about which he is concerned. The schedule provides that an employee, for the purpose of the Bill, is one who receives tax credit through the employer. All those who receive working tax credit will have protection under the Bill.

Lord Saatchi

Does the Minister agree that employers vary in levels of spite and they also vary in levels of profit? If I understand correctly the procedure he has described, in the case of a company which is breaking even or losing money and therefore does not have, as he said, the cash flow to meet the obligation to pay tax credit, that is the situation where employers will be able to claim a payment in advance from the Inland Revenue to enable them to meet their obligation to pay the tax credit. That may sound bizarre but it is, I believe, the result of the deliberations described by the Minister.

Because a great deal of attention has been paid to this strange anomaly, could he say what is the amount that the Government will pay to loss-making companies or companies which otherwise do not have sufficient cash flow to enable them to meet the obligation to pay tax credits?

Lord McIntosh of Haringey

The business that I ran for many years was much more marginal and loss-making than the business of the noble Lord, Lord Saatchi—unfortunately for me—so I am much closer to this issue than he. However, there is no problem with regard to payment. There is no problem of money causing a loss in a business's accounts because of tax credit because every single penny paid out in tax credit is to be reimbursed by the Inland Revenue. Most of itarid I am still searching for a proportion if anyone can find one for me—does not involve any expenditure by the employer at all. In other words, most of it is simply netted off against PAYE and national insurance contributions and, indeed, student loan payments. So there is no change there. As the noble Lord, Lord Saatchi, recognises, there is a proportion of employers who do not have enough PAYE contributions or national insurance contributions to pay their tax credit. In those cases, it is funded in advance on application to the Inland Revenue. The figure for that for 2000–01, which is the most recent that I have, is about £80 million.

Earl Russell

The Minister is again not paying attention to the problem of cash flow. When one needs to pay and then get reimbursed, there is a period of time which elapses during which one may need to borrow the money and pay interest on it. When I consider the generosity of people who pay expenses for the journeys that I make to speak to them and so on, I consider it as much in terms of time as I do in terms of any thing else. During recessions, interest rates tend to be rather high. This is something we should not forget.

Lord McIntosh of Haringey

That intervention is inaccurate. The reimbursement is in advance. When a notice has been given of liability to pay tax credits, there is a 42-day period before the payments have to start to be made. There is plenty of time for the application to be made to the Inland Revenue; there is plenty of time for the money to be received from the Inland Revenue before the payment is made; there is no adverse effect on cash flow from the funding of any shortfall.

There is of course a reduction in the positive cash flow which results from employers receiving from employees money which they have subsequently to pay out to the Revenue for national insurance and PAYE. That is true. As any of us who have run a payroll will know, for 40 or 50 years there has been a positive cash flow from the Revenue to employers as a result of PAYE and national insurance contributions. That is to some extent reduced by the provisions for tax credit. But, if I were in the shoes of noble Lords opposite, that is not a point of principle that I would wish to pursue too keenly.

Lord Saatchi

The Minister will concede that if a man from Mars were to land on Earth and he had to explain to the alien visitor that the Government first intend to cause companies to pay them tax and then invite the company to claim an advance payment to enable it to pay tax credits to its employees, he would have some difficulty explaining that logic?

Lord McIntosh of Haringey

No more than I would have difficulty in explaining the positive effect on employers' cash flow of PAYE and national insurance contributions. It is a very economical and sensible way of paying credit and it recognises what credits are—which is an incentive for people to go hack to work.

Earl Russell

Has any calculation ever been made of the advantage to employers of receiving the money in advance, to which the noble Lord, Lord McIntosh, drew my attention, weighed against the cost of the Inland Revenue administering PAYE or tax credits? If such a calculation has not been made, how far can the Government rely on it as a justification of the argument for not doing anything to meet businesses' expenses?

Lord McIntosh of Haringey

The calculation has been made but the noble Earl, Lord Russell, has discounted it already in his first remarks on this amendment when he reminded the Committee of how difficult it is to assess the true economic cost . Yes, over the years, of course there have been estimates made—some of them by employer organisations, some of them by Government—of the cost of PAYE and the re levance to that of the positive cash-flow element. As someone who ran a payroll for 30 years, I can only judge from my personal experience, which is not. to be relied on. There has to be a payroll anyway. The cost of adding to a payroll the PAYE and national insurance contribution element—and now the tax credit element—is a minor part of total payroll costs, and total payroll costs are a minor part of any company's obligations.

The Earl of Northesk

Notwithstanding that we all knew what the Minister's substantive response was going to be before he delivered it, this has been a useful debate.

As my noble friend Lord Saatchi pointed out during an earlier amendment, there is some satisfaction in being afforded warm sympathy for the thrust of our thinking. The only trouble is that it does not result in a translation of that sympathy into changes on the face of the Bill. Our overtures are still rejected.

I understand the point the Minister makes about reinforcing the message that work pays, but this should not in any way obscure the sense in which the Revenue have a duty of care—almost a moral obligation to claimants—which necessarily implies that it should have direct responsibility for paying the tax credits itself.

I am also a little surprised by the Minister's references to the "age" of my figures. I will have to read Hansard closely on that point. As to my rhetoric, I should say to the Minister that I am quite happy to take a mild slap on the wrist from the noble Earl, Lord Russell, in good part, but I am also bound to say that my rhetorical skills will never reach the heady heights of the noble Earl. Albeit the Minister suggested that the noble Earl's argument discounted the point about the full economic cost, during the debate on the first day in Grand Committee, as I understood it, the Minister effectively intimated that such a calculation of the economic cost is certainly not beyond the wit of the Treasury.

I have no doubt that we will return to this subject at Report stage. This has been a reasonably useful debate but, for the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.30 p.m.

The Earl of Northesk moved Amendment No. 145: Page 16, line 21, at end insert "provided that the prescribed method of payment shall include, in cases where payees are unable to obtain bank facilities or have had them withdrawn, credit documents cashable at post offices The noble Earl said: In moving Amendment No. 145, I shall speak also to Amendment No. 146. In one sense, at least, I am sure the amendments need no introduction. They are the so-called "Post Office" amendments.

For the last two years or so the argument has raged over the payment of benefits through sub-post offices. My noble friend Lady Byford has raised the matter at every available opportunity and I pay fulsome tribute to her for so doing. Her substantive concerns are the numbers of people who cannot receive benefit via any other method and the problems and difficulties that those who will never qualify for any kind of bank account will face.

The Government have tended to view the matter in terms of percentages. For example, in her reply at Second Reading, the Minister stated that 50 per cent of the rural post offices that closed last year had fewer than 70 customers per week. So be it. But, for the sake of argument, 50 per cent of 547 is 270, at an average of, say, 50 customers. That equates to 13,500 customers every week who now have to travel further to gain access to post office services.

There is a fundamental point of principle here. In previous amendments, we have sought to highlight the Government's acknowledgement that, in respect of income support, they have a duty of care towards legitimate claimants. In other words, the system of tax credits should operate for the convenience of claimants and not for the Inland Revenue. Accordingly, where services from post offices include encashment of pensions, child welfare payments or any kind of emergency social security funds, it is beyond the pale that a single customer, let alone 13,500, should be put to the inconvenience of having to travel further than they do already.

As far as qualifying for a bank account is concerned, as recently as April this year the National Association of Citizens Advice Bureaux has reported the following problems: in respect of the Bank of Scotland, only head office decides on new accounts, with the process taking three weeks; the Yorkshire Bank uses credit scoring and requires six months' pay slips and bank statements to open an account—an extraordinary state of affairs when one is trying to open a new bank account at the Government's behest; Barclays Bank also requires several pay slips and bank statements; the Woolwich interviews the applicant and then sends the application to head office for credit scoring.

Bluntly, if an individual does not have enough money to live on and the tax credit is their only means of keeping afloat financially, a wait of several weeks to obtain a bank account, only to be told that they are not creditworthy, is counter-productive. It runs against the grain of the Government's stated policy aims. Applicants in need who wish to do so should be able to draw their money in the form of a giro and go to their local Post Office for the equivalent in cash. For claimants to be subjected to a wait for the board to set up a document process and a further wait for a bank to agree to open an account for them is unhelpful and needlessly bureaucratic. It also risks undermining the worthy intentions of the Bill by leaving claimants without funds to live on while they wait for this process to run its course. I beg to move.

Earl Russell

The noble Lord, Lord Peston, in the days when he was in opposition, used to say it was a central principle of government policy that, "it will be all right on the night". I do not think that is a party matter; it is a characteristic of government of any complexion. The Minister is certain to tell us—whichever Minister it may be—that all these amendments are entirely unnecessary since the universal bank will be up and running long before this Bill comes into operation.

I am sure that whichever Minister says that will believe it from the bottom of his or her heart. I listened to the noble Baroness, Lady Hollis of Heigham, telling us when the CSA was going to be up and running. I am sure she believed that from the bottom of her heart and said it in all sincerity and any failure of it to happen is no fault of hers. However, things go wrong from time to time. The noble Earl, Lord Northesk, was entirely to the point in saying that what really matters is that if these arrangements break down, and if for any reason this Bill comes into force before the universal bank is up and running, people are going to be left with no benefits and with nothing to eat.

That is a prospect of which, as Members of the Committee know, I take a very dim view indeed. Leaving people with no food, or able to get food only by sleeping—as in one case I have come across—on bare boards, in the dark, with no heat, because the electricity was cut off a long time ago and they have no chance of getting any more, is not acceptable. Saying that it affects only a few people does not make i t more acceptable. If it were to happen at the other end of the earth, there might be collections for it, but if it happens in a place such as R hyl in North Wales, which is the last place where I heard of it happening, nobody seems to do anything about it. I am not happy about that.

When we have government in conjunction with information technology, we seem to have a catalogue of accidents. According to a government press release of 29th March, the firm EDS—Electronic Data Services—is involved in developing the card accounts that will be available at post office branches. EDS will undertake production of the account card, account administration and account inquiries. In the company's words: EDS enjoys strategic partnerships with the Department for Work and Pensions, Inland Revenue and other government departments to help them modernising government". I am sure the Minister remembers the first Child Support Act 1991 and the chaos into which it ran when it came into operation. That was very largely the doing of EDS which had supplied the computer equipment, based on the model they had supplied to the St ate of Florida, which then went to court. One of the lawyers in the case remarked: "The state asked for the moon and was given a crater".

I am truly very surprised by the Government's continuing trust in EDS computer services. They have got it wrong before and the thought that they might get it wrong again is by no means unimaginable. I am asking the Government not to assume that they will, but simply to accept a necessary piece of precaution. As the noble Lord, Lord Rix, once said, when he was told that one of his amendments was unnecessary, "I am no lawyer, but this is a matter of belt and braces and", he went on, "this is something of which I do have professional knowledge".

My knowledge of that subject is not professional but it is nonetheless heartfelt.

Baroness Hollis of Heigham

I could, but I am sure that Members of the Committee would not wish me to, describe the payment methods that the Government expect to be in place over the next couple of years. Those range from facilities of direct banking through to ATMs, to the Link system, to the universal bank, to "card account at post offices", and other forms of electronic transmission. However, we do not need to go back into that. I can simply give Members of the Committee the reassurance that they seek tonight.

The Prime Minister has made it clear that cash, including benefits and tax credits, will be available and paid out at post offices. I am sure Members of the Committee do not want me to go into a lengthy discussion about post office closures. Equally, in another place, my right honourable friend the Postmaster General has said that the requirement to receive payment into a suitable account—be it a bank account, the universal bank, the CAPO system or whatever—will not he introduced until such time as the necessary facilities are in place. It cannot happen that way around. Why would it? Why should it? How could it?

I could spend a great deal of time describing the payment methods being proposed. I could say a good deal about the situation facing post offices and we could extend the discussion for perhaps 20 minutes. However, all of this discussion has been based on the presumption that ACT will go ahead in advance, possibly, of any security or efficacy of testing. A situation could then arise in which claimants would fail to receive their money. That cannot happen. I hope that with that assurance—an assurance already given by my noble friend the Paymaster General in the other House—that the amendments will be withdrawn tonight.

Earl Russell

Will the Minister be prepared to write the Prime Minister's reassurances into the Bill?

Baroness Hollis of Heigham

No, it is not appropriate. The point is that this will not come into place until the payment methods are available and appropriate. The Prime Minister made it clear in Questions in the House that individuals will be able to receive their benefits or their tax credits in cash at post offices. What form it comes to the post offices in—for example, via their bank account, the universal bank, the CAPO system or whatever—will be subsequently determined in discussions with the individual claimants. The point is that they will be able to withdraw their cash, if necessary he said, on a weekly basis. They will be able to do so without charge at their local post office. That remains the situation and there can be no reneging on that commitment.

All the debate this afternoon therefore has been based on false premises. There is clearly argument about whether the traditional, very expensive and vulnerable to fraud order book method of payment that post offices and sub-postmasters hold dear to their hearts should continue. However, cash will be available to claimants and the old system will not be abolished until the new system is in place. I hope that gives Members of the Committee the assurances they seek.

Lord Northbrook

Can I ask the Minister to comment on the concern of the noble Earl, Lord Russell, about EDS? Are the systems it is now using satisfactory?

Baroness Hollis of Heigham

I cannot comment because, first, it would be quite improper for me or anyone in this Chamber to comment on the commercial viability or otherwise of EDS and its schemes and proposals. What matters is that there will be no move to the new system until it can securely deliver the cash payments. We are not offering a single system. This may be where the analogy with the CSA breaks down. There will be bank accounts, the Link machines, ATM payments, the universal bank and card accounts at post offices. Ultimately, if it is necessary, there could be a version of giro systems triggered by electronic cash transmission. There will be a multiplicity of ways for the money to come to the Post Office according to what is most convenient and according to the facilities the Post Office itself enters into in discussion with the banks. The point is that cash will be available, without charge, based on benefits or based on tax credits, in the local post office for people, as it is now.

The Earl of Northesk

I thank the Minister for her comments. On balance we may well attempt, between now and Report, to draft the amendment that she has recommended me so to do.

Baroness Hollis of Heigham

I did not. That is a heresy. Far be it from me to invite anyone—apart from Government Ministers, of course—to amend a government Bill.

The Earl of Northesk

I should make one point. This is not an issue only about whether claimants are going to get their money. The other point at issue is whether claimants are going to get their money in a way that suits them and without being obliged to travel further to get it. Fundamentally, what is important here is that the method of payment should be a matter of choice for the claimant, not for the Government or the Revenue.

Baroness Hollis of Heigham

Does the noble Earl think he has the right to say that, if he uses a bank, or any bank in particular, that he can determine its location? I do not want to argue the point, but I will do so if noble Lords wish it. Indeed, I would be happy to do so because we have gone over this territory several times on the Floor of the House. The noble Earl cannot say that a claimant in a rural village, where perhaps 10 or 20 people a week use the rural post office, has an inalienable human right to have that post office continue to deliver a service at £1.41 per transaction instead of the one pence or so by ACT, together with the fact that it is vulnerable to fraud and so forth.

That is particularly the case when 85 per cent of people in rural parishes live within two miles of a rural post office; the average distance is 1.23 miles. In urban areas, 90 per cent of the population on average live under half a mile from at least two post offices. One is not entitled to have a post office sited exactly where physically one wants it to be. That money will be available at post offices has been made clear; that it will be available in a form that is appropriate and acceptable to the claimant is clear; but where those post offices are sited remains with the claimant. If they use them sufficiently, then those post offices will survive.

Earl Russell

I do not think anybody has been talking about natural rights, but there is a legal right to a universal service, which was repeated in the Chamber by the noble Lord, Lord Sainsbury of Turville, as recently as 30th April last. It is with that right that we are concerned.

Baroness Hollis of Heigham

The Bill is not concerned with the location of post offices.

The Earl of Northesk

I take the noble Baroness's point. In response I would refer her to the passage from the report of the Performance and Innovation Unit. I do not seek to make a meal of it at this stage. As the noble Baroness said, these arguments have been well rehearsed before. I respectfully suggest that they are really the province of my noble friend Lady Byford rather than myself. I would probably find myself getting into deep water by exchanging too many views about it. I have no doubt we will return to thi—almost on the recommendation of the noble Baroness—with another form of amendment, on Report. In the meantime, I am content to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 146 to 148 not moved.]

Clause 23 agreed to.

6.45 p.m.

Lord Higgins

moved Amendment No. 148A: After Clause 23, insert the following new clause— "REVIEW OF PAYMENT ARRANGEMENTS (1) Not later than two years from the commencement of the Board's responsibilities for payments under Part I of this Bill, the Board shall review in conjunction with the Department of Work and Pensions, and shall publish for consultation a report on the effectiveness of the payment arrangements, particularly insofar as these relate to persons whose tax credit status changed during the course of the tax year. (2) The Board's report shall draw attention to any change in entitlement conditions, including the capital and income rules, which would seem likely to ease any difficulties experienced in establishing entitlement and making payments. The noble Lord said: This amendment takes up points raised by the noble Lord, Lord Rix, at Second Reading. He spoke in response to representations he has received from MENCAP. I believe it takes the view that it would be appropriate for the Board of Inland Revenue to review the eligibility criteria for the disabled person's tax credit every two years and to make recommendations to the Secretary of State in the light of that review. The charity believes that such a formal system of monitoring will help the effectiveness and efficiency of the scheme. MENCAP also believes that the advantages of the scheme would be realised and the impact which it would have on encouraging people to work and so on, will depend on how far the separate tax and benefit systems and the employer's payroll system mesh together in a seamless way.

MENCAP believes that, particularly for people with learning disabilities and on very low or no incomes, the initial arrangements that we have here are to some extent a compromise; that it would be appropriate for the way in which the scheme is operating with regard to those people (who all Members of the Committee are anxious to ensure receive the benefits of the scheme which the Government propose) to be reviewed in the light of experience. If necessary the board could recommend any changes which might make the tax credits received by those who are disabled work more effectively.

Baroness Hollis of Heigham

I am a little taken aback because I had not realised that that was where the amendment was pushing us. I thought it had a different intent.

I wonder if I can give the noble Lord, Lord Higgins, the assurance he seeks. As he knows, we have quarterly reports on the effectiveness of DPTC. We certainly have regular reviews of its effectiveness. If, as a result of both the annual reports and the quarterly reports that are published and are widely available, its effectiveness, its take-up and the number of claimants give us cause for concern, we will clearly come back and review our proposals.

Obviously we will keep eligibility requirements under review. Going back to the debate, the noble Lord. Lord Rix, having failed to persuade myself on behalf of the Government that we should review the 16-hour rule, wanted some fall-back to see whether we could come back and look at the 16-hour rule in two years, time. That is not necessary.

There is no question but that the new tax credits, exactly like the old WFTC and DPTC, will be carefully and continuously reviewed and scrutinised. This is a flagship development by government to ensure that we give help to people to go into work, to tackle child poverty, and to integrate the methods of helping disabled people with that of helping non-disabled people. It is a flagship policy, and substantial amounts of public money properly lie behind that development of policy.

It will be continuously scrutinised, and if there is any area where the payment mechanisms, notice arrangements, decision procedures, appeals procedures or any of the like seem in any way to fall short of the standards we need to be delivered in order to get that money, we will be reviewing them and taking action.

I cannot go beyond that unless the noble Lord, Lord Higgins, can help me on any particular issue that he thinks may be especially appropriate to disabled people that the Government have so far failed properly to take on board.

Lord Higgins

No one doubts for one moment the Minister's good intentions in this regard. Clearly the outside body concerned felt that the Bill as it is now drafted left some possibility that the way in which the Minister wishes it to work would not necessarily be effective, and therefore there was a case for some form of review. No doubt it will read what the Minister has said between now and Report, and if it feels that more specific provision is required in the Bill itself, then it would be appropriate to pursue that matter at the later stages of the Bill.

I certainly feel, and I am sure that the noble Lord, Lord Rix—who will have an opportunity to speak on the Floor of the House—would feel that that is an appropriate way to proceed.

Having said that, we had a sympathetic response from the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 24 [Payments of working tax credit by employers]:

[Amendments Nos. 149 to 157 not moved]

The Earl of Northesk

moved Amendment No. 157A: Page 17, line 14, at end insert— () for the exclusion from subsection (1) of employers with fewer than 11 employees—

  1. (i) until they have suitable computerised payrolls (as may be prescribed in the Regulations), or
  2. (ii) until the Secretary of State has certified by notice to the employer that the Government programme on computerised payrolls has been fully implemented,
whichever is the sooner The noble Earl said: The Better Regulation Task Force has recently said that small firms can no longer cope with the imposition of regulations and laws. The Bill will add to those burdens in two significant respects. First, there is the duty to supply information when the board requests it; and, secondly, there is the duty to amend the payroll in order to pay the tax credit when the board so instructs. Small businesses, especially those liable to seasonal work and employing a high percentage of temporary workers, will find these duties particularly onerous and costly to carry out.

As the Minister and the Committee will be aware, the Carter review of payroll services for small firms was due to report by the end of September 2001. Presumably influenced by this, the Chancellor stated in his pre-Budget review that, There is a strong case also for cash help for small firms to bring their payroll and tax systems online". Indeed, as I understand it, the Budget announced a five- year programme and £250 of financial assistance to enable all small firms to file their annual returns electronically as part of a package of computerisation that would include payroll. That being so, there is a legitimate argument that until this programme is complete or small firms have suitable payroll systems up and running, the Bill should not apply to them. Hence the amendment. I beg to move.

Lord McIntosh of Haringey

This amendment would exempt employers who employ fewer than 11 people from paying tax credits unless they either have suitable computerised payroll systems or the move to universal electronic filing of employer returns has been completed.

The noble Earl, Lord Northesk, is quite right about the Carter report and about the provisions in the Finance Bill which is currently passing through another place. Clauses 132 and 133 of the Finance Bill 2000 provide that employers will be required to file their end of year returns electronically from the following tax years: 2004–05 for employers with 250 or more employees; 2005–06 for employers with 50 or more employees; and 2009–10 for employers with fewer than 50 employees. So the compulsory computerisation of payroll returns from the firms that would be covered by this amendment is some way off.

The amendment would provide a perverse incentive for small employers to continue with paper-based systems in order to avoid paying tax credits. That would not be desirable and it is probably not what the noble Earl, Lord Northesk, would wish. We do not know exactly how many small firms have computerised payroll systems because we do not require that information yet, but the likely effect of the amendment would be to eliminate about 1 million employers from the employer payment system, which is about 85 per cent of the total employer population.

One might think—the noble Earl, Lord Northesk, may think—that that is a desirable objective. But of course it is not the number of employers that matters; it is the number of employees who would be denied the opportunity to have their tax credits paid via the payroll. I will not go back over the arguments about its desirability or otherwise. We are firmly convinced that it is desirable, both in economic and social terms, for payments to be made via the payroll. Exempting small employers would be wholly inconsistent with our objectives in requiring employers to pay working tax credit to their employees with their pay.

One significant effect of the amendment would be to make things less certain for employees, especially those employed in a business whose workforce fluctuated regularly around the 11 employee mark so that they were sometimes receiving their working tax credit with their pay and sometimes receiving it directly from the Revenue. That would also be a problem for employers who would be engaged in negotiation with the Revenue about whether they should, or should not be, covered.

We have committed to making sure that the extra work involved in paying tax credits is kept to the minimum. We have been consulting employers continuously since May 1998 on the impact of the scheme on their payroll activities. I have already described the four great simplifications that we are making with the new tax credits. If there is a side effect that it encourages small employers to computerise their payroll, then I believe that is a desirable bonus. It is not part of the intention of the tax credit system, but it is a desirable bonus and this amendment would frustrate it.

The Earl of Northesk

I must thank the Minister for that reply, and in passing say that not all small employers are as enthusiastic about IT as maybe others are, but I will leave that on one side. I shall read his comments carefully in Hansard tomorrow, but in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 158 and 159 not moved]

Clause 24 agreed to.

Lord Higgins

As the Minister, and indeed the entire Committee, will be aware, as a result of the cancellation of the first Sitting of the Committee, it was agreed that we would sit today, and that we would sit until seven o'clock. This is very much a House of Commons speech rather than a House of Lords speech, but it is true to say that we have made very reasonable progress and Amendment No. 160, and those which follow, raise some new territory. It is probably therefore appropriate, if noble Lords agree, that we adjourn at this point.

The Deputy Chairman of Committees(Lord Elton)

The Committee stands adjourned until Tuesday 28th May at 3.30 p.m.

The Committee adjourned at two minutes before seven o'clock.