Grand Committee Report of 28 May 2002

Official Report of the Grand Committee on the
  Tax Credits Bill

    The Committee met at half-past three of the clock.
    [The Deputy Chairman of Committees (Lord Brougham and Vaux) in the Chair.]
    The Deputy Chairman of Committees (Lord Brougham and Vaux): I shall remind noble Lords that there will be no Divisions in the Committee; we shall speak standing and observe the rules of procedure as on the Floor of the House. If there is a Division in the Chamber we shall adjourn for 10 minutes and the noble Lord who is speaking will continue afterwards.
    Clause 25 [Liability of officers for sums paid to employers]:
    [Amendment No. 160 not moved.]
    The Earl of Northeskmoved Amendment No. 161:
    Page 18, line 2, leave out "or neglect"
    The noble Earl said: In moving Amendment No. 161, which stands in the names of my noble friends, I shall speak also to Amendment No. 162. The amendment seeks to leave out the words "or neglect". Obviously it is right that culpable officers should be liable for any fraudulent conduct—we have no complaints about that—but neglect is a different matter, albeit I acknowledge that some cases might give rise to difficulties if they are on the cusp between neglect and fraud.
    In part, at least, we return to the point of principle that I have referred to in previous debates. Why should companies be held liable for neglect when they are being required to do the Inland Revenue's work for it? The system of tax credits is undeniably complex. As we have sought to point out on many previous occasions, it is wholly credible, particularly in the small business sector, that this complexity will cause companies difficulties. Mistakes will undoubtedly occur. In very many cases neglect—the perception that a culpable officer has not acted with reasonable care—will arise directly from the imposition by the Government of the requirement to pay tax credits through the payroll. To this extent, liability of culpable officers for neglect is inappropriate. Alternatively, if the Government are determined upon a neglect test, it needs to be drafted more precisely.
    It may be convenient for the Committee if I deal with a related point here rather than initiate the clause stand part debate in due course. We are uncomfortable with the scope of the definition of "culpable officer". It seems over the top that a secretary, who is simply complying with the terms of his or her contract of employment and pushing the right buttons on a
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    computer to operate the payroll system, should suddenly find himself or herself liable for fraud or neglect. I hope that the Minister can give the Committee some comfort on this point. I beg to move.
    Earl Russell: I have a very limited degree of sympathy with this amendment. It is important that fraud and neglect should not be confused. Fraud must demand the element of mens rea, a conscious and deliberate desire to offend. Neglect has no such demand. Neglect is a simple failure to notice that one ought to be doing something.
    However, the point still remains that ultimately we have here a duty of care being placed upon the employer. Neglect of that duty of care must remain an offence. Were the noble Earl, Lord Northesk, to consider rewording the amendment in a way which leaves neglect as an offence, but a less severe offence than deliberate fraud, we on these Benches might take an interest and wish to discuss the issue further.
    Lord McIntosh of Haringey: The first thing to make clear is what is meant by "neglect". In common parlance it could be something which is quite—I will not say benign—without malign intent. In law and in this Bill it means something quite specific—that is, a failure to take reasonable care; and, in this case, reasonable care with someone else's money.
    Let me make clear how this fits into Clause 25, which allows regulations to be made to hold an officer of a company—in practice usually a director—personally liable in a situation where excessive funding had been obtained to make payments of working tax credit and not repaid, provided that the debt was believed to have arisen through the fraud or neglect of that person. The amendments would cut out the neglect criterion.
    We believe that people should not be able to set up companies, obtain funding for tax credits and then become insolvent on a regular and deliberate basis. These powers should not apply simply because a company has a tax credit debt when it becomes insolvent; that happens far more often and everybody suffers when it happens. In this case, we are talking about something more precise. We would only use the provisions made possible by the clause in cases where there appears to have been deliberate exploitation of a company's limited liability and the tax credit system used for a director or other officer's personal benefit. We can come to the personal benefit issue when we talk about the definition of culpable officers, which I understand the noble Earl, Lord Northesk, wants to deal with on clause stand part. Or does he want me to deal with it now?
    The Earl of Northesk: Now, please.
    Lord McIntosh of Haringey: "Culpable officer" is defined as,
    "any director, manager, secretary or other similar officer",.
    In other words, it is a person with a position of responsibility in the company and it could not catch clerical staff. It means, of course, the company

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    secretary. These provisions would be used when a director or a company secretary who had the same ability and the same responsibility as a director were deliberately using the system for their personal benefit.
    There are two reasons why we believe it is right to maintain the negligence test as well as the fraud test. Negligence means a failure to take reasonable care. Where companies receive significant sums of public money to fund the payment of working tax credit to their employees, the officers of the company should be expected to take reasonable care to ensure that the money is used for that purpose.
    Secondly, there are practical difficulties with a test that only covers fraud. There will be cases where it is clear that there has been either fraud or neglect, but it may be hard to show categorically that there has been fraud rather than neglect. The danger is that the amendment would allow deliberately dishonest people to hide behind the cloak of negligence and make it more difficult to counter such abuse.
    There is nothing new about this provision, either in terms of the approach taken towards those who exploit the limited liability of companies or in its potential application to cases where there has been negligence on the part of the officer of the company. It is not only that these tests already apply to working families' tax credit and disabled person's tax credit; but they have also applied for many years to national insurance contributions. Amending the clause in the way that the amendments suggest would be going back beyond the previous tax credit system to national insurance contributions. I do not believe that that is what the noble Earl, Lord Northesk, is looking for.
    Earl Russell: The noble Lord's arguments are extremely persuasive and reasonable. He made a very useful statement about the limiting purposes for which the Government would use the clause where it was deliberate abuse of the system just for personal benefit. It would satisfy me if he would say that that statement was made with the case of Pepper v Hart in mind.
    Lord McIntosh of Haringey: I do not say that when any Minister stands up we do not bear Pepper v Hart in mind, but we acknowledge, if we have to, that Pepper v Hart exists. If there is not to be a Clause 25 stand part debate, I should perhaps say a little more about the issue that concerns the noble Earl, Lord Russell. It is important that it be clear in what circumstances it is intended the powers should be used.
    We are talking about something called "phoenixism", which is the practice of exploiting limited liability by carrying on what is effectively the same business through a series of companies, each of which builds up debts before becoming insolvent. Anybody who has heard me talk about my career in small business knows how violently opposed I am—and I do not believe Pepper v Hart is going to cover this bit—to people who go bankrupt owing me money, and then reappear with a slightly different name. The same directors still owe me money, and I am not able to get it. However, it does arise—it has to arise—with tax
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    credits, as it does with national insurance contributions, and indeed with PAYE. A company receives national insurance contributions and PAYE from its employees before it has to pay it out. Under those circumstances, if the company chooses that time to go insolvent, the public purse is left in deficit.
    We have already discussed the way in which tax credits are either funded from money that is already held by a company for the purposes of PAYE and national insurance contributions or, if not, are funded in advance by the Revenue. The words "in advance" are critical. The company could apply for funding from the Revenue, but then become insolvent before any working tax credit has been paid over to the employees. Clause 25 allows us to recover the unpaid tax credit from the officers of the company. I have discussed enough the issue of who are the officers of the company, and I have made it clear, I hope, that the powers already exist in relation to working families' tax credits, disabled person's tax credits and national insurance contributions.
    Earl Russell: We on these Benches are satisfied with the Minister's reply.
    The Earl of Northesk: I am extremely grateful to the Minister for his response, from which I draw some encouragement. I am also grateful, to the noble Earl, Lord Russell, for his sympathy so far on the amendment. Indeed, I have taken note of his helpful suggestion, albeit that those on the Liberal Democrat Benches are now content.
    None the less, I agree with the proposition that an alternative would be a more precise form of drafting of the distinction between neglect and fraud. It is our fervent belief that legislation should say what is the Government's intent rather than leaving it rather woolly. I have no doubt that we will want to return to the matter on Report, but in the meantime I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 162 not moved.]
    Baroness Byfordmoved Amendment No. 163:
    Page 18, line 18, at end insert—
    "() for the Board to waive claims under subsection (1) where the body corporate consists of voluntary, unpaid persons"
    The noble Baroness said: I apologise to the Committee for my absence last week when I was unwell and away from the House. I thank my noble friend Lord Northesk for moving two or three of my amendments in the course of the procedures.
    Amendment No. 163 relates, in particular, to school governing bodies, but I am sure there are many other organisations employing small numbers of staff that may come under the same general heading. Depending on the nature and classification of the school in question, the governing body employ either a few people, maybe their own clerks, or as many as the total staff of the school. Day-to-day administrative and management roles are delegated to the head teacher,

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    while the governing body remains responsible for a strategic and monitoring role. Its primary duties concern pupil performance and achievement.
    The governors, as noble Lords will know, are normally paid nothing, not even reimbursement for phone calls, stamps or travelling expenses. The job that they do has been acknowledged by the Government as an important one, and indeed the Government have piled on extra responsibilities. Their function, however, does not normally enable them to carry out the detailed monitoring necessary to ensure the sort of compliance required in the Bill. Hence, finance committee chairman should not be liable to pay the shortfall due to the negligence of—perhaps—the school bursar.
    It would be a travesty of justice were the Bill to pass containing a clause that could penalise volunteers for the ill-doings of others. I should be grateful if the Minister would consider wording Clause 25 to make it clear that, where an employee is negligent, no financial liability will accrue to the culpable officer, if a governor. I beg to move.
    3.45 p.m.
    The Earl of Northesk: I have sympathy with my noble friend's purpose. Without assurances on this point it is entirely credible that the Bill could inadvertently discourage people from giving freely of their time to the charitable and voluntary sectors. Such an unforeseen consequence would be undesirable.
    That aside, we are, at least in part, concerned about the problems created by the failure of the Bill to distinguish as precisely as is required between neglect and fraud. Surely it is invidious to expect someone working unpaid in the educational sector, to use my noble friend's example, to be wholly liable for sums recoverable by the board in circumstances where he or she has made an honest mistake in administering the payroll.
    Lord McIntosh of Haringey: Any of us who have been involved in voluntary organisations which undertake trading activities must be sympathetic to what the noble Baroness, Lady Byford, says. Of course we understand the position of trustees, who are responsible people and may be employing somebody else, who is in turn responsible for money. This amendment would require the regulations provided for in Clause 25 to include provisions for the Revenue to waive claims where the body corporate in question consisted of voluntary unpaid persons.
    In practice, as I said in response to the previous group of amendments, the Revenue would only use the provisions in regulations made under this clause in cases where there appears to have been a deliberate exploitation of a company's limited liability and the tax credit system for the officer's personal benefit. The amendment refers to the officer and not, for example, to a school bursar, who is not an officer.
    My notes say that we expect it would be very unlikely that these powers would be used in respect of voluntary unpaid officers. I cannot imagine a situation
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    in which a voluntary unpaid officer would be using these restrictions to his personal benefit unless there were something quite deliberate and fraudulent about it and he or she would benefit from it. Most voluntary unpaid officers, as the noble Baroness, Lady Byford, said, do not have any financial benefit. There is no personal benefit available to them and therefore they could not possibly be caught by this clause.
    Any organisation that employs staff has responsibilities for the collection of PAYE and the paying of tax credits. If it receives funding for working tax credit, it has a responsibility for ensuring that the money is correctly paid over to the employee. The fact that it may be voluntary and unpaid does not affect that principle.
    Only a person who has been fraudulent or negligent can be held liable for a debt. As I have made clear, the regulations will in turn extend that to say that it is a deliberate exploitation and that it is for the officer's personal benefit. I believe that that will be restriction enough to protect people in the kind of case to which the noble Baroness, Lady Byford, refers.
    Baroness Byford: I thank the Minister for his response. Unfortunately, I have missed a week's proceedings and I am having to catch up very quickly. I listened intently to the Minister's response. I accept what he said and the way that he said it. The Minister considers that if a problem were to arise the procedure would be activated only if there was evidence that the actions were deliberate and fraudulent. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 25 agreed to.
    Clause 26 agreed to.
    Schedule I agreed to.
    Clause 27 [Overpayments]:
    Lord McIntosh of Haringeymoved Amendment No. 164:
    Page 18, line 40, leave out "period under an award made" and insert "tax year"
    The noble Lord said: In moving Amendment No. 164, I shall speak also to Amendments Nos. 165 to 171. This group of amendments makes changes to Clause 27 which is about overpayment. These amendments are needed in consequence of changes earlier in the Bill, which we have already discussed, whereby final decisions about entitlement after the end of the year are now in a new clause after Clause 17, called "Decisions after final notice". There is nothing new about them other than that. I realise that they result in a series of complex changes to Clause 27 and I hope I have succeeded in arranging for a keeling schedule, in other words Clause 27 as amended, to be supplied to the Opposition parties. I hope that will provide sufficient assurance for me not to speak at further length to these amendments. I beg to move.
    Lord Higgins: The Committee will be grateful to the Minister for the so-called keeling schedule, which helps to clarify matters in as much as it brings the whole set of changes together. We have already

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    discussed various categories of what I have described as restructuring amendments—those designed to put right the wrong drafting of the Bill. Am I right in thinking that these amendments come in the first category, on awards and entitlements? It would be helpful to know whether that is so. Am I also right in believing that these amendments make Clause 27 compatible with the rest of the Bill, which it was not originally? The two sections as drafted—the earlier part and Clause 27—are contradictory, or at any rate incompatible. In the interest of speeding matters up, perhaps the Minister could confirm which of the various categories this comes under. We do not need to go over the same ground that we have already discussed at some length. No doubt we shall wish to return to it on Report.
    Lord McIntosh of Haringey: The noble Lord, Lord Higgins, is largely correct. Most importantly, these amendments refer to the first of the four categories into which the government amendments fall, which draws 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. There is an element of the fourth category as well, which divides the end of year statement provisions from the decisions the board makes on entitlement after the year. That is why a number of the amendments refer to the new clause which does not yet have a number. In principle, however, that is correct.
    Lord Higgins: So it affects Clause 17 as well as the other clauses concerned with award and entitlement.
    Lord McIntosh of Haringey: As the new clause which is provisionally called "Decisions after final notice", which was introduced by earlier amendments.
    Lord Higgins: Which number amendment was that?
    The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): It was new Clause 17A. The clause was split in two: Clause 17 deals with notices and new Clause 17A deals with decisions. As my noble friend said it is category one primarily, but also category four.
    Lord McIntosh of Haringey: And it will be renumbered with the Bill as amended in Committee.
    Lord Higgins: I am grateful for that clarification. I can only say, "What a mess". We shall have to try to sort it out later.
    Earl Russell: Before we leave this, I wish to thank the Government for the care and trouble they have taken to explain these amendments to us. I see no reason to object to them.
    On Question, amendment agreed to.
    Lord McIntosh of Haringeymoved Amendments Nos. 165 to 171:
    Page 18, line 41, leave out "or they are entitled for the period" and insert "entitled, or they are jointly entitled, for the tax year"
    Page 18, line 43, leave out "17" and insert "(Decisions after final notice)"
    Page 19, line 1, leave out from beginning to "is" in line 2 and insert "For overpayments made under awards on single claims, the person to whom the tax credit was awarded"
    Page 19, line 4, leave out from beginning to "are" in line 5 and insert "For overpayments made under awards on joint claims, the persons to whom the tax credit was awarded"
    Page 19, line 9, leave out "(or part of a tax year)"
    Page 19, line 11, leave out from "or" to "; but" in line 12 and insert "any other award of any tax credit made to the person or persons"
    Page 19, line 13, leave out "on the award is taken under section 17(6)" and insert "is taken in relation to the person or persons for the tax year under section (Decisions after final notice)(1)"
    On Question, amendments agreed to.
    Lord McIntosh of Haringeymoved Amendment No. 172:
    Page 19, line 13, at end insert—
    "(6) Where the Board decide under section 16 to terminate an award of a tax credit made to a person or persons on the ground that at no time during the period to which the award related did the person or persons satisfy—

    (a) section 8(1) (if the award related to child tax credit), or

    (b) section 10(1) (if it related to working tax credit),

    the Board may decide that the amount paid under the award, or any part of it, is to be treated for the purposes of this Part (apart from subsection (5)) as an overpayment."
    The noble Lord said: This group of amendments deals with overpayments and underpayments. Amendment No. 172 will enable the board to recover overpayments before the end of the year where an award was initially made to a person who, in fact, never met the basic qualifying criteria for the tax credit.
    Amendment No. 174 makes clear that the board is under an obligation to pay any extra tax credits to claimants in cases where there has been an underpayment. This is not an oversight, but again is something caused by the changes which have already been agreed. Amendment No. 201 provides for interest to be charged on an overpayment which is attributable to fraud or negligence, and Amendment 232 is consequential. I beg to move.
    Lord Higgins: I am not entirely clear whether this is part of the restructuring or whether it is something which is a normal amendment in the sense that the Government thought of these points after the Bill had come before the House of Commons. If it is restructuring, again it would be helpful to know what category it comes into and in what way it affects the Bill.
    I come back also to the final amendment to which the noble Lord referred, which I believe to be Amendment No. 201. It concerned the question of interest on underpayments as a result of fraud.

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    I presume if it is a case of fraud the individual concerned will be prosecuted. I am not sure to what extent this provision reflects normal Inland Revenue practice and whether it is different from social security practice. Is it normal, on top of whatever penalty—presumably a criminal penalty—is imposed for fraud, for interest to be charged on the amount of underpayment? If so, will it be done on the Inland Revenue basis? I am not sure to what extent any interest is chargeable on underpayments in relation to work and pensions provision; that is, social security provision. If we are suddenly introducing an interest penalty into what has formerly always been social security affairs, that would be helpful to know, not least because on this side of the Chamber we remain of the view that many of these payments are social security payments and not tax credits.
    Lord McIntosh of Haringey: The answer to the first question is that it falls into category one; that is, the distinction between awards and entitlement, which include overpayments and underpayments.
    The second question relating to Amendment No. 201 arises perhaps because I was being a little elliptical. Amendment No. 201 is about overpayments, not about underpayments. It is designed to ensure that interest can run on the overpayment from the date the decision to terminate the award is made, rather than having to be deferred until the end of the year. The amendment does not change the fact that interest on overpayment can only be charged if overpayment is attributable to fraud or neglect.
    The noble Lord, Lord Higgins, is right in thinking that that basically follows Inland Revenue rules rather than social security rules. Indeed, on the question which he asked but which is not related to Amendment No. 201, provision for interest to be charged on underpayments of tax is included, and has always been included, in the Taxes Act and is not changed by this amendment. Tax credits interest will only be charged where there is fraud or neglect.
    Lord Higgins: That would seem to be a tightening of the regime compared with what normally applies in regard to social security. I shall need to consider that. I am somewhat puzzled by the exact wording which the noble Lord—I think improvising—used. Presumably there is no interest on overpayments. Or is he saying the Revenue will add interest to any reimbursement of overpayments and, if so, at what rate?
    Lord McIntosh of Haringey: It will be set out in regulations.
    Lord Higgins: Presumably there is some point of principle as to what rate of interest is charged. If it is the same as the normal interest paid by the Revenue—which has always been absolutely miserable—at least can the Minister clarify whether the interest paid on overpayments will be less than the interest charged on underpayments?
    Lord McIntosh of Haringey: I shall have to write to the noble Lord, Lord Higgins, on that matter.
    On Question, amendment agreed to.
    4 p.m.
    Lord Freemanmoved Amendment No. 173:
    Page 19, line 13, at end insert—
    "() Where it appears to a person or persons in receipt of an award of tax credit that there is likely to be an overpayment of tax credit for a tax year (or part of a tax year), they may serve a notice on the Board at any time during that tax year after the expiry of the first six months specifying, or estimating, the amount of their income for the tax year in the prescribed manner, in which case no overpayment shall arise in respect of the first six months of the tax year, but the Board may decide that any overpayment arising in respect of the rest of the tax year shall be repaid to them "
    The noble Lord said: This is a probing amendment which contains some novel ideas. We are dealing with a certain category of overpayment and I am asking the Minister to think about the principles underlying this amendment. It has been drafted by the Low Incomes Tax Reform Group and addresses the particular problems of low income workers who qualify for tax credit but whose income rises above the tax threshold during the course of the tax year. In those circumstances, the amount above the threshold is repayable. If the board is not told immediately—and that could be for reasons of either ignorance, innocence or inability to calculate the higher and current rate of income of the claimant—then the adjustment is made in the next tax year.
    The basic anomaly is that the tax credit is calculated on the basis of the preceding year's tax income, but when the current year's tax income has been calculated for qualifying income an adjustment may or may not have to be made.
    The problem is that for certain categories of very low income taxpayers the money may well be gone by the time the overpayment above the threshold has to be made. That in itself can cause hardship. I quite accept that the drafting of the amendment does not specify precisely the amount above the £2,500 threshold which, as the Minister explained, is already ignored when an overpayment calculation is made, but my intention is that it should be very modest in terms of an overpayment—for example, a few hundred pounds.
    The amendment suggests, therefore, that if the claimant takes action in the middle of the current tax year—and I am suggesting at a very precise moment in the middle of the tax year—and states, "My income has gone up and I need the board"—the Inland Revenue—"to recalculate the tax credit", the tax credit overpayment can be recovered, either as a lump sum or during the course of the remaining part of the tax year. That would be of advantage to the Inland Revenue because the position of the claimant becomes more current. It would also be to the advantage of the claimant because the claimant would be making his or her position more current much more quickly.
    The amendment proposes that the anomaly is stopped earlier, the tax credit is reduced and, in return, the overpayment for the first part of the year is

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    foregone. I stress that this should be a fairly modest sum so that the incentive to become current is not disproportionate to the burden for the Treasury.
    I conclude by pointing out that income may vary, and vary constantly, for some people, particularly the self-employed on very low incomes who qualify for tax credit. This may push them into a position during the course of the current year where they face a significant, for them, repayment to the Inland Revenue. The amendment seeks to introduce a mechanism, which needs to be fine-tuned, to correct the anomaly much earlier on—partly at the expense of the Inland Revenue and partly to ensure that the individual outgoings are properly matched by the resources available. I beg to move.
    Baroness Byford: I shall speak to Amendment No. 187. This again is a probing amendment but I hope for clarification from the Minister. Many of those entitled to tax credits will be treading a very fine line between Micawber's two states of pecuniary bliss and misery. Recovery of overpayment of credit will be a near impossibility for many. To indulge in the cost of dislocation, the loss of earnings and the stress of a court appearance to win a point against someone who has little or nothing to offer is perhaps an unnecessary charge on the state. When do the Government expect action to be taken? Will everyone be taken to court for underpayment?
    The noble Baroness, Lady Hollis, commented on the need to have some form of graduated scale for repayments—monthly, quarterly or whatever might be necessary. The Minister might like to consider that, because I am sure that none of us wishes to see unnecessary use of the public purse in pursuing someone who has very little chance of repaying, even if it is for a short period.
    Lord McIntosh of Haringey: I agree with a great deal of what the noble Lord, Lord Freeman, and the noble Baroness, Lady Byford, have said about their amendments. The noble Lord, Lord Freeman, is right to say that it is in the interests of the Inland Revenue that people whose income increases during the year—and whose entitlement to tax credit consequently decreases—should notify the Revenue not just six monthly but at any time. It is in the interests of the Revenue that overpayment should not build up over the period of the year.
    The original intention in having the assessment made on the whole-year basis was to save employers work. I am sure that the noble Lord, Lord Saatchi, and the noble Earl, Lord Northesk, are well aware of that point and the reasons why saving employers work means additional complication in the legislation. The noble Lord, Lord Freeman, is right to say that it is to the advantage of people receiving credit that they should not build up overpayment so that they have to make a repayment at a particular time.
    The solution proposed in Amendment No. 173 is that where there is a declaration by the person after the expiry of the first six months that there will be an
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    overpayment, no overpayment should arise in respect of the first six months of the tax year. That is a very considerable reimbursement to the person who is receiving credit—it is a very considerable bribe. We would have to calculate very carefully how much it would cost and whether it would be just to do that.
    As has been discussed at earlier stages in this Committee, we have provided that the need for claimants to contact the Revenue to tell it about changes in their income should be reduced by the fact that only increases in annual income of more than £2,500 can have any effect on entitlement. That is a better way of doing it—it is failsafe, and ensures that there are fewer cases of overpayment that has to be repaid. The solution proposed in Amendment No. 173 is erratic and incalculable in its effect and I prefer the way in which we are proposing to deal with what is undoubtedly a potential problem.
    Amendment No. 187 is concerned with the recovery of overpayments and the imposition of penalties. We intend to require the Revenue to offer instalment terms to all claimants who are subject to a penalty. I assure the noble Baroness, Lady Byford, that the Inland Revenue will take into account the size of the debt, the resources available to the claimant and, where appropriate, the particular circumstances of the case when deciding on the method and rate of recovery for tax credits. It is important to ensure that people do not suffer undue hardship when a recovery system is being made. We certainly do not want to follow the Australian example, which is to issue a one-off demand. The timescale for recoveries will depend on the claimant's resources and the amount of overpayment. Furthermore, clear guidelines will be issued about how far future tax credit awards can be reduced to recover overpayment. That is exactly as it is for income tax where underpayments can be dealt with by an adjustment to the coding for the next year, rather than by writing a cheque to the Inland Revenue.
    I do not think the amendment would be particularly effective or fair because it is concerned with penalties. Such penalties are levied only on individuals who have been fraudulent or negligent. It would not be right to have a leniency provision such as that proposed by the noble Baroness, Lady Byford, specifically for those people who have been fraudulent or negligent. It is better to have a system of the kind in place for income tax; that is, of the kind that will be set out in regulations and guidance and which would apply to everyone.
    Lord Higgins: I have listened with interest to the amendments of both my noble friends. Perhaps I may clarify one or two points in relation to the Minister's last remarks. First, is it correct to say there will be no overpayment arising if the individual's income rises by less than £2,800 during the year?
    Lord McIntosh of Haringey: £2,500, yes.
    Lord Higgins: I beg your pardon, £2,500. Secondly, as far as penalties are concerned and given Amendment No. 172 that we have just carried, suddenly we see introduced the concept not of award

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    or entitlement, but that of termination. Will penalties be imposed if termination is decreed by the Revenue in the light of Amendment No. 173? That is to say, if it turns out that the individual was not entitled to the award at all and it is terminated, is he then liable to penalties?
    Lord McIntosh of Haringey: He is liable to pay back the award. I do not know whether that would be called a penalty.
    Lord Higgins: Is he liable to a penalty on top of that?
    Lord McIntosh of Haringey: Not unless there has been fraud or negligence.
    Lord Freeman: I am grateful to the Minister for his clear exposition. He is quite right to address the amendment as tabled and not as I argued it. I accept that that is the correct way to proceed. I hope that I have made it clear to the Minister that I was not expecting an unlimited waiver of tax overpayment for the first six months. I am grateful to the Minister for his remarks, which I shall study carefully. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 27 agreed to.
    Clause 28 agreed to.
    Lord McIntosh of Haringeymoved Amendment No. 174:
    After Clause 28, insert the following new clause—
    "UNDERPAYMENTS
    (1) Where it has been determined in accordance with the provision made by and by virtue of sections (Decisions after final notice) to 20 that a person was entitled, or persons were jointly entitled, to a tax credit for a tax year and either—

    (a) the amount of the tax credit paid to him or them for that tax year was less than the amount of the tax credit to which it was so determined that he is entitled or they are jointly entitled, or

    (b) no payment of the tax credit was made to him or them for that tax year,

    the amount of the difference, or of his entitlement or their joint entitlement, must be paid to him or to whichever of them is prescribed.
    (2) Where the claim for the tax credit was made by one person on behalf of another, the payment is to be made to whichever of those persons is prescribed."
    On Question, amendment agreed to.
    Clause 29 [Incorrect statements etc.]:
    4.15 p.m.
    The Earl of Northeskmoved Amendment No. 175:
    Page 19, line 38, leave out "fraudulently or"
    The noble Earl said: Amendments Nos. 181 and 184 are grouped with this amendment and I therefore propose also to speak to them. Our debates on the Bill have not yet focused on the issue of fraud in the way they did in another place. It may be that, as a result of the Budget having put some more flesh on the bone of the Bill, we now have rather more to get our teeth into.
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    Fraud is an important matter in the context of the Bill. Accordingly, part of my aim with these amendments is to provide an opportunity for a wide-ranging debate of the issue. I need not rehearse all the arguments. I suspect that the Committee, and least of all my noble friends, would not thank me for lapsing into a rambling Second Reading speech. However, a few key elements need to be aired.
    All agree with the necessity of bearing down on fraud within the welfare system; that is not the point at issue. Equally, most commentators agree that the potential for fraud within the tax credit system is particularly acute. The experience from overseas, particularly in respect of the Canadian working income supplement and earned income tax credit in the USA, lends ample support to this view.
    Part of the problem is that it has proved difficult to get a feel for the level of fraudulent activity present within existing tax credits. On two previous occasions in our Committee proceedings, I have referred to the Inland Revenue benchmarking study into the level of fraud in tax credit claims. I understand that the results were reported to Ministers in September of last year. Yet here we are eight months later and, so far as I am aware, not a dickie bird of the findings has found its way to Members of Parliament. I ask again whether the Minister will give us some idea of the levels of fraud that the Revenue has found in the tax credit system. Who knows, perhaps this will be third time lucky.
    I emphasise that we do not wish anything to be revealed that might compromise the Revenue's ongoing battle against fraud; we merely wish to know the Revenue's estimates of the scope of fraud within the existing system. We have recently learnt—and perhaps the Minister will confirm this—that in the year to March 2001, estimated figures for the amount lost to fraud in relation to income support and jobseekers' allowance have risen to £2 billion; and the estimated cost of errors by claimants and staff was about £1 billion—a total of £3 billion, representing an increase of close to 50 per cent on the previous year.
    Insofar as the tax credits we are debating in the Bill are more susceptible to fraud—and, indeed, that some of the fraud cited will inevitably transfer into the tax credit system—these figures are worrying. We do not question that the Revenue is proactively involved in rooting out such criminal activity. Again, that is not the point at issue. As evidenced by the problems with the new £5 notes reported in today's media, what matters is whether the design of the system deals with the problem in the most appropriate way.
    I offer a few examples. As I understand it, W FTC claimants are required to give documentary proof of their earnings whereas claimants for child tax credit and working tax credit will not have to do so. The childcare element of the working tax credit will not be paid direct to the childcare provider, a decision described as "very strange" by Rosemary Murphy, the chief executive of the National Day Nurseries Association. Perhaps it is, as it were, an unforeseen consequence of the Government's desire to integrate benefits and tax that, again as I understand it,

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    the panoply of powers aimed at bearing down against fraud in the Social Security Fraud Act 2001 will not be available to the Inland Revenue within the remit of the Bill.
    All of this should tell us that it is important that we send as clear a message as we can that we are not prepared to tolerate fraudsters, hence the amendments. Their purpose is, I hope, self-evident. By creating a separate offence of defrauding the tax credit system they seek to distinguish between the degree of seriousness that the law attaches to offences arising from negligence or fraud.
    I should like to add a few points about their detail. In both cases, Amendments Nos. 175 and 181 seek to delete the words "fraudulently or" from Clause 29. In so doing, they limit Clause 29 to a test of negligence. As I read Clause 29, its particular target, if I can put it this way, is the claimant. Here we should be mindful that in this context take-up and fraud are almost two sides of the same coin. As the National Association of Citizens Advice Bureaux has observed:
    "CAB evidence is that both the benefit and tax systems are complicated and intimidating to those lacking in financial literacy skills".
    The point is that at the take-up end of the scale complexity acts as a discouragement. It can also be said that it breeds fear, a fear which is heightened because of the attendant risk of being accused of fraud if an individual makes a mistake in framing an application. On the other hand, at the fraud end of the scale, complexity acts as an encouragement—the more complicated the system, the easier it is to exploit its flaws. In other words, it is necessary in respect of the penalties clauses to look down both ends of the telescope at once. This is the basis upon which our wish to distinguish properly between negligent and fraudulent is based.
    As to Amendment No. 184, I have noted the insistence of the Financial Secretary during proceedings in another place that the new clause embodied in the amendment is unnecessary on the basis that everything it seeks to achieve is already in place in Clause 33. It may well be that the Minister will deploy a similar argument today. I do not necessarily disagree with the point. In fact, in at least one respect, I would even welcome it as a response. It would be tempting to suppose that the use of the words "fraudulently or" in Clause 29 could be something of a drafting anomaly. Clauses 33 and 34 are specifically headed "Fraud", and yet references to fraud creep into Clauses 29 to 32, headed "Penalties". I merely speculate whether it might be more convenient for all concerned that the provisions relating to fraud be consolidated in their own section. Accordingly, in the spirit of helpfulness, I invite the Minister to contemplate such a proposition between now and Report. I beg to move.
    Earl Russell: Taken in conjunction with the noble Earl's other amendments dealing with fraud, some of which we have yet to reach—I hope he will forgive me
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    for mentioning them, but they seem to be relevant—his general strategy seems to be to deal with fraud by making the penalties more severe.
    We are all against fraud, as it is our money in the end that is being taken away from us, and some of us could, from time to time, think of other, better usage. However, the Minister, who is not an ex-academic, knows perfectly well that over the centuries the need for the severity of penalties has been in inverse proportion to the likelihood of detection. In the days when we used to have the mandatory death penalty—
    Baroness Hollis of Heigham: I am sure the noble Earl would like to give way. The penalty was increased precisely because the detection rate was so low.
    Earl Russell: The Minister takes the words out of my mouth. I could not agree with her more. When we had the mandatory death penalty for those stealing things worth more than one shilling, it was because detection was a self-service business, as it very often is now in a great deal of petty crime in the local area. How many people are there enforcing penalties for illegal parking in the area where any noble Lord lives? I imagine there are very few who live in areas where there are enough people doing it to act as a genuine deterrent.
    In straightforward crime, the late Lord Justice Lord Taylor of Gosforth was constantly drawing attention to the fact that a detection rate and conviction rate of 3 per cent meant a need for penalties a great deal more severe than they would otherwise have been and that the incidence fell in a very random way on a small number of people.
    Most of us are much more deterred from crime by the idea that we are going to get caught than by anything else that is likely to happen to us. I hope the Minister may be able to tell us about the number of inspectors available for the Inland Revenue, the amount of workload that she is reckoning on and the length of time it takes them to deal with the bulk of letters that come to them on any one day. All round the public service, including issues such as the enforcement of the minimum wage and the Health and Safety Executive, I observe a limited number of people trying to do more than any human being can possibly do. They make a passable shot at it, but they do not, of course, succeed. Making up for that by the severity of penalty given to the few who happen to be unlucky enough to get caught does not act as a particularly meaningful deterrent, even if it becomes savage enough to end up as a sort of inverse version of the National Lottery. There are probably better hammers with which to crack this nut, but I agree it needs cracking.
    Lord Bassam of Brighton: I always enjoy the noble Earl's historical discourses on these matters and we have not been disappointed this afternoon. I want to concentrate on the general approach to this issue and try to answer the points of the noble Earl, Lord Northesk, as well as we can.
    Clause 29 introduces a maximum £3,000 civil penalty where a person fraudulently or negligently makes an incorrect statement in connection with a

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    claim for tax credit. The purpose of Amendments Nos. 175, 181 and 184 is to apply the £3,000 civil penalty only to cases of negligence, as the noble Earl has explained, and to introduce a new criminal offence with a maximum penalty of six months in prison in cases of fraud.
    We all want a compliance framework that is effective against those who attempt to abuse the system but does not deter the genuine from claiming what they are entitled to. We have carefully considered what the compliance framework for these tax credits should be, expanding where necessary the powers that are available to combat non-compliance.
    We do not believe that what the noble Earl is proposing will make the framework any more effective than it currently is. Although we share that common intention to be tough on fraud, the noble Earl's approach would probably reduce the options available to the Revenue when tackling tax credit fraud, and frankly the amendments do not offer or add anything new.
    Under the powers in the Bill, the Revenue will have two options when it discovers a fraudulent claim. Either it can levy civil penalties under Clause 29, or it can pursue a criminal prosecution under the new offence provided for in Clause 33. Our policy for tax and tax credits is that civil penalties should be used in most cases of fraud, and that there should be criminal prosecutions in cases of serious or organised fraud. We believe that this approach is the most effective and cost-efficient.
    Amendment Nos. 175 and 181 would remove the option of civil penalties in cases of fraud. Amendment No. 184 would introduce a criminal offence. I am afraid that it would be a redundant offence. There are no circumstances in which someone would commit an offence under this amendment, but not commit one under the provisions of Clause 33.
    The amendments would therefore reduce the options available to the Revenue to tackle fraud. Amendment No. 184 would have no effect in practice, and I hope that the noble Earl will not move it.
    The noble Earl asked some questions about the benchmarking study. That study involves examining a representative sample of claims. The results from that will inform further development of the Inland Revenue's compliance strategy for tax credits. The report made it clear that the Inland Revenue is considering the detailed information produced by the study. We will report in due course, but we cannot give a guarantee that this information will be published, as it deals with the specifics of possible frauds. I am sure that the noble Earl accepts that it would be unwise to put that sort of information in the public domain. However, we have made it plain that any appropriate information that we can release will be made public.
    We take fraud very seriously and the Department for Work and Pensions is working hard to check that we have a strategy in place to reduce fraud levels. For instance, targets of a 25 per cent reduction in fraud in IS and JSA by 2004 and a 50 per cent reduction by 2006 have been set. Already the Department for Work and
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    Pensions has exceeded its first target of a 10 per cent reduction and it is a year ahead of schedule. There is hard compliance work being undertaken.
    We believe the measures we have in place are effective. We can demonstrate that from the statistics that are available so far. I believe there is a common approach across the Committee on t his, and obviously we will continue to examine and review the way in which we deal with fraud as a major issue, because it is something that we need to tackle to ensure that people have trust and confidence in the system.
    Lord Northbrook: The noble Baroness very kindly wrote to me on 8th May, after Second Reading, with some details of prosecutions under WFTC, explaining to me that in the 12 months to 30th September 2001, 387 penalties had been imposed, and between October 1999 and 31st December 2001, 621 penalties were imposed with an overall value of about £350,000. Is there any possibility of a comparison for a similar period for what penalties were charged under family credit contributions?
    4.30 p.m.
    Baroness Hollis of Heigham: I shall reflect on that, because some of the areas of difficulty have come with the childcare tax credit, which we have some anecdotal evidence about. We are changing the structure of the new system. We think we have billed out any possible manipulation in the new system of childcare tax credits. However, I shall look at the issue. If I believe that the comparators exist and are revealing, I shall be very happy to show the noble Lord.
    Lord Northbrook: I am most grateful to the noble Baroness. I understand that we may not be comparing like with like.
    Baroness Byford: I should like to put a question to the Minister. Recently, an announcement was made in the press that pensioners who are former employees of the MoD no longer will be able to claim their pensions via the Post Office because of concerns about fraud. What kinds of fraud are causing these concerns?
    Baroness Hollis of Heigham: I think that the noble Baroness may be more interested in the question of Post Offices.
    Baroness Byford: I understand why the Minister says that, but if it is true, then it is quite a serious allegation; namely, that the MoD is no longer going to allow its former employees to claim their pensions through Post Offices, as was announced in the press.
    Baroness Hollis of Heigham: The noble Baroness, Lady Byford, will understand that she has not given me prior notice of this. It is for the MoD to determine how its pensions are paid and thus the matter is not germane to the current Bill. I shall be happy independently to follow up the matter and write to the noble Baroness. If, on reflection, she thinks it appropriate to table an amendment, I be happy to discuss it.

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    It would be daft, however, to seek to speculate as to what is happening at the MoD. As I have said, the noble Baroness was not able to give prior notice and as a result I do not have any relevant information relating to the payment methods of another department.
    The Earl of Northesk: Before concluding the debate, I should like to return to one issue. Can the Minister comment on whether there is merit in attempting to ensure that the fraud clauses are consolidated? Does the Minister have an opportunity to comment on that?
    Lord Higgins: Perhaps I, too, may ask one further question. Does anyone in the MoD get tax credits, or are they likely to?
    Baroness Hollis of Heigham: Yes. By the MoD, I presume the noble Lord refers to members of the armed services and to support civilian staff. This is an income test. First, anyone earning up to £50,000 a year—or even £58,000—will receive the family element, which takes in ranks up to squadron leaders or thereabouts. No doubt noble Lords opposite are more finely tuned than I to the ranks in the armed services. Secondly, many families of the ranks with children would be eligible for CTC. I would expect them to be.
    The Earl of Northesk: Perhaps we may return to this issue on Report; that is, whether it might be more sensible to consolidate all the fraud elements of the Bill. I would say to the noble Lord, Lord Bassam, that I am not sure that my interruption was necessarily an historical discourse.
    Lord Bassam of Brighton: I was referring to the noble Earl, Lord Russell.
    The Earl of Northesk: If the noble Lord had referred to me, I would have been somewhat flattered by such a description.
    I take the point made by the noble Earl, Lord Russell, about the importance of a deterrent. Indeed, that goes to the heart of why we are keen to send a clear message that fraud will not be tolerated. As to detection rates and severity of sentence, that would always be a matter for the courts on a case-by-case basis, within the maximum proposed in the amendment. It is not simply that someone prosecuted within the framework of the amendment immediately would be subjected to the maximum penalty.
    We have had a useful debate and no doubt we shall return to the issue on Report. In the meantime, I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Earl Russellmoved Amendment No. 176:
    Page 19, line 38, leave out "or negligently"
    The noble Earl said: With this amendment, I should like to speak also to Amendments Nos. 177 and 182, grouped with it. With the leave of the Committee, I
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    should like also to speak to Amendment No. 200, on which I would otherwise have to make an almost exactly identical speech.
    The basic point of this is one which I have touched on before: we need to attempt to distinguish between wilful fraud and honest error. Where we want to clarify something as a crime, we should be certain that there is the mens rea—guilty intent, a wilful attempt to deceive. When that is the case it is fraud and should be prosecuted as such. But not every erroneous statement made by every claimant for every benefit is necessarily made fraudulently or wilfully. Most of us do not run offices at home. In fact, most of us spend so much time at work that we do not have the time to run offices at home. The only time I ever attempt to do so is on a Sunday—and the number of things I can only attempt to do on a Sunday is well beyond the length of counting.
    When one is dealing with error in the academic field, one asks whether historians' errors are their own, in that they tend to slant the argument in different directions. Or are they systematic in that they send all the parts of the argument in one particular direction? Where one finds errors to be systematic, one feels a degree of suspicion about that historian's perception of truth. But one does not feel that the errors are casual and apparently accidental.
    One ought to look at any error on its own. If they are consistently for the claimant's benefit, one is entitled to a degree of suspicion. But one does not feel that same suspicion if it is perhaps to a greater degree to the claimant's detriment. Not everybody has a record immediately to hand of exactly what their car mileage was on the day they completed their last tax return—rather, it is not the day they completed their last tax return, but the actual end of the financial year. Not everybody has that information to hand.
    Where someone makes a return and, with the best will in the world, attempts to get it right but forgets whether or not they received a portion of income in 1994 or 1995, that should not necessarily count as fraud. It should be necessary to prove an intent to deceive.
    If that point is met with any sympathy, there may be the possibility of progress on this. I should be very glad if it were. I beg to move.
    Lord Bassam of Brighton: I am not sure that the noble Earl, Lord Russell, will appreciate what I am about to say. It is not as sympathetic as he would perhaps like.
    We have to understand what the effects of the noble Earl's amendments would be. Essentially, they would restrict the penalties to cases where there was fraud or the wilful provision of incorrect information. That gets to the heart of his point about there being mens rea.
    The fraud and negligence test is a standard test which is used to establish culpability in the tax and tax credits systems. As we have discussed before, fraud involves deliberate dishonesty while negligence involves a failure to take reasonable care. That is precisely why there ought to be a distinction.

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    I understand the noble Earl's concerns about imposing interest and penalties on those who have simply made an innocent mistake—we can all understand that. However, that is not what the test of "fraud or neglect" is intended to allow. The long-established test of negligence is applied to those who fail to take the care in making their claim or providing information that any reasonable person would take, and any reasonable person would expect them to take. In making a claim for tax credits, it is only right to expect people to act responsibly, in the same way as the noble Earl would expect people to act in good faith and responsibly when making their annual tax return.
    There will also be cases of deliberate intent to cheat the system in which it is nevertheless difficult to show categorically that someone has acted fraudulently. However, in many such cases it can clearly be shown that their behaviour amounted either to fraud or negligence. Restricting the scope of Clause 29 to fraudulent behaviour would allow the deliberately dishonest to hide behind the cloak of negligence, making it much more difficult to tackle abuse of the tax credits system.
    The test of "fraud or neglect" is well established and does not allow the Revenue to penalise people who make innocent mistakes, which is the territory about which the noble Earl is most concerned. I hope that that explanation provides sufficient assurance for the noble Earl to withdraw the amendment.
    The noble Earl also spoke to Amendment No. 200, which is really the same run of argument. Unless the noble Earl wishes me to do so, there is little purpose in my rehearsing those points here.
    Earl Russell: I thank the noble Lord. I take the point about reasonable care. But, where someone does not have a regular home office, it is quite difficult to establish how many hours you need to spend searching for a piece of paper before you have taken reasonable care to find it and can certify that with the best will in the world you have not done so. There is a question here where one should consider how systematic the error is.
    I take the point that one needs to show that some of these cases may be deliberate attempts to avoid, but it is incumbent on the Revenue to show, at least on the balance of probability, that such is actually the case. There is something in the Bill about the way of approaching this matter. Once is happenstance; twice is coincidence; the third time it is enemy action. If the Revenue was prepared to go that far, it would be adopting a sensible principle.
    But there is a serious risk of one error made in good faith. Claimants on benefit, especially those who are illiterate, are not always particularly good at keeping records. In those cases, severity can very easily be misplaced, especially when fraud is the panic of the moment. It is always the panic of the moment in which someone will be unjustly accused. It may be quite rightly the panic of the moment, it may need eradicating, but it does not make it any the better for
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    the person who is unjustly convicted. In that respect, at least, it is like witchcraft. Has the Minister anything to say?
    Lord Bassam of Brighton: I was reflecting on what the noble Earl said. Many years ago I had to make a social security claim arid I remember thinking at the time that it was quite easy to give incorrect information. I found that the officials dealing with the case—I am talking about when I was in my 20s—were extremely sympathetic and sensitive to that point.
    Baroness Hollis of Heigham: The rest is history.
    Lord Bassam of Brighton: The rest is history. That is true. I doubt whether they have changed. The important point here is that the Inland Revenue will have to form a judgment based on reasonableness and it will have to positively demonstrate fraud or negligence. As I said earlier, there is no penalty for making an innocent mistake.
    I believe that we can rely on the good sense and the good nature of the civil servants who will have to process these matters. They will make a case-by-case judgment—just as they made a judgment in my case that I was not being deliberately dishonest—and I am sure that that will inform the way in which they work. If the Revenue's decision is disputed by the claimant, he or she will have recourse to appeals and will have the facility for the question of their dishonesty to be judged by an independent tribunal. That important failsafe is there. That in itself will inform the way in which the Inland Revenue makes its decision.
    With those safeguards, and based on my personal experience, I believe that there is sufficient protection and caveats for the noble Earl to be satisfied on this issue.
    Earl Russell: I thank the noble Lord for a powerful reply and for an extremely generous admission. If I can be reasonably confident that officials will continue to interpret the law as they did in the noble Lord's case, I shall be satisfied.
    However, I should like to leave the issue with one word of warning. That this is now the proof that we are tougher than the next party on fraud must not lead us to forget the existence of perfectly genuine cases and that each decision must be made on an individual basis. It cannot be only a matter of needing to prove that we are tough on fraud or needing to prove that we are men. One must be prepared to find whatever the evidence leads one to. With that single caveat, I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 177 not moved.]
    Lord Bassam of Brightonmoved Amendment No. 178:
    Page 19, line 44. after "16(3)" insert ", (Decisions after final notice)(10)"
    The noble Lord said: We have been over this territory before. This is a government amendment which is required as a result of earlier changes in the

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    Bill. I shall try that reassurance. We always say in these circumstances that it is consequential and reinforce that by drawing attention to the fact that it pulls into the fourth category of amendments that we have agreed to use as a standard point of reference—that is that it divides out the notice of the end of year statement provisions from the decision that the board makes on entitlement after the year. I shall not detain the Committee any further on that point. I beg to move.
    Lord Higgins: Nor shall I detain the Committee.
    On Question, amendment agreed to.
    4.45 p.m.
    The Earl of Northeskmoved Amendment No. 179
    Page 20, line 1, leave out "£3,000" and insert "£5,000"
    The noble Earl said: I shall also speak to Amendments Nos. 180 and 183. The amendments would increase the maximum penalty for people defrauding the tax credit system from £3,000 to £5,000. For the convenience of the noble Earl, Lord Russell, who regrettably is no longer in his place, I will take his antipathy to the amendment as read.
    Leaving aside the problems of distinction between fraud and neglect, the position emanates from two points of principle that I have touched on earlier. First, the severity of the maximum penalty should be in keeping with the seriousness of the crime: that is, of fraud. Secondly, the penalty regime should be rigorous enough to act as a deterrent to those who are minded to commit fraud. I am, of course, aware that the current maximum penalty for the ordinary tax system is £3,000 and that therefore the Government might be minded to wish consistency with that. Albeit that this may be too simplistic a suggestion, however, there are reasons for supposing that the appropriate way forward would be to level the maximum penalty at £5,000 throughout the system rather than £3,000. I beg to move.
    Lord Bassam of Brighton: When we looked at these matters in preparing the Bill we considered carefully the level at which maximum civil penalties should be set. Many penalties for fraudulent or negligent behaviour within the existing tax and tax credits systems are already set at a maximum of £3,000. Based on experience, we have no reason to believe that that amount has become inadequate, and we would not wish to provide more stringent penalties for tax credit claimants than would apply to similar behaviour in relation to tax obligations. We do not want to depart from that consistency. That is an important principle in itself and perhaps adds to the principles to which the noble Earl alluded.
    An important point to recall is that the penalty is applicable in respect of each claim, so where someone has persisted in making incorrect statements over a period of time, the total maximum penalty could be much higher than £3,000. There is also still the
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    sanction of criminal prosecution in cases of serious and organised fraud. Clause 33 introduces the criminal offence of tax credits fraud.
    We have sought to get the balance right between encouraging people to take up their entitlement and having adequate safeguards against non-compliance. We believe that Clause 29 achieves that balance and provides for a realistic deterrent against those who behave fraudulently or negligently in connection with tax credit claims. We are not convinced that increasing the maximum penalty to £5,000—out of line with existing penalties for making false statements—would be justified.
    It is right that we should have a system that is rigorous and measures the seriousness of these things, and we believe that, on balance, we have exactly that. If we depart from that principle of consistency, as I have enunciated, we would perhaps undermine the overall effect of seeking to be rigorous while also seeking to be fair.
    The Earl of Northesk: I am grateful to the noble Lord. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendments Nos. 180 to 183 not moved.]
    Clause 29, as amended, agreed to.
    [Amendment No. 184 not moved.]
    Clause 30 [Failure to comply with requirements.]:
    Lord Bassam of Brightonmoved Amendment No. 185:
    Page 20, line 28, after "16(3)" insert ", (Decisions after final notice)(10)"
    The noble Lord said: These amendments are also consequential and are the product of changes made earlier in the Bill. They are necessary because of the changes made to the provisions of Clause 17, which has been split into two clauses. In that sense they also fit into the fourth category for splitting entitlement decisions. I do not wish to add to those points because they are now well understood by the Committee. I beg to move.
    On Question, amendment agreed to.
    Lord Bassam of Brightonmoved Amendment No. 186:
    Page 20, line 31, leave out "or (4)(a)" and insert ", (4)(a) or (6)(a)"
    On Question, amendment agreed to.
    Clause 30, as amended, agreed to.
    Clause 31 agreed to.
    Clause 32 [Supplementary]:
    [Amendment No. 187 not moved.]
    Clause 32 agreed to.
    Schedule 2 [Penalties: supplementary]:
    Lord Bassam of Brightonmoved Amendment No. 188:
    Page 40, line 4, after "General" insert "Commissioners"
    On Question, amendment agreed to.
    Lord Bassam of Brightonmoved Amendment No. 189:
    Page 40, line 29, leave out "an award of a tax credit" and insert "a tax credit for a person or persons for the whole or part of a tax year"
    The noble Lord said: Again, noble Lords will be familiar with the fact that a number of amendments are needed as a result of the fact that a distinction between an award of a tax credit and entitlement to that credit needed to be drawn more clearly. In this instance, these amendments fall into category one. With that brief explanation, I beg to move.
    Lord Higgins: I think it is the case that dividing these various amendments into different categories has proved very helpful in that it has speeded up our proceedings and has given them greater shape. The noble Baroness has been extremely helpful on a number of occasions, not only on this Bill but on others, in providing draft regulations and so on. I wonder if it might be possible—I do not ask for an immediate response—for her simply to provide us at the end of our proceedings and before Report stage a list of which amendments fall into the various categories. Otherwise we shall have to grind through Hansard ticking them off.
    Baroness Hollis of Heigham: I shall be delighted to provide a list.
    Lord Higgins: I thank the noble Baroness.
    On Question, amendment agreed to.
    Lord Bassam of Brightonmoved Amendment No. 190:
    Page 40, line 31, leave out ", or commence proceedings for it,"
    The noble Lord said: This amendment has already been debated outside this group. The six amendments in this group follow on consecutively; namely, Amendments Nos. 191 to 196. They all fall into category one.
    On Question, amendment agreed to.
    Lord Bassam of Brightonmoved Amendment No. 191:
    Page 40, line 34, leave out "into the award under section 18" and insert "under section 18 into the entitlement of the person, or the joint entitlement of the persons, for the tax year"
    On Question, amendment agreed to.
    Lord Bassam of Brightonmoved Amendments Nos. 192 to 196:
    Page 40, line 35, leave out from "if" to ", the" and insert "such an enquiry is made"
    Page 40, line 38, leave out "award" and insert "entitlement of the person, or the joint entitlement of the persons, for the tax year"
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    Page 40, line 41, leave out "an award of a tax credit" and insert "a tax credit for a person or persons for the whole or part of a tax year"
    Page 40, line 44, leave out. "award" and insert "entitlement of the person, or the joint entitlement of the persons, for the tax year"
    Page 41, line 2, leave out "into the award under that section"
    On Question, amendments agreed to.
    Schedule 2, as amended, agreed to.
    Clause 33 [Offence of fraud]:
    The Earl of Northeskmoved Amendment No. 197:
    Page 21, line 40, leave out "seven" and insert "ten"
    The noble Earl said: In moving Amendment No. 197, I speak also to Amendment No. 198. We have already had a detailed debate of the principles underlying these amendments earlier. I do not suppose that the Minister will view them any more favourably than he did previously. Accordingly, I do not propose to detain the Committee for long.
    Amendment No. 197 increases the maximum prison sentence available to courts in cases of fraud against the tax credit system from seven to 10 years, while Amendment No. 198 introduces a new clause defining the offence of aggravated tax credit fraud aimed at those who repeatedly commit fraud or obtain large sums from the system.
    The principles on which these amendments are based are well enough known to the Committee. None the less, I would like to make two substantive points. First, in rejecting a similar proposition in another place, the Financial Secretary argued that,
    "Dealing with the mischief is not made more effective simply by ratcheting up the national sentence".
    He promptly undermined, if not contradicted, that position by alluding to
    "the common law offence of cheating the public revenue: that can and will be used in appropriate circumstances. It allows the court to pass whatever period of imprisonment it feels is appropriate—there is no maximum sentence". [Official Report, Commons, 7/2/02; col. 1109]
    In other words—this may be of interest to Liberal Democrats—the regime the Government have in mind for the most determined and serious cases of fraud has no maximum sentence.
    Secondly, reliance on the existence of the offence of cheating the public revenue fundamentally misses the point. What is at issue here is the clarity of the message that we deliver to those who have in mind to commit a serious act of fraud against the tax credit system. If I may borrow a phrase from a different context: that message must be "clear and unambiguous". We contend that the most effective way to secure this, as well as achieving an element of deterrent, is to add a specifically targeted offence to the Bill. Potential fraudsters would then be under no illusions as to the consequence of their actions. I beg to move.
    Lord Bassam of Brighton: I make the point again that I do not think there is a difference between Members of the Committee in seeking to be tough on fraud. Clearly, these measures and amendments are designed to demonstrate toughness. There is no

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    difference between us in trying to get to the bottom of fraud and the way in which it can, subtly and otherwise, undermine the credibility of the system.
    Amendment No. 197 relates to Clause 33 and would introduce the specific offence of fraudulently obtaining tax credits. This currently has a maximum sentence of seven years' imprisonment, in line with the criminal offence of fraudulently evading income tax, which was introduced by the Finance Act 2000. The amendment would increase the maximum sentence for tax credit fraud to ten years.
    The amendment is unnecessary for two reasons. First— the noble Earl ought to think about this in relation to what a court will in fact do—experience shows that it is unlikely that any court will pass a sentence for tax or tax credit fraud in excess of or even close to seven years. I know it is historical, but I do not remember Ernest Saunders spending a great deal of time behind bars for what many people probably considered to be major fraud offences. Secondly, if there were a case of tax credit fraud that was so exceptional and abhorrent that a sentence in excess of seven years might seem appropriate, it would still be possible for the perpetrator to be charged with the common law offence of cheating the public revenue. This allows the court to pass whatever period of imprisonment it feels appropriate—a point drawn to our attention by the noble Earl. There is no maximum sentence.
    I hope, therefore, that the noble Earl will accept that while we support his objectives, the amendment is unnecessary and will add nothing to what is already available.
    In Amendment No. 198 the noble Earl proposes a new criminal offence for what he calls aggravated tax credit fraud, which would mean cases in which more than a specified sum of tax credits was at stake or in which there had been a previous fraud offence within the past five years in relation to tax credits or social security. It would open the way to a higher maximum sentence upon indictment.
    Members of the Committee will no doubt be aware that our policy on tax credit fraud is, in the majority of cases, to use civil penalties backed up by selective prosecutions to act as a firm deterrent against fraud. Cases in which there have been repeat offences are already part of the Revenue's published criteria for selecting cases for prosecution. Moreover the courts take any previous offences and the size of any fraud into account when setting sentence. However, experience shows that it is unusual for any court to pass a sentence for tax or tax credit fraud in excess of seven years, regardless of how aggravating the circumstances might be.
    As I have mentioned, there is an avenue available for dealing with particularly serious cases of the kind that the noble Earl has instanced or in which a sentence of more than seven years might seem appropriate. It is possible for the perpetrator to be charged with a common law offence of cheating the public Revenue. This allows the court to pass whatever period of imprisonment it feels is appropriate.
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    The noble Earl may be interested to know that one of the most serious cases of tax fraud in recent years was in February 2001, when Michael Richard Stannard, a tax barrister, was found guilty of cheating the public purse out of nearly £3.2 million. In that case, the judge made the following observation:
    "The profit was considerable and the punishment must reflect such gains. Other aggravating factors are the abuse of public trust by a professional man".
    His sentence was four-and-a-half years. No tax credit fraud has ever attracted a sentence that long. Thus, doubling the length of sentence, as suggested by the noble Lord would, I believe, appear somewhat pointless.
    The Earl of Northesk: I am grateful for the response from the Minister. If the Revenue are going to rely on the common law offence of cheating the public Revenue, that does beg the question: what is the useful purpose of Clause 33?
    Lord Bassam of Brighton: It is not a case of relying on it. The common law offence is there and it can be used. The point that it can be used as a backstop.
    The Earl of Northesk: That is somewhat at variance with the comments of the Financial Secretary in another place. However, I do not want to prolong our proceedings at this stage. For the moment, I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 33 agreed to.
    [Amendment No. 198 not moved.]
    Clause 34 [Powers in relation to documents]:
    The Earl of Northeskmoved Amendment No. 199:
    Page 22, line 8, leave out "serious"
    The noble Earl said: I beg to move Amendment No. 199, for one purpose only. Earlier in our proceedings the Minister was wholly resistant to drawing any distinction between fault and negligence. I wonder, therefore, why in this particular clause the word "serious" is used. I should like an explanation of the Government's thinking in limiting the powers of the Revenue to investigate only "serious" fraud, when that distinction is not used elsewhere in the Bill. I beg to move.
    5 p.m.
    Lord Bassam of Brighton: Clause 34 applies to tax credit fraud and confers two sets of powers to apply in relation to serious tax fraud. The first set of powers involves the production of documents. These powers are applied in respect of all tax credit fraud.
    The second set of powers involves the entry of premises with a warrant to search for documents. This second set of powers is applied only in respect of serious tax credit fraud. The noble Earl's amendment seeks to apply the second set of powers to all tax credit fraud.
    The powers in this clause are new powers in relation to tax credit fraud. They do not currently exist in relation to working families' tax credit, but we felt that

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    they were necessary to deal with the problem of organised criminal gangs engaged in tax credit frauds. These are significant powers which will be used only by specially trained officers from the Inland Revenue Special Compliance Office. The question of using them in normal tax credit inquiries will, we believe, never arise.
    However, as with any extension of powers, we have thought very carefully about the justification for the extension. We believe that all fraud is serious, whether it is a tax fraud or a tax credit fraud. To the extent that "serious" adds anything, it limits the powers to cases involving large amounts of money. There are natural limits to any one individual's tax credit entitlement and we do not believe that it would be right to limit the power to require the production of documents to cases of serious tax credit fraud. This is because there may be many factors in an individual claim that are indicative of organised fraud but the actual sums of money known to be in question at the time that the documents are required to be produced might not warrant the tag "serious".
    However, the position will be different for search powers. It is clearly much more intrusive physically to enter someone's premises and search for documents than it is simply to require them to produce documents. We have therefore been more cautious about extending these powers. We believe that the powers allowing the entry of premises should apply only if the sums of money involved are such that the Inland Revenue is in a position to demonstrate to a judge reasonable grounds for believing that there is serious tax fraud.
    These are not clear cut decisions and this is an area which should be approached with some caution. We have to balance the reasonable rights of the citizen against the need to tackle those who deliberately set out to cheat the tax credit system in an organised way. We feel that the provisions in Clause 34 strike the right balance. For those reasons I urge the noble Lord to withdraw the amendment.
    The Earl of Northesk: I am grateful for that answer. Perhaps I may press the Minister on a couple of points. What is the definition of "serious" in the Government's mind? Would it include instances of organised crime committing fraud against tax credits?
    Lord Bassam of Brighton: Of course.
    The Earl of Northesk: The noble Lord indicated that there was a figure that the Government had in mind as to where was the cut off for "serious" or "not serious". Can the noble Lord help us on that point?
    Lord Bassam of Brighton: As to the first point, I thought that I had made it clear that, yes, we do believe that organised criminal gangs come under the definition of "serious". As to the second point, it is very much a matter for the courts and is court-led.
    Earl of Northesk: I thank the Minister for his resonse. I shall look carefully at what he carefully at what he said in Hansard. In the meantime, I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
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    Clause 34 agreed to.
    Clause 35 [Interest]:
    [Amendment No. 200 not moved.]
    Baroness Hollis of Heighammoved Amendment No. 201:
    Page 22, line 27, leave out "a date thirty days after the time" and insert "the date thirty days after the appropriate date
    (2A) "The appropriate date" is—

    (a) in the case of an amount treated as an overpayment by virtue of section 27(6), the date of the decision under section 16 to terminate the award, and

    (b) in any other case, the date"

    On Question, amendment agreed to.
    Lord Bassam of Brightonmoved Amendment No. 202:
    Page 22, line 29, leave out "for the period"
    The noble Lord said: This is another of those consequential amendments. In this instance it falls into the now infamous category one. I beg to move.
    On Question, amendment agreed to.
    Clause 35, as amended, agreed to.
    Clause 36 [Appeals]:
    Baroness Hollis of Heighammoved Amendment No. 203:
    Page 23, line 6, leave out "17" and insert "(Decisions after final notice)"
    The noble Baroness said: In moving Amendment No. 203, I shall speak also to Amendments Nos. 204 to 209. Using the categories, which we are grateful to Members of the Committee for accepting, this group of amendments does two things: it continues to make the distinction between awards and entitlement under category one; and, because of category four, has the consequential effect of splitting Clause 17. I beg to move.
    Lord Higgins: Do they all cover both sections or are some of them specific to Clause 17?
    Baroness Hollis of Heigham: Amendments Nos. 203 and 205 refer to Clause 17. The rest are in the first category relating to awards and entitlement. I am doing this on the wing and if I have made a mistake I will write to the noble Lord.
    To make the situation clear, Amendments Nos. 203, 205, 206 and 208 are about the splitting of Clause 17. Amendments Nos. 204, 207 and 208 are about the separation between entitlements and awards.
    On Question, amendment agreed to.
    Baroness Hollis of Heighammoved Amendements Nos. 204 to 209:
    Page 23, line 7, leave out "period" and insert "tax year and any revision of that decision under that section"
    Page 23, line 10, leave out "17" and insert"(Decisions after final notice)"

    CWH 215
    Page 23, line 11, leave out from "decision" to "in" in line 12 and insert "must be made under subsection (6) of section (Decisions after final notice)"
    Page 23, line 13, leave out "period" and insert "tax year"
    Page 23, line 14. leave out "(6)" and insert "(1)"
    Page 23, line 15, leave out "period" and insert "tax year"
    On Question, amendments agreed to.
    Clause 36 agreed to.
    Clause 37 [Exercise of right of appeal]:
    Baroness Hollis of Heighammoved Amendment No. 210:
    Page 23, line 19, at end insert "(or, in the case of a decision to which section 22(3) applies, the date of the decision)"
    On Question, amendment agreed to.
    Earl Russellmoved Amendment No. 211:
    Page 23, line 19, at end insert—
    "() The Secretary of State shall have discretion to allow an appeal out of time where the delay was caused by illness or other circumstances not within the control of the claimant."
    The noble Earl said: The amendment deals with the question of appeals out of time. It would protect the case for the claimant whose appeal is out of time because of illness or other circumstances outside the claimant's control. The general line of argument is familiar to the Minister. There are cases in which one simply is not capable of appealing in time, rape victims, for example, are frequently unable to tell their story within the normal time. It is a normal human phenomenon; we are not going to change it. Since we are not going to change it, we might as well live with it on rather more generous terms than we sometimes do. I beg to move.
    Lord Higgins: This seems an admirable amendment and no doubt we will have a sympathetic response from the noble Baroness. If she is going to respond sympathetically, perhaps she could tell us who is going to exercise such discretion, since I doubt whether the Secretary of State personally will be involved.
    Baroness Hollis of Heigham: This amendment would allow appeals to be made more than 30 days after the notice of a decision is issued. I agree with the sentiment behind it. There are obviously cases in which it is inappropriate to refuse an appeal that has strictly been made out of time. I am equally delighted to say that this mechanism already exists under Section 49 of the Taxes Management Act 1970, which allows someone to ask the Inland Revenue to accept a late appeal if there was a reasonable excuse—what we would call in social security a good cause—for not making the appeal under the time limit.
    In response to the noble Lord, Lord Higgins, under that section the matter is decided by the commissioners if the Inland Revenue does not agree with the appellant. Obviously there are transitional arrangements, but even so the ability to accept late
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    appeals continues. I hope that noble Lords are reassured by the fact that current law goes further than the amendment.
    Earl Russell: I am delighted by the Minister's response. I have one further question. Does the Taxes Management Act apply to every part of the matter covered by the Bill, regardless of whether it crosses the line, which exists so clearly in the minds of some people, between tax and benefits?
    Lord Higgins: I also have one rider to add. Does the existing legislation apply equally to payments as well as receipts?
    Baroness Hollis of Heigham: I do not know whether the noble Lord is taking me beyond tax credits, but that is certainly the case once responsibility for the appeals transition period is over. The noble Lord's question may have a meaning other than the superficial, perhaps applying to behaviour. The situation should be fine once the transitional arrangements have finished. It applies to Part 1 tax credits, not to child benefit. I do not know whether that helps him. In other words, it applies to all taxes and tax credits—including those that he prefers to describe as benefits—apart from child benefit. We are about to come to the clauses on child benefit and it may be better if we deal with those under the Clause 44 stand part debate.
    Earl Russell: I am most grateful to the noble Lord, Lord Higgins, for his support. I am grateful to the Minister for her very kind words. Perhaps we might leave it to the Minister's discretion between now and Report to see whether any further tidying up in this area is needed. It is something I am entirely prepared to trust to her judgment. Meanwhile, I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Baroness Hollis of Heighammoved Amendment No. 212:
    Page 23, line 21, leave out "shall be" and insert "is"
    On Question, amendment agreed to.
    Baroness Hollis of Heighammoved Amendment No. 213:
    Page 23, line 28, after second "the" insert "General Commissioners or Special"
    On Question, amendment agreed to.
    Clause 37, as amended, agreed to.
    5.15 p.m.
    Baroness Hollis of Heighammoved Amendment No. 214:
    Before Clause 38, insert the following new clause—
    "ANNUAL REVIEW
    (1) The Treasury must, in each tax year, review the amounts specified in subsection (2) in order to determine whether they have retained their value in relation to the general level of prices in the United Kingdom as estimated by the Treasury in such manner as it considers appropriate.

    CWH 217
    (2) The amounts are monetary amounts prescribed—

    (a) under subsection (1)(a) of section 7,

    (b) for the purposes of any of paragraphs (a) to (d) of subsection (3) of that section,

    (c) under section 9,

    (d) under section 11, otherwise than by virtue of section 12. or

    (e) under subsection (2) of section 13, otherwise than by virtue of subsection (3) of that section.

    (3) The Treasury must prepare a report of each review.
    (4) The report must include a statement of what each amount would be if it had fully retained its value.
    (5) The Treasury must publish the report and lay a copy of it before each House of Parliament."
    On Question, amendment agreed to.
    Clause 38 [Persons subject to immigration control]:
    On Question, Whether Clause 38 shall stand part of the Bill?
    Earl Russell: This is a very little clause but there is possibly a great deal contained within it. It may be that the Minister will attempt to reassure me that this is in part the result of the style of draftsmanship favoured at the moment—the catch-all style of draftsmanship which is designed to provide for every contingency. Certainly, as drafted, this clause covers an awful lot. It deals with persons subject to immigration control and it says,
    "Regulations may make provision in relation to persons subject to immigration control or in relation to prescribed descriptions of such persons"—
    which could mean all sorts of things—
    "for excluding entitlement to, or to a prescribed element of, child tax credit or working tax credit (or both), or … for this Part to apply subject to other prescribed modifications".
    It then says that,
    "'Person subject to immigration control' has the same meaning as in section 115 of the Immigration and Asylum Act 1999".
    There is not much that a Secretary of State could not do under that clause. The Minister will no doubt come back with an answer that relates firmly to her present intention. It is possible that what she has to say about her present intention may be perfectly acceptable. I keep an open mind on that until I have heard it. What is certain is that the Minister is not going to be in office several centuries hence.
    This Act may remain on the books for goodness knows how long and it does allow people to respond to grand panic and change everything that they have in the rules simply—if I may so put it—with a stroke of the pen. That is a temptation into which Ministers should not be led.
    It is no good telling me that there are certain things which simply will not be done. Most of the way through my political life, in fact before it began in any serious sense, right back to the Kenya Asians in 1977, things have been done to persons subject to immigration control which I had believed all my life up to that point no British Government could ever possibly have done. I can still remember David Frost, on "That Was The Week That Was", appearing
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    accompanied by a laurel wreath labelled "British Passport Second Class"—a clear crib from the opening shot of "Passport to Pimlico".
    It is no good telling me, therefore, that these powers will not be abused, though they could be abused. We have no idea who is going to be in office in this country 30 or 40 years hence. I think we should not lead them into temptation. The Minister should tell us what she wants to do with the clause. Then we could have bands which would probably allow her to do what she wants.
    If she is not satisfied with that. then we could consider another course. However, we should not include in the Bill a Cambyses clause under which the Secretary of State may do whatever he likes. Parliaments do not always like what Secretaries of State seek to do. If they confer Secretaries of State with such a power, then in effect that is an act of abdication, something which this Parliament ought not to do. We are not in the business of trusting the executive to that extent. I beg to move.
    Baroness Hollis of Heigham: I wish to make two opening points. First, these powers in essence continue the existing powers introduced under the existing tax credits legislation, but in a new format for reasons that I shall explain. Secondly, the regulatory powers attached to them, which the noble Lord queries, were regarded as satisfactory by the Delegated Powers and Regulatory Reform Committee. I know that that committee puts the concerns of the noble Earl high on its agenda if it believes that any powers may be used improperly. It may he helpful to add a little further detail to the first of my points.
    Clause 38 provides for regulations to be made about the access of people subject to immigration control to tax credit. Rules about immigration control are a matter for the Home Office set out under existing legislation, in particular the Immigration and Asylum Act 1999, to which the clause refers. The cross-reference made in the clause is very precise to the legislation from which it is drawn. Therefore, should any changes in Home Office legislation be made, then either amending legislation or regulatory reform orders would be required.
    The rules about immigration are a matter for the Home Office and are set out in existing legislation. The noble Earl will know that it is a longstanding requirement of the immigration rules that those coming to the United Kingdom should be able to support themselves without recourse to public funds. For this reason, persons subject to immigration control are not able to claim WFTC and DPTC. We shall bring forward appropriate regulations in due course.
    A power to make regulations has been taken because it would not in itself have been sufficient simply to insert references to working tax credit and child tax credit in the Immigration and Asylum Act 1999. Working tax credit and child tax credit would be claimed jointly by members of a couple—which is why we need an assignment—rather than by a particular individual on behalf of the couple, as is currently the case with regard to income support, income-based

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    jobseeker's allowance, WFTC and DPTC. I know that the noble Earl welcomes the joint claim, which is why we have to introduce this further amendment.
    Where only one partner in a couple is a person subject to immigration control, it will be necessary to modify the provisions of Part 1 in so far as they relate to the treatment of couples to make clear how the other partner is to be treated. It is also likely that other rules such as those concerned with the engagement of the claimant in qualifying remunerative work and his or her responsibility for a child, will require modification.
    I repeat, the clause does not introduce any new principle of policy. Quite properly, it makes clear on the face of the Bill that, in line with the established approach under the immigration rules, persons subject to immigration control may be excluded from entitlement to the new tax credits. In doing so, it goes no further than the approach already taken with regard to a range of different systems of support under existing legislation, but it does allow us to make some modifications to the provisions of Part 1 to ensure that cases where we need to treat differently the two people comprising a couple—because only one is subject to immigration control—are dealt with appropriately.
    There is nothing new in the clause. The regulations have been accepted as appropriate by the Delegated Powers and Regulatory Reform Committee. With those reassurances, I hope that the noble Earl will feel able to withdraw his proposal that the clause should not stand part of the Bill.
    Earl Russell: If the noble Baroness were prepared to draft a clause saying precisely what she said she intended to do: that people subject to immigration control are to support themselves without recourse to public funds, and that we need further regulations to make this apply to joint claims by couples, I would not say a word to oppose such a clause. However, I do not understand why the clause is so widely drafted that it will allow that policy intention to take place. I do not see, for example, why we need to refer to,
    "prescribed descriptions of such persons".
    That invites a distinction by nationality which, though it probably would not fall foul of the European Convention on Human Rights, would not necessarily be understood to do so in the Home Office. Its decision-making in relation to immigration is, I believe, the worst part of any interim decision-making in British government. Nor has the Minister filled me with confidence by saying these powers have been here before. I alluded at the beginning of my speech to policy introduced in 1977. This country's record in the whole of the second half of my lifetime on questions relating to asylum and immigration has done more to make me ashamed of my country than anything else done by a British government since the invasion of Suez. To say that it is not new will not do anything to reassure me. Nothing short of a more tightly defined set of vires would do that, but in the meantime I see no point in further using up the Committee's time today and I beg leave to withdraw the amendment for the time being.
    CWH 220
    Amendment, by leave, withdrawn.
    Clause 38 agreed to.
    Clauses 39 to 43 agreed to.
    Schedule 3 [Tax credits: consequential amendments]:
    Baroness Hollis of Heighammoved Amendment No. 215:
    Page 42, line 2, at end insert—
    "Legal Aid, Advice and Assistance (Northern Ireland) Order 1981 (S.I. 1981/228 (N.I. 8))
    3A The Legal Aid, Advice and Assistance (Northern Ireland) Order 1981 has effect subject to the following amendments.
    3B In Article 3(1)(b) (persons eligible for advice and assistance), for the words after "income support" substitute "or an income-based jobseeker's allowance (payable under the Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/2705 (N.I. 15)))."
    3C In Article 7(2) (contributions from persons receiving advice or assistance), for the words from ", an income-based" to "family credit" substitute "or an income-based jobseeker's allowance (payable under the Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/2705 (NJ. 15)))".
    3D In Article 14(5) (assessment of disposable capital and income and of maximum contribution), for the words after "income support" substitute "or an income-based jobseeker's allowance (payable under the Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/2705 (N.I. 15))).""
    The noble Baroness said: Amendment No. 215 is technical, but does not fit within the four categories. I hope that the noble Lord, Lord Higgins, will be pleased that I have to invent a fifth category, making sure that there is a read-across to Northern Ireland. The amendment simply makes consequential amendments to the Legal Aid, Advice and Assistance (Northern Ireland) Order by removing references to family credit. As a result of the Tax Credits Act 1999, those references are taken to be references to WFTC, which will be abolished by the Bill, leaving the references redundant. Similar references to DPTC are contained in secondary legislation, which is a matter for the Lord Chancellor's Department. With that explanation, I hope that the Committee will accept these minor consequential amendments. I beg to move.
    Lord Higgins: These are more than little consequential amendments. To start with, they do not seem to be consequential on anything that has happened before. They seem to be somewhat standalone amendments. Again, they bring out the extraordinary extent to which the draftsman or draftsmen—it may have changed over time—have failed to introduce a sensible Bill. It seems extraordinary that they should be unaware of this point and perhaps even more surprising that the Minister in another place, Dawn Primarolo, also appeared equally unaware of the significance for Northern Ireland.

    CWH 221
    More generally, where do the relevant legal aid considerations for the rest of the United Kingdom appear? I understand that the Bill implements legal aid provisions for Northern Ireland, but I am not clear where the legal aid provisions for England, Wales and Scotland appear.
    Baroness Hollis of Heigham: This is a matter for the devolved administrations and negotiations have been going on. The provisions for Scotland are contained in paragraphs 6, 7 and 8 of Schedule 3. I understand that we do not need anything for the UK, because legal aid in England and Wales is a matter for secondary legislation made by the Lord Chancellor's Department, not a matter for the Bill.
    I am sorry to give such a hesitant response but the noble Lord caught me on that one. Northern Ireland is covered by this amendment; Scotland in Schedule 3, page 42, paragraphs 6 to 8; and it is not necessary for England and Wales as it comes under secondary legislation from the Lord Chancellor's Department.
    Lord Higgins: I am not clear why the Lord Chancellor's Department was aware of the Tax Credits Bill as we have not yet passed it. How do the powers of the Lord Chancellor's Department include the provisions for tax credits which at the moment do not exist? Are we to have some subsequent legislation, secondary or otherwise, from the Lord Chancellor's Department? Would it not be more convenient, as far as England is concerned, to include it in the Bill?
    As regards the delegated side of the matter, there is a reference on page 42 to the Legal Aid (Scotland) Act 1986. Was Scotland devolved in 1986?
    Baroness Hollis of Heigham: The Legal Aid (Scotland) Act 1986 contains references to WFTC:—it cannot be 1986; it must be 1996—and DPTC which should become redundant. Therefore it is good practice to remove those references. However, the provision of legal aid and assistance in Scotland is a matter for the Scottish Parliament. I understand that a review is currently taking place.
    Lord Higgins: WFTC did not exist in 1986.
    Baroness Hollis of Heigham: That is why I changed it to 1996. Perhaps I may write to the noble Lord. I quite agree with him. It states that the Legal Aid (Scotland) Act contains references which become redundant. That must be because WFTC and DPTC replaced family credit. That is my understanding, but if I am wrong I will come back to the noble Lord on that.
    Lord Higgins: We are still left with the problem that we have got this new schedule in at this late stage when no one in the House of Commons appears to have noticed it at all. However, I look forward to receiving the Minister's letter.
    Baroness Hollis of Heigham: It is conventional that we do read-across where need be to Northern Ireland. I take the point that perhaps this could have been done earlier. That is all that is going on here. I apologise for
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    faltering on the implications for England. Scotland and Wales and so on, but that had not crossed our bailiwick as a particular matter of concern.
    On Question, amendment agreed to.
    Baroness Hollis of Heighammoved Amendment No. 216:
    Page 44, line 35, leave out "under an award made"
    The noble Baroness said: I beg to move.
    Lord Higgins: In which category is Amendment No. 216? Amendments Nos. 219, 224 and 227 are government amendments.
    Baroness Hollis of Heigham: Amendments Nos. 216, 219, 224 and 227 make the distinction between awards and entitlement. They are therefore category one.
    On Question, amendment agreed to.
    Baroness Hollis of Heighammoved Amendment No. 217:
    Page 44, line 37, at end insert—
    "22A In section 39(1), (2) and (3) (rate of widowed mother's allowance and widow's pension), for "sections 44 and" continue to substitute "sections 44 to"."
    The noble Baroness said: I am afraid we come back again to my fifth category. Amendments Nos. 217, 218, 220, 221, 225, 226, 228 and 229 are minor technical amendments which are consequential on the repeal of Section 45A of the Social Security Contributions and Benefits Act 1992 and its Northern Ireland counterpart. Those repeals are effected by Amendments Nos. 220 and 228 respectively.
    Section 45A of the 1992 Act, as amended consequentially, provides that WFTC and DPTC may be taken into account when calculating the earnings factor relating to SERF'S entitlement. There are two reasons why this subsection is now redundant. First, the abolition of WFTC and DPTC; and, secondly., the reforming of SERPS through SS2, the state second pension.
    The abolition of WFTC and DPTC would not in itself make Section 45A redundant. Indeed, the Bill contained an amended version of that section which is now removed by Amendment No. 220, and by Amendment No. 228 in regard to Northern Ireland. The amended version of Section 45A is not needed because SERPS is reformed through the state second pension from 2002/2003. Therefore the new tax credits will never have any effect on the earnings factor for SERFS. Thus, Section 45A is repealed and these amendments simply remove any consequential references to that section in the 1992 Act. It is very technical; it simply seeks to leave the legislation in a clear position, free of redundant references. I hope that will address the concerns of the Committee. I beg to move.
    Lord Higgins: I understand that non-reference to SERFS. But where is the reference to the state second pension?
    Baroness Hollis of Heigham: That is not relevant because the state second pension carries those powers within it.
    On Question, amendment agreed to.
    Baroness Hollis of Heighammoved Amendments Nos. 218 to 221:
    Page 44, line 39, at end insert—
    "23A In section 39C(1), (3) and (4) (rate of widowed parent's allowance and bereavement allowance), for "45A" substitute "45"."
    Page 45, line 20, leave out "under an award made"
    Page 45, line 21, leave out paragraph 25
    Page 45, line 46, at end insert—
    "25A In section 48BB(5) and (6) (entitlement to category B retirement pension by reference to certain benefits), for "45A" substitute "45".
    25B In section 51(2) and (3) (category B retirement pension for widowers), for "45A" substitute "45"."
    On Question, amendments agreed to.
    [Amendment No. 222 not moved.]
    Earl Russellmoved Amendment No. 223:
    Page 46, line 4, at end insert—
    "(4) In sections 170 and 172 to 174 (except section 172 (5)) of that Act, at all places where it appears—
    (a) after "Secretary of State" insert "or Treasury"; and
    (b) for "his functions" substitute "their functions".
    (5) In section 170 (5) of that Act, after paragraph (b) insert—
    "() the provisions of the Tax Credits Act 2002"."
    The noble Earl said: I rise to move this amendment for three purposes: first, to thank the Minister very warmly for tabling Amendment No. 255 which is grouped with it; secondly, to listen to the Minister explaining the reasons why Amendment No. 255 achieves our joint purpose better than my Amendment No. 223—there is a fairly high possibility that I might be convinced by what the Minister has to say on that subject; and, thirdly, simply to suggest that in any future transfer of these types of function from the Department for Work and Pensions to the Inland Revenue, it should go into the model articles for the drafting of Bills that there should be a reference to the Social Security Advisory Committee.
    Every time we have had a tax credits Bill, it has been moved from the Floor of the House; every time Ministers have accepted it; and every time legislation has been the better for it. It might therefore be better if this became part of the automatic practice on this subject. I thank the Minister very warmly. I beg to move.
    Lord Higgins: Perhaps I might say a word about Amendment No. 255 on advisory bodies and consultation in relation to the Social Security
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    Advisory Committee. As the noble Earl, Lord Russell, rightly pointed out, it has been omitted in some previous legislation.
    Baroness Hollis of Heigham: Amendment No. 255 was also tabled by the noble Earl, Lord Russell. There are no government amendments here.
    Lord Higgins: I was not referring to government amendments. I was referring to the noble Earl.
    Baroness Hollis of Heigham: The noble Earl, Lord Russell, indicated that Amendment No. 255 was a government one which therefore overtook his and I was trying to suggest that that was not the case.
    Lord Higgins: I think the noble Earl, if I may presume to say so, was mistaken in that.
    Amendment No. 255, as it appears on the Marshalled List, is a new clause after Clause 61 in the name of the noble Earl. I was seeking to support it, with some qualifications; namely—as he rightly points out—it is frequently the case that on other legislation reference to the Social Security Advisory Committee has been omitted, which he and I would both agree is perhaps unfortunate. What worries me about it is that, though on previous Bills we have succeeded in incorporating references to the Social Security Advisory Committee, it is only on very rare occasions that the Government ever seem to refer anything to it, or indeed to take its advice. Perhaps the Minister could tell me I am wrong about that.
    Baroness Hollis of Heigham: First, the rules are that the Government have to refer amendments to the Social Security Advisory Committee to see whether it wishes to consult on them if those amendments are being introduced more than six months after the primary legislation. That means that the regulations would be scrutinised within the framework of the Bill. Because the Government have been so effective in producing regulations so rapidly in conjunction with primary legislation, it may be that the Social Security Advisory Committee have less work to do as a result of the activity of your Lordships' House. That may be the explanation with regard to the noble Lord's second point.
    On his first point about the role of the Social Security Advisory Committee, I ask the noble Lord to withdraw his amendment because, in practice, we have an informal and good working relationship. The Social Security Advisory Committee is consulted and its views are taken into account informally by the Inland Revenue on matters such as WFTC and DPTC. The Social Security Advisory Committee was set up, however Secretary of State for Social Security, now the Department for Work and Pensions. It has no statutory basis of authority vis-à-vis the Inland Revenue or the Treasury.
    However, because of the pressure rightly expressed on previous Bills, and because of the recognition on all sides of the value of the committee's experience, it was consulted about the proposed introduction of these two new tax credits. Officials from the Inland

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    Revenue, the Treasury and the Department for Work and Pensions have met the Committee to discuss the Government's proposals. They are working together and, as far as I am aware, the relationship is entirely satisfactory.
    I hope that noble Lords will accept that the Board of Inland Revenue is a statutory body with statutory duties set out under the Inland Revenue Regulation Act 1890, with a clear line of accountability. The Social Security Advisory Committee is an entirely separate statutory body with different lines of accountability and different formal responsibilities. It works well and it is clear on its remit. In practice, however, informal consultation takes place on issues of inland revenue which would benefit from exposure to its experience.
    With those remarks, I hope that the noble Lord will feel able to withdraw both of his amendments.
    Lord Higgins: Why should the Social Security Advisory Committee not have the same status in relation to the Inland Revenue on matters which hitherto have been the responsibility of the Department for Work and Pensions, as they had with the Work and Pensions Department? Surely the Inland Revenue will be in need of advice on matters with which, until now, they have had nothing to do?
    Baroness Hollis of Heigham: It has worked very well since we established the WFTC and the DPTC. I have attended meetings of the Social Security Advisory Committee and not once has it complained that there was any problem with the arrangements we have established. As I have said, the Social Security Advisory Committee is a formal statutory body appointed by the Secretary of State for DWP and it cannot simultaneously have dual responsibility. In practice, however, the effective working between the two departments and the use of the Social Security Advisory Committee not only has not given rise to complaint, but seems to have been entirely satisfactory. If it is not broken, I suggest that we do not try to meddle with it.
    Earl Russell: First I must confess my error. It was a most palpable hit and I am sorry for it. I can only say that, as I am sure the Minister is aware, during the exam season academics tend to become rather cross-eyed.
    I accept what the Minister said about consultation between the Social Security Advisory Committee and the Inland Revenue, but the usefulness of the Social Security Advisory Committee is not limited to that role. When it produces a report, normally it is made available to the House. It is put in the Printed Paper Office at the same time as the regulations.
    It is a very common perception that the matter of this Bill is not particularly easy for the layman to understand. So a clear exposition by an independent body, before the Social Security Advisory Committee thinks about regulations under this Bill, could be of the very greatest use for our deliberations. That has happened in many other cases.
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    The principle of these amendments was conceded in working families' tax credits to my noble friend, Lord Goodhart. I am not aware that the Inland Revenue has tottered as a result. I do not see that there can be any really serious objection. If the line of accountability is an issue, perhaps the Treasury may claim—as it very often does—the power to consent to appointments made to the committee, which might be a perfectly fair quid pro quo. However, I think that there is still a matter to investigate, although we cannot take it any further today. I am not persuaded by all the Minister's arguments in spite of having been so palpably gentlemanly, as ever. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Baroness Hollis of Heighammoved Amendments Nos. 224 to 229:
    Page 46, line 34, leave out "under an award made"
    Page 46, line 36, at end insert—
    "31A In section 39(1), (2) and (3) (rate of widowed mother's allowance and widow's pension), for "sections 44 and" continue to substitute "sections 44 to"."
    Page 46, line 38, at end insert—
    "32A In section 39C(1), (3) and (4) (rate of widowed parent's allowance and bereavement allowance), for "45A" substitute"45"."
    Page 47, line 20, leave out "under an award made"
    Page 47, line 21, leave out paragraph 34.
    Page 47, line 46, at end insert—
    "34A In section 48BB(5) and (6) (entitlement to category B retirement pension by reference to certain benefits), for "45A" substitute "45".
    34B In section 51(2) and (3) (category B retirement pension for widowers), for "45A" substitute "45"."
    On Question, amendments agreed to.
    5.45 p.m.
    Baroness Hollis of Heighammoved Amendment No. 230
    Page 48, line 33, at end insert—
    "42A In Article 18C(7)(b) (direct payments), before "or of" insert ", of any element of child tax credit other than the family element, of working tax credit"."
    The noble Baroness said: This again is a group of minor, technical amendments consequential on the abolition of WFTC and DPTC and their replacement. They come into category five of read-acrosses to Northern Ireland. Amendments Nos. 230 and 245 go together to make consequential changes to Article 18C(7)(b) of the Children (Northern Ireland) Order 1995. That article allows those who have certain services paid for by a local authority on their behalf—primarily daycare services for children in particular need—and who receive the specified benefits or elements of tax credits set out in the article, not to have to repay the cost of those services to the local authority. They are analogous changes to that effect.

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    I can go into more detail if Members of the Committee wish. It is to ensure that the Northern Ireland legislation is congruent with these changes. I beg to move.
    On Question, amendment agreed to.
    Schedule 3, as amended, agreed to.
    Clause 44 [Interpretation]:
    Baroness Hollis of Heighammoved Amendment No. 231':
    Page 25, line 3, at end insert—
    ""the current year income" has the meaning given by section 7(4),"
    The noble Baroness said: In moving Amendment No. 231, I shall speak also to Amendment No. 233. We go back to our former category that the Committee has been happy to accept. This amendment removes references to "relevant income". In other words, it is category three. There is a separation between "current year" and "previous year" and it tidies up the drafting as a result. I beg to move.
    On Question, amendment agreed to.
    Baroness Hollis of Heighammoved Amendments Nos. 232 to 234:
    Page 25, line 11, at end insert "and (6)"
    Page 25, line 11, at end insert—
    ""the previous year income" has the meaning given by section 7(5),"
    Page 25, line 17, at end insert "(for the purposes of child tax credit) or by regulations under section 10(4) (for the purposes of working tax credit)"
    On Question, amendments agreed to.
    On Question, Whether Clause 44 shall stand part of the Bill?
    Lord Higgins: It would be helpful with this clause to take all the clauses that are listed in the grouping which is available to the Committee, which suggests that we should leave out not simply Clause 44 but a whole string of other clauses and schedules. This debate seeks to bring out the point to which we have referred on previous occasions; that is, the problems arising with regard to scrutiny of the Government's legislation and, in particular, the way in which your Lordships' House seems now to be assuming the role of the major scrutiniser of government legislation because of the so-called "modernisation programme" that is taking place.
    In making my remarks I in no way wish to criticise the other place; I wish to criticise the Government. If one looks at the events that followed the Second Reading of this Bill on 10th December in col. 683 in another place, one will see a heading which appears as "Tax Credits Bill Programme". It then sets out various provisions which shall apply to the Tax Credits Bill. Those were such that the Opposition felt it appropriate to vote against the programming motion. They were, perhaps not surprisingly, defeated by 314 votes to 155, reflecting the size of the Government's majority.
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    The reality is that the debate on these matters was so heavily curtailed that, I think without exception, the clauses that I have listed were not debated at all in another place. The matter comes to this House completely raw from that point of view. That is a very serious situation indeed.
    The Government are programming the proceedings in a way that in times past would have been regarded as a guillotine. Guillotines have been imposed in the past only when there has been an obvious filibuster from the Opposition, of whatever party, or for some other very extreme reason, as my noble friends who have been in another place will well remember. That was possible only after a full half-day's debate on the need for the guillotine.
    The programming of those proceedings, which affect the Bill as it now stands, involved no debate. The Motion was simply moved and the House divided forthwith, so there was no opportunity for the House to debate the matter and suggest that the amount of time that had been made available was inadequate. The programme was very stringent indeed, curtailing very considerably the proceedings in Standing Committee and the consideration on Report, for which it was said that consideration, so far as not previously concluded—that was pretty optimistic—be brought to a conclusion at 9 p.m. on the day on which the proceedings were commenced, or, if that day was a Thursday, at 6 p.m. This Bill has rightly preoccupied your Lordships here in the Committee for a considerable period of time, and is likely to do so again on Report and Third Reading, yet its consideration on Report in the Commons was restricted to a one-day debate terminating at 9 p.m. The Third Reading was also given a very short period of time, to conclude at 10 p.m. on the day on which the proceedings were commenced, or, if it was a Thursday, by 7 p.m. That was a wholly inadequate provision of time.
    There is no indication of any filibuster in the report of the Committee and Report stages in another place. On the contrary, Conservatives and Liberal Democrats sought to give the matter reasonable time for the debate and they did not have time available to look at the matter properly. Had they done so, we might not have had what I can only describe as the fiasco with the drafting of the Bill. Inevitably, given the pressures on Ministers, when they know that the Bill is going to be programmed they do not give it the attention that they might otherwise do because they have other priorities. As a result, the serious flaws in the Bill that have been so apparent during the course of our proceedings were not detected until the day before we were scheduled to start our proceedings in this place.
    It is also worth noting paragraph (2) of the Commons programme Motion:
    "All proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) shall be programmed."
    Given how tight the original programming was, that is a very stringent and inefficient provision. If the Government continue to proceed in that way, despite the efforts of your Lordships' House, the result will be

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    badly drafted, inadequately scrutinised legislation, with serious consequences that will result in revision subsequently.
    Of course it can be said that the Government's programme is heavy and that restraints on parliamentary time are limiting. However, if one looks along the corridor today, one is bound to say that one does not see an immense amount of activity. The other place is on holiday this week; we are not. Time could have been spent on scrutinising the clauses to which I refer. We shall need to consider, at some stage, whether this has not got out of hand and whether we need to reappraise the way in which Parliament is now being compelled—by the use of a large government majority—to consider legislation.
    We could consider various aspects of the individual clauses and no doubt we shall wish to do so when we come to Report stage. However, I shall take only one example, that of Schedule 5, which is included in the list before us. The schedule contains important provisions allowing the disclosure of information which otherwise would be in breach of the Data Protection Act, raising important issues with regard to the Human Rights Act 1998 and whether it is consistent with that legislation. No doubt we shall wish to return to this and other points when we come to our deliberations on Report.
    Having said that, one must consider why the Commons did not have an opportunity of raising that matter, along with the various ways in which the Human Rights Act may be contravened despite the attention to the matter given by the Minister herself in her remarks.
    This is a reflection of the extent to which the Government are seeking to ride roughshod over the parliamentary process, something which is greatly to be deplored. At some stage we need to reappraise the overall way in which this House is carrying out its duties and the way in which the Government are effecting their procedures in another place.
    Earl Russell: I thank the noble Lord, Lord Higgins, for introducing a subject which is, indeed, overdue for consideration. If I may say so, it is something in the region of four centuries overdue for consideration.
    The primacy of another place is an historical myth. What happened in 1688 was not that Parliament gained control of the executive, but that the executive, by an increase in its revenue from under £1 million to over £5 million, gained the power of patronage which allowed it to buy a majority in another place. Ever since, another place has come increasingly under the influence of the executive. When people refer, during discussion of the reform of this House, to the primacy of another place, what they really mean is the primacy of Her Majesty's Ministers as rubber stamps in another place. That dependency goes right back to the days of Sir Robert Walpole and probably well before. So this matter is certainly overdue for consideration.
    I know perfectly well that large parts of the Bills that come before us have never been considered in another place. The first Bill I considered here, the Education
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    Act 1988, dealt with my profession in a great many issues vital to myself and all my colleagues as a matter of survival. Out of 11 amendments I tabled to deal with those issues, only one touched on a clause which had been so much as discussed with a syllable in another place. There is nothing new in the idea that another place does not consider legislation.
    That said, I believe the problem does wider than simply the over-aggrandisement of the executive. The amount of business necessarily grows. That has been true for a long time. If one traces the statute book back to its earliest years—except for a blip under Henry VIII when it grew at the same speed as his waistline—it reveals a more or less steady exponential growth, getting faster as time goes by.
    The noble and learned Lord, Lord Simon of Glaisdale, had the statistics at his fingertips. I regret to say that I do not. But they are quite important. So something is going on here beyond simply governments accruing more power. Of course, life is getting more complicated and there are more things about which it is necessary to legislate and there are more things which become the responsibility of government—often rightly—and one cannot complain about that.
    There are, however, other reasons why the other place produces so much material, a great many of which are, to my mind, extremely persuasively set out in the report of the committee chaired by the noble Lord, Lord Renton—to whom I have often listened with profit and interest on this subject—on the preparation of legislation. That report was delivered in 1974.
    The noble Lord, Lord Richard, and the noble Lord, Lord Henderson of Brompton, were members of that committee. It was a high-powered committee. It stressed—the Minister is no doubt very familiar with my arguments but they are worth perhaps a little or the Committee's time—the tendency of governments to legislate in over great detail; the tendency of governments to treat a Bill like a toddler in leading reins and not to let it grow up and develop and take its form as it is shaped through judicial interpretation, but to insist, as the Committee put it, on controlling the interpretation, pre-judging the judgment of the judge in a case which has not yet arisen or been imagined.
    That leads to these catch-all clauses which take up much of our time. In a great many cases it leads to an attempt to proceed—the CSA in all its incarnations is a clear example of this—by over-exhaustive, total enumeration of detail. As soon as you attempt to proceed in that way, then you have to have another Act of Parliament in order to undo the last Act of Parliament.
    The noble Lord, Lord Bassam of Brighton, remembers this point being made in our discussion on transport regulations in the Chamber. He had the kindness to say that he thought much of what I said was right. This tendency towards over-prescriptive, over-detailed, over-fussy legislation is one which makes the problem of pressure on parliamentary time a great deal worse than it should be. We should be

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    prepared to leave a higher proportion of the task of legislation to the judges and to express points instead—as the committee of the noble Lord, Lord Renton, suggested—in terms of a general principle, which could then be applied, interpreted and fitted to the facts of a case—which a draftsman could not possibly foresee because it has not happened—as matters evolve. In that way, the statute wire, as it were, would be carrying a great deal less electric current and it would take up a great deal less time of the House. In that way we might all get on a great deal faster. Meanwhile, until that happy day arrives, it means that this House—equipped with power and teeth—is more essential than ever.
    6.00 p.m.
    Baroness Hollis of Heigham: I simply refuse to get into a debate, much as I would on another occasion— an Unstarred Question or whatever—about the relative roles and responsibilities of this House to the other. From the two speeches it would appear that the argument is for the House of Lords to increase its duties and responsibilities for scrutiny because, from different positions, both noble Lords seem to think that the House of Commons is defaulting on that same obligation. They seem to be arguing that if the House of Commons Back-Benchers fail to scrutinise the executive then they want a stronger House of Lords in order to do that.
    I simply do not accept that argument. It may be regrettable in the eyes of the noble Lord, Lord Higgins, and, for all I know, the noble Earl, Lord Russell, that the Opposition in the House of Commons is not more effective in holding the Government to account than it is. But if that is due to its numbers, that is because of the will of the electorate; and if it is due to its competence, that is because of the will of its own membership. In neither case would it be proper for someone like myself to comment.
    Baroness Byford: I wonder if the Minister would give way on that point? I am slightly alarmed by what she has just said. It is a fact that we are getting legislation coming through to this House which has not been considered by the other place at all. If I could refer the Minister back to the Countryside and Rights of Way Bill, where the whole section on the areas of outstanding natural beauty was never even discussed before the Bill came here; nor was it discussed when it went back. Certainly that is because a timed guillotine is put on legislation in the Commons. That is a fact. Whether we like it or not it is in being.
    Baroness Hollis of Heigham: That is a matter for the other House. It is quite improper for this House to say, "You should have done it differently and we will make good your default". We have a role as a scrutiny Chamber, but it is for the Commons to determine how to allocate its time and use its resources, and for the Opposition to hold the Government to account as they see fit. It is not for this House to try to displace or take over the role of Opposition Back-Benchers in the other place.
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    I am not going to go beyond that, because I am a proud supporter of the role of the House of Lords and I have always spoken up for the quality, integrity and effectiveness of the scrutiny role of this House. I do not want anybody to suggest other than that. However, it is wrong to assume that because there is some belief in this Chamber that the Commons is not doing its job, the House of Lords has to do the same job twice over. I wish simply to dissent from those views that seem to have been expressed here this afternoon.
    Points have been raised about child benefit. The noble Lord, Lord Higgins, is right to say that the House of Lords should look at this section of the Bill again. Obviously, I will look forward to any of the amendments that he chooses to table on Report. It is right that this House decides to scrutinise the whole Bill, whatever the previous House has done. That is independent of that activity.
    The all-party Social Security Select Committee supported moving child benefit from DWP to the Inland Revenue in its report in March 2001. The transfer was announced in June 2001. No objection was made to it and no press interest has followed. The consultation exercise did not raise any major issues. One reason for the lack of any systematic review of these clauses may be that they aroused no issues of controversy or concern in the other place. Certainly, none of that came up in the consultation exercise with the voluntary groups or at any stages when this issue was discussed by the Social Security Select Committee, chaired by Archy Kirkwood, whom I very much respect.
    Finally, I take issue with the view of the noble Earl, Lord Russell—this may not be a proper forum to discuss it—that all Bills should be framework Bills and it should be left essentially to the courts to interpret them through some Oakeshottian principle of growth. That would seem an entire abdication of Parliament's responsibility and of everything that I have been seeking to do for your Lordships—to produce regulations in time for you to see what the detail of legislation would look like, based on what is inevitably a framework Bill.
    Suppose I did not produce those regulations and said that it was for the courts to determine. What would the courts be determining? It would be minor things like income and income determinations, minor things like what counts as remunerative work or minor things like the meaning of responsibility for a child. That is not proper for judges to determine. It is proper for your Lordships and the other place to determine the regulations that flesh out the Bill, as they come through in affirmative or negative procedure, after proper scrutiny. Certainly, it is for the judges to determine whether the Executive is interpreting Parliament's intent—as set out in primary and secondary legislation—properly, fairly and decently in the context of British legislation and of data protection and human rights, to the extent that it is consistent with both of those.

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    It is for the judges to protect the individual citizen if they think that legislation laid down by Parliament has been improperly, unreasonably or unfairly applied in a particular case. That is the judgment and role of the courts, not to determine what the legislation means. That is for Parliament to determine. I hope we would never effectively abdicate secondary legislation for judges to determine through some inchoate Oakeshottian sense of gradualism and development and the like. That would be extremely dangerous and I suggest very strongly to your Lordships that you should not hear the siren call of the noble Earl, Lord Russell, to that extent.
    No specific points have been raised apart possibly from any criticism that may have been made of this transfer—and there have been none—and matters relating to human rights and data protection legislation, which are covered entirely properly by law. I do not think any particular points have been raised so far, but I look forward to your Lordships resuming their scrutiny of these clauses on Report.
    Earl Russell: The Minister's remarks about the courts show a remarkable indifference to that part of our law which rests on common law and not statute. It has always been, and remains, the responsibility of the judges to determine the meaning of phrases such as "fraud'", "negligence" or "nuisance". I do not see that it can he otherwise.
    Quite important developments in our law—such as that it was a nuisance to build a new housing estate without providing sewage—were actually made by the courts, in that case at the expense of my noble ancestor who was responsible for building Covent Garden. However, the fact that it was done at the expense of my noble ancestor does not make me think the principle improper. That was a perfectly reasonable way of proceeding.
    The needs and values of society have changed and the judges interpreted the law as they have in light of what they saw in front of them. If the Minister intends to put across her plan, she will take away from the law a very valuable way of responding to social circumstances as they change.
    The Minister talks about this House attempting to assume control. She knows perfectly well that, in the light of Parliament matters and in the light of our lack of financial privilege, such a thing is quite impossible. Incidentally, if she thinks a brief drafting of legislation is impossible, I advise her to take a good look at the Parliament Act 1911. The whole operative part of the Act is in a page and a half, and I have never found anything omitted in the drafting. Could any present-day draftsman match that?
    This is a debate that we must have on another occasion. We are not going to try to control the House of Commons but I believe that we are perfectly entitled to discharge our duty in the light of the way that they have discharged theirs. That is a liberty which circumstances must of necessity give us for as long as we shall continue to exist.
    Lord Higgins: First, I would not for one moment suggest other than that the Minister herself, as far as
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    legislation in our field is concerned, does a tremendous job. But it has been increasingly the case that we have had to do it because the other place has been prevented from doing it by the Government. It is not a question of the Opposition in another place not doing their job; it is that no one in the other place, regardless of their political affiliations, has been able to do a job in scrutinising this part of the legislation.
    It is not the case that one can simply say that a particular part of the Bill does not look very interesting, very controversial or very difficult. It is only when we start to debate the matter that we discover where the problems arise. That is so time and again. Therefore, we do not accept on this side the point that the noble Baroness made.
    Having said that, the dilemma we face is what to do with Bills which come to us, where we would scrutinise them in the normal way after the Commons has done so, when the other place has still not had an opportunity to do so. The question arises whether, if that is so—for example with regard to all these clauses, some of which raise important issues on human rights, data protection or whatever it may be—the answer simply is not to adopt a practice where, if it has not been scrutinised in another place and the view is taken in this place that it may raise important issues, one should simply bounce it back and forth until such time as the Commons does what I believe to be its job. Therefore, in light of this development, we should consider how we should proceed with. Bills of this kind.
    This is a particularly bad example. Because of the fiasco that took place in the drafting and the failure not simply of Opposition Members but of all other Back-Bench Members in the Commons to deal with it, being under a severe time restraint, the Bill was not scrutinised properly and the whole business about the gross mis-drafting did not come to light. In fact, the Minister—not dealing with it clause by clause herself in another place—did not realise that there were contradictions within the Bill. So this is a very serious matter. I have now had my say on it. We shall have to consider very carefully how to proceed.
    I should like to make one final point. I refer to a leader in The Times written about two weeks ago in relation to House of Lords reform. It contained a throwaway line which stated that:
    "Those in the House of Lords do not have the technical expertise to scrutinise legislation".
    I cannot imagine where the leader writer of The Times has been. He has only to consider the debates on the Floor of the House of Lords on subjects such as defence held a few days ago. There is an immense amount of expertise in this House, but that does not mean that those in the other place—some with expertise but some without—should not carry out the job the electorate has given them to do. The noble Baroness rightly says that of course they are elected and they are a majority. But the fact that they are a majority does not mean that they were elected not to do their job.
    Clause 44 agreed to.
    6.15 p.m.
    Clauses 45 to 47 agreed to.
    Schedule 4 agreed to.
    Clauses 48 and 49 agreed to.
    [Amendment No. 235 not moved.]
    Clauses 50 to 53 agreed to.
    Clause 54 [Administrative arrangements]:
    [Amendments Nos. 236 and 237 not moved.]
    Clause 54 agreed to.
    Clause 55 agreed to.
    Schedule 5 [Use and disclosure of information]:
    Baroness Byfordmoved Amendment No. 238:
    Page 55, line 8, leave out paragraph 9.
    The noble Baroness said: I beg to move Amendment No. 238 and speak at the same time to Amendment No. 239. I do not understand why health and education bodies want information about the receipt of tax credits. This is a probing amendment which seeks to draw from the Minister the thinking behind this rather strange manoeuvre.
    For example, guardians are very often not blood relatives to the child or children for whom they are responsible. I see no obvious connection between the receipt of benefit, the details supplied by the claimant to obtain that benefit and the health or education department's interests in the outcome. Particularly with regard to education, I see no possible connection in a country whose Prime Minister claimed five years ago that education was the number one priority and should be open to all, regardless of race, religion, background, vocation and any other variable.
    I fear that these clauses are but the thin end of a wedge aimed at splitting the shields that currently protect people's private information. If the clauses go through I predict that they will become a benchmark for moving personal details around the system at will. I might point out that in private business both the banks and recently a supermarket have experienced details of personal data becoming available in the public domain. That is why I am moving the amendment. I beg to move.
    Baroness Hollis of Heigham: Perhaps I might intervene. The reason that these powers are necessary is that those are the departments that give passports to benefits. Therefore if they do not have information about tax credit and income levels they cannot do it. That is why the powers are necessary. They are benign.
    The Earl of Northesk: This seems an appropriate place in which to make an observation. I need some clarification from the Minister. Here I return to an issue referred to by my noble friend Lord Higgins in a previous debate.
    Thus far the Bill has received very little attention as to its juxtaposition with the Data Protection Act 1998.
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    That is regrettable, if only because of the huge manipulations of data that it implies will take place once it is enacted.
    The noble Baroness will be aware that the first data protection principle states categorically that data can only be used for the purpose for which it was originally collected. This may give rise to all sorts of difficulties with the Government's proposition to integrate tax and benefits, which may relate to this part of the schedule.
    First, how do the Government propose to transfer relevant data between departments without breaching the first data protection principle? If we can think in terms of the Government's insistence on administering tax credits in the payroll, data so collected is properly the province of the Revenue. It is a amassed for tax purposes. Logically, therefore, application of the first data principle would suggest that it cannot subsequently be used as a mechanism for assessing appropriate levels of benefit. Thus, notwithstanding the previous comments from the Minister, are the Government absolutely certain that their proposals in the Bill are fully consistent with the Data Protection Act?
    Baroness Hollis of Heigham: Yes. Not only that, already DSS information—in other words, whether somebody is or is not receiving income support and so on—is a passport to free school dinners and to maximum housing benefit. Thus the information goes to the local authority and the like. If one did not have that one would be asking somebody who might have problems handling paperwork, bureaucracy and administration to deal with three, four, five or six different government departments as well as local authorities.
    So it is well established that information of this sort, which serves as a prod or a ticket or a flag to entitlement—what we would now call a passport to benefit—is conveyed to those authorities. I am just reminded that all disclosures under the powers of the Bill are either applied to the Inland Revenue and DWP or they have specific safeguards in the schedule itself. Without this, frankly, children would not receive free school dinners who are currently so entitled. Without it there would not be free prescriptions. There has to be a way of providing those benefits automatically. If people are asked to apply for them, first, they will not always do so and, secondly, there will be accentuated problems of stigma. We need these powers to protect children.
    Baroness Byford: I thank the Minister for her response. We have grave concerns on this issue but I hear her reassurances and at the moment I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 239 not moved.]
    Schedule 5 agreed to.
    Clause 56 agreed to.
    Schedule 6 [Repeals and revocations]:
    Baroness Hollis of Heighammoved Amendment No. 240:
    Page 58, line 47, column 2, at end insert⤔
    "In section 21(5A)(b), the words "and 45A(1)(a)"."
    The noble Baroness said: This is a group of minor and technical amendments that do not come within my existing four categories or the additional fifth, but they are consequential on the abolition of WFTC and DPTC and the replacement of SERPS with the state second pension. They relate to the same cluster of amendments as we talked about with Amendment No. 217. The main provision is the repeal of Section 45A of Social Security Contributions and Benefits Act 1992 and the Northern Ireland counterpart. Those repeals are effected by Amendments Nos. 220, 228 and others. They are technical and they are consequential. They do not fit into tidy categories, but they are necessary, given both the replacement of SERPS with state second pensions and the abolition of WFTC and DPTC. which has moved across to SERPS. I beg to move.
    On Question, amendment agreed to.
    Baroness Hollis of Heighammoved Amendments Nos. 241 to 248:
    Page 58, line 48, column 2, at end insert—
    "Section 45A."
    Page 60, line 6, column 2, at end insert—
    "In section 21 (5A)(b), the words "and 45A(1)(a)"."
    Page 60, line 7, column 2, at end insert—
    "Section 45A."
    Page 61, line 14, at end insert—
    "Pensions Act 1995 (c. 26) Section 127."
    Page 61, line 19, column 2, at end insert—
    "In Article 18C(7)(b), the words ", working families' tax credit or disabled person's tax credit"."
    Page 61, line 21, column 2, after "paragraphs" insert "2,"
    Page 61, line 22, at end insert—
    "Pensions (Northern Ireland) Order 1995 Article 124." (S.I. 1995/3213 (N.I. 22))
    Page 62, line 24, at end insert—
    "Criminal Injuries Compensation—Article 12(3)." (Northern Ireland) Order 2002 (S.I. 2002/796 (N.I. 1))
    On Question, amendments agreed to.
    Schedule 6, as amended, agreed to.
    Clause 57 [Commencement]:
    Lord Freemanmoved Amendment No. 249:
    Page 31, line 32, at end insert—
    "() No orders shall be made under this section until the Inland Revenue has published the following—

    (a) targets for the time to process claims;

    (b) details of the procedure to be followed to assess whether take-up by the disabled and those for whom English is not the first language has reached initial targets;

    (c) details of procedures to be followed to establish any emerging organisational deficiencies and how any conclusions are to be subsequently published; and

    CWH 238

    (d) policy to be followed in striking a balance between the need to make the system customer friendly and yet to have good compliance."

    The noble Lord said: Set out in this amendment are some examples of information that claimants and claimants' organisations would wish to know, and which it is legitimate for them to know. One appreciates that a Bill is an enabling measure and administration follows. To a certain extent, we get ahead of ourselves, however. My noble friend Lord Higgins has referred to the fact that we have had a great raft of government amendments at a very late stage. The Minister has been very helpful with draft regulations, for which we are very grateful, but explanatory notes and procedural notes need to follow. In an ideal world, if we had a draft Bill which either a Committee of this House or a Joint Committee could consider, some of these problems could disappear.
    I will be very brief. This is a point of principle and it is a probing amendment. All these issues that I have detailed in my amendments are points that the Inland Revenue will already have decided before commencement. They do not raise issues of principle, but the principle is whether they should be published and put into the public domain before commencement of the Act. I appreciate that it may not be normal constitutional practice to put this kind of amendment on the face of the Bill, but some indication from the Minister would be much appreciated as to when this information-either as an amendment to Clause 57 or in some other way-will enter the public domain. I beg to move.
    Baroness Hollis of Heigham: I can give the noble Lord a very quick reply, or an extremely long one. Let me try a quick reply and see whether it meets his concern, which is that the Paymaster General will be setting the Revenue clear targets, including some of the items exemplified by him as part of its public service and service delivery agreement. The Revenue's key operational targets, and its performance against those targets, are published in the board's annual report to Parliament. I may have said enough to meet the noble Lord's concerns. If not, perhaps he could press them further.
    Lord Freeman: I am grateful to the Minister for that very helpful reply. I am mindful of the fact that it might be for the help, guidance and convenience of this Committee if there could be broader dissemination of the longer response that the Minister had intended, in written form, outside Committee.
    Baroness Hollis of Heigham: I shall be happy to do that.
    Lord Freeman: It would be most helpful. The point about the subsequent reporting of the board is ex post rather than ex ante and therefore does not answer my point, although the main thrust of it does. I am most grateful to the Minister and I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 57 agreed to.
    Clause 58 agreed to.
    Baroness Hollis of Heighammoved Amendment No. 250:
    After Clause 58, insert the following new clause—
    "TRANSITORY ARRANGEMENTS: APPELLATE ETC. FUNCTIONS OF COMMISSIONERS
    (1) Until such day as the Treasury may by order appoint, Part 1 of this Act has effect subject to the modifications specified in this section; and an order under this subsection may include any transitional provisions or savings which appear appropriate.
    (2) Except in the case of an appeal against an employer penalty, an appeal under section 36 is to an appeal tribunal (rather than to the General Commissioners or Special Commissioners).
    (3) The function of giving a direction under section 18(10) is a function of an appeal tribunal (rather than of the General Commissioners or Special Commissioners).
    (4) Except in the case of an employer information penalty, proceedings under paragraph 3 of Schedule 2 are by way of information made to an appeal tribunal (rather than to the General Commissioners or Special Commissioners).
    (5) So far as is appropriate in consequence of subsections (2) to (4)—

    (a) the references to the General Commissioners or Special Commissioners in sections 18(10) and 37(5) and paragraphs 2 and 3(2) of Schedule 2 are to the appeal tribunal, and

    (b) subsections (3) and (4) of section 37 do not apply.

    (6) An appeal under paragraph 2(2) or 4(1) of Schedule 2 from a decision of, or against the determination of a penalty by, an appeal tribunal lies to a Social Security Commissioner (rather than to the High Court or Court of Session).
    (7) So far as is appropriate in consequence of subsection (6), the references in paragraphs 2(2) and 4 of Schedule 2 to the High Court and the Court of Session are to the Social Security Commissioner.
    (8) Regulations may apply any provision contained in—

    (a) Chapter 2 of Part 1 of the Social Security Act 1998 (c. 14) (social security appeals: Great Britain),

    (b) Chapter 2 of Part 2 of the Social Security (Northern Ireland) Order 1998 (S.I. 1998/1506 (N.I. 10)) (social security appeals: Northern Ireland), or

    (c) section 54 of the Taxes Management Act 1970 (c. 9) (settling of appeals by agreement),

    in relation to appeals which, by virtue of this section, are to an appeal tribunal or lie to a Social Security Commissioner, but subject to such modifications as are prescribed.
    (9) Except in the case of appeals against employer penalties, subsections (6) and (7) of section 37 do not apply.
    (10) "Appeal tribunal" means an appeal tribunal constituted—

    (a) in Great Britain, under Chapter 1 of Part 1 of the Social Security Act 1998 (c. 14), or

    (b) in Northern Ireland, under Chapter 1 of Part 2 of the Social Security (Northern Ireland) Order 1998 (S.I. 1998/1506 (N.I. 10)).

    (11) "Employer penalty" means—

    (a) a penalty under section 29 or 30 relating to a requirement imposed by virtue of regulations under section 24, or

    (b) a penalty under section 31.

    CWH 240
    (12) "Employer information penalty" means a penalty under section 30(2)(a) relating to a requirement imposed by virtue of regulations under section 24.
    (13) "Social Security Commissioner" means—

    (a) in Great Britain, the Chief Social Security Commissioner or any other Social Security Commissioner appointed under the Social Security Act 1998 (c. 14) or a tribunal of three or more Commissioners constituted under section 16(7) of that Act, and

    (b) in Northern Ireland, the Chief Social Security Commissioner or any other Social Security Commissioner appointed under the Social Security Administration (Northern Ireland) Act 1992 (c. 8) or a tribunal of two or more Commissioners constituted under Article 16(7) of the Social Security (Northern Ireland) Order 1998 (S.I. 1998/1506 (N.I. 10))."

    On Question, amendment agreed to.
    Clause 59 agreed to.
    Clause 60 [Regulations, orders and schemes]:
    Baroness Hollis of Heighammoved Amendment No. 251:
    Page 32, line 37, after "37(6)" insert "or (Transitory arrangements: appellate etc. functions of Commissioners)(8)"
    On Question, amendment agreed to.
    [Amendments Nos. 252 and 253 not moved.]
    Clause 60, as amended, agreed to.
    Clause 61 [Parliamentary etc. control of instruments]:
    Baroness Hollis of Heighammoved Amendment No. 254:
    Page 33, line 29, at end insert—
    "(A1) No regulations to which this subsection applies may be made unless a draft of the instrument containing them (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.
    (A2) Subsection (A1) applies to—

    (a) regulations prescribing monetary amounts that are required to be reviewed under section (Annual review),

    (b) regulations made by virtue of subsection (2) of section 12 prescribing the amount in excess of which charges are not taken into account for the purposes of that subsection, and

    (c) the first regulations made under sections 7(8) and (8A), 9, 11, 12 and 13(2).

    The noble Baroness said: I return to a promise I gave at Second Reading, which was to bring forward a government amendment to introduce the affirmative reg procedure on the negative procedure for some regulations. I hope that the Committee will be happy to accept this.
    On Question, amendment agreed to.
    Clause 61, as amended, agreed to.
    [Amendment No. 255 not moved.]
    Clauses 62 to 65 agreed to.
    Bill reported with amendments.
    The Committee adjourned at twenty-seven minutes before seven o'clock.