Lords Sitting of 26 April 1999

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Blackburn.

Turkey: Progress towards EU Membership
Lord Avebury Lord Avebury asked Her Majesty's Government:
What developments they perceive to have taken place since December 1997 to bring Turkey into alignment with the conditions set for entry into the European Union accession process by the European Council's declaration, A European strategy for Turkey.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, we share the analysis in the Commission's November 1998 report on Turkey's progress towards European Union membership. The report noted that Turkey had most of the hallmarks of a market economy but still needed to address shortcomings in the areas of human rights, treatment of minorities and the lack of civilian control over the army. The report stressed also the need for a peaceful solution to the problems in south-east Turkey.
Lord Avebury: My Lords, does the noble Baroness recall that in the Luxembourg Declaration, one of the most important conditions was the alignment of human rights practices and standards in Turkey with those in force in the European Union? In the light of the reports on the missions of the UN rapporteur on torture and the working group on disappearances, does the Minister agree that Turkey is still a long way short of meeting those standards? Does she agree with the opinion expressed in the working group's report that until a
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solution is found to the conflict in the south east, we can never expect that Turkey will attain the standards required for accession to the European Union?
Baroness Symons of Vernham Dean: My Lords, the noble Lord is quite right that that is what was said at Luxembourg. But quite a lot has happened since then and it behoves the noble Lord to consider also what else has been said. The Cardiff European Council endorsed the European strategy for Turkey. That strategy is extremely important because it aims to prepare Turkey for membership of the European Union. That agreed to annual reports on Turkey's progress towards a readiness for European Union membership.
It is important to remember that Turkey receives MEDA funding which is worth some 375 million ecus for projects in the areas of human rights, democracy and civil society. Therefore, I believe that the European strategy has moved us on from Luxembourg and that considerable effort is being made to ensure that Turkey meets international standards on human rights.
Lord Pilkington of Oxenford: My Lords, does the Minister accept that Turkey faces a problem, which we know, only too sadly, is common in the world, in that a large section of its population refuses to accept the legitimacy of the government? Therefore, does she not feel that the European Union could help to mediate and persuade the Kurdish population to accept the legitimacy of the Turkish state and persuade the Turkish state to face its responsibilities? Rather than attacking the Turkish state, we should try to help it.
Baroness Symons of Vernham Dean: My Lords, the two strategies are not mutually exclusive. As the noble Lord, Lord Avebury, reminded us, we have a duty to point out to Turkey where it is falling short of standards on human rights. But the noble Lord, Lord Pilkington, is right that Turkey suffers from a good deal of terrorism within its boundaries. We know about the threats of the PKK. I make a distinction between that and the difficulties with the Kurds. But the European Union is doing all it can, both in relation to the funding, to which

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I referred, and the plans which we are trying to discuss now on ways to take forward Turkey's candidature for EU membership.
Lord Hylton: My Lords, will the Minister confirm that since 1982 no fewer than 14 political parties have been disbanded by the state? Is that not nearly 1 per year? Does that not make rather a mockery of normal political life and parliamentary institutions as we understand them?
Baroness Symons of Vernham Dean: My Lords, the problems as regards organising political parties in Turkey are matters of record. But it is the case also that Turkey has recently held an election. Questions have been raised about that election. We last discussed that matter in your Lordships' House on 22nd February when we discussed the role of the OSCE in monitoring that election. The Government now look forward to working with the Turkish Government on the important questions that we have been discussing in relation to European enlargement and the important question of human rights.
Lord Rea: My Lords, now that the Turkish elections are over and the PKK leader, Abdullah Ocalan, is facing trial, will the Government urge Turkey to release the leaders of the legitimate HADEP party who are facing charges at present? It seems that the charges may not withstand legal scrutiny.
Baroness Symons of Vernham Dean: My Lords, the noble Lord is right that the difficulties of the HADEP party are great. We are aware of the reports of 500 HADEP supporters and officials being arrested in the wake of the detention of Mr. Ocalan. Our embassy in Ankara is in regular contact with HADEP officials. We are extremely concerned by the reports of continuing raids on HADEP offices and the detention of its officials. Our ambassador in Turkey raised with the Prime Minister's office the report that 3,000 HADEP members and officials were detained in November. We condemn strongly the systematic attacks on a legal and democratic party.
Lord Dholakia: My Lords, I welcome the Minister's statement. Will she accept that HADEP, which is a pro-Kurdish party, does not preach violence; that it denies any connection with the PKK; but that there is an unprecedented level of harassment of that political party in terms of arrests, detention, police harassment, buses not being able to reach rallies and so on? Therefore, will the Minister make it clear that unless the record of the Turkish state and government improves in relation to human rights, Turkey will have no place in Europe?
Baroness Symons of Vernham Dean: My Lords, I hope that I have made clear the views of Her Majesty's Government on the arrest of the HADEP members, both those who were arrested last year and those arrested more recently. We repeatedly raised the
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question of the imprisonment of the four Kurdish former democracy members with the Turkish Government. We stressed that the conviction of elected politicians for the non-violent expression of their opinions can only damage Turkey's international standing. Therefore, I believe that we have raised these issues both as they affect a number of HADEP members in general and where they affect the individual members of HADEP who are also in parliament.
Baroness Chalker of Wallasey: My Lords, will the Minister encourage her colleagues to give support to those trying to promote and train in civil society a real sense of democracy in Turkey? This matter has never been tackled properly. It could be done well by both this country and our partners in the European Union. Will the Minister support that?
Baroness Symons of Vernham Dean: My Lords, I hoped that I had already made that quite clear. The money which I referred to a moment or two ago—the MEDA funding from the European Union—is to be used not only for projects on human rights; the noble Baroness will be pleased to know that it will also be used for projects on democracy and civil society. Therefore, EU money is already going in that direction. I hope also that some of the European strategy money, which will be worth some 50 million euros over a three-year period, will be used to strengthen such institutions within Turkey.

Civil Justice Reforms
2.44 p.m.
Lord Hunt of Wirral Lord Hunt of Wirral asked Her Majesty's Government:
Whether they consider that all necessary systems and resources are in place for the introduction today of Lord Woolf's civil justice reforms.
The Lord Chancellor (Lord Irvine of Lairg): My Lords, through new unified Civil Procedure Rules which come into force today throughout all our courts, civil justice will be transformed. There will be a major shift in the control of litigation from lawyers to the courts through a system of hands-on case management by judges, and by bearing down on excessive delay, cost and over-manning by lawyers. From today there are systems and resources in place to ensure immediate benefits for court users. The development of fuller IT systems over time will benefit from developing experience in the new working methods and processes which start today.
Lord Hunt of Wirral: My Lords, is the noble and learned Lord the Lord Chancellor aware that although there is widespread support for the way in which he has continued the crusade started by my noble and learned friend Lord Mackay of Clashfern, and spearheaded by the noble and learned Lord, Lord Woolf, for these tremendous reforms, the most important for over 100 years, there are some continuing concerns? The

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complicated IT system is not yet in place. There are a number of deputy district judges not yet trained in the new rules, and last week some further amendments to the rules—69 altogether—were announced, including six new practice directions. Bearing that in mind, and the desire to achieve fairer and faster justice, will the noble and learned Lord the Lord Chancellor institute a careful system of monitoring so that we can ensure that such rules and changes will produce the desired effect?
The Lord Chancellor: My Lords, the noble Lord's interest in and valuable contributions to this subject are well known. From today there will be in place administrative systems plus an enhancement of the existing Caseman IT system in courts. There will be a new IT system to support diary managers in case progression and an upgrading of the IT system in the County Court Bulk Centre. I expect a full administrative IT system to be in place during 2000, but there will, with immediate effect, be vital experience and great benefits for court users to be gained. I certainly bear in mind what the noble Lord said about the need for evaluation. We are currently working on evaluation plans which will bolster the qualitative and quantative element. I will keep him informed of the development of such plans. In the shorter term, on 16th July there will be a review conference of designated civil judges, court service staff and court users. I will report to him on the outcome of that conference too.
Lord Borrie: My Lords, does my noble and learned friend agree with me that among the beneficiaries of the new reforms will be those who are seeking to recover unpaid debts, and that small businesses will particularly benefit? Has he any plans for ensuring that the enforcement of judgments is made more effective than at present so that judgments are not mere pieces of paper?
The Lord Chancellor: My Lords, I entirely agree with the noble Lord that all is not satisfactory with the system of enforcement of judgments. There is not much point in winning in the court if you do not recover the money to which you are entitled. Within my department there is an ongoing investigation and consultation exercise aimed at modernising the enforcement process.
Viscount Bridgeman: My Lords, is the noble and learned Lord the Lord Chancellor happy with the timing of this change in view of the published concerns of the Law Society about the impact of the early introduction of such reforms; its concerns at the lack of resources available for IT; the fact that no further judges will be appointed and the court staff are to be reduced by 800 over the next three years?
The Lord Chancellor: My Lords, there has been the fullest of consultations. We have listened to all the concerns. The House debated these changes in July last year and further amendments were laid before Parliament on 30th March. Every full-time judge in England has been fully trained and the court staff are trained. I have visited courts up and down the country
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including the Mayor's Court in London on Friday. Everybody is brimful of confidence and enthusiastic. I have to say to the noble Lord that he should take what comes from the Law Society with a pinch of salt.
Lord Monkswell: My Lords, am I right in believing the newspaper reports that one of the changes being instituted is the modernisation of legal jargon? If so, what steps are being taken to ensure that Acts of Parliament on which the courts base their judgments are similarly modified?
The Lord Chancellor: My Lords, no one is more in favour than I of a simpler statute book. But the principle benefit for court rules arising from these reforms is that the Latin language is to be expunged. Lawyers therefore will have to talk to one another in Latin in private from now on. However, of the many vices from which the statute book suffers, Latin is not one.
Lord Mackay of Clashfern: My Lords, will the noble and learned Lord accept my hearty congratulations to him and his colleagues on reaching this stage in these important reforms? Notwithstanding his heavy commitment this morning on the "Today" programme in debate with the Law Society, has the noble and learned Lord had an opportunity to read Professor Scott's letter in The Times? If so, does he have: any comment on it?
The Lord Chancellor: My Lords, I confess that: I have not read it. However, as soon as I leave the Woolsack I shall do so because I take my guidance on reading from my noble and learned predecessor. Perhaps I may take this opportunity of saying that great credit is due to the noble and learned Lords, Lord Woolf and my predecessor, for taking important initiatives in this area which this Government are now carrying through to success.
Lord Brookman: My Lords, my question has already been partly answered. But will the noble and learned Lord inform the House whether the courts are ready to cope with the new system? Also, is he satisfied?
The Lord Chancellor: My Lords, we put an extra £1.5 million into the pay bill recently to help clear the backlog of cases; there were an extra 2, 400 sitting days in the last financial year; and despite a falling workload and additional computer support for family work, staffing levels have not only been maintained but 124 new posts have been allocated with 60 assigned to support case tracking. The circuit administrators assure me that the courts are ready. As I said earlier, I visited the Mayor's Court in the City on Friday. Everything that I have heard is encouraging and the reports coming back from the courts today throughout the country are extremely good.
Baroness Gardner of Parkes: My Lords, following the question of the noble Lord, Lord Borrie, who said it would help small businesses, will the noble and learned Lord tell us how ordinary people will find out how to

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use the simplified procedure at the very bottom of the scale where in the past they would simply have applied for a county court summons for the debt?
The Lord Chancellor: My Lords, I do not know whether ordinary people, as the noble Baroness refers to them, have access to websites. All the new rules, protocols and guidelines—I encourage the noble Baroness to follow my advice—are available on my department's website and can be accessed free of charge.

Slaughterhouses: EU Regulations
2.53 p.m.
Lord Beaumont of Whitley Lord Beaumont of Whitley asked Her Majesty's Government:
What steps they propose to take to protect small, efficient, hygienic slaughterhouses from bankruptcy as a result of certain European regulations.
The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Lord Donoughue): My Lords, the Government recognise the valuable contribution which small slaughterhouses make to the economy. But they cannot be exempt from the requirements of European Union law.
Lord Beaumont of Whitley: My Lords, I thank the noble Lord for that reply, but not as much as I thank the Government for the statement made by Mr. Brown on 21st April at col.993 of the Commons Hansard, which went considerably further to announce the Government's intention to ensure that small specialist slaughterhouses did not suffer. He announced that there would be an interim period during which the Government would carry the costs. I am surprised the Minister did not refer to that in his Answer. He also said that there would be a review. Will the Minister say when the review will start and when it is expected to report?
Lord Donoughue: My Lords, my right honourable friend announced that the proposed charges on specified risk materials were to be deferred for a year, and that the increased charges for meat hygiene inspection were being deferred while a review was undertaken on the impact of charges on that industry and on the ways in which we can rightly impose the requirements of the European Union, but not over-implement them. I did not refer to that statement because I was confident that the noble Lord would take the opportunity so graciously to thank us. We hope that the review will be completed within two months.
Baroness Trumpington: My Lords, will the review look into the case of fallen animals and, in that regard, the provision of slaughterhouses on a purely geographical basis? For instance, if there is a fallen
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animal on the Isle of Wight, I do not believe there is a slaughterhouse on that island. That produces great difficulties for both farmers and fallen animals.
Lord Donoughue: My Lords, I agree with the noble Baroness. That issue does not arise specifically within the remit of the inquiry, but I shall certainly draw it to the attention of the department for consideration.
Lord Davies of Coity: My Lords, having in the past represented the interests of those employed in slaughterhouses, I am of course concerned with the security of employment. At the same time, the question of closures and bankruptcies in slaughterhouses ought to be kept in proportion. Therefore can my noble friend advise the House on how many slaughterhouses were closed under the previous administration and how many have been closed under Labour?
Lord Donoughue: My Lords, I thank my noble friend for that question. If we take England and red meat slaughterhouses, which are the heart of the industry, under this Government some 30 slaughterhouses have closed—not been closed; the number has gone down from around 380 to 350. Under the previous administration, 600 were closed: down from 980 to 380; that is roughly two-thirds of all slaughterhouses.
Lord Marsh: My Lords, will the Minister help the House by explaining which of those numbers he describes as "efficient management"?
Lord Donoughue: My Lords, I do not have a definition for "efficient management". However, we now have a hygiene assessment system which assesses all slaughterhouses according to their hygiene efficiency. This Government put that in place.
Baroness Miller of Chilthorne Domer: My Lords—
Lady Kinloss: My Lords—
Lord Peyton of Yeovil: My Lords—
The Minister of State, Home Office (Lord Williams of Mostyn): My Lords, there is plenty of time because the fourth Starred Question has scratched.
Lord Peyton of Yeovil: My Lords, will the Minister be good enough to explain in clear terms who exactly is expected to benefit from this absurd legislation? It will not be the animals; it will not be the customers; it will not be the owners. If he cannot answer the question, perhaps he will go to the authors and get them to do so in clear, intelligible terms. It will make quite a change.
Lord Donoughue: My Lords, I shall do my best to meet the high standards that the noble Lord always expects. In fact, the European Union directive derives from way back in 1964 and has been in place since that time to ensure that we have proper standards of meat hygiene. It has been amended and was last amended in 1991. The identity of the beneficiaries is quite clear. The

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beneficiaries are public health and, therefore, the public. Animal producers are also beneficiaries in the sense that the legislation helps to maintain—and, in our case, helps to restore—the confidence of consumers in meat. I believe that the legislation is perfectly well justified.
Baroness Miller of Chilthorne Domer: My Lords, does the Minister agree that, when the Government have undertaken this welcome and detailed examination during the next few months, questions of animal welfare where abattoirs are very distant from the communities that they serve and questions about rural employment could open the possibility, if it were necessary, for a derogation?
Lord Donoughue: My Lords, we certainly bear in mind most closely questions of animal welfare. We are well aware that it is not always in the interests of an animal for it to be shipped a long distance. Rural employment concerns us considerably; indeed, we have in operation a major consultation exercise to help ensure the prosperity of rural society. As regards derogations, that is not a matter for us. There is a derogation in relation to small abattoirs. Our legal advice is that that applies only to structures and not to the level of charging. The department has written to the European Commission to ask for advice on the matter and to ascertain whether it would in any way allow less onerous terms about levels of inspection.
Lord Hoyle: My Lords, does my noble friend the Minister agree that the announcements made today, especially in relation to SRM, will be greatly welcomed by the industry?
Lord Donoughue: Yes, my Lords. Indeed, I can assure my noble friend that the announcements were most welcome. The delay on SRM charges alone is worth £20 million to the industry. I believe that the review we are undertaking will encourage those concerned because, although we will abide by European Union rules, as we must, we shall also ensure that we do not accidentally over-implement. Both of those factors will be most welcome to the industry.
Lady Kinloss: My Lords, can the Minister say why the veterinary hourly fee is not the same throughout local hygienic abattoirs, at least in North Yorkshire? Further, can he say why there is no uniform tariff? Does the Minister agree that the increasing fees charged to small. hygienic abattoirs will eventually force many more to close, with the inevitable loss of jobs? I should declare an interest here in that my elder daughter uses one of the small abattoirs and fears that, if it closes, she will have to take her animals much further and, therefore, cause them much more stress.
Lord Donoughue: My Lords, I agree with the points made about the role of abattoirs, and especially about the importance of small abattoirs. We are well aware that the imposition of a higher level of fees impacts
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disproportionately on small abattoirs. That is why we have delayed the introduction of the new charges and why we are undertaking this review.
Lord Luke: My Lords, we welcome the review on this side of the House as we do the other parts of Mr. Rooker's announcement with regard to specified risk material. However, if the review shows that the overall burdens on small abattoirs in this country are greater than on their equivalents in Europe, will the Government pay for that excess? Alternatively, how else will they be able to relieve the burden?
Lord Donoughue: My Lords, we must await the results of the review. As regards comparisons with other countries, the department has carried out its own review with such information as is available. I also understand that the Meat and Livestock Commission is undertaking a more thorough review, although we do not have the results as yet. The general indications are that our continental neighbours do in general impose the levels of inspection and the standards of charges as are required. For example, our impression is that Belgium and Denmark impose higher standards, while Germany imposes standards which are equivalent to ours.
It is possible that one or two other countries, such as Spain—the noble Baroness mentioned Portugal during an earlier discussion—and Ireland may have differences within the system. We are looking further into the matter in that respect. However, if we receive any evidence, or if the noble Lord can give us any, to show that countries within the European Union are not properly imposing the European directive on charges, we shall certainly go straight to the Commission and demand action.

Business
3.6 p.m.
Lord Carter: My Lords, as soon as possible after Amendment No.1 of the Committee stage of the Tax Credits Bill has been dealt with, my noble friend Lady Symons of Vernham Dean will, with the leave of the House, repeat a Statement which is to be made in another place on the NATO summit. Thereafter, my noble friend Lord Williams of Mostyn will, again with the leave of the House, repeat a Statement on the London bombings which is also to be made in another place.
Lord Henley: My Lords, I thank the noble Lord for making that announcement. However, bearing in mind the fact that the Government have known for some considerable time that a Statement would be made by the Prime Minister in the other place on the NATO summit, would it not have been possible for the noble Baroness the Leader of the House to have rearranged her business in Northern Ireland, as Minister for Women, in order to make the Statement herself, as I believe the House would expect?
Lord Carter: My Lords, my noble friend the Leader of the House very much regrets that she is unable to be

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here in person to repeat the Prime Minister's Statement to your Lordships' House today. However, she is unavoidably absent from the House as a result of a longstanding and important ministerial commitment in Belfast in her role as Minister for Women. The visit was arranged as long ago as October last. My noble friend Lady Symons, as Foreign Office Minister in your Lordships' House, has been asked, and has agreed, to repeat the Statement this afternoon.
As I said, my noble friend the Leader of the House is performing an important public engagement in Belfast. It was arranged in October and was publicly announced in February. It is an important initiative. I am sure that noble Lords on the Conservative and Unionist Benches would be outraged were that particular part of the United Kingdom to be treated any less favourably in that regard than other parts of the country. This is only the second occasion since my noble friend became Leader of your Lordships' House that the Prime Minister has made a Statement in the other place and my noble friend has not herself repeated it in this House. It seems to me that the Opposition Chief Whip is straining at a rather odd procedural point.

Tax Credits Bill
3.8 p.m.
The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee. —(Baroness Hollis of Heigham.)
On Question, Motion agreed to.
House in Committee accordingly.
[The PRINCIPAL DEPUTY CHAIRMAN OF COMMITTEES (Lord Tordoff) in the Chair.]
Clause 1 [Certain benefits to be known as tax credits.]:
Lord Higgins Lord Higgins moved Amendment No.1:
Page I. line 7. leave out first ("tax")
The noble Lord said: In moving Amendment No.1 I believe that it would be for the convenience of the Committee if I were to speak also to Amendments Nos.2, 3, 7 and 8, including discussion on Schedule 1 stand part. If ever there was a pure Alice in Wonderland piece of legislation, then it is Clause 1 of this Bill, which we seek to amend. Your Lordships will recall that in Lewis Carroll's book Alice's Adventures in Wonderland there is a semantic exchange between Alice and the other members of the tea party. The following quotation illustrates the point I wish to make about this clause. The March Hare asked,
"'Do you mean that you think you can find out the answer to it?' said the March Hare. 'Exactly so, ' said Alice. 'Then you should say what you mean, ' the March Hare went on. 'I do, ' Alice hastily
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replied; 'at least—at least I mean what I say—that's the same thing, you know.'"
The heading of Clause 1—the clause which we seek to amend— reads:
"Certain benefits to be known as tax credits".
The clause seeks to change the meaning of words which are extremely clear. This is not a tax credit Bill and we are not dealing with the concept of a tax credit. If one needs further support for such an argument, one has only to read the official publication of the Office for National Statistics entitled, The UK National Accounts Concepts, Sources and Methods which makes it absolutely clear that,
"If a refund or allowance can be calculated independently of a procedure for calculating the tax payable and uses different criteria and does not depend on the actual amount of tax to be paid or the marginal rate of tax it is not integral to the tax assessment".
In other words, if it is not integral to the tax system, it is not, and should not be construed as, a tax credit.
That brings us to the matter of why the Government should be engaged in this extraordinary semantic operation. Before the general election the Prime Minister made it absolutely clear that it was the Government's intention to cut the social security bill and to spend the money saved on education and health. They have failed to do that. The Bill now before us increases the already large bill for family credit by about £1.5 billion. By calling that increase and the change in the structure a tax credit, the Government seek to suggest that this is a tax reduction rather than an increase in public expenditure. No doubt we shall return to these points later.
The Department of Social Security is increasingly being taken over by the Treasury. The Contributions Agency has already been moved from the DSS to the Treasury. The whole trend is in that direction. Changes will be implemented but, as the Child Poverty Action Group has pointed out, what is really involved is a means tested wage subsidy. Rather than the Inland Revenue fulfilling its traditional role of collecting money, it will find itself in the unusual role of giving people money. However, it will not give them money as part of the tax system. This provision will not constitute a tax credit; it will be a straight hand-out, whatever the wording of the clause. Amendment No.1 and the amendments grouped with it seek to call the provision what it really is. I am glad that we have deferred the question of the title of the Bill. No doubt at a later stage we shall alter that too.
I wish to make a number of substantive points. An extra £1.5 billion is to be given to a particular group of people. It is therefore not surprising that many of those who represent that group—many of whom carry out extremely valuable work—do not object to the increase in expenditure which will take place. However, nearly all of them have serious doubts about the way in which the system will operate. If it were to operate as a tax credit system, we on this side of the Committee might well be in favour of it. However, the method of its implementation is not only alien to the ethos of the Inland Revenue; it also puts a serious burden on business. It has serious administrative costs and it increases rather than reduces dependency on the welfare

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system. It creates more problems with regard to fraud and is likely to increase the stigma of drawing benefits. Above all, it is an extremely complex arrangement. Why, therefore, have the Government decided to go ahead with what is not a tax credit scheme but something different?
I refer to the examination of Mr. Martin Taylor of some of these issues on behalf of the Government. That suggests that the Government wished to make it a genuine tax credit system. However, as we all know, they have decided that that is not possible. This, again, is something we shall need to probe. The CBI has made a number of points as regards the feasibility of the system. It has said that the Inland Revenue discovered a number of intractable problems with regard to making this a genuine tax credit system. I refer, for example, to dealing with changes in the level of the award. As I understand the matter, the award will be stable for a period of 26 weeks. There will be different tax rate bands, particularly when the lop band is introduced. There is no mention of the fact that the 20p rate is to be removed. It is said that it is difficult to adjust codes after a period of unemployment. Finally, there is reference to the unstable wages of many of the employees who will receive the credit. If the system can cope—at any rate on a six-monthly if not on an annual basis—with changes of that kind, it surely should be able to cope with changes which take place only every six months or so. These again are matters we shall need to probe. Those are the reasons given for not having a real tax credit system and for deciding to keep the curious change of name in the clause which we seek to amend.
The Chartered Institute of Taxation has stated that there is to be no direct link between the PAYE tax period or the pay on which it is based and the amount of credit paid out to the employee. One is bound to ask why, as the only difference being introduced concerns the method of payment and the Government are arguing that the problems involved in introducing a real tax credit system are insuperable, they did not abandon the measure? The answer lies with the public relations connected with a working families' tax credit. This was announced by the Chancellor of the Exchequer, Mr. Gordon Brown, as very much the flagship of the welfare reform programme which the Government are introducing and as an important component of the so-called "welfare to work" programme.
In that context it is not irrelevant to consider what the Bank of England has stated. It says that the impact of this change on the labour market—that is, the increase in numbers employed—will be "very small". If the Bank of England takes that view of this flagship measure in encouraging people into work, it will 'be interesting to find out in the course of our proceedings exactly why the Government are going ahead in this way despite all the disadvantages I have mentioned. It might well have been more sensible to abandon the idea and not face this curious matter of the title of the Bill and the purpose of this clause.
The Government argue that it is important to call the measure a tax credit as it will then appear on pay slips and without that knowledge people who are seeking employment will not realise they receive extra money
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for taking up a job. I find that a remarkably paternalistic approach to the problem. If the only advantage is that it is paid through the wage packet, there are, as we know. an increasing number of exceptions—for example the self-employed—who are not paid through the wage: packet. While that is a semantic point in terms of presentation, it is certainly not unimportant. One is well aware from the massive number of representations received on the disadvantages of the proposal that bodies as widely disparate as the CBI and the Institute of Directors on the one hand, the TUC on the other, and a large number of groups in between ranging from the Child Poverty Action Group and the Low Pay Unit to the Federation of Small Businesses, believe that the change is a bad change and that serious problems could have been avoided either by pursuing the case for a real tax credit scheme or, alternatively, paying through the existing arrangements.
Finally, we are told that insuperable difficulties are involved in making it a real tax credit, which would make the clause unnecessary. At the same time we are told at paragraph 5.13 of the Budget report, an extremely glossy document, that,
"The Government sees a case for improving the transparency …It is examining, for the longer term, the case for integrating the new Children's Tax Credit with the child premia in Income Support and the Working Families Tax Credit",
and so on. If that is the long term aim, why are we told that it cannot be done at the present time? Acting as the Government propose will have disadvantages. The only advantage—a doubtful advantage, in my view—is that it will be paid through the pay packet.
We shall return to all these points. The Bill starts off on the wrong foot. The first clause seeks to represent what the Government are doing as something which, quite clearly, they are not doing. For that reason I have much pleasure in proposing Amendment. No.1 and the related amendments. I beg to move.
Lord Goodhart: We on these Benches have not tabled an amendment to the same effect as that of the noble Lord, Lord Higgins. That is because, on the whole, we feel that if the Government wish to give a benefit an inaccurate name that is their affair and we are not in the business of correcting them. Nevertheless, having said that, I believe that the noble Lord, Lord Higgins, is absolutely right to say that this is not a tax credit but a benefit. We take up the matter in a number of places, starting with our intention to challenge the Question that Clause 2 stand part of the Bill.
What is the difference between a tax credit and a benefit? The purpose of a tax is to raise money to meet government expenditure. Income tax starts with the taxpayer's gross income. But it is recognised that simply basing the tax on the gross income could be unfair to those with lower incomes, so one cuts their tax liabilities by treating their taxable income as less than their actual income. This applies not only to those on low incomes but throughout the income scale. It is done by means of reliefs and allowances against tax—the personal allowance, the first £5,000 or so of income, the married couple's allowance, now rightly about to be abolished,

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and relief on pension contributions. A similar result could be achieved by a genuine tax credit. One calculates the tax liability on someone's full income but one then says "You do not have to pay the first x pounds"—whatever the figure may be—"of your nominal liability. " One can go beyond that to negative income tax by saying that if a taxpayer's liability is less than the notional figure of x pounds the Inland Revenue will pay the difference to the taxpayer.
By contrast, the purpose of a benefit is to provide financial assistance out of public funds. In the case of means-tested benefits, the amount of those benefits is based not on the needs of an individual but of a household. For years people have been saying, "Let us have a single integrated tax and benefits system based on the idea of negative income tax. " That is the philosopher's stone. Like the stone, it never actually works. From a distance it looks like a marvellous idea, but the more one looks at the details the more one sees the obstacles. That is my experience. It is an issue on which I have changed my mind over the years. That also seems to have been the experience of the committee set up by the Labour Party before the last election, chaired by the noble Lord, Lord Borne, to study the reform of the welfare system.
The same thing has happened with the working families' tax credit. The Government originally considered trying to deal with the working families' tax credit through the PAYE coding system. They found that it could not be done. The main reason for not being able to integrate tax and benefits is that tax is based on the income of the individual and benefits are based on the needs of the household. It might have been different in the days when the income of husband and wife were aggregated for tax purposes and when couples rarely lived together without being married. Nowadays, that is simply impossible. One needs to know who is in the household for the purposes of calculating the working families' tax credit, as indeed one does for any other type of benefit. Is it a single parent family or is it a couple? If it is a couple and both are earning, then the income of both has to be taken into account for the working families' tax credit but not for tax. Taking it into account for the purposes of income tax liabilities would be inconsistent with the principle of separate taxation of husband and wife, which is now well established and politically irreversible. In the case of a couple where only one of them is earning, one still needs to know that they are a couple because one cannot claim child care credit if one has a non-working partner.
There are other aspects of the working families' tax credit which cannot be reconciled with the principle of a tax credit, as properly so called. For example, a claimant with a certain amount of capital is disqualified from receiving the working families' tax credit even if such capital produces no income. Assets not producing income would be irrelevant for the purposes of income tax. The working families' tax credit does not reduce the tax liability of employed claimants in the way a genuine tax credit would. Employees are still liable for tax through PAYE and national insurance contributions just as before. The employee or his partner receives
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benefit just as before. The only difference is that the employer, who until now has been the collecting agent for the Inland Revenue through PAYE, will now become the paying agent for benefits. In the case of the self-employed, where there is no employer, the payments will continue to be made as they are now, tax being taken with one hand and working families' tax credit being handed back with the other. As the noble Lord, Lord Higgins, with his long and detailed experience of public finance, pointed out, working families' tax credit is, for accounting purposes, a benefit and not a credit. The Government, as I understand their position, have accepted that European accounting principles require them to show the working families' tax credit as public expenditure. What we have here is window dressing. The noble Lord, Lord Higgins, was telling no more than the truth.
3.30 p.m.
Lord Skelmersdale: My Lords, the noble Lord, Lord Goodhart, revealed all sorts of things. I blush to say this because my noble friend Lord Lawson was a former boss of mine. The noble Lord explained, as did my noble friend Lord Higgins, the reasons that this is not a tax credit. However, he started from the most extraordinary position. As the spokesman for an opposition party, he said in effect, "We are not in the position of correcting the Government". What on earth are oppositions for?
To me, a tax is either a levy on income or a charge on potential income. In this case, there is absolutely no relationship between the tax system and the credit. Of course it is a credit, and later amendments deal with how we as parliamentarians can identify that credit in various government accounts, such as the Red Book. One thing is absolutely certain. By no stretch of the imagination is this a tax credit. The arrangement that the Government are putting in place will, where tax is due, tax the individual, then give a lump sum. It bears no relationship to the tax that the individual has paid. It simply bears a relationship to the original wages. I cannot see that as logical.
Baroness Carnegy of Lour: The amendments seem to go far beyond the terminology that the Government used when they describe publicly funded earnings supplements as tax credits. I cannot agree with the noble Lord, Lord Goodhart, any more than can my noble friend Lord Skelmersdale, that this is not our business. It seems very much Parliament's business.
We are discussing another example of the Government's growing habit of saying one thing and doing another. At the outset of the Government's term of office that habit was more or less accepted by the public as intelligent public relations and the spin that goes with modern politics. But developing now is something that is not public relations. It is not all that far from public deception—letting people think that one thing is happening while something different and perhaps less popular is being done. That will have a serious effect as time goes on, because it will lead to greater cynicism than that which the public feels already

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about politics and politicians. That should concern us all because it is dangerous for democracy. The amendment poi nts up that danger.
The Government want, rightly, to reduce the evil of the poverty trap and for people to experience that families with children and disabled people, if they work, can be better off, not worse off. That is a wholly laudable objective. It is clear that the Government would like to achieve that through the tax system but they failed to find a way for a number of reasons—some of which we know, although perhaps we do not know all of them. Instead of the Government doing as they said, they are pretending by continuing with enhanced benefits—which is a good thing—but paying them via the Inland Revenue and calling them tax credits.
Likewise, there is no honest admission of increased spending on social security in the Chancellor's account to the nation. That would have been tactless. He had promised to reduce it. Instead, the increase appears as part of the tax system in one place and as an increase in Government expenditure in another.
The Government's reason for those discrepancies and misdescriptions were helpfully explained by the Minister on Second Reading and on pages 2 and 3 of her subsequent detailed letter. Those reasons are doubtless the case. People who receive the credit in their wage packet will, whether or not they pay tax, tend to see it as part of their take-home pay. That is a wholly good objective, but should it be called a tax credit when it is not? I think not and for the sake of the nation, I suggest that the Minister should think not. The amendments would render the Bill a lot more honest and I support them.
Baroness Turner of Camden: I simply cannot accept the amendments. I do not support them at all. I support the Bill, which is founded on the assumption that something must be done about poverty—particularly family poverty. That is the Bill's objective, and for that reason a number of organisations to which the noble Lord, Lord Higgins, referred—such as Child Poverty Action Group—have supported the Bill as it stands. It would not be a good idea to remove the word "tax" from the Bill. The idea that people will receive the extra amount through their wage packets, via the Inland Revenue, is a good one. It is entirely appropriate that the Bill should be worded in the way that it is. I urge the Committee not to support the amendments.
Baroness Hollis of Heigham: When the noble Lord, Lord. Higgins, began I was not sure whether we were going to hear a speech on semantics or a Second Reading speech. I believe that his speech moved between the two. The amendments seek to change the title of "tax credit" and to remove Schedule 1. The noble Lord said that the Bill starts off on the wrong foot. On the contrary. The change in title states exactly what the Bill seeks to do. The noble Baroness, Lady Carnegy of Lour. made the point for me very well, and that was reinforced by my noble friend Lady Turner of Camden.
The Bill will give, via the Inland Revenue and the pay packet, support for low wages or low hours to those in work and will therefore make more attractive entering
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into work and staying in work. It allows people to overcome the unemployment trap of moving off benefit and into work—and, within work, it will allow people to keep more of every pound that they earn. As the credit will be run by the Inland Revenue and paid through the pay packet, it is proper, appropriate arid transparent to call it a tax credit. The change to WFIC and DPTC asserts their new character and puts them in the context of work and as a reward for work.
Baroness Carnegy of Lour: The noble Baroness felt that I was in agreement with her; indeed I was on one aspect of what the government are trying do. She said that it is appropriate to call this a tax credit. Does she really believe it appropriate for the Government of this country deliberately to call this provision something which it is not? It is not a credit against tax. Pay, tax and net pay are shown on the payslip; then this benefit is added. It is simply recorded on the same piece of paper. Why does the Minister feel that it is legitimate to call it a tax credit?
Baroness Hollis: I hoped that I had made the point that it is being run by the Inland Revenue and will come through the pay packet. Therefore it is not a benefit being run by DSS and paid to the person at home as income support. There is all the difference in the world between benefits such as income support and JSA, which are paid by the DSS to someone who is out of work and at home, and a benefit which then becomes a tax credit, run by the Inland Revenue and paid through the pay packet, making the perception of the value of work, particularly entry wages, that much more obvious to people. In other words, to address the first point made by the noble Lord, Lord Higgins, this is not merely a re-badging exercise.
Lord Swinfen: The noble Baroness says that this is not a benefit, but a tax credit. It is a benefit to the person who receives it. It is not strictly a tax credit; it is a benefit. It has to be shown under EU rules and regulations as government expenditure. What will it be shown as? Surely it is a social security benefit.
Baroness Hollis of Heigham: Of course this is a benefit to people in the same way as wonderful music is a benefit to people. But if the noble Lord means by "benefit"that it is a social security benefit, no, it is not. It is an Inland Revenue tax credit being paid through the wage packet.
Lord Peston: Perhaps I may interrupt my noble friend so that she can help to clarify this point to all of us. Am I right in assuming that the putative take-home pay form will include a calculation stating the tax that a person would have paid without the credit, that a figure is deducted, and the result is the net income? It clearly leaves a person with a different net income, and the reason is clearly stated. It is not added as benefit. Is that correct? It is a tax credit, in precisely the form stated by my noble friend.
Baroness Carnegy of Lour: Will the Minister explain that point carefully? My understanding was

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different from that of the noble Lord, Lord Peston. I thought that a person's gross pay would be on the payslip, as would his or her tax contribution and net pay, and below that would be this benefit. Is that correct?
Baroness Hollis of Heigham: As at present, gross and net pay will appear on the payslip, as will deductions for national insurance, pensions and so on, together with the addition of the tax credit. So the payslip will include the deductions and the addition, and the pay going to the individual will be the sum total. But because that transaction cannot be done through PAYE, it will appear as a separate entry on the payslip. I hope that the point is now clear.
I return to the point made by the noble Lord, Lord Higgins. Basically, the noble Lord suggested that this is a re-badging exercise without substance. I want to challenge him on that point. This provision begins the process of bringing together some of the taxes and benefits in our system to ensure that work pays. It will reduce the marginal tax rates for over 70 per cent of families concerned—that is, 500,000. Two-thirds of people will, for the first time, see their marginal tax rates fall below 70 per cent. This measure reduces the absurdity that presently exists; namely, that 45 per cent. of families presently have to be in receipt of family credit to receive income support; and we then proceed to tax part of the value of that amount away; whereas in future 97 per cent of people on working families tax credit will not be liable to income tax.
As the noble Baroness, Lady Carnegy, and my noble friend Lady Turner said, this provision reduces—
Lord Goodhart: Will the Minister explain how it is that 97 per cent will not be liable to income tax when there will be a perfectly clear figure on their payslips for the PAYE deduction?
3.45 p.m.
Baroness Hollis of Heigham: The increased generosity of WFTC and DPTC means that 97 per cent. of claimants will not now pay income tax as a result of this measure. If I have any additional information I will provide it for the noble Lord, but that is my understanding. At present, 45 per cent. of those on family credit have part of the value of that credit taxed away. That will not be the case in future.
The change of title is not re-badging. It indicates that we are approaching the issue of making work pay and that once people are in work they will be able to keep more of their pay through a different system and a different approach. We are no longer talking about income support, but about support for low-paid work and low wages and families and lone parents in those work situations.
It seems that behind these amendments is the suggestion by noble Lords opposite that tax credit should not be introduced but should remain as benefits. In other words, their intention is to undermine the aim of producing a clear link with work, so that those who move into relatively low-paid jobs with relatively low
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entry wages will nonetheless see a clear advantage from moving into work. The amendments would achieve nothing, certainly not in terms of the many people on low to middle income who will benefit from tax credits. We are determined to provide them with essential support by making sure that work pays.
The other amendment linked with these proposals proposes that Schedule 1 should not be included in the Bill. It may be helpful if I explain the purpose of Schedule 1. This schedule has its references in primary legislation where the replacement of family credit by WFTC and disability working allowance with DPTC will take place. The tax credits build on the existing benefits. The most efficient way of doing that in legislation is to build on the current social security provisions for these benefits. Contrary to the noble Lord's assertion, this was indeed how Martin Taylor recommended that the Government should proceed. Clause 1 of the Bill effectively converts the benefits into tax credits. Schedule 1 provides guidance for the reader of the legislation. It is not strictly necessary but it will make the matter much clearer to those concerned.
The first point raised was that this was merely a re-badging exercise. I have tried to show that, on the contrary, not only in a mechanical sense is it being run by the Inland Revenue and paid through the pay packet, but, more substantially, it will help to overcome the unemployment and poverty traps which have hung like albatrosses round the necks of those who struggle to survive on low wages.
The second point raised by the noble Lord, Lord Goodhart, related to public accountancy and public expenditure. The noble Lord argued that because the amount is quoted as public expenditure from the point of view of European conventions, that indicates that it remains a benefit rather than a tax credit.
We discussed this point to some extent at Second Reading. I remind the noble Lord that we are treating this matter, in terms of accountancy. presentation and the Red Book, and European standard terms, in exactly the same way as MIRAS. I do not think that many noble Lords would regard MIRAS as a social benefit; they would regard it as effectively tax credit support for housing costs. These benefits will be treated in exactly the same way.
Thirdly, noble Lords opposite seemed to imply that if, however, the tax credit had been paid not as an additional entry on the payslip but through PAYE itself, that would have reinforced the argument that it was indeed a tax credit, and some of the opposition to the proposal might have been withdrawn, as the position would have been more obvious. That may be so. It is an honourable question to ask. It is one that puzzled me when I first came to this matter. The point was discussed at considerable length in consultation with employers. If it could have been done, it would have been a more attractive approach—not in terms of meaning and whether or not it is a tax credit, but in terms of presentation to the people concerned. It would have been more obviously attractive.
The simple answer is that tax credits are not being handled this way because PAYE coding cannot deliver everything that we currently want to achieve with

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WFTC and DPTC. The Treasury and the Inland Revenue understood this from the outset. It may be helpful if I share their reasoning with the Committee.
Noble Lords will appreciate that, building as it does on family credit, as Martin Taylor recommended, the tax credits will be set in advance, using a snapshot of family circumstances at, and just prior to, the date of claim. That helps set tax credits for the next 26 weeks. In order to deliver the same certainty of income that was so valued in family credit, the tax credit awards will be for a fixed amount for a set period running from the date of claim.
But PAYE operates through the tax year constantly to adjust to changing circumstances, so that at the end of the tax year (by 5th April) the right amount of tax has been paid. The technical term is "cumulation". It works in the following way. The system looks in each pay period at how much has been earned from the beginning of the tax year; it allocates the correct fraction of the taxpayer's allowances for the entire year; it calculates the net taxable income from the beginning of the tax year and calculates the tax that should be paid on that. The payroll system then compares what ought to have been deducted from that income by the end of the pay period in question with how much has been deducted, and deducts or repays the difference.
It is also obviously the case that such a system is clearly unworkable for the lower paid who are entitled to working families' tax credit but do not pay tax because they are below the lower earnings limit but are, with 16 hours of minimum wage per week, entitled to claim working families' tax credit. We could not pay them a tax credit through PAYE if there were no PAYE system for that employee.
1 suppose that, alternatively, the amendment proposes that 80,000 employers who are currently exempt because they employ someone for fewer than 16 hours a week in their household, perhaps as a cleaner or a gardener, who works for several employers and therefore works for more than 16 hours a week and is entitled to WFTC as a result, would come within the system, which they currently do not.
There is thus a real problem in applying this system either to employers who individually employ someone for fewer than 16 hours a week or to people who currently do not pay tax because they are below the lower earnings limit.
Lord Higgins: Is it not the case that the very lowest paid do not gain at all under these proposals?
Baroness Hollis of Heigham: I am sorry, I do not understand what the noble Lord means. A person who works 16 hours a week and is paid whatever sum—but obviously, with the minimum wage, at least £3.60 an hour—-will be entitled, if the family is a couple with children or qualifies for DPTC, to access to the working families' tax credit. In certain circumstances, some of which I have described, that person may not be paying tax, which is the reason for saying that the payment could not be handled through the PAYE system but has to be included as a separate item on the pay-slip. I hope that that is clear to the noble Lord.
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The Inland Revenue is confident that it could design a new enhancement to the PAYE system which could cope with providing regular support and even paying money out as long as pay remains stable. When pay changes, so does the amount of tax withheld. If pay fluctuates greatly, then the PAYE system reacts In response and will not deliver the even flow of reliable money that the policy envisages. It will sometimes deliver too much, sometimes too little. The over-payment or under-payment in each pay period could be quite marked, sometimes even taking back tax credits that had already been given.
The inconsistencies are particularly marked where taxpayers are not firmly in one rate band, where there are gaps in entitlement or where the level of the award changes during the tax year because the awards last for only six months. We know that there is considerable change in circumstances between each six months' award of family credit. Family credit seldom remains constant between one award period and another.
In the end, it was generally concluded in discussion with employers, firms, businesses and the federations that the PAYE system could not deliver these tax credits. That was the conclusion not just of the Inland Revenue but also of the consultative group, including business and payroll specialists, which looked at the issue in detail.
I have gone into the matter in detail because I know from previous meetings that Members of the Committee are concerned about the issue. I therefore thought it might be useful to put the detail on the record.
Lord Goodhart: I am most grateful to the noble Baroness for giving way. Is it not a fact that the noble Baroness has just explained very clearly why both the aims and the mechanisms of the working families' tax credit are so different from the system of taxation that the working families' tax credit cannot be treated as a tax credit at all? That is the whole point.
Lord Skelmersdale: Before the noble Baroness answers, perhaps I may add a point. If there were a genuine tax credit system, surely all that would be necessary would he to have a minus amount of PAYE before one started?
Baroness Hollis of Heigham: If we follow the argument of the noble Lord, Lord Goodhart, I think he is taking us down to a basic citizen's income, in which we pay either pluses or minuses. We know that a basic citizen's income requires a tax rate of something like 50 per cent and even then does not satisfactorily cover housing costs. It may be that his party no longer espouses that system. That would be the only way that the system he proposes could deliver what he is suggesting.
I have tried to address what I believe to be the three arguments brought to the Committee this afternoon from the Opposition benches. It was suggested that this was merely a re-badging exercise. I have tried to argue that, far from being a re-badging exercise, it represents a new but profoundly held commitment by this Government. Under the previous government giro cheques for income

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support, and so on, were handed out and people were told, "Go away and come back in 16 years' time". The whole thrust of the Government's policy, in terms of the New Deal, the single gateway for work and the pilot schemes for young people, disabled people, lone parents and older people is that the best pathway out of poverty and out of bumping along at the bottom of society is to have access to work.
We know that one of the reasons why people are sometimes reluctant to seek work, over and beyond issues of childcare and skills and training, is the relatively low entry wages compared to the level of benefit they may currently enjoy by virtue of the number of children they have, their disability or their housing support. We are seeking to overcome the perception in people's minds that the best way of helping them is simply to give them more income support. Instead, we are trying to make obvious, transparent and attractive the move from being on benefit to being in work. In so doing, the in-work support which we currently give them will be reshaped and refocused to become a tax credit, such that it pays to work and that it pays when in work to work more, to gain more and to keep more. This is not a re-badging exercise; it is the basis of the entire philosophy of this Government. Shame on the previous administration for leaving so many people for so long in the twilight unnecessarily. I hope that the noble Lord will withdraw his amendment.
Baroness Carnegy of Lour: Before the noble Baroness sits down, she has not addressed the precise point of the amendment, which is that the Government are calling something a tax credit when it has nothing to do with tax. It is a misnomer, and a misleading one. It may well be that, now he realises that, which I do not believe he did before—and I can understand that—the noble Lord, Lord Peston, will think of a way round this problem to help the Government. Will the noble Baroness reconsider the name of this credit? It is not a good thing for the Government to mislead people. They should not call something by a name which does not apply.
Lord Peston: Before my noble friend replies, and before the noble Lord, Lord Higgins, tells us what he intends to do about the amendment, perhaps I may put on my old-fogey hat and say that I wrote an article 35 years ago in which I said that the distinction between public expenditure and taxation was entirely arbitrary and that any clever person could dress something up one way or the other. I do not believe that the noble Lord, Lord Higgins, is saying anything different. He does not seem to be claiming that anything substantial follows from his amendment; he just prefers one set of words to another.
My noble friend is saying—and this is the substantial issue—that someone who goes to work will now end up in a better net position as a result of going to work than would otherwise be the case. That is the substantial issue; it is what the policy is about. It seems to me that that net improvement could quite reasonably be called a tax credit. I do not believe that the words matter. What
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matters is what my noble friend the Minister is saying, which is that it is hoped that there will be a substantive improvement in policy that will make people both more employable and more willing to work. That is, I assume, what most Members of the Committee want. I did not understand the noble Lord, Lord Higgins, to be saying that his amendment was about anything other than words. I am never one to denigrate the use of words, but it is not what the policy is about, as my noble friend pointed out.
Lord Skelmersdale: What I want, and what I believe everyone wants, is a credit for working paid through the wage packet. I have no argument with the Minister on that. The only question I would ask her is the following: if the Government had chosen to use a different agency to pay this credit, would it still be known as a tax credit? That is the issue.
Baroness Hollis of Heigham: If it is to be paid through the wage packet by whom is it to be paid except by the Inland Revenue?
Lord Skelmersdale: The Government can give instructions to the Department of Social Security or any other agency to make the payment through the wage packet. As under the Bill, the Government can give instructions for employers to pay it through the wage packet. It does not have to be done by the Inland Revenue. I accept that the Government have chosen this route for very good reasons. Nonetheless, if they had chosen some other route there would have been no possible justification for calling it a tax credit.
Baroness Hollis of Heigham: The noble Lord advances an extremely interesting proposition. Are the Opposition Benches now entirely happy that this should be paid through the wage packet and that it should be a subsidy, as it were, for people who are marginal to the labour market and therefore need this support in order to move from benefit into work? It is not proposed in most of the remaining amendments that payment should be made through the pay packet. However, I am sure that we shall argue that point when we reach it.
Lord Skelmersdale: Before the Minister goes too far, I should remind her that I have very limited or no connection with my own Front Bench. Therefore, she cannot possibly cast as Conservative policy anything that I say.
Baroness Hollis of Heigham: One was aware of divisions of opinion within the Opposition Front Benches at the other end of the corridor. I had not realised that such divisions extended to the first and second Benches on the other side of the Chamber. But if that provides for a variety of views and not simply a monolithic recitation of briefs provided by the CBI or anyone else in the course of our debates, I am sure that we shall all be the wiser—if not wiser, certainly enriched—by the division of views. However, the noble Lord, Lord Higgins, may like to have words with his colleague afterwards. As I understand it, the proposition

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of the noble Lord is that this money should be paid through the DSS. Therefore, in future employers will work with the Inland Revenue in regard to their tax and national insurance contributions but 'when it comes to this other item the DSS must know about their pay roll, the amount of pay and the number of employees. The DSS would have to check for fraud and possible collusion, carry out the inspection and handle that information.
Does the noble Lord seriously suggest that employers would welcome the DSS bringing to bear all its traditional forces of investigation so that the same small businessman would have to give information to the Inland Revenue for one reason and similar information to the DSS? Does he suggest that there should be two sets of bodies to supervise what goes on, two sets of investigations, two lots of inspection and two lots of penalties?
Lord Skelmersdale: I thought that we started with family credit.
Lord Higgins: A number of unexpected developments have occurred during this debate, starting with the announcement of the noble Lord, Lord Goodhart, that it was not the function of his party to correct the Government. I am sure that that view will not prevail for long I find myself very much in agreement with everything he said, as I did with very nearly everything he said at Second Reading. I look forward to his support in the course of subsequent debates.
I pick up first the point made by my noble friend Lady Carnegy. It is crucial that the scheme should be honest. The description in the Bill and its title are not honest. They are misleading. I gave the reasons earlier, in particular the presentation of something as a tax cut when it is in reality an increase in public expenditure. As the noble Lord, Lord Peston, pointed out, it is possible very often—not always—to define something as a tax or expenditure change. The important point is consistency. For that reason I quoted the publication of the Office for National Statistics, UK National Accounts Concepts, Sources and Methods, which came down very clearly on this side of the Chamber and not the Government's side in defining whether this was or was not a tax credit. I believe that to be an important point. At the margin these matters may be rather arbitrary but it is important that the definitions given in the document to which I have referred should be adhered to. I shall turn to a number of the noble Lord's other points in a moment.
I agree very much with the noble Baroness, Lady Turner. I do not say for one moment that it is unfortunate that the Government have decided to help the particular group of people affected by the Bill. But there are much simpler ways of doing so than the unbelievably convoluted method chosen by the Government. If there were no disadvantages I would wholly agree with her. The reality is that there are very substantial disadvantages. I enumerated a few earlier. No doubt we shall discuss many other reasons why the system proposed by the Government is not sensible.
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The Minister was anxious to say that this was not simply a re-badging exercise. If it were just a re-badging exercise all the arguments about semantics would still hold but it would perhaps not be a matter of enormous significance. But, alas, the noble Baroness as correct: this is not a simple re-badging exercise. The Bill seeks to put into law a far less efficient and more objectionable method. I agree therefore with the Minister that it is not a re-badging exercise; it is more than that. What is more, it is objectionable. We shall wish to pursue the matter.
The noble Lord, Lord Peston, asked a very straight question to which he received absolutely no answer from the Minister. I believe that the answer [hat he should have received was no. He had misunderstood the way in which the Government's proposed scheme is to operate. I hope that he will consider whether the point should be pursued at later stages. Perhaps the Minister can reply to her noble friend. The answer to the question posed by the noble Lord, Lord Peston, is no.
I turn next to a particular point raised by the Minister. I thought at first that it was a slip of the tongue, but I believe on reflection that the Minister was reading a passage stating, "This will enable people to keep more of every pound they earn". It does not do that at all. Perhaps the Minister will admit that she was wrong to say that. What it does is to give people extra money on top of what they earn. As the Child Poverty Action Group rightly points out, it is a straight wage subsidy.
Lord Peston: Perhaps the noble Lord will give way. There is no difference. Essentially, if a person goes out to work—it is some time since I had the pleasure of doing that—what matters is what he takes home. What does the person end up with as a result of going to work? As I understand it, a person will end up with more. I believe that to be the beginning and end of it. Other than the noble Lord's desire to be very precise in semantics—which we can also argue about—the substance is exactly as I and the Minister have described it. Now if one goes out to work one's net position is better than it would otherwise have been.
Baroness Hollis of Heigham: Perhaps 1 may help the noble Lord still further and provide information on the matter. At the moment, if one is on family credit, housing benefit and council tax benefit and one is perhaps within the PAYE system, for every pound one earns there is a deduction. One's other benefits are taken away at different rates. Under the system that we inherited from the previous administration 5,000 people paid 100 per cent MDRs. For every pound they earned they were not a penny better off. Every penny was clawed back in NICs or tax but in particular in housing benefit, council tax benefit and the loss of family credit.
Under the previous administration 130,000 people suffered a 90 per cent. withdrawal rate; 300,000 people suffered an 80 per cent. withdrawal rate; and 750,000 people suffered a 70 per cent. withdrawal rate. If this applied to the better off there would be protests against the disincentive to further effort, entrepreneurship arid all the rest of it. Yet people who are poorly paid are expected to seek to improve their hours and working

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conditions but suffer deduction rates at this level. Under this Government the 750,000 people inherited from the previous administration who suffer a deduction of over 70 per cent. on every pound that they earn will fall by one third. As a result, about 500,000 people will take home more and keep more at the end of the day. I would have thought that noble Lords all around the Chamber would have welcomed that.
Lord Higgins: We will come to the taper when we discuss later amendments. If the Government simply wanted people to keep more of what they earned, they would have reduced tax rates.
Baroness Hollis of Heigham: I am sure the noble Lord knows perfectly well that the interplay of tax rates and NICs rates, with housing benefit, council tax benefit and family credit, produces a marginal tax rate at the worst extreme of 100 per cent.
Lord Higgins: We can return to the issue of the taper and marginal tax rates later. The noble Baroness is saying that at the moment they would keep more of what they are earning. They are in fact getting a straight wave subsidy which is added to it, which may or may not be as much as the tax which is being deducted and, as I understand it, could be more; otherwise there would be no point in the exercise. We can return to the issue later, but I maintain my position.
The noble Baroness spoke of whether there are advantages or disadvantages to the system she is proposing and whether or not it will be possible to introduce a real tax credit scheme. To some extent she revealed her feelings on the matter when she pointed out that if it were a real tax credit scheme, then it would not appear in the pay packet in the way she described.
Baroness Hollis of Heigham: I did not say that it would be a real tax credit if only it was paid through PAYE. I said that it seemed that the Opposition were arguing that if only it were paid through PAYE, then it would be a real tax credit. I pointed out that although that may seem an attractive proposition, it cannot be easily achieved.
Lord Higgins: If it could be done as a real tax credit scheme, as originally intended, meaning that it would not appear in the pay packet in the way the Government wish, would the noble Baroness be in favour of that? I am not clear about their position. I suspect that those who are enthusiastic about the pay packet argument are less enthusiastic about a real tax credit scheme. I understand that the 26-week system has not been considered by the Government, but it may be possible to introduce a real tax credit scheme. We can discuss these matters later. But the position of the noble Baroness is not precisely that set out by the Government. It is a little unclear.
Baroness Horns of Heigham: I take issue with the noble Lord attributing views to me that I do not hold and have not expressed. Clearly, it would be attractive
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if this could be seen as an addition to people's wages and be paid through PAYE. The two big obstacles are that PAYE is cumulative and that it affects people who are not in the tax system. It would therefore particularly disadvantage the low-paid. That is why I stated that businesses and the consultative group had agreed with the Inland Revenue that PAYE was not the appropriate vehicle and that, therefore, we are doing it this way. It is still being done through the pay packet by the Inland Revenue but as a separate item rather than through PAYE.
Lord Higgins: The noble Baroness has just made the point: she is saying that if it were through PAYE, it would not then appear on the pay slip as she described it, and to that extent she would regard it as a disadvantage. It is the contrary reason, with respect.
One has some suspicion that because the Government are wedded to the idea of it being done through the pay packet, although as far as the self-employed and couples are concerned that principle is undermined, they are less enthusiastic than they ought to have been, in my view, about it being a genuine PAYE tax credit scheme. The position is not clear.
The proposal of the Chancellor of the Exchequer in the Red Book at paragraph 5.13 is that it will all be integrated and the pay slip at that point will not appear in the form which the noble Baroness is enthusiastic about. Once the major reform comes through, it will be a genuine tax credit scheme, as far as one can gather from the Budget Statement. Can the noble Baroness say whether she thinks that is right?
Baroness Hollis of Heigham: I cannot possibly anticipate what forms or slips or pay packets might look like several years down the line when children's tax credits and others may have been fully introduced. That is, if I may say so, a rather silly question.
Lord Higgins: We have now heard an interesting statement that paragraph 5.13 does not say that this is not going to happen for seven years, which perhaps it should have done because then we would be clearer about the Government's objectives. It would be helpful to receive an answer to the original question of the noble Lord, Lord Peston. We can discuss the other matters on later amendments.
Baroness Hollis of Heigham: The noble Lord, Lord Peston, says he believes he had an answer. If he is satisfied, I do not see why the noble Lord should be dissatisfied.
Lord Higgins: The only difference is that the noble Lord received the answer from me and not from the Minister. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringey: My Lords, I beg to move that the House be now resumed.
Moved accordingly and, on Question, Motion agreed to.
House resumed.
Lord McIntosh of Haringey: My Lords, before we move to the Statement on the NATO summit, I should like to take this opportunity to remind noble Lords that the Companion indicates that discussion on the statement should be confined to brief comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.

NATO Summit
4.15 p.m.
Baroness Symons of Vernham Dean: My Lords, with the leave of the House, I shall now repeat a statement being made in another Place by my right honourable friend the Prime Minister.
"With your permission, Madam Speaker, I will make a statement on the NATO Summit in Washington on 23–25 April. I was accompanied by the Foreign and Defence Secretaries and the Chief of the Defence Staff. Copies of the Washington Declaration, the alliance's new strategic concept, the summit communiqué, our separate statement on Kosovo and other summit documents, are being placed in the Library of the House.
"The summit was naturally dominated by Kosovo. NATO reaffirmed its basic and unalterable demands: Milosevic must withdraw his troops and paramilitaries; an international military force must be deployed and the refugees returned in peace and security to their homeland. The communiqué on Kosovo made it clear these demands will not be compromised.
NATO decided that the air campaign should be intensified; that the number of aircraft and targets should be expanded; and that the economic measures against Belgrade should be increased. In particular, we greed an embargo on oil, to be made effective by the measures necessary, including maritime operations.
"There was also discussion of the circumstances in which ground troops would be deployed. As I said to the House of Commons last week, the difficulties of a land force invasion of Kosovo against undegraded Serb resistance remain. But Milosevic has no veto over NATO's actions. It was agreed at the summit that the Secretary General of NATO and the military planners should now update their assessments of all contingencies. Meanwhile, the build-up of forces in the region continues.
"In addition, we agreed to provide all assistance to the International War Crimes Tribunal in respect of the atrocities committed against Kosovar Albanians. We also warned Belgrade against any move to undermine the democratically elected government of President Djukanovic in Montenegro.
"NATO's military commanders, General Clark and General Naumann, briefed the summit on the progress of the air campaign. NATO has largely isolated the Kosovo battlefield and built what General Naumann
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described as a ring of steel around the FRY. Six hundred and ninety aircraft and 20 ships are now deployed—more than double the force at the outset of this campaign. Half the Serb fighter planes are now destroyed. FRY air defences are ineffective, with over 70 aircraft and some 40 per cent. of the SAM 3s and 25 per cent. of the SAM 6s destroyed. Oil refining and distribution have been massively disrupted, already leading to Serb operations in Kosovo being halted on several occasions in the past two weeks. The day before the summit meeting, six tanks, 27 military vehicles and an infantry column had all been destroyed in Kosovo. These operations continue and as the weather clears and more attack weapons arrive, that type of action will become a daily occurrence.
"Russian efforts to find a diplomatic solution to thi. crisis are welcome. But there can be no alteration to our fundamental demands.
"NATO will also continue its efforts to relieve the humanitarian crisis that Milosevic has cynically provoked in and around Kosovo. NATO troops have helped deliver 11,000 tonnes of aid, and provided food and shelter to some 85,000 refugees. I met the Presidents of Albania and Macedonia and pledged Britain's support for them in dealing with the refugee crisis Milosevic's repression has created.
"The full extent of the horrific repression by Serb forces in Kosovo is only emerging now. There has been organised systematic rape of women, usually in front of husbands and children. Young men have been forced to dig graves, then shot. Whole villages have been razed to the ground. Some of the stories of the cruelty and barbarity practised by Serb militia are evil beyond belief. We have heard reports of Kosovars hiding in the hills for weeks and having to walk for days to escape Serb repression. Some, particularly children and the elderly, have died as they tried to escape. Some who have escaped, including children, have reached safety with bullet or shrapnel wounds inflicted by Serb forces. The UNHCR today has substantiated reports that women and children are being used as human shields, including in a building used to store ammunition.
"In the meeting with the leaders of the seven non-NATO countries neighbouring Serbia, we were united in our resolve to strengthen efforts to promote stability and development in south-east Europe.
"For their part what was remarkable was the view of the front line states that the NATO action was just, and that NATO must win. Milosevic is now a pariah in his own region.
"We also looked ahead at means of contributing to the long-term stability of all the Balkan states. At our initiative, NATO leaders agreed to establish a regional security forum for south-east Europe between NATO and the countries of the region. It was agreed that NATO should work together with the United Nations, the Organisation for Security and Co-operation in Europe, the European Union and the international financial institutions in this endeavour.

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"Madam Speaker, this summit had an important agenda before it, quite apart from the Kosovo crisis. It was the occasion to adapt the Alliance to meet future needs and challenges. While NATO's fundamental role will remain the defence and security of the allies, there was an equally strong consensus on the need for a more capable and flexible Alliance, able to contribute to security throughout the Euro-Atlantic area and to promote the values of democracy, human rights and the rule of law for which it has stood since its foundation. In doing so, member states reaffirmed their commitment to the Washington Treaty and the United Nations Charter.
"We approved an updated strategic concept which set out the fundamental security tasks of the Alliance and how we intend to fulfil them. Common defence and the transatlantic link will of course remain the bedrock of the Alliance. But the new strategic concept recognises that in today's world the ability to respond to crises and develop partnership with countries which were once our adversaries are crucial to our interests and the promotion of our values. The strategic concept also provides top level guidance for the restructuring of Alliance military forces. The defence capabilities initiative agreed at the summit will give effect to this by adapting and modernising NATO's capabilities along similar lines to our own Strategic Defence Review.
"The strong partnership between the European and North American members of the Alliance is the key to the success of NATO and to our security. The summit unanimously welcomed and endorsed the initiative which I and President Chirac launched at our summit last December in St. Malo, to develop a European defence capability for crisis management operations where the Alliance as a whole is not engaged.
"A stronger European capability will strengthen NATO and is fully compatible with our commitment to NATO. Making NATO a more balanced partnership will strengthen the essential transatlantic link. The Alliance stands ready, as the EU defines its defence arrangements, to make NATO force planning, NATO assets, and NATO headquarters available for EU-led crisis management operations, subject to the necessary approval by the North Atlantic Council. We emphasised the importance of fully involving those allies who are not members of the EU in this process. These decisions will ensure that NATO and European capabilities develop in a fully compatible manner.
"Madam Speaker, in Washington we welcomed for the first time at a NATO summit the leaders of Poland, Hungary and the Czech Republic, the Alliance's new members. We reaffirmed the Alliance's continuing openness to new members and agreed a new membership action plan for countries that aspire to join the Alliance.
"We met the Heads of Government of 23 non-NATO nations in a summit meeting of the Euro-Atlantic Partnership Council which showed the breadth of support of the Alliance's efforts to spread security and stability throughout the Euro-Atlantic area.
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"Regrettably, Russia was not represented at this meeting. However, throughout our discussions and in the communiqué we made clear our wish to work co-operatively with Russia on a wide range of security issues and to resume regular NATO consultation and co-operation with Russia in the Permanent Joint Council.
"Madam Speaker, there were two key outcomes of the summit. A new vision for the future of NATO was set out, of new roles for NATO, new capability, new partnership with the nations of central and eastern Europe and beyond in central Asia. And, secondly, there was the total and unified commitment by all the members of the Alliance to defeat and reverse the policy of ethnic cleansing in Kosovo. Each leader began his statement by saying NATO will and must prevail. It is our collective task now to make that victory, of justice over evil, a reality for Kosovo's long suffering people".
My Lords, that concludes the Statement.
4.28 p.m.
Lord Strathclyde: My Lords, first, I thank the Minister for repeating the Statement by the Prime Minister. This is a Statement of supreme importance at a time of enormous doubt over the future course of events in the Balkans. We thank the Minister at least for having the courtesy to be here to report to the House today and for putting her undoubted expertise at our disposal.
NATO's resolute defensive alliance is one of the greatest influences for peace in world history. It preserved the peace in Europe for 50 years. It kept at bay the threat of totalitarianism. It kept the interests of the free nations of Europe and North America bound as one. It played the major part in winning the Cold War and dismantling the horror of the nuclear threat that had lain over Europe throughout my childhood.
The future role of NATO is as crucial as its past, and it deserves the same care and caution now as governments over 50 years have given it.
We reiterate our support and admiration for the men and women of the UK's Armed Forces. We believe it is vital for the future credibility of NATO that the tasks which have been, and will be, set for them are clear and can be seen through to a successful conclusion. Do the Government agree that what our forces, our allies, and indeed our enemies, and those nations not involved most need is clarity? So will the Government understand my concerns that despite consistent questioning from my colleagues and myself since the crisis began we have yet to receive clear, consistent and unequivocal political and military objectives from the Government?
I have four sets of questions to clarify matters in the light of the NATO summit. The first relates to ground troops. Last week, the Prime Minister signalled a change in policy on ground troops. He envisaged the active deployment of NATO forces against what he called a "degraded" Serb military machine.

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On 13th April in this House, the noble Baroness the Leader of the House said:
"of course there may well he British and NATO ground troops involved, but that would be a peacekeeping force rather than a force intent on fighting its way into a difficult situation, which … against Serbian refusal to accept any intervention on a legal basis would he very difficult'. —[Official Report, 13/4/99; col.639.]
What is government policy on ground troops? Is it being made up as we go along? Where is the clarity? Is the use of ground forces, other than as a peacekeeping force, now one of our strategic options? If so, what success did the Prime Minister have in convincing our NATO allies of the need to change policy? Will the Minister accept that if this policy is to be carried out it requires a fuller explanation than has so far been given to Parliament? The country will not wish to be led into a ground war by stealth.
I turn to the serious question of an oil embargo. Are the citizens of any NATO countries believed to be involved in the supply of oil to Yugoslavia? If so, what representations have been made by Her Majesty's Government? I understand that NATO has now decided to board and inspect all ships. What is the legal basis for that in maritime law or under the UN Charter? Are Her Majesty's Government now officially at war with Yugoslavia?
What does NATO plan to do if ships plying trade with Yugoslavia decline to be boarded? What rules of engagement have been given to Her Majesty's ships on what to do in such circumstances? Will they be authorised to open fire on neutral shipping in the Adriatic Sea? Is it intended to interrupt tankers bound for Yugoslavia outside the Adriatic or Ionian Seas?
I believe that the House will wish to be assured that there is absolute clarity on a matter of such potentially momentous import.
We share the Government's regret that Russia was not represented at the Heads of Government meeting of 23 non-NATO nations of the Euro-Atlantic Partnership Council. It remains our view that close co-operation with the Russians on security matters is vital, as is their influence and potential role in finding a solution to the continuing crisis in Kosovo. We hope that the Government will never underestimate the extent to which the Russians may well hold the diplomatic key to unlock a settlement to the humanitarian tragedy in the Balkans.
Last week, the Prime Minister commented to the US media that:
"we carry on until Milosevic steps down".
The Foreign Secretary said at the weekend that ethnic hatred could be defeated,
"only when we get a change of regime in Belgrade".
But, when asked by my noble friend Lord Trefgarne in the House last Wednesday whether it was now a war aim to remove President Milosevic from power, the noble Baroness, Lady Symons of Vernham Dean, replied, "No, my Lords". Would the noble Baroness be prepared to reconcile those statements? Again, where is the clarity here? Do we carry on until Milosevic steps down and there is a change of regime, or do we negotiate with him at the appropriate time?
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How far will we extend targets in Yugoslavia? When this action began on 25th March, the noble Lord, Lord Gilbert, responded to the noble Lord, Lord Stoddart, by saying:
"We are addressing a very small number of precise military targets, in exactly the same way as we were doing in Iraq". — [Official Report, 25/3/99; col.1512.]
Are radio stations "precise military targets"? Do the Government confirm the statement of Mr. Berger, the US National Security Adviser, that NATO is now out to strike what he called "high-value national assets", including the electricity grid, water supplies and the national telephone system? Have we not come a long way from a "very small number of precise military targets" in a short month? If we are moving on, where are we going and can we be clear?
Finally, there is need for clarity on the long-term future of NATO, in particular the EU place in it. We welcome the fact that the European defence identity will be developed within the NATO structure, but where does the development of an EU-led capability leave countries such as Turkey—which is of vital strategic importance—which are members of NATO but not of the EU?
However, in the light of what the Prime Minister said in his Statement, would the Minister care to comment on whether the agreement signed by him at last renders obsolete the St. Malo agreement he signed last year and the specific idea of developing an EU defence identity outside NATO, something we warned against then and still view as unacceptable?
Once again, there is surely a case for clarity. Es the Government's policy an EU capability inside NATO or outside NATO? It is difficult to see how the two agreements can be reconciled.
To conclude, on behalf of these Benches I express the wish that NATO is as successful in the next 50 years as it has been during its first 50. I look forward to the Minister's reply.
4.37 p.m.
Lord Rodgers of Quarry Bank: My Lords, I too, join the noble Lord, Lord Strathclyde, in welcoming the Minister and thanking her for repeating the Prime Minister's Statement. I hope that it will not be regarded as churlish to associate myself with remarks made by the noble Lord, Lord Henley, earlier today. The first duty of every Minister is to Parliament. On an occasion of this kind, the noble Baroness the Leader of the House should have been present. The summit was not a sudden event; it could have been anticipated. If it were anticipated, it would have been known that the Prime Minister would make a Statement on the following Monday. In those circumstances, there was adequate time for the Leader of the House to make alternative arrangements. I regret her absence and I hope that in future she will participate more fully in these discussions.
There are two statements in the single Statement made by the Prime Minister. The first is about NATO operations in Kosovo, a short-term issue which is of great concern to the House. The second is about the new

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strategic concept of NATO, what the Prime Minister in his Statement called "a new vision". That needs the closest scrutiny. The outcome in Kosovo is only one factor in a major long-term development which it is right that we should examine and discuss in full.
Indeed, we shall have a debate in your Lordships' House on Thursday 6th May. It was to be introduced by the noble Lord, Lord Gilbert. I hope that it will be recognised by all sides of the House that the debate must go much wider than the defence considerations of Kosovo. It must look not only at the issue of the refugees, but at the whole future of the Balkans. Speaking from these Benches, I believe that it would be highly unsatisfactory if the debate were not widened. Indeed, that would be a good opportunity for the Leader of the House on such an important occasion to lead for the Government and bring all these important issues together. As regards the short term, we know that the short, sharp shock in Kosovo, the air strikes, have turned into a major war of attrition. It has been recognised that, for good or for ill, there is a larger role for ground troops than the Government were prepared to recognise two or three weeks ago. Indeed, the Prime Minister acknowledged that in the Statement when he referred to "contingency planning". That must be recognised as a major shift of policy on the Government's part.
As regards the long term, the Statement listed very properly the major issues which were discussed at the summit and which underlie the communiqué: first, crisis management and response options in what is now called the "Euro-Atlantic" region. That alone deserves a very careful examination to see what NATO will be concerned with out of area. Its great success over the past 50 years must not lead us to assume that there is a major out-of-area function for it.
Secondly there is an argument for, as I believe the Prime Minister described it, a more balanced partnership between the North American parts of NATO and their European allies. I welcome that. But we must consider carefully how we can develop a European defence identity while recognising at the same time that for the foreseeable future we must draw the United States into Europe. We must not allow isolationism to develop so that it feels that it no longer has a place in problems of this kind.
Indeed—and I have referred to this already in respect of the debate we are to hold—there are major foreign policy issues about the long-term future of the Balkans and whether those countries will be turning to the east or the west; and about the need to have a plan for post-war reconstruction. All that needs to be thought about when a military operation is in progress. We can then look at the strange birth of the old diplomacy which is one result which could have been anticipated by the break-up of the Soviet Union but the full weight of which was not clear until the events in Yugoslavia and more particularly the recent events in Kosovo took place.
I ask three brief questions of the Minister, the first of which is very straightforward. We have been led to believe—it has been commented on widely—that the Prime Minister's speech in Chicago marked a major
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development of government policy. In addition to the documents which will be placed in the Library, perhaps we may have a copy of that speech so that we can measure precisely what has been said.
I hope it is not too soon, because I am sure the Chancellor of the Exchequer will be concerned about this, to make some estimate of the additional costs falling upon the defence department as a result of the Kosovo intervention. The noble Baroness may tell me that that is part of the contingency arrangements of the present year's budget. If so, so be it. But at least we should know and it is important that the calculations should be made.
Thirdly, I pick up an important point made by the noble Lord, Lord Strathclyde, whose questions were all relevant in that respect, The experience of oil sanctions elsewhere in the past has been that, for the most part, they have been unsuccessful. In view of that, do the Government really believe that they can be successful on this occasion? What percentage of oil reaching Yugoslavia do Ministers really anticipate will be stopped as a result of the arrangements which we are now discussing?
4.45 p.m.
Baroness Symons of Vernham Dean: My Lords, I thank both the noble Lords, Lord Strathclyde and Lord Rodgers of Quarry Bank, for their broad support on those issues. I should say to the noble Lord, Lord Rodgers, that my noble friend the Government Chief Whip gave a clear explanation of why my noble friend the Leader of the House is not here. I am sure that your Lordships will recognise that Northern Ireland is also an extremely important issue at present. My noble friend had a long-standing engagement which would have occasioned a good deal of difficulty and disappointment had she been unable to fulfil it.
Both noble Lords made a number of points to which I shall do my best to respond as fully as I can. I associate myself with the remarks of the noble Lord. Lord Strathclyde, about NATO having preserved the peace for 50 years. I reiterate that NATO remains the cornerstone of the Government's defence and security policy as we have had occasion to discuss many times in your Lordships' House in the past two years. That was developed very well in the discussion on the strategic concept which took place in Washington last week. Again, we have had the opportunity to discuss that in the House.
The noble Lord, Lord Strathclyde, said that clarity is needed in the Government's position on Kosovo. There has been a good deal of clarity on the political objectives. The noble Lord said that he is still not clear. Perhaps I may reiterate those objectives for him, as I thought I did last week. They are that there should be an immediate ceasefire; that Milosevic's forces should be withdrawn from Kosovo on a verifiable basis; that refugees should be able to return in confidence to their homes; that there should be an international security force on the ground in Kosovo to make sure that the refugees have that degree of confidence: and that there should be an acceptance of the political process,

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building on the Rambouillet accords. Those are five clear political objectives. The Government have stated and reiterated them on a number of occasions.
The noble Lord is also concerned that there should be clarity as regards the military objectives. The military objectives must be those which ensure that the political objectives are met. They are that there should be the degrading of the Milosevic war machine. Only last week we discussed this in your Lordships' House when the noble Lord, Lord Trefgarne, asked me specifically about military objectives. It will not have escaped the attention of the noble Lords, Lord Strathclyde and Lord Trefgarne, that I did not answer specifically about military objectives.
We are in a war situation at present. British troops are going in to fight. Over and above the general objectives which have been laid out, it is not in the best interests of our troops to specify particular objectives at present. However, I shall try to say more about that in a few moments, particularly in relation to points raised by the noble Lord about the television station.
We are about ensuring that our troops have the best possible chance of success. We are not about giving any help to Mr Milosevic. The clarity which the noble Lord demands, understandably, in respect of your Lordships' House, may mean that we are giving more clarity to Mr. Milosevic in relation to some of the points raised.
In particular, the noble Lord asked about the oil sanctions. They are being discussed today by my right honourable friend the Foreign Secretary. Therefore, the proposals for a maritime operation are still in the planning stages. We should take account of the legal implications of any NATO operation before agreeing it. Therefore, any action will be taken in accordance with the law. As I said, the details of how that is to be undertaken are under discussion today. As those emerge, if we can put them into the public arena and give the noble Lord more help on that point, I am sure that we shall do so.
The noble Lord was exercised also on the question of ground forces. We are concentrating on what can be achieved through an effective air campaign. We are inflicting serious damage on Milosevic's war machine through the very structures which keep him in power. With the allies at Washington, we agreed unanimously to intensify that air campaign in order to increase the pressure on Milosevic and to reduce his ability to wage war against his own citizens. However, at the same time, as the noble Lord will have noted, the Secretary General of NATO, Mr. Solana, has tasked the. NATO military authorities to update the planning for ground forces in a variety of environments—I pick my words carefully. I say to the noble Lord, Lord Strathclyde, as I believe has been fairly clear now for some time, no option is being ruled out. I hope that brings greater clarity in the way the noble Lord felt was important.
The noble Lord raised a number of questions in relation to Russia. We regret that our Russian friends were not with us in Washington. We want to work with Russia. The Kosovo crisis does not negate any of the principles underpinning the NATO-Russia Founding Act 1997. We are aware and, I hope, sensitive to the
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domestic and parliamentary opposition in Russia at the present NATO dealings. However, the Foreign Secretary and the Prime Minister are keeping in close touch with their Russian counterparts. On 22nd April the Prime Minister had extended discussions by telephone with Mr. Yeltsin. He emphasised then that Russia has a vital role to play over Kosovo. I believe my right honourable friend also gave that clear message in a television appearance in Russia.
The noble Lord asked about the position concerning Milosevic. I gave the clearest possible answer on that to a direct question from the noble Lord, Lord Trefgarne, only last week. We believe that Milosevic has been an unmitigated disaster for his country. However, as I made clear to your Lordships, it is for the people of that country to decide who governs them. When we look at the way in which Mr. Milosevic has carried out repression against his own citizens and denied them any semblance of democracy, I think we must all agree that he is a brutal, cruel and repressive man. There cannot be any negotiation with him over his policy of ethnic cleansing. He has to meet our conditions. He has to withdraw his forces from Kosovo, allow the refugees to go home in peace and allow an international presence there to protect them.
Lord Strathclyde: My Lords, I thank the noble Baroness for giving way. I do not want her to give away any state secrets but my contention is that there is some confusion about Milosevic's own position. Can I take it, from what the Minister said, that Her Majesty's Government are happy to negotiate with the President so long as he has met the initial demands she set out earlier?
Baroness Symons of Vernham Dean: My Lords, Her Majesty's Government have made it clear that Mr. Milosevic must meet those five conditions. We have made it clear that it is not an aim of this war to see Mr. Milosevic fall from power. I believe we would be delighted if that was the case, but that is a question for the people of his country. We have stated our conditions in relation to taking forward the position.
The noble Lord also asked about the bombing of the television station. The regime's propaganda keeps the Serbs ignorant of the brutality that goes on in Kosovo, the aims of the international community and the reasons for NATO's campaign. The media has been used to incite racial hatred and to immobilise the Serbs. Therefore, where media facilities are relevant to military operations or to the capacity of Milosevic to continue his campaign of terror, they will be considered as possible targets. I hope that makes the point clear.
I turn to the specific matters raised by the noble Lord, Lord Rodgers of Quarry Bank. The speech given by the Prime Minister last week ranged over a number of issues. It can be put into the Library of the House and I shall arrange for that to be done. The additional costs of the military action will, indeed, be falling on the contingency reserve. If there is any further information that I can let the noble Lord have on that matter.. I shall do so. However, I must say, as I am sure the noble Lord would wish, that I will be able to give such information

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as is consistent with the security of our troops. We do not want anything to be read across from one area to another. Of course, my right honourable friend the Chancellor will be concerned about the costs involved. However, that is not the issue at stake here, which is the humanitarian disaster in Kosovo.
The noble Lord also raised a number of issues about European defence, as did the noble Lord, Lord Strathclyde. There was a strong endorsement from all allies, European and North American, EU members and non-EU members, for our European defence initiative. We do not believe that this is taking place outside NATO at all. We believe this is about crisis management where the alliance as a whole is not engaged. That does not derogate in any way from the points I made at the beginning of my answers about the continued importance attached by Her Majesty's Government to NATO as the cornerstone for security.
The noble Lord, Lord Rodgers, was also concerned about what was termed "out of area action". The term. "NATO area" is one which Her Majesty's Government believe is misleading. NATO's Washington treaty and the strategic concept do not impose any geographical restrictions on NATO action. I hope that that has shed a little more light on that point. I believe I have covered all the issues raised by both noble Lords.
4.57 p.m.
Viscount Cranborne: My Lords, does the Minister accept that the whole House will have noted the careful preparations she has made this afternoon towards the possibility of achieving a U turn on the question of an opposed invasion of Kosovo by ground troops? Can she tell us whether the consideration of such a possibility is viewed with equanimity by every member of NATO and whether they would support such a consideration?
To what extent have the Government been considering the impact of a possible opposed invasion by NATO ground troops on our own reserves of infantry in particular? What effect will that have on the emergency tour plan of infantry battalions of our own troops should that occur, particularly in view of the worrying signs of developments in Northern Ireland?
Baroness Symons of Vernham Dean: My Lords, I am sure that the noble Viscount is not trying to be unnecessarily tendentious at a time when I would hope that the House would be able to pull together. I do not believe that there is anything like what the noble Viscount described as a U turn. The fact is that military situations develop. The situation now is not as it was when we began this military encounter. With the greatest respect to the noble Viscount, I do not believe that playing along the party political lines at this time is tremendously helpful.
As the noble Viscount knows, NATO acts by consensus. As regards ground forces, it has always been the position of Her Majesty's Government, as my right honourable friend said in his Statement in another place, that we should not give Mr. Milosevic any veto over NATO's actions. Those words speak for themselves. Mr. Milosevic does not have the right to veto what
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NATO does. It was for that reason that Mr. Solana was asked to update the assessments about all contingencies. It is on that basis that all the partners in NATO agreed. As the noble Lord will know, NATO cannot operate by anything other than consensus. All 19 countries in NATO, including what have been described as the front line states, the neighbouring states of Serbia, agreed on that position in the communiqués released.
Lord Merlyn-Rees: My Lords, with regard to the role of the individual members of NATO, can the Minister confirm that at the moment 86 per cent of the resources and manpower are provided by America; 7 per cent by the UK and the other 7 per cent by the rest? Those that supply the greatest amount of manpower and resources call the tune compared with those who supply a small amount. Also, was any thought given in Washington to the future role of the KLA? Is it to be brought into the fold? Is it to play a major part in the reoccupation of Kosovo? It is important to know that.
Baroness Symons of Vernham Dean: My Lords, I recognise the figures quoted by my noble friend. but I do not know whether they are absolutely accurate. It is true that the United States provides a considerable amount of military equipment into the area, but I shall have to check with my colleagues in the MoD in relation to the current military deployment of personnel. Those figures have been changing. As my right honourable friend's Statement made very clear, more troops are being sent to the area, and a considerable number of British troops are there as well.
I can assure my noble friend on two points. First, there is engagement across the board in NATO, both as to equipment and as to manpower. Secondly, as I said a moment or two ago to the noble Lord, Lord Strathclyde, there is agreement by consensus. I remind my noble friend of the point made in my right honourable friend's Statement, that every one of the NATO partners who spoke on this in Washington began by saying that he believed that the alliance had to defeat and reverse the policy of ethnic cleansing and that NATO will and must prevail. That is a strong position across the alliance.
My noble friend will know also that the KLA is still engaged in fighting. It is difficult to talk to the KLA at the moment, for reasons I am sure my noble friend will understand, and in any case, as we have discussed before in your Lordship's House, the KLA is itself a fractured organisation in terms of leadership. I take my noble friend's point that any movements towards peace must involve consultation with those who represent the Kosovars, but that will comprehend their political leaders as well, perhaps, as those who have been doing some of the fighting.
Lord Craig of Radley: My Lords, when the air campaign began, it appeared that we were bent on persuading Milosevic, by degrading his war machine, to accept the basis of the Rambouillet proposals, in particular that Kosovo should have autonomous status within Serbia. more recently there have been suggestions that Kosovo should be partitioned, or that

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it should be an independent state. What is the Government's current position on the future of Kosovo? Has there been a departure from the original position?
We now hear far more talk about taking out Milosevic's key elements of power rather than degrading his war machine. There seems to me to be some difference between talking about degrading his war machine and attacking the key elements of what keeps him in power. The precise position over Kosovo will have major implications for any ground forces that may be deployed inside Kosovo and it would be helpful to know what the Government's position is.
Baroness Symons of Vernham Dean: My Lords, on the political track, if I can put it that way, the Government's position is that the Rambouillet process should be built upon for the future of the Kosovar people. But it is not easy to predict at this juncture what the Kosovars themselves will want for their future. After all, they have been through a truly scalding and horrific experience over the past few weeks. Perhaps what was acceptable to them then may not be acceptable when the military action is completed.
The noble and gallant Lord says that he is not clear as between on the one hand the Government's desire to degrade the military capacity of Mr. Milosevic and, on the other, a desire to undermine the key elements in his power. While I see that philosophically those issues can he separated, some of the key elements in keeping Milosevic in power will be part and parcel of keeping his military machine alive. It was for that reason I gave the specific answer I did to the noble Lord, Lord Strathclyde, in relation to the Government's view of the television station as a proper military target. It is the propaganda machine that helps to keep the military machine moving. Therefore, though philosophically what the noble and gallant Lord says may be true, in practical terms the two issues coincide considerably.
The Earl of Lauderdale: My Lords, will the noble Baroness kindly answer one or two short questions? The first concerns the oil embargo. Are we to understand that oil is reaching Yugoslavia through the Adriatic port of Bar, and also through Thessalonika? If there is to be an embargo enforced by naval power, will that also apply in the Aegean Sea as well as the Adriatic? Also, can the noble Baroness tell us anything about Mr. Djukanovic's statement reported in this morning's press—after all, he is number two to Milosevic—pleading for Russian endeavours to obtain a compromise? Finally, the noble Baroness talked about a forum for south-east Europe. Is that something that will take account of the many territorial claims of those countries—Greece has claims on Albania, Bulgaria has claims over Romania and so forth—or will it ignore all the current and outstanding territorial claims that have beleaguered that part of the world for the past 50 or 60 years?
Baroness Symons of Vernham Dean: My Lords, as I indicated earlier when answering the noble Lord, Lord Strathclyde, the proposals for the maritime blockade are being discussed today. They will be
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discussed with a view to making that blockade as complete as we possibly can. We do not want to be in the position, so eloquently described by the noble Lord's noble friend Lord Moynihan last week, where there is a possibility of British servicemen risking their lives in bombing expeditions only to find that oil is getting into the FRY through other means. The purpose of my right honourable friend's discussions today will be to make that blockade as clear and solid as we possibly can.
The noble Lord asked about the comments made by Mr. Draskovic. That was an interesting development. I am sure that all noble Lords who heard about it were extremely concerned as to what was happening. It is clear that only Mr. Milosevic can take the decision about ethnic cleansing and NATO's demands. Mr. Draskovic's remarks demonstrate that Mr. Milosevic at the moment does not appear to be in a position to reason with anyone, even members of his own government. But we were interested in that development and, if I can put it this way, we shall keep a watching brief.
The noble Earl also asked about the stability pact in south east Europe. The OSCE and the EU have proposed this pact which would build on existing regional initiatives and open the door for a long-term political and economic stabilising process. Details still have to be worked out, but it is hoped that NATO and the international financial institutions would be involved as well as the EU and the OSCE.
The Earl of Lauderdale: My Lords, perhaps I may point out to the Minister that Mr. Djukanovic was the man who made the statement, He is now Mr. Milosevic's number two in government and was leader of the opposition until a few years ago.
Baroness Symons of Vernham Dean: My Lords, in that case, let us hope that some of the wisdom in his words will prevail. However, I do not believe that the noble Earl should have any confidence that that will necessarily be the case, given Mr. Milosevic's record.
Lord Redesdale: My Lords, although we on these Benches would quite support the use of ground troops to enable refugees to return to Kosovo, if that is the only way by which they will be able to go home, can the Minister say whether there have been any discussions on the use of depleted uranium shells? This is the main armament for the A10 anti-tank aircraft and it would be unfortunate if the Kosovan refugees were to go home only to find that this significantly environmentally unfriendly ammunition had been used.
Baroness Symons of Vernham Dean: My Lords, the questions of environmental degradation raised by many people are matters which Her Majesty's Government wish to keep in the frame as we consider the way forward. NATO is making every effort to ensure that only facilities of specific military value are targeted for that very reason. I will have to write to the noble Lord on the particular question that he raised. It is my understanding that we are taking every precaution that we can not to degrade the natural environment and not to cause any long-term environmental damage.

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However, the noble Lord raised quite a specific point. If I am able to respond, given the other strictures on some of my answers, I shall of course do so.
Lord Mackay of Ardbrecknish: My Lords, perhaps I may return the Minister to the appalling question of the refugees who have been driven out of Kosovo. Like many people in this country, I am becoming a little bemused by the numbers involved. Can the Minister tell the House how many Kosovan Albanians were estimated to be within Kosovo when the campaign began, how many are still there and, therefore, by subtraction, how many have either been driven out or killed? Does the Minister agree that that will show up the enormity of the problem with which the surrounding countries will have to deal?
The noble Baroness mentioned the non-NATO countries in the area and the discussions that NATO is having with them. However, is NATO having any discussions with them about the huge economic damage which has been done to their economies by the bombing of bridges over the Danube, bearing in mind the fact that the Danube is no longer an important economic artery for those countries? That will mean very serious consequences for them; indeed, they are not rich countries.
Finally, can the Minister help us with what seems to me to be a contradictory statement? At the beginning of the campaign it was made absolutely clear that we were ruling out the deployment of ground troops in any kind of war situation. In my view, that sent Milosevic a pretty clear signal. Some of us who have been listening to the noble Baroness are puzzled. Is she now actually dulling that signal and suggesting that we may well send in ground troops? If that is so, does she not think it is time that we made it a little clearer so that Milosevic understands?
Baroness Symons of Vernham Dean: My Lords, for the avoidance of any doubt, perhaps I may point out to the noble Lord that nothing is ruled out in terms of ground troops. I have told the noble Lord as much as I am able to tell him in this respect. I should also emphasise that the advice that I have been given over what to say to your Lordships on this point is the advice of those who are in a better position than I—and indeed, the noble Lord—to judge the best way to protect our troops. I have given the noble Lord the best answer that I can; namely, that nothing is ruled out. I hope that that is a clear enough signal to the noble Lord and perhaps also to Mr. Milosevic.
The noble Lord asked about refugees. It is very difficult to obtain any firm figures as regards the numbers of displaced persons within Kosovo. Indeed, it is extremely difficult. My right honourable friend the Secretary of State for International Development has the major responsibility in this area. I know that she is keeping a daily record of what is happening in so far as she is able to do so. I could give the noble Lord the running totals as regards where refugees are in Albania, Macedonia and Montenegro, but I am sure that the noble Lord can probably obtain those figures himself.
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However, we calculate that there are still some hundreds of thousands of displaced people in Kosovo, although they are moving towards the borders and many of them are crossing over into the neighbouring states. We still believe that there are considerable and very worrying numbers of refugees who have yet to find any degree of safety.
The noble Lord raised the most important point about what is being done to help those countries which are affected by this military action. The Statement from my right honourable friend made clear that, in the discussions with the front line neighbouring states, a number of issues had been discussed about the ways in which to rebuild economies in the future. I believe that both my right honourable friend and indeed NATO allies recognise that a number of neighbouring countries are having to absorb some fairly difficult economic problems which arise from the military action that is being undertaken. They also recognise that those countries of NATO which are in a position to do so are prepared to do what they can to help those countries in the future financially to rebuild those parts of their economies that have been damaged. However, these discussions are continuing at present. as I hope the Statement made clear.

London Bombings
5.17 p.m.
Lord Williams of Mostyn: My Lords, with the leave of the House, I should like to repeat a Statement made by my right honourable friend the Home Secretary in another place. The Statement is as follows:
"With permission, Madam Speaker, I should like to make a Statement about the bomb explosions in Brixton and Brick Lane.
"Last week on Saturday 17th April, the explosion in a busy market street in Brixton injured 39 members of the public and three police officers. This Saturday, at about the same time, another improvised device exploded in Brick Lane in East London, injuring six people. In both cases no warnings were given.
"I know that I speak for the whole House in expressing my deep sympathy for those injured in these blasts, for their families and friends and our admiration for the very prompt way in which the police, fire and ambulance services responded.
"Sir Paul Condon, the Commissioner of Police for the Metropolis, made it clear yesterday that the investigation into these evil acts is the number one priority for the whole of the Metropolitan Police Service. A huge effort is going into the investigation which is being led by the anti-terrorist branch. The branch has a great deal of experience of this kind of outrage but the perpetrators are only likely to be brought to justice with the help of all sections of the community. I urge anyone who believes that they have information which might help the police to contact them immediately.

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"Sir Paul Condon has already stated that he considers that the bombings were racially motivated. Brixton is at the heart of London's African-Caribbean community. Brick Lane is at the heart of the Bangladeshi community in Britain. I want to make clear that any attack on these communities is an attack on all British people and the whole of British society. We will not tolerate racism of any kind, still less this pernicious violence.
"Ours is a country, which can be proud of its achievements in race relations. Because of that it is a better and stronger society. Of course, there is much more to he done to make Britain a truly multi-racial arid multi-cultural society; but the overwhelming public support for the recommendations of the Lawrence inquiry shows the strength of our commitment to achieve this.
"The criminals who committed these attacks will not succeed. As in Brixton last week, the whole community in Tower Hamlets has come together to assist the police in every way possible.
"As my honourable friend the Member for Bethnal Green and Bow, Oona King, has said,
"History shows we do not tolerate this type of racism, however violent. If anything. I hope that some good will come out of this because both the black and the white community will strengthen so it will he overcome'.
"Whilst the perpetrators of this violence remain at large there is plainly a risk that they may strike again. We must meet that threat with vigilance, but without panic.
"The police are pursuing the investigations of these bombings and the protection of the public with the utmost vigour. I have every confidence in them. I know that the whole House will share their determination and condemn these mindless crimes".
My Lords, that concludes the Statement.
5.20 p.m.
Lord Cope of Berkeley: My Lords, I am sure the whole House will agree with every paragraph of the Home Secretary's Statement. These are appalling outrages committed by evil people which none of us can tolerate. I entirely endorse what has been said, and particularly the expressions of sympathy to those who have been injured and affected in other ways.
As the House knows, I had some Ministerial responsibility for fighting terrorism in Northern Ireland a few years ago. We can of course in no way relax in that connection. I have visited bombed sites and bombed communities and I have reason to know a good deal about threats. The threats that have been made are threats to us all. I also endorse what the Home Secretary said in that respect.
The House will not expect the Minister to give any details that he may have either of the investigations or of the protective measures which are being taken. To do so would obviously be counter-productive. However, he assured the House that both the Metropolitan Police, and I am sure all our police forces, are working as hard as
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possible with the fullest possible backing to identify these criminals, to bring them to justice and to present further outrages of this kind.
5.21 p.m.
Lord Dholakia: My Lords, we on this side of the House welcome the Government's Statement and also the sentiments expressed by the noble Lord, Lord Cope of Berkeley. Innocent people going about their daily business have been hurt and dastardly acts have been perpetrated against members of ethnic minorities. Sooner or later, some people, irrespective of their race or colour, will be maimed or killed simply because they are in the wrong place at the wrong time.
We welcome the actions that the police have taken They have been thorough and efficient and that has. assured local people that police activities will be stepped up. This confidence-building exercise is important, particularly when the community is scared and frightened. Those of us who have lived here for a long time have never before seen such an unprecedented level of hatred directed at law-abiding citizens. The perpetrators are small in number and would even kill or maim simply to generate publicity for their race-hate propaganda.
A number of Right-wing organisations have claimed responsibility. A common thread running through all of them is their hatred of the black, Asian and Jewish communities. Coming so soon after the Lawrence inquiry, the extremists have found that the British public are not prepared to tolerate racism in this country. This is a credit to the British people. The extremists have continued to lose ground in the political. process for a long time. It is no wonder that they are now hell bent on intimidating people by means of planting bombs that cause major damage.
This morning I spoke with a representative of the Board of Deputies of British Jews. They, like other communities, have been advised that the police are stepping up security for their community. In addition, the board has sent messages to schools, synagogues and others to be extra vigilant. The same message has gone out from other community leaders. The protection of temples, mosques and gurdwaras is vital. These are the focal points of community activities and must be protected at all costs.
I wish to put a number of questions to the Minister. Will he use the Asian and black media—that is, television, radio and the newspapers—to assure ethnic communities of the actions the police are taking to protect them? Will he ensure that extra precautions are taken to protect the places of worship of the different communities? Will he ensure that posters and publicity materials are printed in various languages explaining what to do if a suspicious package is found? Will the Minister examine the provisions of legislation dealing with incitement to racial hatred to ensure that racist propaganda has no place in our society? Will the Minister ensure that key areas such as Southall, Ealing, Birmingham, Bradford, Leicester, and a number of areas where minorities have settled, have additional resources so that adequate policing is possible? Will the Minister

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thank the police at the Palace of Westminster for their prompt action in informing many noble Lords that they have received racially offensive literature in their mail?
All of us abhor racist crimes. The present actions are designed to destabilise our record of good community relations. We must not give comfort to racists who perform such dastardly acts. I quote from the Commission for Racial Equality. This quotation supplements the sentiments which have been expressed by the Home Secretary. The commission states,
"The bomb attacks in Brixton and Brick Lane are an assault on the whole of British society. The sense of outrage and revulsion felt across all communities reflects growing support for decisive action to eliminate all threats to a multiracial society".
We should ensure that we are vigilant against those extremists who have no concern for men, women or children of any race. They should be told that they will not be allowed to destabilise good community relations of which we are all proud.
5.26 p.m.
Lord Williams of Mostyn: My Lords, the noble Lords, Lord Cope of Berkeley and Lord Dholakia, never disappoint me or, I think, your Lordships' House in the generosity and decency of their responses on these occasions. The noble Lord, Lord Cope, with his extensive knowledge, was scrupulous in saying that he would deliberately refrain from asking me details about investigations or protective measures. I am most grateful to him once again for taking that course. The Home Secretary is in close contact with Sir Paul Condon as Commissioner for the Metropolis.
The noble Lord, Lord Dholakia, quite rightly said that the people involved were innocent people going about their daily business. The people who perpetrated these offences are criminals. That is foremost in my mind. I was about to say that they have planted these bombs because they had lost the moral argument, but they have no moral argument that can be detected.
The noble Lord, Lord Dholakia, asked a number of questions. I agree with him that it is important fully to involve our friends and colleagues in the Asian and black communities, particularly as regards their willingness to provide media opportunities in languages that are more familiar and more appropriate to some of them. I very much take the noble Lord's point about precautions at places of worship and poster dissemination about what to do if a suspicious package is found. I believe that is well in hand.
The noble Lord mentioned the excellent service that is given—as always—to your Lordships by the police in the Palace of Westminster. I know that all your Lordships would want me to reaffirm the great gratitude that we feel for that service. The noble Lord also referred to legislation. As your Lordships know, under the Public Order Act 1986, prosecutions for incitement to racial hatred require the consent of the Attorney. I shall give a little background to this.
From 1988 to 1998 there were 54 applications to the Attorney and 45 were granted. Therefore he and his predecessors have been diligent in this regard. As your
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Lordships also know, the recent Crime and Disorder Act instituted nine new racially aggravated offences with increased penalties. It is also a requirement under Section 82 of the Act that, where there is evidence of a racial motive or racial hostility in connection with any offence, the court should consider that as an aggravating factor meriting an increased sentence within the maximum available. That is an extremely important measure which the noble Lord. Lord Dholakia, supported when we discussed it in your Lordships' House.
I now refer to the up-to-date material that I can provide without trespassing on unsafe areas. At 8.3 p.m. on Saturday last, the explosion having occurred at about 5.55 p.m., a call was received by a 999 operator from a man who claimed to be a member of a group which chooses to call itself Combat 18 and which claimed responsibility for the bombing. That was traced to a phone box in south-west London and, I repeat, Sir Paul has plainly stated that this was a racially-motivated attack and the police have linked it to the Brixton bombing on 17th April.
5.30 p.m.
Baroness Flather: My Lords, perhaps I may first of all apologise for being overeager in my attempt to say a few words.
I was a victim of a very serious and potentially lethal racial attack in the early 1980s. I know something about the fall-out, so to speak—apart from nails—which takes place after such an event. It is important that we tell Londoners to be robust in their response. It is not a good thing to give in and do fewer of the things that one normally does. When Northern Ireland terrorists were active in London, Londoners were extremely robust in their response. There is a lesson to be learnt. We should not let the perpetrators of such dreadful deeds win. We should not let them change the quality of life in London. I hope that the Minister will make that plain.
Secondly, it is very important that we should be open about what happens to us. If we do not speak up. no one will. Certainly in the 1980s very few people were willing to speak up and say, "Yes, we have been victims of such attacks".
Thirdly, in the past we have discussed proscribing groups. The main argument against that is that a group will simply change its name and become another group. But if the machinery is put into motion, then why not continue to proscribe each group as it becomes known? That would make the job of the police in detecting these people much easier. Usually information comes from the less right-wing right-wing groups—if there can be such a thing. These are groups which are not particularly violent but are right-wing in their thinking. They are the ones that do not like others carrying out this kind of violence. I hope the Minister will consider the question of proscribing groups.
Lord Williams of Mostyn: My Lords, the question of proscribing groups is of course important but—the noble Baroness is right—it is not always successful. These are fringe, marginal organisations. I almost said

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they are on the margins of our society; I believe that they are beyond the margins of our society. At the moment the proscriptive powers under the Prevention of Terrorism Act are limited to those essentially connected with terrorism in Northern Ireland. But I remind your Lordships that we have issued an extensive consultation paper in regard to possible gaps in our legislation to deal with UK-wide counter-terrorism, not forgetting that international terrorism also needs to be taken into account. Therefore, I shall bear very much in mind the point made by the noble Baroness.
We should also remind ourselves that since these people have nothing else to bolster themselves, very often some of them, curiously, would want to be proscribed to obtain the attendant publicity for their otherwise dismal, pathetic little lives. It is important that we should be robust. That was very much brought home to me. My daughter, who is 17, was not too far away and within easy earshot of the bomb. We should bear in mind that terrorism wins when we succumb. I entirely endorse what the noble Baroness said about that.
As to her second point, it requires moral courage, which she has shown on all these occasions, to speak up because, again, silence is a secret accomplice.
Baroness Uddin: My Lords, I thank the Minister for repeating this very important Statement. Does my noble friend agree that the people of Brick Lane, both the Jewish community and now the Bangladeshi community, have historically been resolute in their defiance of fascist activities? Does he further agree that the local community has demonstrated great tenacity and strength in dealing with racists and racist attacks, of which there have been many?
I visited the site yesterday, and on Saturday night—just after the bomb exploded—I was less than half a mile away. Like many other people in the community, I could not believe that on the second Saturday after Brixton a bomb would go off. The horror and tragedy of what might have been were obvious. One had only to look at the walls and some of the cars parked on the street which had six-inch nails stuck in them. Anyone with children would be horrified by the possible consequences. Will my noble friend aid other noble Lords join me in paying tribute to the community leaders of Tower Hamlets and Brixton for dealing with the events and consequences of these incidents with the kind of robustness that has been mentioned? Perhaps I may take this opportunity to pay tribute to the police for the way they have responded very promptly since last Saturday.
Finally, will my noble friend assure the House that the Metropolitan Police will take this opportunity to build up the confidence of the community, which is feeling tense at the moment, by ensuring that sensitive support and thorough protection continue to be provided, as they have been since last Saturday. Will he further assure the House that we will vigorously continue to implement the recommendations of the Macpherson report?
Lord Williams of Mostyn: My Lords, anyone who was present for the debate on the Macpherson inquiry
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into the murder of Stephen Lawrence will have no doubt about our determination. The action plan set out in the report could not have been more positive. Virtually all of the recommendations have been accepted in their entirety. I am happy once more to reassure your Lordships on that point.
I agree with the noble Baroness about the great tenacity and strength of people who refuse to he intimidated out of their communities. That is extremely important. Many of them are living in difficult circumstances, in a country which originally was not their own, dealing in a language which is not their own. One would have thought they would have enough struggle and adversity without being threatened by these mindless hooligans.
I am very much obliged to the noble Baroness for her generous tribute to the police. It is as well to put that in the balance occasionally when the Metropolitan police in particular have been subjected to so much criticism. The police are a public service. To move on to the noble Baroness's third point, the police are well aware, certainly under the leadership of the commissioner—it is well demonstrated—of the need to build on and improve confidence. One of the consequences of this wickedness is that it provides such an opportunity, which I know has been eagerly seized on, both by those who live in the community and insist on continuing to live their lawful, peaceful lives and by the police.
Lord Janner of Braunstone: My Lords, I wish to associate the Jewish community of this country with the statements that have been made from the Front Benches and especially by the noble Lord, Lord Dholakia. We have long recognised that an attack by a fascist, racist group on any minority is an attack on all minorities. When there is an attack on the Afro-Caribbean or Asian communities it may not be today an attack on the Jews, but it will be, probably, tomorrow; if it is an attack today on the Jews, it will probably he an attack on the Catholics or the Anglicans or any other minority the day after. Whether we are Moslems, Jews, Hindus or Catholics, we are all members of minorities. Do the Government accept and does the Minister understand that we must all stand together and fight racism of this kind?
Lord Williams of Mostyn: My Lords, I am most grateful to my noble friend. This sentence in the Statement got in by no accident. We thought about it with some care and I repeat it. I want to make it clear that any attack on these communities is an attack on all British people and the whole of British society. That is well worth repeating and bearing in mind.
Lord Shore of Stepney: My Lords, wise words have already been spoken from this side of the House. I want to add a few thoughts of my own, as I represented for more than 30 years the area in which the Brick Lane outrage took place. I assure the House and my noble friend the Minister that there will be full co-operation, as far as the community can give, with the authorities in helping to apprehend the evil people who inflicted this appalling outrage and indiscriminate act of violence

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on the community. I hope that my noble friend will be in contact with colleagues in the Government to look again at the wider problems of areas such as Brixton and Tower Hamlets arising from large-scale and recent immigrant communities and also suffering acute deprivation, particularly in housing and employment. I urge my noble friend—I have great confidence in his goodwill in this matter—to talk to his colleagues about what can be done to help ease the inevitable tensions that arise in such circumstances and meet the genuine measure of social need of the people living in those areas.
Lord Williams of Mostyn: My Lords, I am very grateful to my noble friend for stressing that we may confidently expect full co-operation from everyone who has decent, human feeling. I refer in particular to those who—going back to the phrase used by my noble friend Lord Dholakia—have been so monstrously affected in the innocent conduct of their daily business both in Brixton and Brick Lane. My noble friend's second point was well made. I spoke only this morning to my honourable friends Kate Hoey, who is one of the local Members of Parliament, and Oona King—the other local MP. As my noble friend rightly said, these questions are of wider consequence and they are being attacked by the social exclusion unit and welfare to work. Such measures may not be spectacular in terms of immediate results but they are an important plank in the Government's general policy for all who are poor and disadvantaged—particularly those who are poor and disadvantaged in the way my noble friend specified.
Baroness Anelay of St. John: My Lords, I join other noble Lords in condemning those people rightly referred to by the Minister as being outside the margins of society. The noble Lord, Lord Dholakia, referred to the elixir of publicity that such persons enjoy. The Minister referred to existing legislation being used in an attempt to cut off that publicity. Can the Minister say what consideration is being given by the Government to ways in which the self-publicity that is possible via the Internet can be curtailed? I am sure other noble Lords are sickened and shocked, as I am, by the availability of the most disgraceful material through that medium.
Lord Williams of Mostyn: The noble Baroness, not for the first time, rightly identifies a deeply significant aspect. Everyone deplores the distribution of any anti-Semitic or racially inflammable material via the Internet or any other medium. Matter on the Internet is already subject to the same laws, provided—and this is the difficulty—that the Internet provider is within our jurisdiction. We are co-operating closely with other jurisdictions. If it can be demonstrated that offences have occurred in other jurisdictions, as a matter of course we regularly inform the relevant authorities. The criminal policy strategy unit in the Home Office co-ordinates the work undertaken on Internet crime generally. There are legal remedies, which are sometimes difficult to apply, but crime is committed, even crime on the Internet, if it can be caught within the laws that bite within our jurisdiction. There are others
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who help. The Internet Watch Foundation, for instance, is funded by UK Internet service providers and does good work. But I readily concede that there is a lot more yet to be done.
Baroness Scotland of Asthal: My Lords, may I saw how warmed I am by all the comments made by various noble Lords which demonstrate the change in the complexion of our society. Good men and women from every community, as represented in this House, have already spoken. That is a demonstration of what joining in friendship can do. That friendship threatens bigotry, threatens prejudice and threatens hate. Those who stand against friendship, community and warmth will feel threatened indeed by the sentiments expressed in your Lordships' House. I endorse everything said by the Minister and my other noble friends. We must not be afraid; we must be resolute in our objection and resistance to such racist terrorists as live amongst us.
Lord Williams of Mostyn: My Lords, my noble friend is quite right. For evil to triumph, it is only necessary that good men remain silent. It is only when one has friends—in my case, a wife—who are Indian that one realises that the key to all this is the total, utter, mindless irrelevance of racial or anti-Semitic prejudice. It has completely nothing to do with human society. They are deeply sad people—happily, in a very small, pathetic minority.
Lord Clinton-Davis: My Lords, is it not encouraging that noble Lords have indicated today that there is no place for bystanders in relation to thuggery and racial bigotry of the kind we have witnessed over the past two weekends? Will my noble friend give an assurance that the police and Home Office will be especially vigilant in prosecuting where appropriate those who are responsible for journals spewing out racial hatred in the most vile way? Will he also indicate that people who have telephoned claiming responsibility for these vile crimes are, at least prima facie, guilty of crimes of causing public mischief and conspiracy and that if the evidence becomes properly available they will be prosecuted with the utmost diligence?
Lord Williams of Mostyn: My Lords, my noble friend is right. That is why I thought it helpful to give such details as I could about the claim of criminal liability that was made on Saturday. My noble friend is right also that we need to be vigilant about any spewing out of material in any form of publication, including the Internet, that causes racial damage. I shall not be as absolute in saying that offences have been committed because it would be a catastrophe if people were prosecuted and were then able to say that they had not had a fair trial. They will have a fair trial and, thereafter, what they deserve.
Lord Alli: My Lords, I am on my feet for the second time in less than a week, not having spoken for eight months. I agree with many of the sentiments expressed by members of all Front Benches, but I must detract from something said by my noble friend the Minister.

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I have not found very satisfactory the way in which the police in this House have reacted to me and a number of my colleagues who have been subject to personal threats. I have found it difficult to receive any co-operation and to get them to take any of the comments seriously. I believe that those of my colleagues who have received personal threats and letters will agree. When in particular the officer who is responsible for our security in this House was asked to investigate, he told at least two of us that it was not his job to do so. The House should be aware of that. I should be grateful if the Minister would look into the matter and report back to the House.
Lord Williams of Mostyn: My Lords, I am sorry to hear that. I had not heard it before. If the noble Lord would be so kind as to give me as much detail, chapter and verse as possible, I shall personally take up the matter with my colleague, Paul Boateng, who has responsibility for the Metropolitan Police. As soon as I receive his letter I shall take up the matter and reply to hint with as much detail as I can obtain. To carry out that kind of inquiry on behalf of those in this House, I do need detail. Subject to the agreement'of the noble Lord, Lord Alli. I shall place my reply to him and a copy of his letter in the Library. If he thinks that inappropriate, then of course I shall be guided by his judgment about confidential matters.

Tax Credits Bill
5.50 p.m.
House again in Committee on Clause 1.
[Amendments Nos.2 and 3 not moved.]
Clause 1 agreed to.
Clause 2 [Transfer of functions relating to tax credits]:
Lord Swinfen Lord Swinfen moved Amendment No.4:
Page 1, line 10, at beginning insert ("Subject to subsection (1A) below, ")
The noble Lord said: This amendment is a paving amendment for Amendment No.9, to which I shall also speak.
This is a probing amendment. Its aim is to obtain a statement from the Government which clarifies and explains the treatment of maintenance payments for working families tax credit and disabled persons tax credit purposes. A statement is needed, because WFTC replaces family credit. WFTC is, like family credit, a means-tested payment designed to help people into work and to subsidise families on low and modest incomes.
Both family credit and WFTC are income-related. The amount of credit any family receives depends on the normal earnings of the family and any other income that they might be receiving. Income for both purposes means a family's net income after income tax and national insurance contributions have been deducted. Certain types of income are, however, ignored. Child benefit is ignored; and, for family credit, the first £15 a week of any maintenance payment is also ignored.
During debate in Committee in the other place on Clause 1 of the Bill, the Paymaster General indicated that for WFTC purposes there would be a 100 per cent. disregard for maintenance payments. That was the first indication that the Government proposed more favourable treatment for maintenance payments than is given for family credit. An explanation is clearly required. As a result, it appears that some families will receive a much greater credit than other families with the same income. The implications appear to be that a lone parent would be significantly better off than a widow in similar circumstances; and, secondly, that a lone parent would also be significantly better off than a single-earner married couple in otherwise similar circumstances even though there would also be a second adult in the household. I certainly want to see lone parents properly looked after. However, it is unclear why they should be treated preferentially.
If the Government believe that earned income that is used for the maintenance of children should be disregarded for the purposes of working families tax credit, it is difficult to see why a more generous rule should apply where the income is earned by a providing parent who is separated from the parent with whom the children are living than is the case when the income is earned by the parent with whom the children are living.
Will all maintenance payments be disregarded, or only those paid as a result of CSA intervention? Neither the income tax rules nor the family credit rules draw a distinction between CSA payments and other payments.
The proposed treatment of maintenance payments will also affect families' entitlement to the so-called passport benefits. If family credit rules are followed, entitlement to these will depend on whether a family receives working families tax credit. Unless, therefore, the rules have changed, families headed by a lone parent in receipt of maintenance payments will be entitled to these benefits, whereas a family headed by a married couple with less income coming in each week will not. Will the Minister, in replying, give an assurance that anomalies of that kind will not be allowed to arise? I beg to move.
Lord Astor of Hever: I support these amendments. As my noble friend said, the Paymaster General told Standing Committee D that the Government were proposing to disregard all maintenance payments because that followed the income tax treatment.
Both WFTC and DPTC are based on a family's income after tax has been taken off. If maintenance payments are exempt from income tax and deducted from the family's net-of-tax income, the same payments are deducted twice. Parents who benefit from this treatment will end up with more WFTC than those who do not; namely, families where both parents are living together.
There would seem to be an unanswerable case for saying that the cost of maintenance—whether it be the cost to a couple living together or a single parent—should be disregarded in calculating WFTC and DPTC

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either for all families or for none. This matter is complicated. I should be grateful for clarification from the Minister as to why there is this difference.
Baroness Hollis of Heigham: In replying, I shall also respond to the grouped amendment, Amendment No.9.
These two amendments anticipate a good deal of the debate on Amendment No.28. I wish now that we had grouped them together: many of the questions quite properly raised by the noble Lord, Lord Astor, reflect rather more on Amendment No.28 than they do on these amendments. I may therefore stray into Amendment No.28 territory, given that I have been invited to do so.
The purpose of these amendments is to provide that the disregard of maintenance payments should not result in a lone parent receiving more WFTC than a couple. I believe that the Committee will agree with that description of the amendment.
I must confess that I am rather sorry at the reasoning behind the amendment. Although it is expressed in entirely reasonable terms, I am somewhat concerned by it. I shall attempt to explain. The amendment centres on the treatment of maintenance payments within WFTC. Given the welcome statement by the Paymaster General in February, the Government have decided that, for the purposes of calculating income for WFTC, no account will be taken of maintenance payments received by the claimant. At present, after the first £15, it is deducted from family credit, with the usual taper as presently exists.
We see this change to allowing a lone parent what is effectively a 100 per cent. disregard for maintenance as providing a significant contribution to tackling child poverty. It will mean that those lone parents who claim WFTC will keep all the maintenance that they receive, which can then be used directly for the child or children rather than having it tapered off after the first £15.
Why is that so desirable? First, the change will provide a clean break from the benefits system at the start of the new tax credits; secondly—this is an administrative argument—it will make child support within WFTC simple and easy to administer; most importantly, it will help us to address child poverty. One child in three in this country lives in relative poverty. Of those children, 1.8 million, 80 per cent, who fail to receive any maintenance from the non-resident parent—usually the father—are in workless families. If, as a result, maintenance flows and the mother goes into work, anything over £15 is tapered away quite sharply, with the rest of the family credit deductions.
By allowing 100 per cent. disregard, first, we make a serious contribution to tackling child poverty. Even if a lone parent is in work, if she earns such low wages that she has to draw on WFTC, she is not generously paid. By allowing her to keep all this money, we are making a contribution to trampolining her and her children out of poverty, we hope for life.
Secondly, it is a real work incentive. It becomes like child benefit. You can go into work, carrying it with you, knowing that, provided your former partner pays
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reliably and regularly, you can be assured of that income, which will be a steady floor, irrespective of what may happen to your earnings and, as a result, irrespective of what may happen to WFTC.
The third argument, which I hope Members of the Committee will accept, is that it has long been the case that father' organisations have complained about paying maintenance, which they say goes not to their children but to the Treasury—that the old Child Support Act was Treasury support, not child support. Our proposal has been welcomed not just by women's groups but also by men's groups. Decent fathers who pay reliably and properly, as they should, and as so many of them tell us they want to do, will see that the maintenance will go directly to the benefit of the child. The children, in turn, will see that the responsibility of a non-resident father continues even when the marriage breaks down. The children will continue to enjoy something of the same living standards, although not as generous as they would enjoy if both parents were still together.
The scheme is simple to administer and represents a clean break between a benefits system and being in work. It is to the direct benefit of the lone parent going into work; it is a direct attack on child poverty; and it sends messages to fathers and to their children, particularly boy children, that this is the way that responsible men behave: that they continue with their financial responsibilities, even though the relationship may have broken up. I say "men"; I hope Members will forgive the gender point. Most non-resident parents are men.
When that money is clawed back by the Treasury, men often use the excuse: "Why should I pay? It is Treasury support, not child support". We believe that our proposal has been warmly welcomed by men's groups as well as by women's groups.
The amendment suggests that the question of maintenance does not arise within an intact family or a widowed family—the example given by the noble Lord, Lord Swinfen—because, by definition, if a woman is a widow she will not receive maintenance because the spouse is not there, or, if, there is an intact family, maintenance will not flow, and, if that is the case, a lone parent who should be receiving support for her child should not enjoy it either. I believe that, on reflection, Members will not want to support such a position. It is ungenerous and sends wrong signals to men, to children and to lone parents wishing to go into work.
We are committed to tackling child poverty at every opportunity. Children of lone parents are likely to be financially worse off than children with two parents. The family has the same household expenses as a couple. In addition, she—in something like 97 per cent. of cases it is a woman—will have to cope with the pressures of bringing up her children alone, without the active help of a partner and her partner's family. When she works, as a woman she is likely to receive only 70 per cent of the equivalent male rate. She may find that her children are damaged, if they have come out of a difficult relationship break-up, and she needs extra support for them. All the research shows that after a break-up women lone parents have on average only

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two-thirds of the income of men and their income falls after a break-up. After a marriage split-up, the income of most men improves compared to when the couple were living together.
If the amendment were to be accepted, it would subvert and undermine all the messages we want to send with regard to child support, tackling child poverty, work incentives, having fathers support their children, and so on. Worse still, the amendment would put lone parents in a worse position than they are currently in for family credit, where there is already a £15 disregard for maintenance payments, which, by definition, cannot apply when someone is a widow or is in an intact family. I accept that the amendment: is a probing amendment, but its effect would be to make poor lone parents and their children poorer than they currently are on family credit.
The noble Lord, Lord Swinfen, asked me what type of maintenance was to be disregarded and whether it was just CSA maintenance. No, the disregard will apply not just to CSA maintenance but also to maintenance arranged through the courts and to voluntary maintenance.
It is not a mirror-opposite situation that there should also be a disregard on the father's income. That is the substance of Amendment No.28. That would represent a subsidy from the Treasury to the father of more than half his maintenance payment. Instead of the Treasury taking it from the father to offset against the mother's benefits, we would be subsidising him to pay her the maintenance she should have. In terms of cost and of social policy, that would be unacceptable.
Only one parent with care in three receives regular child maintenance. One of the objects of reforming the Child Support Act, which I hope will command the support of the House, should the measure come in the forthcoming parliamentary Session, is to ensure that men pay, women co-operate and children benefit. That would not be the case if the amendment were to be accepted. The effect of the amendment would be to make lone parents even poorer and subvert our other objectives of tackling child poverty and providing work incentives. I hope that the Committee will not wish to pursue this matter any further.
A minor but perhaps relevant point is that the amendment would not work as currently drafted as it refers to a paragraph in the family credit regulations which does not exist. The substantive points are the ones that matter. The amendment discriminates, is unjust to lone parents, will damage their children, will send out the wrong signals to men and will subvert work incentives. For all those reasons, and for many more that I could offer the Committee, I hope that the amendment will not be pursued.
Lord Swinfen: I did not say that I would pursue the amendment this afternoon, but I may do so later. The noble Baroness has obviously taken a lot of trouble with her reply, which took a long time to give. It will take me some time to digest it. I shall read her reply carefully. It is possible that I may feel it necessary to come back to the matter at a later stage—whether in the same form or
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a different form I do not know. I can then have the pleasure of hearing another long peroration from the noble Baroness! In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Swinfen Lord Swinfen moved Amendment No.5:
Page 1, line 10, at beginning insert ("Subject to subsection (1B) below")
The noble Lord said: Amendment No.5 is another probing amendment and is a paving amendment to Amendment No.10, to which I also speak. The purpose of the amendment is to seek an explanation of the differences between the levels of credit for the working families' tax credit and the disabled person's tax credit.
The two credits have different origins, in family credit and disability working allowance respectively. These benefits were introduced at different times and for different purposes and it is not surprising, therefore, that there are differences between them. However, now that they are being improved and brought together as tax credits, it is possible to compare and contrast them.
While one might reasonably expect the levels of DPTC to be higher than those for WFTC, it is difficult to see any logical explanation for the wide variety of differences. For example, the proposed level of the basic tax credit for a single person for DPTC is £54.30, only £2 more than for WFTC. There is an argument for saying that the credit should be at the same level in each case and that a disabled person should have a significantly higher credit than someone who is not disabled. But it is not easy to see the argument for having a very small difference between the two credits, particularly since, by contrast, at £16,000 the savings disregard under the disabled person's tax credit is double, or very significantly higher than, that under the working families' tax credit.
However, it is in the treatment of a couple that the two credits are particularly different. The second purpose of the new subsection therefore seeks an explanation of the treatment of couples under the working families' tax credit. This question was raised but not answered in the debate in the other place on Third Reading. It was raised by the noble Lord, Lord McNair, and also by myself at Second Reading, but again was not answered. Under both the working families' tax credit and the disabled person's tax credit, in the case of a couple the income of the parents is aggregated in determining the net income to be deducted from the total credit otherwise payable. Equally, the savings of the parents are aggregated in determining whether the credits fall to be abated or not paid at all. The DPTC then continues to take account of the second adult in the family by giving a couple a higher basic tax credit at a proposed rate of £84.55 as compared with £54.30 for a single person, but there is no similar higher basic tax credit proposed for a couple under WFTC. In other words, WFTC takes account of both parents where it is to their disadvantage but ignores the second adult where to take both parents into account would be to their advantage. This illogicality of the treatment of couples under WFTC is clearly unfair. Yet the Chancellor claims that one of his major aims in taxation is fairness.
Moreover, it also works against one of the Government's main purposes in introducing WFTC which is to reduce the number of children living in poverty. At any given level of net income, a family of four (two adults and two children) will be poorer than a family of three (one adult and two children). Yet under WFTC the credit available to the former will certainly be no greater than that available to the latter and may well be less, without taking account of the treatment of maintenance payments which is also advantageous for a lone parent, as I mentioned when dealing with the previous amendment.
The other major difference between the two credits, which I also raised at Second Reading, is in the treatment of a disabled child. Under the disabled person's tax credit a credit of £21.90 is to be given in respect of a disabled child in addition to the normal age-related child credit. There is no such disabled child credit under the working families' tax credit. Surely, the additional cost that parents may incur in looking after a disabled child will be just as great if they are not themselves disabled as if one of them is disabled. The entitlement to the disabled child's credit should turn on the disability of the child alone, not that of his parents. The logic of this argument is accepted in the childcare tax credit which, in the case of both WFTC and DPTC, is given for a disabled child up to a higher age than in the case of other children. Why not, therefore, in the case of the disabled child's credit? I beg to move.
6.15 p.m.
Lord Rix: Before this amendment is supported by the noble Lord, Lord Astor of Hever, for the first time since I entered your Lordships' House I find myself in the unique position of putting a question to the noble Lord, Lord Swinfen, in regard to Amendment No.10. Does the noble Lord agree that there is a longstanding tradition of recognising the special needs of disabled people by giving preferential treatment in all possible circumstances? Does it not seem inappropriate to rule that out in the context of tax credits as appears to be the case in Amendment No.10?
Lord Swinfen: I ask the Government: what is the logicality of either not making the two credits similar or making a very much greater difference?
Lord Astor of Hever: I support these amendments. With regard to the difference in the level of WFTC and DPTC, it is reasonable to expect the level of DPTC to be higher than that for WFTC, but the discrepancy in the rules governing the treatment of couples within both credits requires explanation. The failure of WFTC to take any account of the cost that results from the second adult in the household means that married couples end up poorer than single-parent households with the same gross income. This does not happen where the DPTC rules apply. Surely, second adults should be treated in the same way for both credits, particularly as we are told repeatedly that the Government support marriage and want to reduce the number of children in poverty. As my noble friend said, under DPTC the credit is given
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for a disabled child in addition to the normal child credit. No such disabled child's credit is available under WFTC when the extra cost involved will be the same. Can the Minister explain these differences between WFTC and DPTC?
Lord Desai: Before my noble friend replies, perhaps I may make one point in response to the noble Lord, Lord Swinfen. The noble Lord spoke about fairness. I am puzzled. I would have thought that parents, one of whom was disabled, who raised a disabled child, would have much higher cost than two able-bodied parents (if I may use that incorrect term) who raised a disabled child. It seems to me fairer to recognise that extra cost. I do not see how that is unfair.
Lord Swinfen: One is concerned with the cost of the disability which will remain the same whether or not the parents are disabled. One is talking about the cost of the disability in the form of aids, equipment, possible adaptations to the house, and matters of that kind.
Baroness Hollis of Hefigham: Perhaps I may respond to Amendment No.5 and with it Amendment No.10. The amendments seek to ensure that a working family receiving WFTC is never worse off than a comparable family receiving DPTC. It appears that the amendments are intended to probe the reasons for the differences between the two tax credits. These differences are not new; they exist between family credit and DWA in the same way. Given that we are building on the two existing benefits as we move into tax credits, the differences lie in the basic tax credit, the disabled child's tax credit and the amount of savings that a family can have. In all other respects families will be treated the same.
The main differences is in the generosity of the basic tax credit which is higher for DPTC, as it was for DWA, to reflect, as the noble Lord, Lord Rix, said, the additional support that disabled people need and the lower wages that they are likely to be able to command. I am disappointed that the noble Lord, Lord Swinfen, who has fought so gallantly in this Chamber on behalf of disabled people, should seek to challenge the fact that disabled people need greater support through DWA, which is being carried through into the tax credit, than non-disabled people. He knows better than anyone in this Chamber that on average the income of disabled people is only about 70 per cent that of non-disabled people and that they also have higher living costs. The last research I saw several years ago indicated a figure of about £60 a week for diet, transport, laundry and so on.
Lord Swinfen: Why, therefore, is the basic tax credit for a disabled person under DPTC £54.30 for a single person as opposed to £52.30 for a single person under WFTC? Two pounds is not a great deal to pay for the additional costs of disability.
Baroness Hollis of Heigham: The point is that for the single allowance the lower level of a DPTC could be for a single individual; it does not have to include

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being married or having children. Like DWA, it relates to the disability rather than the family circumstances. The clearer analogy is with DPTC where there is a couple with children on WFTC. That is the direct analogy. In that situation a couple earning £200 a week, working over 30 hours, with two children under eleven, would on average be £29 better off by virtue of the tax credit system than the couple on WFTC. That is a contribution towards the cost of their disability.
The noble Lord, Lord Swinfen, has previously quite properly argued—and I have been happy to join him in that—disabled people should have that recognition of the extra costs of their disability. We know that DLA covers certain costs of disabled persons who need care, attendance and supervision, but many other disabled people have lower levels of costs related to diet, transport or laundry, but which are not related to the existing DLA tests. The DWA recognised that distinction and that is why it is carried forward into these proposals.
The second point on which I have been pressed is the additional credit for the costs of caring for a disabled child. That is the result of lobbying, particularly by the disability organisations, in the run-up to its introduction in 1991 by the previous Government, which conceded its propriety. Under family credit arrangements no such distinction is made. Again, we are building on the two existing benefits, into tax credits which run in parallel. It is a proper point for us to reflect upon.
The higher savings limit was introduced following pressure from the Social Security Advisory Committee and criticisms made by noble Lords during debates on the Bill to introduce DWA. I recall that the noble Lord, Lord Swinfen, joined my noble friend Lord Carter and myself in arguing the same point.
The concern was that disabled people may need to have extra savings to pay for adaptations to the home and special equipment and services, and therefore they needed a higher savings limit of £16,000 rather than the £8,000 which would normally apply to couples.
We believe that disabled people should have extra support of this kind. Is the noble Lord, Lord Swinfen, arguing that we should deliberately cut the standard of living for disabled people by reducing the tax credit down to the level of WFTC, which would mean that they would be £30 worse off as a result of the amendment; or is he arguing the reverse, that WFTC should float up to DPTC? Does he have Front Bench support, as he appears to have, for the additional expenditure of a further £1.5 billion on public expenditure over and above what DPTC already costs? Which of those paths is the noble Lord, Lord Swinfen, asking noble Lords to follow?
I hope that following this explanation the noble Lord will be able to withdraw his amendment.
Lord Swinfen: I hope that the noble Baroness knows me well enough to know that I am not arguing for a reduction for disabled people. She joined me, when the last administration was in power, in defeating that administration and improving the position of disabled people over a number of years, and that is now my aim.
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I am delighted that the noble Baroness will reflect on the position of the disabled child, and I look forward to her bringing forward an amendment to improve the position at the next stage of the Bill.
I will read what the noble Baroness has said.
Baroness Hollis of Heigham: I made no such commitment; I said that I would simply reflect on those points. The noble Lord should not infer anything beyond that.
Lord Swinfen: I am making no inference, I am looking forward. One can always indulge in wishful thinking. I am sure that the noble Baroness has done that; it may have been for just a slightly larger Easter egg next year, but it is wishful thinking. One can look forward where there is no guarantee.
It may be that I shall bring forward an amendment to address the point. I will read what the noble Baroness has said, but in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The noble Lord, Lord Swinfen, moved Amendment No.6:
Page 1, line 10, at beginning insert ("Subject to subsetion (1C) below")
The noble Lord said: This is another probing amendment and is a paving amendment to Amendment No.11.
The aim of the amendment is to seek an explanation from the Government as to how the WFTC and the DPTC will apply to families with comparatively small amounts of capital, perhaps as a result of receiving a redundancy payment.
Ministers have stated unequivocally on a number of occasions that when WFTC comes into operation every working family will have a guaranteed income of £200 a week, and that no income tax will be paid until earnings reach £235 a week.
In his Budget speech the Chancellor stated that every family would be guaranteed a minimum income. That provision will be introduced in October, not at the previously announced rate of £190 but at £200 a week—more than £10,000 a year—and no income tax will be paid until earnings reach £235. That statement was repeated at paragraph 4.48 in the Budget Red Book, which spoke not of "more than £10,000 a year" but of earnings of less than £235 a week—over £12,000 a year—saying that no income tax would be paid from October this year. That was repeated in the Treasury Budget day press release, which referred to a minimum income guarantee of £200 a week for every family with a full-time earner. It was further repeated by the Paymaster General in her speech on the Third Reading of the Bill in the other place.
I wonder whether those promises will be kept, as it seems unlikely that these figures will become a reality for families because, using the powers being transferred to the Treasury by Clause 2, the Treasury will have the power to introduce WFTC by way of amendments to the Family Credit Regulations. Under these regulations a

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family would receive no family credit if it had savings of £8,000, and family credit is progressively reduced if those savings are £3,000 or more. I beg to move.
Lord Astor of Hever: I rise to support the amendments. With regard to clarifying how WFTC and DPTC will apply to families with small amounts of capital, the Revenue states that the credit will be progressively withdrawn if savings, including those of a parent and children, are between £3,000 and £8,000. The DPTC position is similar except for the "couple" point, where it is £16,000.
As my noble friend stated, if that is the case, it will not be correct therefore that every family with a full-time earner will have a minimum income of £200 per week or that no income tax will be paid until earnings exceed £235.
If it is the intention that every family should have a minimum income of £200, WFTC will have to be paid in full, whether or not the family has savings. If that is not the Government's intention, Ministers should retract what they have said about every family having a minimum income, as some families may already be making plans based on the Minister's statement in another place. Can the Minister please clarify the position in her reply?
Baroness Hollis of Heigham: I was a little baffled by the amendment in the first place, but I am now entirely baffled because, if I may gently say so, the points made bear no relation to the amendment.
Amendments Nos.6 and 11 seek to ensure that tax credits do not begin to be restricted, that is withdrawn on the taper, until the applicant has gross taxable income of £235 per week. Currently, the threshold for withdrawal is set at a net weekly income of £90. There is no mention of savings. This would be a massive increase in the generosity of the tax credit system—it is hard to estimate—possibly in the region of a further £1 billion. Perhaps there is some misunderstanding. The two speeches by the noble Lords bore no relationship to the purport of the amendment tabled. Perhaps the amendment is based on a misunderstanding of the figure of £235 per week cited by the Chancellor in his Budget Statement and in the Red Book, and the aim of the amendment was to probe the figures.
The Chancellor announced in his Budget Statement that the minimum income guarantee under the WFTC for every family with children and with full time earnings would increase from October 1999 to £200 per week. He also said—as Members of the Committee quoted—that no such family earning less than £235 per week would pay any net income tax from October 1999. In both cases the numbers refer to a family and not to an individual in these specific circumstances.
These are the reference points for the Chancellor's package of measures to make work pay and reduce the burden of taxation on low paid families. They illustrate, for a typical family, how Budget measures might change their minimum income and the point at which net tax would be payable. They allow the comparison to be
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made from year to year. The minimum income guarantee for October 1999 has gone up from £190 last year to £200 this year as a result of the measures in this year's Budget. Similarly, the balance point at which tax credits match tax due for the typical reference family has gone up from £220 cited in last year's Budget to £235 in this.
The reference family is not special. It is a family with a full time earner, working more than 30 hours a week, and with a child under 11. The minimum income guarantee assumes that the earner works full time at the minimum wage and includes child benefit. The balance point for tax and tax credit is based on the details of this family, giving the appropriate reliefs and applying the appropriate tax rates.
If that is what noble Lords sought to find out, as opposed to what the amendment provides, I hope that I have answered the question. In that case I hope the noble Lord will agree that there is no point in building such reference points into the legislation. Even if they could be made to work. the amendments would apply those reference points indiscriminately—for example, to families who work less than full time hours. That would give a perverse incentive to people to reduce their hours knowing that the tax credits would take the strain.
The amendment is rather a mess. It is an expensive mess as it stands because the taper would not kick in until the income of £235 as opposed to the £90, depending on the assumptions being made. The noble Lord says that it is a probing amendment. If his concerns were about the connections with the Red Book, I hope that I have also addressed those.
6.30 p.m.
Lord Swinfen: The noble Baroness has probably addressed the points I sought to elucidate. I shall read what she said and reserve my right, if necessary, to return to the subject at a later stage of the Bill. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos.7 to 11 not moved.]
Lord Higgins Lord Higgins moved Amendment No.12:
Page 2, line 2, at end insert—
("( ) The Treasury. in making regulations under any functions transferred to it under subsection (1) above, shall ensure that payments of the tax credit are not made to individuals who have an income, or to couples who have a joint income, in excess of the income at which the higher rate of tax would be payable by an individual. ")
The noble Lord said: The amendment raises an important point of principle. One of our main complaints against the changes proposed by the Government is that they will increase dependency on the welfare state. The Government's intention, we understand, is that that should be reduced rather than increased. The effect of the proposals is that people who, by normal standards, would be regarded as fairly well off will benefit. I may not be popular in proposing the amendment. We suggest that the figure should be capped. However, one cannot consider the issue without also having regard to the taper and the effect on other income groups.
In reply to a Question for Written Answer in July 1998, Ms Dawn Primarolo stated that some families with incomes over £38,000 would receive support. She stated that a family with two children and maximum eligible childcare costs of £150 would still be receiving some working families' tax credit with family incomes of £31,000. However, the highest possible level of income would be supplemented by the working families' tax credit depending on the number and age of the children of the family. For example, if the family had five children under 11, rather than two, it will receive some working families' tax credit with family incomes around £38,000. Members of the Committee may feel that someone with five children requires an income of £38,000. Be that as it may, the effect of the Government's proposals will bring people into benefit (or tax credit if the Minister prefers that expression) at that level of income. That seems a remarkable situation.
Perhaps the Minister can tell us how many people who would not otherwise depend on welfare she expects to be brought into welfare benefit as a result of the Government's proposals.
The increased cost of the working families' tax credit is £1.5 billion. Some of that will go to individuals and couples with higher incomes. The amendment suggests capping at the level where people begin to pay the higher rate of income tax. It does not seem appropriate that they should receive such benefit.
I have suggested that we should consider the issue in relation to scales elsewhere. The Institute for Fiscal Studies has done some fairly elaborate analyses of the effect. Taking 10 quartiles, it is suggested that those in the group I described still receive some increase in the average percentage change in their disposable income. But that does not apply in the same way throughout the scale, Those in the lowest quartile, the poorest people, receive a lesser percentage change. Those in the next quartile receive significantly more. From then on the figure declines. Perhaps we may have some indication why the proposals do not help those at the very bottom end and, after a large increase, the figure declines somewhat.
There is a number of issues we wish to examine. I have not always agreed with Professor Patrick Minford in the past. I recall one of my colleagues on the Treasury committee saying that his views gave monetarism a bad name. Monetarism is now so unfashionable that perhaps I should not be so unkind to Professor Minford. In other respects, he has made some important contributions.
Lord McIntosh of Haringey: I cannot resist intervening. After years of opposing Labour economic policies, Professor Minford has now come round to the view that our economic forecasts are, if anything, a little pessimistic rather than optimistic.
Lord Higgins: We could have a long debate on the accuracy of economic forecasts. I believe that he has expressed that view. Perhaps I was right in my original remarks. He gave evidence to the Select Committee on Social Security that in trying to deal with the unemployment trap by bringing some 750,000 people
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into higher marginal rates of tax—between 50 and 60 per cent—the Government have worsened the poverty trap. Perhaps the Minister will comment on that. It appears that at the top end of the high tax rate scale there has been a reduction. However, there has been a increase in the number of people paying more than 60 per cent and we are concerned about the increase in dependency. As one works up the income scale of the Government's proposals, the overall effect is curious, to say the least. Therefore, on grounds of reducing dependency, cutting public expenditure and making the system more rational, there is a strong case for considering the amendment.
The Child Poverty Action Group, quoting the Institute of Fiscal Studies, points out that as regards the increase in net income with working families' tax credit, a family receiving £75 a week does not benefit. I referred to that point in an earlier debate and it seemed to puzzle the Minister. At £100 a week, they receive £8.05; at £150 a week, they receive significantly more at £15.55; at £200, they receive £23.05; and at the top of the scale, £250 a week, it is only £3.15.
The basic pattern introduced by the Government's proposals is strange and difficult to justify. No doubt the Minister will attempt to do so.
Lord Desai: Before the Minister replies, perhaps I may help the noble Lord on one issue. There is a curious pattern in that when one tries to alter incomes, the lowest decile always receives less than the next two further up the scale. I fell foul of that some years ago when I proposed a basis income scheme, as I have done many times. Whatever I proposed did the maximum damage to single people in the lowest decile. I then discovered that the lowest decile includes many anomalous people; some are locked into it and cannot be helped through any tax credit scheme. Therefore, it is always difficult to reach those in that decile through tax credits and so forth which are paid through the income scheme.
That is the pattern which we are again witnessing. Those in the lowest decile are difficult to help if one works through earned income, employment and so forth. One has to help such people in other ways. It is a standard result of almost every Budget I have known.
Lord Goodhart: I have considerable sympathy with what was said by the noble Lord, Lord Higgins. It is anomalous that means-tested benefits will go as far up the scale as £31,000 for a family with two children and £38,000 for a family with five children.
Furthermore, there is a problem with the proposal of a cap. It means that for an extra £10 of income over the cap one loses more than £10 in benefits. Therefore, one has the anomaly of the marginal tax rates of more than 100 per cent. The Government ought to re-examine the taper and consider whether something could be done with it. For example, above the upper earnings for national insurance contributions the marginal rates fall by the 10 per cent that one is paying by way of NICs. Perhaps that opens up a greater level of taxable capacity and the Government might consider a slightly higher

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level of taper past the upper earnings limit. That might have the effect of reducing the startling upper level at which the means-tested benefits continue to be paid.
6.45 p.m.
Baroness Carnegy of Lour: I, too, believe that the Government should consider the amendment. I raised the point on Second Reading, but together with others the Minister was unable to reply. I spoke in terms of a sense of unfairness which might be felt by a not at all well off widow paying tax on a small pension. She might consider that a benefit is going to parents with an income of £38,000 because they have a certain number of children.
After reflection, I still believe that that will be a perception. Although when the tax credit is paid through the wage packet it may not be seen so easily as a benefit, most not particularly well off widows will know some people who are receiving the tax credit directly and will see it as a benefit, despite the Government's hopes.
Cannot something be done in another way for such people? I am picturing the mother with five children doing her weekly shopping in a supermarket on an income of £38,000. I can see that it is not an enormous combined income, but surely this is not the way to deal with such people. The point of the tax credit system is to encourage people to see that work pays. Nobody needs encouragement to see that work pays if they are earning together, or singly, £38,000 a year. The whole purpose of the tax credit goes to people on such an income and I believe that they should be helped through the tax system and not by this means. I believe that the Government should look seriously at that.
Baroness Hollis of Heigham: I do not believe that Amendment No.12 would work. Therefore, even if I agreed with its basic premise, which I do not, I am afraid that I would have to ask the Committee to resist it.
The amendment appears to refer simply to limiting the opportunity to pay applicants WFTC, which implies that everyone above the higher rate threshold would remain entitled to an award but could not be paid. This seems a rather odd approach to take.
The amendment also attempts to link the award—and the award is based on a snapshot of current circumstances—to a ceiling which can be set only by reference to circumstances—for instance, the applicants' tax allowances—which cannot be finally known until after the tax year ends. So this could in practice mean that the Inland Revenue would need to hold back payment until after the year end, when the figure can finally be worked out and, in fact, until after the submission of the applicant's tax return. At this time, the applicant's circumstances may have changed.
The amendment aims to set a limit which, unfortunately, is not a single set figure but will differ from person to person, depending on a number of factors. There is no single higher rate limit which can be used in the way in which the amendment envisages; particularly in the way that it is intended to apply it to couples. It must be remembered that some would be
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eligible only for WFTC and the childcare element. It is that element which takes the figures up into the higher limit because both parties are working. Any change in the relative income of either one would then affect the payment to be made through the tax system.
Not only would the amendment not work; it would introduce a cliff edge that would be undesirable and harsh. For instance, a family with three children, two under 11 years and one over 11, claiming the WFTC and getting maximum help with childcare costs whose net income was £1 below the basic rate limit would receive £12.20 through WFTC. So the proposed amendment would, if we used the basic rate limit instead, make them £11.20 worse off for that extra £1 of net income. That would seem a pretty severe incentive to earn that extra money.
I see and understand that there is some concern about money going to those on higher incomes. But the combination of rates, threshold and the taper addressed that point. The WFTC will spread further up the income scale, particularly where the family has more than two children, or four or five children, as in the examples given, where there is a joint income of more than £30,000 and the family is paying for childcare. Indeed, we want that to happen to help more low and middle income families. But—and it is important to remember this—the WFTC tailors the amount available to their circumstances and the threshold and the tapers together make sure that the amount which they can receive reduces gradually as they earn more. It avoids the problem of producing a situation in which it is no longer an advantage to earn more.
Within social policy, where one is dealing with tapers, one has a choice. One may have a very sharp taper with very high deduction rates as the money is clawed back. That has been the case in the past with family credit which had a deduction taper rate of 70p in the pound. Therefore, that may produce tax rates of 100 per cent when that is related to housing benefit and so on. Alternatively, one may have a much shallower taper and a more gentle clawback of a tax credit or, as in the past, family credit. In this case, that is 55p in the pound. Therefore, it makes it more advantageous to work. But, by definition, because the taper is shallow, it goes much higher up the income scale before it is withdrawn. There is a straight choice between those two and there is no right answer. One tries to make an appropriate judgment.
However, the higher earning taxpayer would receive the credit because there is a large number of children and a high childcare bill. In a two-earner family with four or five children, one person may be earning £20,000 and the other £15,000. As both are in work, they are entitled to childcare credit. They would have a joint income of more than £30,000 but neither would be a higher rate taxpayer. Indeed, we estimate that only 5,000 people who earn more than £500 per week or £25,000 per year will be entitled to the WFTC. Those people will receive quite small sums.

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Therefore, it may be possible for those who have joint earnings of £30,000 plus to qualify for the second element; namely, the childcare credit. That goes right up the income span. It will be extremely rare that one of two parties is already a higher rate earner.
The amendment will not work and we should not wish to see the system which it envisages imported into tax credits. Moreover, the number of people affected is very small indeed. In the light of that, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Skelmersdale: Before my noble friend decides what to do with the amendment, perhaps I may seek further clarification. Perhaps the noble Baroness will write to me on my second question.
First, what caused the Government to choose 55p in the pound withdrawal rates as opposed to 70p under family credit? Secondly, what would be the effect of going up the income scale, if they had chosen a percentage of 62.5p or 60p? Obviously, the noble Baroness cannot answer that off the top of her head but it may be helpful to have a note on that before the next stage of the Bill.
Baroness Carnegy of Lour: Will the Minister say something about my remarks? She may not have anticipated them in the light of the amendment. However, I wonder why the Government believe it to be necessary to apply this system to people who in no way will need persuading that work pays better than unemployment.
Lord Higgins: I am trying to understand the points the noble Baroness made about the taper. These are never simple matters and I often wonder whether we should have a blackboard. Having failed to get one in the Commons for many years, I doubt whether I shall succeed in the Lords.
First, how many more people does the Minister expect to come within the welfare net as a result of the changes being made both in relation to WFTC and child benefit? Secondly, does the Minister expect that carrying benefits that far up the scale will encourage anyone to work who was not previously working? It seems unlikely that someone will suddenly enter the workforce earning £38,000 per year. Perhaps that is a false point.
Thirdly, I should like to be better informed about the taper for subsequent stages of the Bill. Will more people be paying marginal tax rates of 60 per cent than are doing so at present? Fourthly, is it the case, as Professor Minford suggests, that this worsens overall, rather than improves, the poverty trap? Therefore, there are a number of issues on which we should seek clarification at this stage so that we can review the position on Report and Third Reading.
Also, will some people see their marginal tax rates increase from the position at which they are at present? Finally—again, this anticipates a matter which may arise later—is the fact that we go this far up the scale one of the main reasons that we have a passport problem? I still find it rather surprising that the Government did
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not announce immediately that the passports which obtained to various benefits such as prescription charges and so on would be continued. I was thinking about why that was so. Is it because it would mean that people paying higher rates of income tax would receive passported benefits? Is that one reason for problems in that regard?
Baroness Hollis of Heigham: I shall do my best to answer those questions. The noble Lord, Lord Skelmersdale, asked why we had opted for MDR rates of 55p. That relates to one of the questions raised by the noble Lord, Lord Higgins. There is a balance of judgment. We are trying to make a decision on how we want the taper to be. We are trying to work out how far up the income scale one should properly go, with the implications for public expenditure, set against the problem of withdrawal rates.
We face two problems which were mentioned on Second Reading. The first is the unemployment trap which relates to getting people off benefit and into work. The second is that once they are in work we need to make it worth them working longer hours for higher pay so that they may seek to climb up the ladder.
I can say from my experience that we know that couples on family credit dip down because they are already in work but may come up again quite quickly. Because of pay rates for men, they quickly climb out of family credit. But lone parents stay on family credit arid at the same levels of family credit for long periods of their working life. In part, because they are relatively unskilled and because of childcare problems, women cannot work the extra hours and even if they worked to earn extra money, they would not keep very much of it. Therefore, they make a judgment that it is better to work for less, and family credit takes the strain. Therefore, they stay as they are.
In other words, they face the second trap which is the poverty trap. Having found work, it is not worth them coming off those benefits because the taper rate is so high that they have to work a lot more and earn a lot more before they have sprung free altogether of the poverty trap. That is a basic dilemma which is common to all governments in relation to DSS. It is not at all a partisan point.
One then must ask how one can reduce the combined effect of the tapers so that people's tax rates remain sufficiently appropriate to retain the incentive to go off benefit into work and once in work to climb out of dependency on longer-term benefits such as family credit. We went for the figure of 55p because, frankly, we thought that the balance was about right. Had it been 62.5p or 70p, as the noble Lord suggested, yes, we would have had people coming off benefit much sooner and there probably would have been reductions in public expenditure. However, for people climbing up, there would have been very high MDRs (marginal deduction rates). That would have meant that instead of being able to say to most people, "You will have a deduction rate of no higher than 60 to 70 per cent", very many more people would have had deduction rates of 80 to 90 per cent or 90 per cent plus. So, it is a question of balance. There is not a right answer but in the absence, at present,

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of any changes to housing benefit, council tax benefit and the like, we felt that that would be the appropriate fulcrum point.
If noble Lords agree, perhaps I may add to that point or even cite the figures I gave earlier. The implication is that, whereas in the past some 750,000 people were having marginal deduction rates of over 70 per cent., that has now been reduced to under 250,000 people. The noble Lord, Lord Higgins, is quite right that the consequence is that the number below the 70 per cent. rate is increased; that is, between 60 and 70 per cent. or between 50 and 60 per cent. Statistically, that is an inevitable consequence of what we are doing. If I have further information about the implications of a different taper, I shall write to the noble Lord. There may be research on this point with which I am unfamiliar. However, that is our basic thinking.
The noble Baroness, Lady Carnegy, asked why we need to do it for people on higher earnings knowing that they do not need the incentive to go into work; they are already well paid. Perhaps I may ask Members of the Committee to step back. What sort of family will receive tax credit at £30,000 plus? We are not talking of the man in work and the woman at home, a single high earner. By definition, they would not then be receiving the childcare tax credit, which is what takes people up the income scale. Who, therefore, will receive that? It will relate to a combined family income of over £30,000. That is the only way they will receive the child credit which, of course, therefore means that the woman is in work and has children at home being cared for by other people. That is why somebody with a family income of over £30,000 may be eligible for the working families' tax credit. In that case it is her income contributing towards his to take them to an income level of over £30,000.
That means, in practice, that apart from the 5,000 people I talked of who receive over £500 a week, that is over £25,000 a year, he is more likely to be in the £20,000 to £25,000 band. She is likely to be in a band somewhere over £5,000 to come within the 16-hour rule and therefore to count for childcare purposes.
I believe that the question raised by the noble Baroness assumes a single earner and, therefore, effectively somebody coming up to higher rate bands. If we did not have a generous childcare credit, the childcare costs of a couple both in work, and at that top point having possibly four or five children, would be so high that it would not be worth the woman working. We would then be in a situation where he might be on an income of £20,000 to £25,000 and receiving WFTC and she would be at home and not receiving childcare credit. Therefore, that would not take them into the higher earning levels we have been discussing. I see the noble Baroness would like to intervene.
Baroness Carnegy of Lour: I understand that point and am grateful to the Minister. However, I still wonder whether this is the right way to do it for that sort of family. Why not do it through the tax system because that sort of family does not require to be persuaded of the matters about which the Government are trying to
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persuade other people, such as work paying. If, say, the wife, in the example given by the Minister, was in a fairly low paid job, she may decide not to work. They have the freedom to do that. It seems to me that that should all be brought about through the tax system rather than through this system. That was really my question.
Baroness Hollis of Heigham: That is a deeper point about what the tax system should be carrying in terms of whether children are built into the tax allowance. Given that they are not—the noble Baroness will forgive me if she does not tempt me at this hour into a wider debate about the role of the tax system on this aspect—what we are doing is a perfectly decent and fair way of ensuring that, where a couple have a considerable number of children, three plus, and she wishes to work, she can afford to do so. That is the effect of how the system works, otherwise her childcare costs would outweigh any benefit.
One other point worth remembering is that even with childcare tax credit, at least 30 per cent of the costs will continue to be borne by the families. It is not 100 per cent reimbursement; the reimbursement arises because of the large number of children, the cost of childcare and the fact that the figure of £30,000 is based on two earners. So, in practice, we shall not be talking about very many higher rate taxpayers, which, of course, would be an individual. One can see how the model would not work.
The noble Lord, Lord Higgins, asked me how many extra people would come in. We expect WFTC to aid a further 400,000 families. He asked whether this was the reason, because of the taper, for the passport problem. Yes, I believe it is perfectly fair to say that that indeed is the issue. The Government will be coming back with their position. Again, it is an honourable problem to have, but that is one of the consequences. I hope that I have answered the queries raised by Members of the Committee.
Lord Rix: Before the noble Lord, Lord Higgins, responds, he asked for a blackboard to receive suitable communications. I hope that the gesticulations by the Minister sufficed. I can only say that from the rear, I imagined that I was in the Albert Hall listening to Mahler's third. It was a most pleasurable experience!
Lord Higgins: I prefer the adagio to the fifth! We can certainly agree that this is not a partisan issue at the level at which it is now being debated. The partisan issue is whether or not more people are born into the dependency net and whether, in that respect, the Government have hit the right balance between the opposing elements of the taper. I have to say, quite sincerely, that I was lost in admiration for the way in which the noble Baroness managed to explain that without any notes. I could not possibly aspire to that. What she said was extremely helpful. We will need to consider it and, more particularly, in the absence of a blackboard, to read it before we come to Report stage.
I also accept the technical deficiencies she mentioned as far as concerns linking it to the top rate of income tax. However, I have some considerable doubts about

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whether, at the income levels we are discussing—that is, the upper end—it will either encourage people into work as clearly they are already in work, or whether it will encourage them to work harder. I would have thought that it is the least arguable: that, if you are in that kind of income bracket and suddenly find that you come into family credit and working families' tax credit, you do not work rather less and perhaps play rather more golf than you otherwise would. However, we agree that these are all stereotypes.
Nonetheless, these are difficult problems. There are some doubts as to whether the Government have really got it at exactly the right point. One must always worry when the poverty trap is actually being made worse which, for the reason the Minister has mentioned, it looks as though we are doing. We shall study carefully what she has said and consider whether there is a point where one could suggest a somewhat different taper with rather less increase in the number of people who are dependent on welfare payments. Subject to that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Whether Clause 2 shall be agreed to?
Lord Goodhart: Perhaps I may start by clarifying—for the benefit of the noble Lord, Lord Skelmersdale, if for nobody else—our position on Clause 1 because it has a bearing on our views on Clause 2. The noble Lord, Lord Higgins, was absolutely right, as I said when giving him my support on Clause 1, that the working families' tax credit is not a tax credit it is a benefit. However, what it is called is not the point that really matters. That is why we do not seriously object to Clause 1 referring to it as a tax credit.
The problem here is that the Government are making actual administrative changes to make the working families' tax credit look more like a tax credit when those changes are in fact inappropriate and have real disadvantages. One of those inappropriate changes which has disadvantages is the transfer of responsibility for family credit from the DSS to the Inland Revenue. That is why we object to Clause 2.
The culture of the Inland Revenue is entirely different from that of the Department of Social Security. The Inland Revenue is concerned with ensuring that everyone pays at least what they are due to pay in taxation. It does not seek to investigate whether or not everyone claims all the reliefs to which they are entitled. By contrast, the job of the DSS is to ensure that everyone receives the benefits to which 'they are entitled, though no more than that. That may involve the prevention of fraud, but it also involves checking that the people seeking help obtain the correct help to which they are entitled. That is why the way in which claims are dealt with is much more investigative and much less confrontational than the way in which the Inland Revenue deals with tax issues.
The Inland Revenue has no experience of doing casework with poor or relatively poor people. In many cases those people do not have enough income to be taxable, and in many more cases for those on relatively
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low incomes the tax liabilities are paid entirely through PAYE and the Inland Revenue has no direct contact with the taxpayers.
When we come to these two tax credits, the claims procedure will have to be—and is, in the draft regulations—based on very much the same sort of practice as in the case of other means-tested benefits such as income support. But that relates not only to the claims procedure; it relates also to the procedure for making decisions on claims and the procedure for revising those decisions when they have been made, which again have no equivalent in the Inland Revenue's procedure on taxation.
Those procedures have to be the same for tax credits as for other means-tested benefits. But the procedure is completely different from anything done by the Inland Revenue. That is recognised by the fact that it is still proposed that appeals from decisions will have to go to the new unified tribunals under the social security Acts and not, at any rate for the time being—I hope never—to the commissioners of income tax who deal with entirely different matters.
Many of the regulations at present apply both to family credit and to other types of benefit. For example, the Social Security (Claims and Payments) Regulations 1987, some 38 pages long, lay down the basis on which claims are made and they apply to family credit as they apply to other kinds of benefit. Those regulations, with certain consequential amendments, will continue to apply in basically the same form. It is desirable that rules about claims should be, as far as possible, the same in relation to all these means-tested benefits in order to avoid confusion when somebody switches from income support to family tax credits. But from now on, when changes need to be made, they will have to be agreed by two departments and presumably enacted by two separate statutory instruments. In fact, I wondered who drafted the draft regulations we have now seen to bring the working families tax credit into operation. Were they drafted by the Treasury or, as I suspect—perhaps the noble Baroness can tell us one way or the other—were they drafted in Richmond House'?
One ends up with a situation where one is shedding one type of benefit off the DSS into the Inland Revenue when the work regularly done by the Inland Re venue is entirely different from the work regularly done by the DSS. Why not leave the administration of these tax credits where they belong; that is, with the Department of Social Security?
7.15 p.m.
Lord Higgins: My Lords, I am glad to see that, contrary to his earlier remarks, the noble Lord, Lord Goodhart, is now anxious to improve the Government's position on these issues. I agree with everything; he said.
In this Parliament, now almost half-way through, we have seen an increasing tendency for the Treasury to take over the Department of Social Security. One of the reasons why we are stuck with what is a very unsatisfactory mechanism for the working families' tax credit is that rather than saying, "We failed to make it a proper tax credit system", the Government are saying, "It is now our flagship; we must go ahead regardless".

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The noble Lord, Lord Goodhart, drew attention to an important problem. There is a real difference in culture between the Inland Revenue and the Department of Social Security. We know that that is the case because the Inland Revenue, as the noble Lord rightly said, hitherto has been concerned with collecting money rather than giving it away. The two functions put one into a different frame of mind. It is true either way that the taxpayer has an interest; nonetheless, the attitude is very different.
It is also strange that, the Inland Revenue having finally pushed through a system of self-assessment which transfers massive burdens from the Revenue to the taxpayers, a burden is now to be switched over from the Department of Social Security to the Inland Revenue who will do all the calculations for those who are to receive the benefit. So we have the self-assessment argument going one way and the benefit argument going in the opposite direction. Many people will now deal with the Inland Revenue who were not previously affected by it and it will be interesting to see how they cope with the extra information of a quite different kind with which they will now have to deal.
What also gives me considerable cause for concern is the extent to which the Inland Revenue will be able to switch a lot of people over and add other people to the present Department of Social Security staff in an expeditious manner. In relation to cash flow, for instance, the department is asked to do things very quickly, and that is not something which even in simple cases the Revenue has been good at. The delay in the Revenue deciding what one's ultimate tax liability is is often measured in years and sometimes numbers of years rather than a month or something of that order. Bearing in mind that we have had problems with computers elsewhere, can the Minister say to what extent she believes that the present computer structure in the Inland Revenue is able to cope with these issues? That is a particular cause for concern when one considers the massive problems that arose in the Department of Social Security computer structure.
For all those reasons I share the concerns expressed by the noble Lord, Lord Goodhart. This is a major change and largely an unnecessary one. We would have been better to stay with the previous structure. If the Government wish to allocate more funds to it, as we said earlier, that is all to the good. But changing the structure in the way they have will cause considerable problems and not result in any improvement in the service which the taxpayer and those in receipt of benefits receive.
Baroness Carnegy of Lour: Perhaps I may add a further point which looks forward to later clauses in the Bill. I ask Members of the Committee to forgive me for mentioning this now, but I shall not be able to be present for the second day of Committee because I shall be taking part in the last stages of the election campaign for the Scots Parliament.
The fact that all this will be done through the Inland Revenue seems to me to have led the Government to allow it to treat employers (as set out in Clause 8) as if
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they were taxpayers. Indeed, it has placed that kind of responsibility upon them. According to Clause 8, the powers to obtain information as a result of the system are to be found under Section 20 of the Taxes Management Act 1970. That applies equally to the penalties set out under Clause 9, and indeed continues right through to Clause 12.
This is a ferocious way to be treating employers. I know that we have not yet reached that stage, but it seems to me that it is a consequence of conducting the whole operation through the Revenue. In fact, it is rather an unfortunate consequence from the point of view of employers.
Lord Swinfen: Up until now it has been the Department of Social Security which has worked out what benefits should be paid to people; indeed, it has fought their corner against the Treasury. However, with all this being passed over to the Treasury, which is used to cutting every payment, who will work out the correct level of the tax credits? It will be the Treasury. The Treasury will be fighting itself—in other words, left hand against right hand. As I understand it, the Secretary of State for Social Security will not be fighting on people's behalf: it will be someone from the Treasury trying to justify it within the Treasury, but the Treasury is used to cutting down every single outgoing government penny.
Lord Skelmersdale: For the avoidance of doubt I should just like to say that I agreed with the noble Lord, Lord Goodhart, on Second Reading on this exact point; and I agree with him now.
Baroness Hollis of Heigham: I was not expecting a full-blown Second Reading debate. Nevertheless, I shall try to respond. The thrust of the speech made by the noble Lord, Lord Goodhart, which was supported by the noble Lord, Lord Higgins, and others, appears to be that because the working families' tax credit is, after all, a benefit it should therefore continue to be run by the DSS. That seems to me to be the argument.
We have made it very clear that this is built on family credit. I quote Martin Taylor again:
"I recommend family credit should be replaced with a tax credit. To facilitate its introduction the credit should, in the first instance, be modelled on family credit".
That is precisely our position. Therefore, why is it that we are moving away from family credit into a tax credit?
I know that I am repeating myself in this respect, but I hope that Members of the Committee will forgive me. First, family credit is too easily perceived as income support and not as wage support. It is perceived as something that is paid at home; in other words, it is seen as closer to income support than to the sort of activities that we are engaged in jointly with the Department for Education and Employment. I have in mind measures to add to the attractiveness of the New Deal by giving employers subsidies to employ people, introducing pilot schemes, and so on. We are seeking to move this area

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of support from being at home and, therefore, brigaded with income support, to being seen as part of work support.
Secondly, family credit has a relatively low take-up compared to other benefits—for example, 69 per cent. per couple and 79 per cent. for lone parents. Through a pay packet we expect a much higher rate of take-up by definition. Thirdly, family credit remains vulnerable to fraud. as do income support and other benefits. However, I believe that most people will accept that the Inland Revenue has a more effective track record in tackling fraud.
Fourthly, the current family credit has a system of a childcare disregard, which means that those who have the greatest need of it—that is, those who are on maximum family credit—are unable to get any access to it. However, by virtue of having a tax credit, we can produce, if you like, an additional credit for childcare. That brings us back to some of our debates earlier as regards how far that goes up the income scale.
Finally, and most importantly, family credit is part of an extension of DSS measures. But the future will see the greater integration of taxation and the former benefits system. We have already referred to things like children's tax credits which are envisaged in the future. So we expect these measures to develop. It is therefore appropriate that this, which is the very first benefit to become a credit and which is therefore being built on the existing benefits structure, should nonetheless be the first to go over to the Inland Revenue.
I was asked who drafted the regulations. I can tell the Committee that they were drafted by the Solicitor for the Inland Revenue. I was also asked whether computers would be affected. I can tell noble Lords that the answer is no, and that computers will remain the same. I should emphasise that staff in the current family credit and DWA units will go over to the Inland Revenue. Therefore, the fear expressed by the noble Lord, Lord Swinfen, that there will no longer be a champion to fight people's corner, should not arise. I give way to the noble Lord.
Lord Swinfen: I am grateful to the Minister for giving way. Can the noble Baroness tell us whether there will be a Minister to champion these people? In other words, will there be a Minister in Cabinet to fight the corner for those people who need tax credits when the Budget is being prepared? As I understand it, there will only be the Chancellor of the Exchequer and he will not do it because his task is to spend as little money as possible.
Some years ago I asked about the experience outside the Treasury of those in the top half dozen layers of the Treasury. I found out that very few had served anywhere but the Treasury; they had no experience outside the Treasury. Some had had experience in one or two other ministries but very few had any experience of the big wide world outside. It seems to me that the Treasury is a big white tower, and those within it never go outside.
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It seems to have a veto on everything. I have a feeling that there ought to be a Minister to fight in Cabinet for those who need tax credits.
Baroness Hollis of Heigham: I find this all very odd. The noble Lord, Lord Swinfen, addressed his remarks in the context of the Chancellor of the Exchequer's Budgets. The latter have raised child benefit to levels unprecedented in terms of the real increase for children—for example, from next April it will be £15 for the first child and £10 for the second child. We are also speaking about a Chancellor of the Exchequer who has underwritten a minimum income guarantee for pensioners and disabled people alike which, again, is unprecedented.
Lord Swinfen: The Minister will realise that Chancellors of the Exchequer come and go, as. indeed, do governments. We are trying to put legislation in place which may well be there for many years and for many parliaments.
Baroness Hollis of Heigham: It is perfectly true that in the foreseeable future—indeed, I hope that it will be a long-distant future—there may be a Conservative government who do not protect the interests of disabled people or poor people in work. I would regret that very much. From what he said, I am sure that the noble Lord would also regret such a catastrophe. However, in the meantime we have a Labour Government and a Labour Chancellor of the Exchequer who are committed to ensuring that public expenditure is used appropriately to encourage people into work and bring them out of isolation into the mainstream of life.
We are committed to tackling deprived communities; and, indeed, to investing in health and education. We do not want to spend on economic and social failure, as was the case over the past 20 years, whereby we would spend more and more on social security but people would remain poor and inequality would widen. Instead, we are determined that money should be spent on investing in people as regards their talent, skills and opportunities. We want to help them into work and to ensure that the public services they need, like education and health, are there to sustain them.
If the noble Lord wishes to take the matter further, I suggest he studies the interviews that the Chancellor of the Exchequer gave to the Guardian newspaper over the weekend. He made it very clear that the commitment of this Government is to use public expenditure wisely so as to invest in people, their talents and opportunities and to ensure that the necessary public services are there to support them. I am delighted to say that, rather belatedly, Mr. Peter Lilley seems to be coming round to something of the same position.
In conclusion, the point pressed by the noble Lords, Lord Goodhart and Lord Higgins, was whether there would be a difference in culture as a result of going across to the Inland Revenue. In other words, they thought that there would be no one in the Revenue to fight the corner of those most in need. I repeat: the same skilled and experienced staff of the family credit and the DWA units will be moving across to the Inland

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Revenue. Therefore, in terms of that approach, there will be no difference in culture within government. However, if one were to ask about the difference in culture for the applicant—that is to say, the unemployed lone parent or the workless household—I hope to heaven there will be a difference in culture because for too long lone parents and workless families have been deprived of access to work. They have been marginalised out of the mainstream of work. They, and above all. their children have suffered poverty which too often has been unnecessary. Too often people wondered whether it was worth their while to work. By getting this Bill through this Chamber and through Parliament I hope we shall achieve that different culture that some Members of the Committee have today deplored.
7.30 p.m.
Lord Higgins: Before the noble Lord, Lord Goodhart, replies, I hope I may make two quick points. First, as regards the point about culture, I believe the noble Baroness is being rather optimistic in thinking that if DSS staff suddenly transfer to the Treasury they will not be affected by the Treasury culture, however open-minded they may be. I remember a government conference centre at Ditchley Park where the food was terrible and the heating was non-existent. I believe that I was the Minister of State at the Treasury at the time. When the estimate was presented to me I wrote on it that we should spend more money on Wilton Park—I am sorry; I did not mean to refer to Ditchley Park—and within almost 30 seconds (this was absolutely pure "Yes, Minister") my private secretary told me that the Permanent Secretary wished to have a word with me. He told me that no Treasury Minister had ever proposed an increase in public expenditure. Therefore I believe there is a difference in culture in the Treasury.
On a more serious note, the noble Baroness has said that the computer records will be switched from one department to another. However, a quite different method of working will need to be employed in this regard unless the amounts due to each individual are paid directly to employers who pass that money on. However, that is a matter we can discuss later.
Lord Skelmersdale: Before the noble Lord, Lord Goodhart, responds on what, when all is said and done, constitutes a wrecking amendment—I admire the forbearance of the Minister in not pointing that out to us—I wish to make the following comments. The Minister appears to have said that the trouble with family credit is that it is not seen as a work benefit; it has too low a take-up because it is not generous enough and it is not paid through the wage packet. However, as I pointed out earlier, one could still have family credit and not administer it through the Revenue. Then at least we would not sail blind, as the Government are determined to do. There will come a point in the not too distant future when questions will be put to the noble Baroness or her successor with regard to the take-up of
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the WFTC. When does she think that point will arrive and when can we be given some sensible answers to show that the Government have been extremely silly?
Baroness Hollis of Heigham: I hope that the noble Lord can always count on sensible answers from this side of the Chamber. However, I cannot predict when it will be sensible for noble Lords on the Opposition Benches to table such a question. However, I shall try to take the noble Lord's point seriously. We shall pay this money—as family credit is paid now—from October. It will be paid through the pay packet from April 2000. I believe that probably a year will have to pass before one can appraise the results. Normally quarterly statistics are published, and there is no reason to believe they will not be published. Certainly, I am confident that my colleagues in the Inland Revenue and in the Treasury—that is the Paymaster General and her colleagues—would be as concerned as myself if there should be any problem of delivery or decline in take-up. However, I am confident that because this measure is associated with the pay packet, problems of take-up, fraud and other problems that we have experienced in the past will begin to diminish. That process may take more than the first year of full running to assess; it may take a couple of years. However, if the trends are not going in the right direction, the noble Lord will be quite correct to hold us to account.
Lord Goodhart: Family credit has been a rather successful benefit until now. The take-up is high. The crucial figure is not so much the proportion of eligible people who take it up but the proportion of the funds that are taken up if everyone applies. That proportion is about 85 per cent which suggests that most people who would be entitled to substantial sums of money if they applied for family credit are doing so.
The noble Baroness said that there must be a culture which encourages people to take up the working families' tax credit. I agree with that. However, the take-up of that money may be considerably higher. That will arise primarily because the benefits will be substantially more generous than apply under the current rules of family credit. I find it difficult to imagine that the switch of responsibility for this measure from the DSS to the Inland Revenue will increase the level of take-up. I believe that the culture is important in this regard. The noble Lord, Lord Swinfen, put his finger on the matter; namely, it is not just a question of transferring the measure from one department to another, but of transferring it from a department whose job it is to pay money to people who need it to a department whose job it is to collect money from those who have to pay in order to keep the mills of government rolling.
There is a difference in culture at all levels. It is particularly important that there is a difference in culture at the higher levels. I acknowledge that the present Chancellor of the Exchequer has considerably increased certain benefits and in particular has provided generous increases with regard to the changeover from family credit to the working families' tax credit. However, it is by no means certain that that will continue. It is not just

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a matter of the working families' tax credit coming under the control of the Revenue. When one is considering the appropriate level of expenditure on social security, one has to be able to balance one benefit against another. It may be appropriate at some time to say, "The Treasury has told us that there is only so much money available". The Treasury, of course, always determines any increase in the amount of money that is available for social security.
However, the DSS is at least in a good position to say it considers that in a particular year the extra money is needed for income support rather than tax credits. I believe that that ability on the part of the DSS will be lost. That seems to me entirely the wrong procedure. I do not think it can be justified by saying that the Inland Revenue will be tougher on fraud than the DSS. I believe that both departments should be equally tough. I am seriously concerned by this measure. However, I doubt whether the noble Baroness will be surprised to hear me say that I do not propose to divide the Committee on this occasion.
Clause 2 agreed to.
Lord McIntosh of Haringey: I beg to move that the House do now resume. In doing so I suggest that the Committee stage should not start again before 8.35 p.m.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Central America
7.40 p.m.
Viscount Montgomery of Alamein Viscount Montgomery of Alamein rose to ask Her Majesty's Government what steps have been taken to facilitate economic recovery in the recently devastated republics of Central America.
The noble Viscount said: My Lords, in asking this Unmarred Question, to which I have no right of reply, I wish to express my gratitude to all noble Lords who will speak in the debate. I am particularly glad that the noble Baroness, Lady Richardson of Calow, will make her maiden speech. It is most encouraging to welcome a new member to what I loosely call the "Latin American fraternity" in the House, which is always in dire need of new members. On this occasion the noble Baroness is to be followed by the right reverend Prelate the Bishop of Blackburn, which is an encouraging sign.
Noble Lords will remember that on 10th December we debated this subject, but at that time we were debating the immediate relief in the aftermath of Hurricane Mitch. Her Majesty's Government are to be commended on their rapid reaction to the hurricane. We are all extremely grateful to the noble Baroness, Lady Amos, for the action taken by herself and her department in bringing that immediate relief. But tonight we are concerned more with the longer term economic recovery of this devastated region. Honduras and Nicaragua were victims of massive levels of destruction; El Salvador and Guatemala inevitably to a lesser extent, but they also suffered.
The infrastructure in Honduras and Nicaragua was severely damaged—roads, bridges and schools were wiped out. But perhaps more crucially in the longer term, their agriculture, upon which their exports depend, was largely wiped out. For instance, in Honduras, the banana, coffee, shrimp and melon industries were destroyed and the sugar industry was badly damaged. The same applies in Nicaragua and to a lesser extent in Guatemala, where 70 per cent of the banana plantations were wiped out and thousands of hectares of coffee, fruit and vegetable crops were ruined. Those are serious matters from which it will take a long time to recover.
I have mentioned bananas in connection with two countries. As an aside, perhaps I may mention that we have debated the subject in the House for many years. I fear that the noble Baroness, Lady Amos, will not agree with me when I draw some satisfaction from the WTO ruling that the EU was out of order for subsidising its former colonial powers to the disadvantage of Latin American producers, which are also developing countries and will increasingly need to export these crops if they are to survive. That is an aside and I do not expect the noble Baroness to agree or to comment because that is not the main thrust of today's debate, which concerns economic recovery in Central. America.
It is gratifying that the Department for International Development has had a team in Central America which has made a study and shown that things such as safe water and health are key areas about which we can do something. I wonder whether it would be possible for the United Kingdom to take responsibility for specific projects, which could be attached to our name, such as the rebuilding of a school or a series of bridges. Specific projects in kind often prove much better and much more effective than donations in cash which sometimes are dissipated in the process of being utilised.
An important subject in the longer term is debt relief in the area. Because of their history, these countries are obviously heavily indebted. I am sure that several speakers will refer to that. The subject was not cove red in detail in the December debate because we were then concentrating on the matter of immediate relief. All Central American countries are more or less in the same position, but obviously the impact is in direct proportion to the damage caused to their respective economies and their export potential. As the exports of Central America are largely agricultural, trade surpluses will be very low and in some cases non-existent. That is likely to continue for some years.
Clearly, the Inter American Development Bank and the World Bank will have to play a major part in this matter. Whatever we in Europe may feel about it, the most important trading partner for Central America is the United States of America. It is the major power player in the area and has the most influence and the most trade. But Europe has a role to play in general, particularly in the context of the EU, and possibly of Britain in particular. I hope that we can see our way forward to developing that role.
Central American countries generally have favourable climatic and soil conditions except, obviously, in the case of major natural disasters. The people of Central

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America are hard working and talented. They have natural entrepreneurial and other skills. I can say that with some authority. I am probably the only Peer who has lived for some years in El Salvador. During that time I visited all these countries and got to know their peoples very well. The region is worthy of our continued support. I hope that we can provide it.
7.45 p.m.
Baroness Richardson of Calow: My Lords, I am very conscious of the privilege of sitting in your Lordships' House and, from now on, of speaking in it. I am grateful for the unfailing courtesies I have so far received and for the help that so many people have given me. I hope that that help continues for a few weeks yet. I ask for your Lordships' indulgence if I inadvertently transgress the codes of courtesy with which I am not yet very familiar and also if I repeat points already made by the noble Viscount.
I am not an economist. I speak now partly because I have a concern for the people of Central America. I am an ordained minister of the Methodist Church and I currently have the responsibility for all our world church partnerships. The Methodist Church in its missionary endeavour reaches many parts of the world. Although most of our partnership churches are now autonomous, we still have very great links of personal friendship. We share our personnel across countries and also give aid in financial resources. I also have responsibility in the Methodist Church for our Methodist Relief and Development Fund. We also have a number of ecumenical partnerships which enable us to reach areas such as Central America which are not normally Methodist areas.
I wish to make three points. First, I wish to refer to debt relief. There is a general agreement that one of the most critical factors in economic recovery is the debt burden. I warmly commend Her Majesty's Government on their response to the emergency in the aftermath of Hurricane Mitch. Three million pounds has been spent on emergency and reconstruction aid since last November, £6 million has been promised for medium-term rehabilitation in Central America, and a significant contribution has been promised to the European Union's fund for relief.
I am also grateful that Britain took the lead in calling on the World Bank to set up a trust fund to service multilateral debts and made a contribution of £10 million to that fund. However, I understand that the moratorium on debt payments, which was declared in December by the Paris Club of creditor nations, relates only to the next two or three years and that the interest incurred will be added to the debt burden after that time. It also seems that this agreement was made without the representatives of Nicaragua and Honduras being present at the meeting. I suggest that rehabilitation and reconstruction will take much longer than three years and perhaps longer than 20. When the Minister replies, perhaps she would like to make reference to the Government's position.
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As to development aid, it was felt by some agencies at work in Central America that the coverage given by the British media after the disaster gave the impression—I quote from a letter from a local Nicaraguan non-governmental organisation to the Methodist Relief and Development Fund office—that
"Nicaraguans were entirely helpless and disorganised, begging for handouts and calling for international handouts and calling for international experts to save them".
In fact there are significant networks of community workers and agencies in those countries, well set up to deal with the crises that affect that part of the world. The hurricane was a major disaster and meant that those agencies diverted their resources to dealing with immediate needs of shelter, food and trauma care. Their material resources are stretched now but the expertise, energy and creative leadership are in place for community development.
Aid is not only government-to-government but people-to-people. The response by the ordinary people in Britain has been very good. I am grateful to the Government for their announcement of the gift aid scheme to bolster individual donations to charities at work in poorer countries. I would be grateful for confirmation that the scheme will cover donations to agencies at work in Central America.
My third point is made by way of personal anecdote. I was visiting El Salvador on behalf of Christian Aid when we were taken to a remote community, where returning refugees had been given a small parcel of unproductive land. They were scratching a living from it and were very poor. As we left we asked whether there was one thing that was in our capabilities to give them that would help their work in the village. We expected to be asked for agricultural implements, building materials or school books. In fact, it was a ping-pong table. Talk of economic recovery is not only about balance sheets, investment returns, company profits and government debts. It is about enabling individuals to have a quality of life that includes meeting basic human needs, freedom from fear and occasional laughter. It is also about enabling communities to support and strengthen individuals.
7.52 p.m.
The Lord Bishop of Blackburn: My Lords, it gives me the greatest pleasure on behalf of the whole House to offer our congratulations to the noble Baroness, Lady Richardson of Calow, on her maiden speech. The noble Baroness has had a distinguished Christian ministry in the Methodist Church, to which she has referred, and beyond that in the ecumenical movement among the Churches. She is a notable pioneer in the Methodist Church.
The noble Baroness is a veritable collector of firsts. When she and I lived in adjoining streets in Rastrick, in West Yorkshire, she was the first woman chair of a Methodist district. She went on to be the first woman president of the Methodist Conference, first woman moderator of the Free Church Council and the first woman to be president of the Churches Together in England. Your Lordships will understand that there was widespread delight among the Churches when she

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became the first woman Free Church minister to be made a Peer. Tonight is a unique occasion in every sense. We all look forward to hearing more of her experience, wisdom and anecdotes on future occasions.
I am most grateful to the noble Viscount, Lord Montgomery of Alamein, for enabling the House to have this short debate on an important matter. There is a real danger that, as the world rightly focuses its attention on the dreadful situation in the Balkans, the continuing needs following the devastation wrought by Hurricane Mitch on Central America will be overlooked. The situation remains perilous in a number of countries, even though the immediate crisis is over. In Honduras, the combination of structural weakness and the sheer volume of water had a devastating effect and whole communities have now to be re-established. So great was the damage caused by the hurricane that cartographers are redrawing the map of that country.
One in four people have no prospect of work for the foreseeable future. It is not surprising that immigration officials in Mexico and the United States are expelling increasing numbers of immigrants from Central American states. Further heavy rain in the north last January only served to exacerbate the problem and made rebuilding difficult. The beginning of the rainy season next month could well trigger new flooding and further landslides. The United Nations World Food Organisation has warned that Honduras does not have enough grain to feed the nation and is predicting a further food crisis this year.
It is good to report that the Churches, through Christian Aid and other aid agencies, have been actively involved in providing emergency relief and are continuing to try to stimulate the economic and social recovery in the region about which the noble Viscount spoke. Christian Aid, for example, is trying to ensure that reconstruction takes into account the need to manage better natural resources and the environment, provide much-needed training in basic healthcare, create measures that will deal more effectively with natural disasters in future, and be concerned about the needs of women, children and the elderly. Even with all that, there is a growing consensus among aid agencies that policies aimed at stimulating economic growth must seek also to narrow the gap in social inequality that is perpetuated through structural financial discrimination.
Although Christian Aid has partner links with the Christian Commission for Development in Honduras—working on the ground and helping to reconstruct houses and rehabilitate health services in affected areas—the Church of England here, as a member of the Jubilee 2000 Coalition, has been trying to focus attention on the underlying issue of debt as a barrier to economic and social development in the affected states that is so much needed. As the Honduran ambassador to the United Kingdom pointed out:
"Honduras has no revenue to pay for both its debts and its reconstruction, not because of bad policies or because it does not wish to, but because that capacity was mortally crushed by a, force majeure".
The disaster means that the debt has become a noose around the nation's neck that is slowly being pulled more tightly.
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Last year's Lambeth Conference of bishops from the worldwide Anglican communion—many of whom have first hand experience to bring to our debates—called in a considered resolution for debt remission. This month, the Roman Catholic bishops of England, Wales and Scotland made a similar call. They rightly stated that
"the remission of unpayable debt of the world's most indebted countries was no longer an impossible ideal but a practical necessity".
That is certainly the case in the Central American region. Honduras and Nicaragua together owe more than 10.2 billion dollars. I hope that the Government, who I know have done so much, will address that issue and feel able to follow the example set by other European nations. Finland has recently written off 18 million dollars owed by Nicaragua. France and Spain have unilaterally written off the debt of affected countries. It seems that those nations need more than the three-year moratorium on loan repayments offered by the Paris Club. To many, that seems but a stay of execution rather than a serious determination to resolve the debt burden facing the region.
When the Minister replies, I hope that she will assure the House that the matter will be raised by our government at the G8 summit in Cologne. It needs concentrated international effort to encourage progressive reconstruction. I am sure that the Government will do all they can to play a full part in helping to achieve that.
7.58 p.m.
Lord Desai: My Lords, I thank the noble Viscount, Lord Montgomery, for introducing this important question, and we heard an excellent maiden speech from the noble Baroness, Lady Richardson of Calow. Unlike them or the right reverend Prelate, I do not bring any practical experience of relief work or development aid, but I want to make some general points. While we are very good at relief, we must now think in terms of recovery and development. We must think in terms of a different timescale and in different depth.
It is interesting that if a country falls into financial crisis as a result of bad bank lending, billions of dollars are found for that country, as we saw during the Asian crisis. I believe that a sum of 54 billion dollars was found for Korea following misbehaviour on the part of banks. Other large sums of money have been found for Mexico, Indonesia, and so on. It is peculiar to forgive, as it were, errors of commission, whereas, when countries have been visited by natural disaster of a great order about which they can do nothing, we have not found swift and generous ways of recompensing those countries for the cost of development.
Another aspect is that some argue that, owing to global warming, our weather is becoming more variable and we are subject to natural disasters with greater frequency than we have been used to. I agree with that view. If that is the case, we ought to take the Central American experience as a test case, and use it as a learning device to set up long-run generous permanent funding facilities for dealing with future disasters. The noble Viscount mentioned the World Bank and IADB. The UNDP should play a part. Wherever natural

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disasters occur we must have a double strategy: first of all, immediate relief, but then generous development aid to help with reconstruction. It has been done following wars and bad bank lending; but somehow we are unable to do it following a natural disaster. That lacuna should be filled.
Given that the Government have done such good work in development aid, both in terms of relief and in tackling debt, I urge my noble friend on the Front Bench to take up this call. It is not a question that requires an immediate answer, but we could take the initiative and state that this kind of fund should be set up; and we should begin with Central America as a test case. It is complex region, mainly agricultural. We could learn a large number of lessons in how to reconstruct economies.
Perhaps I may make a marginal reference to the noble Viscount's remarks about the WTO. I do not want to be involved in controversy, but I agree with him. It will be proved that no one will listen to him once I agree with him! These countries should not be reconstructed as they were; they should be diversified to some extent. We must grasp the opportunity to diversify many of the economies that have been over-dependent on a small number of crops such as coffee and bananas. In the course of reconstruction we should apply a diversification strategy, which would be good for growth.
Finally, I turn to a problem that was mentioned by the noble Baroness in her excellent maiden speech. Women frequently bear the excess burden of adjustment. Men may migrate; women stay behind and have to cope. Whatever strategy is adopted for recovery and the reconstruction of economies should be gender sensitive. It must look after the needs and responsibilities that women have to bear in that respect. I do not say that as a cliché. I refer, for example, to setting up lending facilities, work schemes, clean water and health facilities, education, or whatever. The prime focus should be on gender. That is also a good long-term development strategy.
I have spoken more about the long-term than the short-term strategy. I entirely agree with the remarks made by the right reverend Prelate in relation to debt. The large amount of private debt that Latin American and other countries had in the 1980s was "forgiven" by the market; it was equitised, and very often countries paid 10 cents in the dollar. The difficulty is that we cannot seem to forgive public debt. That is a paradox. When the market is more generous about debt forgiveness than governments, something must be wrong somewhere.
8.5 p.m.
Lord St. John of Bletso: My Lords, with world media attention currently focused on the plight of the Kosovar refugees and the uncertain future of the Balkans, it is opportune that the noble Viscount, Lord Montgomery of Alamein, has again given us the opportunity to draw attention to the plight of the devastated republics of Central America less than six
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months after Hurricane Mitch blew devastation through the region, leaving almost 19,000 men, women and children dead and missing and more than 5 billion dollars'-worth of economic damage. It was perhaps fate that Honduras and Nicaragua, two of the poorest countries in the western hemisphere, should have been the worst affected by the disaster. I wish to devote the few minutes available to me to those two countries.
In the debate introduced by the noble Viscount, Lord Montgomery, in the aftermath of the hurricane last year, three key issues arose. I refer first to the devastating effects on the agricultural sector as well as on the basic infrastructure of roads, rail, bridges and communications. The second was the question of debt relief, a vital issue in today's debate. Debt is effectively crippling the economic growth of many countries in the region. Finally, many noble Lords spoke about the measures taken by the international community to provide not merely short-term relief but sustainable reconstruction in the recovery of the region.
Clearly, apart from the huge international response, the private sector and NGOs have played an important role in efforts to restore stability and help recovery. It is encouraging to read and to hear from several noble Lords, particularly the noble Viscount, Lord Montgomery, who has visited the region, that there are signs of progress, in particular the repair of many important bridges and the fact that most areas now have clean running water. Apart from devastation to the agricultural sector, the basic challenge remains to provide long-term housing for the many thousands of families who remain without a home or a future. Her Majesty's Government have played an important role in providing financial assistance for the programme of rebuilding secondary roads and bridges, repairing water and sanitation infrastructure and restoring health and education services.
The key question posed in the wording of the Question is: what necessary action will be taken to facilitate long-term economic recovery in the worst affected regions? The noble Lord. Lord Redesdale, speaking in the previous debate on this subject, stressed the need for long-term sustainable economic recovery beyond merely restoring the devastated countries to the pre-Hurricane Mitch status quo. We all certainly welcome the announcement last month by the Paris Club to cut part of Honduras' debt service obligations by two-thirds and to defer all debt service payments until 2001.
Agreement with the International Monetary Fund on a three-year package of structural adjustment measures has given Honduras the chance of entry into a further plan to reduce the amount it owes to multilateral creditors. Damage in Honduras is estimated to be about three-quarters of its GDP. The finance minister was recently quoted as saying:
"I hope we can recover in 7 to 10 years—if we get private sector investment coming in, if we get trade benefits from the US, and if we get resources for reconstruction".
The stress is on "hope" and "ifs". Forecasts are that the Honduran economy will shrink to about 2 per cent this year and that growth in Nicaragua will be about 1 per cent. With the agricultural sector being the

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mainstay of the exports of both countries, large inflows of foreign aid will be needed to plug holes in their balance of payments.
An issue which has not been raised this evening is that of privatisation. Privatisation has played, and will continue to play, an important part in boosting reconstruction funds. Direct investment in the region in 1998 accounted for almost 2.8 billion dollars through privatisation alone. Both El Salvador and Guatemala have put their telecoms and power distribution sectors into private hands, creating a healthy cushion of foreign reserves.
The United States Government have recently launched a large second-phase aid package of almost 1 billion dollars for the hurricane relief programme. It is to be hoped that there will not be lengthy delays in Congress in the implementation of the programme.
My noble friend Lady Richardson of Calow, in her excellent maiden speech, referred to the recently established World Bank multilateral trust fund to help service debts of the worst affected areas. Can the Minister elaborate on the contribution that Her Majesty's Government have made to that fund and their plans to give to it in the future?
In conclusion, despite the laudable international relief efforts for the worst casualties of Hurricane Mitch, there is no doubt that life remains extremely precarious for many in the region. With the rainy season expected next month, there is much concern about future flooding. This year will be another exceptionally tough period as Honduras and Nicaragua continue the slow process of rebuilding their shattered economies.
8.12 p.m.
Lord Redesdale: My Lords, I, too, start by thanking the noble Viscount, Lord Montgomery, for initiating this debate. It seems that, because of his great expertise in the area, he initiates almost all our debates on South America. It is also a great privilege to welcome a maiden speaker. I very much hope that the noble Baroness will join us in many international debates. It is a small, happy and select band which usually takes part in debates on these issues.
The horror of Hurricane Mitch had a massive impact on the media at the time, although it was interesting to see how quickly the world's media forget such issues and move on to other things. This hurricane killed more people than any other hurricane in the western world in the past 200 years since records started. However, I was interested to discover that it was not the fiercest hurricane this century but ranks fourth in the league tables.
What made this hurricane so catastrophic and lethal was the fact that it was super-saturated. It has been calculated that the hurricane, which picked up evaporated water over the oceans, dropped 40 cubic kilometres of water—a quite horrendous amount of water—over Honduras, Nicaragua and parts of El Salvador over a period of two days. That was on top of the unusual amount of water that had already saturated
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the landscape and caused flooding. That was one of the reasons for so many landslides and the resulting savagery of the flooding.
Hurricane Mitch literally redrew the map, especially of Honduras. A project has been undertaken to withdraw the map of Honduras because whole towns and villages were either buried in silt or washed away. Even the coastline has changed. Rivers have altered course and a number of bridges and countless roads were disrupted by the numerous landslides.
The economic devastation was quantified by the noble Lord, Lord St. John of Bletso. The sector which was hardest hit was agriculture. That was not only because of the destruction of crops but also because of the unfortunate after-effect of flooding in which the agricultural land was buried under as much as two to three feet of sandy silt. I have seen pictures of fields being reclaimed. The only way to do that is to dig the silt off. That work is being undertaken by some of the larger companies, such as Chiquita, but that is of little help to many of the smaller farmers, who will find it extremely difficult to reclaim their land.
One of the crops which were hardest hit was bananas. I quote an interesting fact I heard recently, which may help in the WTO negotiations; namely, that bananas are not a fruit but the largest herb in the world. I thought I would throw that in, because it tickled me!
The economic devastation meant that reconstruction was needed. Looking back on the previous debate. I find it strange that we talked about debt relief as the most important thing. It shows how slanted our view of economic growth is that we do not talk about new money going into the area for rebuilding or reconstruction; we immediately look at how much the developing world owes us rather than at what 'we can give to it.
I had a number of questions which I wished to probe further, but my guns were spiked by a letter passed to me by the noble Lord, Lord Rea, written by the noble Baroness, Lady Amos, which set out Britain's contribution. For the sake of time, I shall not look at that issue again, but I should like to ask the noble Baroness whether she has any further information to add on Britain's contribution to debt relief.
The reconstruction in Central America and Latin America will owe much to one simple expedient; namely, the success of the Caribbean Basin Initiative. One of the problems that Central America faces is the trade barriers imposed by the United States on Central American goods. One way of kick-starting those economies after Hurricane Mitch could be to remove some of those trade barriers. That point could perhaps be brought to the attention of the Americans.
This debate is well-timed. I believe that on the 15th of this month the IMF signed an agreement with Honduras for a structural adjustment programme which will start the process of debt remission.
I should like to end by asking the noble Baroness a question about schemes relating to the environment. Hurricane Mitch was one of an increasing number of storms, which will hit again. Has the Minister any examples of schemes that the DfID is undertaking to

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reduce the effects of these storms. I read an account of work which had been undertaken at San Pedro, the second largest city in Honduras. Because of the work, that city managed to avoid much of the devastation. Without such work, the next hurricane will cause the same amount of humanitarian disaster as that caused by Hurricane Mitch.
8.18 p.m.
Lord Moynihan: The noble Baroness, Lady Richardson of Calow, sought our indulgence for an additional few weeks. She need have made no such request. Her eloquence, clarity of thought and sensitivity to the crisis in Central America made her maiden speech memorable. I am sure that it is those of us who participate in aid and development debates in this House who will be seeking her indulgence in the future. From these Benches, we offer her a warm welcome and our congratulations. I also thank my noble friend Lord Montgomery of Alamein for tabling this Question. This House last had the occasion to debate the situation in Central America in the immediate aftermath of Hurricane Mitch in December, once again as a direct result of my noble friend's abiding interest in and commitment to the region.
With the initial phase of search and rescue, the urgent delivery of millions of pounds of water, food, medicine, plastic sheeting and clothing to the thousands who lost everything in the hurricane now completed, it is critical that, as the international community seeks to direct its strategy and resources from the relief phase to the process of long-term reconstruction, compassion fatigue is not allowed to set in.
I take this opportunity once again to pay tribute to the non-governmental organisations which brought immediate emergency relief to the affected communities in the form of food, medicine and shelter, and to those still on the ground, where their efforts will be necessary for many years to come.
It is true that destruction breeds desperation, which in its turn can be the nurturer of crime and conflict. The international community therefore has far more than a passing interest in ensuring a region of strong, stable and prosperous democracies as a partner for trade and investment and in combating common problems, such as drug trafficking, corruption, illegal immigration and environmental degradation. It is in no one's interest if trade is allowed to contract, co-operation is allowed to lapse and a fertile environment is created so that crime, corruption and drug trafficking fill the vacuum left by the storm.
On that note, what action are the Government taking to assist the governments of Central America to ensure that Hurricane Mitch leaves one positive legacy to the people of the region by helping them to reinforce their renewed commitment to democracy, transparency and continuing reform? It is only in this way that the governments of Honduras and Nicaragua in particular will be empowered to grasp this opportunity from out of the jaws of adversity and not only rebuild but transform their institutions both politically and economically.
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This evening's debate provides a key opportunity for the Minister to set out the assessment of the Department for International Development of the long-term rehabilitation and reconstruction needs of the countries of Central America affected by Hurricane Mitch. What information can the Minister give the House on the DfID mission referred to earlier? The mission was due to visit Honduras and Nicaragua on 22nd February to look at possible long-term assistance and check on progress of the work being done as a result of Britain's £4.2 billion package, including work to rebuild roads and bridges, repair water and sanitation infrastructure and restore primary health and education services. The extent of work on epidemic control was also to be assessed.
The widespread loss of jobs is of particular concern in relation to the attempts to reactivate the region's economy. Does the Minister agree that the ability of the economies of this region both to restore jobs and to create new ones is vitally important? It must not be forgotten that more than 50 per cent of the population of Central America is under the age of 20.
In the Minister's view, what are the significant lessons on how better to co-ordinate international aid efforts that the Government have learnt from the tragedy? When will these lessons be implemented as a result of the review of the disaster preparedness programme that the department is considering? What specific elements to date have been included as part of the international recovery programme for Central American countries in order to help them improve their ability to withstand future disasters? The last point is particularly relevant and has been referred to by a number of noble Lords, not least given the predictions of Dr. Willoughby of the National Hurricane Center in Miami, which were referred to in the debate in December, that the conditions which brought about Hurricane Mitch could prevail again this year?
Does the Minister agree that the approach of the 1999 rainy season in Central America and the Caribbean poses enormous risks for the region? Is the international community now better able to respond in a more co-ordinated way? Without going into detail on debt relief—it has been well covered by many noble Lords who have spoken this evening—we on these Benches also welcome the Government's push for a stronger link between debt relief and poverty eradication as pledged by the Secretary of State, not least to be discussed this week as part of the IMF and World Bank 1999 spring meetings. Perhaps the Minister is in a position to report on progress achieved so far, for we must take the opportunity this week in Washington to ensure that debt relief is used more effectively as a tool of international development—debt development swaps are but one example—so that linkage really benefits governments who adopt policies that help the poor.
In conclusion, Hurricane Mitch took the lives of thousands of victims. We cannot allow it to take the future of the survivors as well. We cannot allow the fury of the storm to erode not just the topsoil in the region's flooded fields but the very fabric of society and its consolidation of democracy. We cannot allow the economies of the region to be undermined, for, if the

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international community fails to respond to this crisis in both the short and long term now that the television cameras have gone, these countries will be condemned to years of poverty and misery with massive setbacks to their social and democratic development. We shall all he the poorer if that is the lasting legacy of Hurricane Mitch.
8.26 p.m.
Baroness Amos: My Lords, I begin by thanking the noble Viscount, Lord Montgomery of Alamein, for again bringing to the attention of the House the plight of those affected by Hurricane Mitch. I also thank the noble Viscount for his support of the work of DfID. I also pay tribute to the noble Baroness, Lady Richardson of Calow, for a notable maiden speech. I look forward to her contributions in the future.
Hurricane Mitch may no longer be in the nation's headlines, but that does not mean that the people of Central America are no longer suffering from the mass destruction which was caused during that dreadful time. The UK has been active in offering support to those affected by the disaster. I can announce today that my honourable friend the Parliamentary Under-Secretary of State for International Development will be visiting Honduras and Nicaragua in July to see the reconstruction process for himself.
In the immediate aftermath of Hurricane Mitch there was an overwhelming need to provide humanitarian assistance. The Department for International Development responded to requests from carefully chosen organisations already in the country at the outset of the disaster. During the initial response a number of individual grants were given to NGOs and international organisations. I support the comments of the noble Lord, Lord Moynihan, who paid tribute to the work of NGOs.
A team from DfID visited the region earlier this year to assess the work that was being done with support from the UK Government. I should like to share with noble Lords the fact that DfID was praised from ministerial level down not only for the speed and appropriateness of its initial response but for the focus and level of its humanitarian assistance package. The speed with which the Royal Navy sprang into action was also rightly highlighted.
Noble Lords will be pleased to know that government Ministers in all the affected countries are currently preparing a portfolio of projects for a donors meeting in Stockholm scheduled for 25th to 28th May. It is encouraging that the proposals being prepared for Stockholm are oriented towards reconstruction and reducing vulnerability to future disasters rather than just patching up.
The noble Viscount referred to steps to facilitate economic recovery. The noble Viscount will agree with me that the economic aspect of recovery cannot be divorced from other aspects of human development. A strong economy depends on the strength of its component parts, including areas such as housing, infrastructure, health and education. It was in these areas that Britain opted to provide assistance in the transitional phase.
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Our programme to rebuild rural roads and bridges is a good example of a simple project helping to regenerate the economy. Many areas in rural Honduras have been virtually cut off since the hurricane, in many cases accessible only by donkey. Children in some areas were unable to get to school and doctors had difficulty in reaching patients. The local economy came to something of a standstill, as normal trade was next to impossible. Opening up access by repairing the road system and making the bridges passable again means that life can get back to something like normal. The project is also an income generator, as it employs local people, at least 20 per cent of whom are women, in groups of 30 at up to five locations on each road.
The noble Lord, Lord St. John of Bletso, mentioned the need for housing. In Honduras, DfID has been funding housing and micro credit schemes run by CARE International. The housing project will provide the materials for the basic houses, which will be constructed by families in groups of 10.
The micro credit project reflects the loss of a significant proportion of the pre-Mitch capital used by the poorest sector of the Honduran population, both urban and rural, to buy, sell, trade, and for general income. In order to reactivate household economies and jump-start the informal sector, CARE is making available small loans of between 75 US dollars and 150 US dollars per household. Working through community and solidarity groups, 3,000 families—that. is, about 15,000 people—will benefit directly from this initiative.
It is important that the reconstruction process is carried out in such a way that any hurricane of the future does not cause such massive destruction. That is why one of the studies we funded in the early days was for an organisation set up by the Central American presidents to advise on the best methods for reconstructing the countries to ensure they are better placed to survive in similar circumstances in the future. We are now considering further help for work on preparedness at a local level.
Several noble Lords, including the noble Lord, Lord Redesdale, mentioned agriculture. In addition to an emergency seed-planting programme in the weeks immediately after the hurricane, we have recently agreed a programme to help to regenerate agriculture in Honduras. The focus here is on putting local seed systems on a strong footing for the future and for assisting efforts at rehabilitating soil, which is now viewed as potentially more serious and threatening to the long-term viability of the food system than seed supply.
In Nicaragua DfID is supporting UNICEF's emergency programme to repair water and sanitation infrastructure and to restore primary health and education services for disaster-affected communities.
The noble Lord, Lord Moynihan, asked about epidemic control. The health project is aimed at preventing and controlling any outbreak of cholera or other transmissible diseases, particularly those affecting children. Given the importance of this sector, we hope to do more in the long-term reconstruction phase. We

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have just completed preliminary discussions with the pan-American Health Organisation and others on further work in areas such as disease prevention.
In education we have helped rehabilitate schools, given students back-packs and materials, equipped classrooms with desks and tables, and supplied schools with textbooks, maps, encyclopaedias and dictionaries.
Overall we plan to spend some £6 million in the region over the next two years on measures to help with long-term reconstruction, as well as the £3.2 million already spent.
In addition to those measures, we have also taken a number of steps on the debt front. I agree with the noble Baroness, Lady Richardson, that reconstruction and rehabilitation will take longer than two years. Nicaragua and Honduras have both received assistance with their current debt burdens, with bilateral governments agreeing to forgo debt payments for two years and donors helping these countries to meet their multilateral debt payments. Both Nicaragua and Honduras are classified as heavily indebted poor countries (HIPCs) and will be considered for debt relief under the HIPC initiative. A debt sustainability analysis will be done on those countries this year to decide the level of assistance for which they qualify.
The right reverend Prelate the Bishop of Blackburn spoke powerfully of the need to resolve the debt burden facing the region. A comprehensive review of HIPC is currently under way. I can assure noble Lords that we are pressing for revisions to HIPC so that it provides countries with a permanent exit from their debt problems, as it was designed to do, and so that sufficient resources are released early on by lower debt service payments to allow countries to tackle poverty more effectively.
The noble Lord, Lord St. John of Bletso, asked me about the trust fund. The UK Government proposed a trust fund to help Honduras and Nicaragua to meet their multilateral debt service payments and have contributed £10 million, now that the World Bank has taken up our suggestion. Total commitments to the fund now exceed 100 million dollars.
The noble Lord, Lord Redesdale, also mentioned the need for long-term investment. The Commonwealth Development Corporation has become increasingly involved in the region. The value of the programmes in the Mitch-affected regions has grown from £23.7 million in 1993 to £72.4 million in 1998.
We are currently looking at a number of options for continuing our work in the long term. These include work in reproductive health and disease surveillance, working alongside the United Nations Population Fund and the pan-American Health Organisation.
In mid May we will begin discussions with the regional technical assistance unit for agriculture which provides policy support to ministries of agriculture, natural resources and environment in seven countries of the region, and assist in preparation of investment proposals for funding by the World Bank and others.
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This reflects our long-term strategy for the region, which is to work alongside the multilateral organisations in order to give added value to their programmes and ensure that British influence is well felt.
The first example of this co-operation is a capacity-building fund for Central America which was signed in February with the Inter-American Development Bank. This is intended to strengthen the ability of local groups to run their affairs more effectively. It will be aimed specifically at the poorer sectors of society and particularly at those whose lives have been disrupted by Hurricane Mitch.
I would like to touch on three specific points raised in the debate, and I will write to other noble Lords whose points I have been unable to cover. The noble Baroness, Lady Richardson, mentioned the gift aid scheme. The scheme applies to British charities working overseas and I see no reason why it should not apply to Central America.
My noble friend Lord Desai mentioned the Asian social fund and the need to establish a fund for Central America. I assure the noble Lord that the consultative group process has brought together the donors in a very similar way.
I make only one comment on bananas, be they fruit or herb: in all the discussions we have made it clear that the UK is looking for a solution which is clearly WTO compatible, does not run the risk of WTO challenge and meets our responsibilities to the ACP suppliers.
It is not possible to underplay the horrors that face the people of Central America, yet they have responded magnificently. With the help of the international community much of life is getting back to normal, or as normal as it can be. Houses are being built and roads repaired; children are back in school and hospitals are functioning again. There is still an enormous amount to be done. Noble Lords can be assured that Britain will play its part alongside others in the process of recovery.

Tax Credits Bill
8.40 p.m.
House again in Committee.
Lord Goodhart Lord Goodhart moved Amendment No.13:
After Clause 2, insert the following new clause—
CHILD CARE ELEMENT
(". Regulations made by the Board under section 2(1)(c) shall provide that, in the case of a claim for working families' tax credit, where a married or unmarried couple is included in the family and one member is in employment and the other member is receiving education or training of a specified kind and for a specified period, the tax credit may include such credit for child care as may be specified. ")
The noble Lord said: The amendment raises a short and simple point. At present a couple cannot claim the childcare disregard for family credit unless both of them are working for at least 16 hours a week, or unless one of them is working and the other is incapacitated. Those requirements are to be carried over into the working families' tax credit.
There may frequently be cases where mothers have been bringing up children for perhaps 10 or more years and need retraining in order to get back into the workforce. However, their children still need care and the mothers may be unable to become retrained if they cannot afford to pay for childcare. Would it not be a good idea for a couple to be able to claim the childcare element in the working familes' tax credit in order for the mother to be retrained and get back into the workforce?
The amendment leaves matters as flexible as possible. It would be up to the Inland Revenue Board to decide, for example, the minimum period of retraining per week to qualify for the right of the childcare credit. The board could restrict the childcare credit, for example, to cases where training is directly related to a prospective job, and to exclude what I might loosely call recreational education. In principle, I believe that the amendment is clearly desirable. I ask the Government to give it favourable consideration. I beg to move.
Lord Skelmersdale: Immediately before dinner, we heard the main reason for working families' tax credit. If the whole objective of the exercise is to get people into work, one has to have a mechanism which encourages take-up of work. If one has that, some of those people whom one is encouraging into work will need education and training. I support the amendment.
Lord Higgins: As the noble Lord, Lord Goodhart, said, it is a simple and straightforward amendment. I hope that the Government will accept it.
8.45 p.m.
Baroness Amos: The new clause seeks to extend the childcare tax credit to couples where only one of the couple is in work but the other is in a specified type of education or training. The normal rules would require both the partners in a couple to be in work for them to be able to claim the childcare tax credit. In his introduction to the amendment, the noble Lord, Lord Goodhart, mentioned that the rules are the same for the childcare disregard in family credit and disability working allowance.
Working families' tax credit is primarily a work incentive measure. It might be argued that where one partner is in education, the childcare tax credit is a work incentive for the other to go out to work, a point already made. But, equally, where one partner in a couple is already in work, it would act as an incentive for the other partner to go into education instead of employment. That is not necessarily a bad objective but it is not the objective of this measure.
The common element in the examples is the entry of one of the partners into education, and increasingly we need to address the needs of couples with children who are in, or want to enter, education or take up training. The noble Lord, Lord Goodhart, said that that point is at the heart of the amendment. The national childcare strategy Green Paper, Meeting the Child Care Challenge, issued last year shows conclusively that these issues are being met by more money for the appropriate access funds. Those funds allow institutions
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to help such students, and more money has been provided for such funding since the Green Paper was published.
Channelling help through the childcare tax credit would provide help for families which had a worker in it but not for families without a worker—for example, because both are students, or one is a non-earner., or the student is a lone parent. I can assure the Committee that the Government are alive to the problem. The issue remains under review. But the Government do not think it necessary to provide the key to change through primary legislation. The details, such as the rules for eligibility, are in secondary legislation and they could be changed without the new clause.
Social security provision is not available to the majority of full-time students because social security is not intended to support people who are studying full time and are not therefore available for, or able actively to seek, work. I repeat. The working families' tax credit is primarily a work incentive measure. On that basis, and on the basis of the commitment of the Government to review the problem, I ask the noble Lord to withdraw the amendment.
Lord Higgins: Perhaps I may intervene before the noble Lord, Lord Goodhart, replies. We are naturally interested in the reply we have received. Can the nook Baroness give some indication of the amounts involved under the arrangements to which she referred for training and education compared with the amounts as regards childcare under the amendment? I presume that an individual may receive the benefit whether there were or were not children. However. there is a different. problem for those with children, even though they receive the same financial help as regards training.
The noble Baroness refers to secondary legislation. I find that somewhat surprising. The Government have been extremely good in providing drafts of the relevant statutory instruments. Can the noble Baroness indicate under which aspects of the statutory instrument it would be possible to extend the scope of the Bill in the way the noble Lord seeks. I find it slightly surprising. I should have thought it was more appropriately achieved by primary rather than secondary legislation.
Baroness Amos: With regard to childcare credit, the figures are £70 of £100 for the first child; and £100 of £150 for two children.
Students have access to loans. There is a standing weekly disregard of £10 on loan income. Any amount specifically included in a full-time student's grant for books and equipment is disregarded. If no amount is specified, a standard amount—currently it is £295 a year—is disregarded. Where a student is in receipt of a standard maintenance grant of £1, 180—it is slightly more in London—the amount currently disregarded for travel is £166 a year or £256 if the student lives in the parental home and travels to his or her educational establishment. If a student were to receive by way of grant any other amount specifically for travel, that amount would be disregarded. From the start of the 1999–2000 academic year, in order to reflect the changes in student funding, the disregard on hooks, equipment

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and travel which currently applies to grant income will be applied to student loan income for new students to ensure that they are not financially disadvantaged by the new arrangements.
Lord Skelmersdale: The noble Baroness has totally and utterly confused me. Under educational law, what childcare help will the grant system give to a man, or more usually a woman, who has a working partner and goes out to be trained or retrained?
Baroness Amos: I understand that, it does not give them specific childcare help in that instance.
Lord Higgins: Will we be given an answer on the statutory instrument point?
Baroness Amos: Was that the point about primary as opposed to secondary legislation?
Lord Higgins: The noble Baroness's reply indicated that the provisions which the noble Lord, Lord Goodhart, seeks to write into primary legislation could be achieved by means of secondary legislation. The Government have efficiently provided the Committee with all the relevant statutory instruments in draft form which are involved in the Bill. Consequently, if the noble Baroness is saying that the change can be achieved through secondary legislation, where can we find provisions which can be altered to meet the noble Lord's point?
In any case, is it not more appropriate for the change to be made through primary legislation? It would seem extraordinary to do so by secondary legislation and it would be undesirable when we now have the opportunity to do so through primary legislation. No doubt the noble Lord, Lord Goodhart, may have other points to make.
Baroness Amos: The point I made about secondary legislation is that the Government are currently looking at other mechanisms to support parents who wish to return to full-time training. I mentioned specifically the Green Paper on childcare, which provides for access funds which institutions can use to encourage and enable individuals to return to education and training. However, if in the context of the review which the Government are undertaking it was perceived that such a change would be useful in the context of legislation currently before Parliament, we could look at Regulation 46.
Lord Higgins: I am not clear what Regulation 46 is. We have in front of us a number of draft regulations. Is the noble Baroness referring to secondary legislation under this Bill or under some other primary legislation?
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Either way, which clause in primary legislation enables the Government to do what the noble Baroness suggests?
Baroness Amos: It is Regulation 46 under this Bill. It deals with issues such as eligibility criteria. Perhaps I can assist the noble Lord by writing to him specifically on this point.
Lord Goodhart: I must confess that I find the noble Baroness's reply most disappointing. Obviously, the amendment is not intended to cover all people, particularly women, who require retraining in order to gain access to jobs. It can deal only with women who have working husbands because the WFTC will, by definition, apply only to couples where one partner is in a job.
Within its limitations, the amendment is desirable. Obviously, some women who have been out of the workforce for a number of years now feel able to return. After such a time they may need retraining because the work involved may have changed. That happens in many jobs. It seems to me that in those circumstances it would be desirable not only to claim the childcare credit when the mother has returned to part-time work, say, but also to pay for childcare during her training to rejoin the workforce.
I believe that there is an overwhelming case for allowing the mother to receive the childcare tax credit while she is retraining and I am extremely disappointed that the Government were unable to respond positively, particularly as the whole purpose of WFTC is to increase incentives to work. The amendment is targeted precisely on getting people back into the workforce. I do not mind whether the change is made through primary or secondary legislation. If the Government were satisfied that they had the necessary powers to do so by secondary legislation and were prepared to give such an undertaking, I should be completely satisfied. But they are nowhere near that; they talk only about further reviews and have made no commitment to accept either primary or secondary legislation which will deal with the issue.
I shall not press the matter any further on this occasion, but I repeat that I am extremely disappointed. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Goodhart Lord Goodhart moved Amendment No.14:
After Clause 2, insert the following new clause—
WORKING FAMILIES' TAX CREDIT: CLAIMANT
(". Regulations made by the Board under section 2(1)(c) shall provide that, in the case of a claim for working families' tax credit, where a married or unmarried couple is included in the family, the claim shall be made by and payment shall be made to whichever member they agree should so claim and, in default of agreement, shall be made to the member having the principal responsibility for care of the children of the family. ")
The noble Lord said: This is a much more important amendment. It is the first of a series dealing with the payments which should be made through the wage packet and the payments which should be made directly by the Inland Revenue. The Government accept that

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some payments should be made directly. First, there is the case where an employer has no contact with the Inland Revenue because he does not deduct PAYE or National Insurance contributions from his employees' wages. Secondly, there is the case where a couple agree that the tax credit to which they are entitled should be paid to the non-working partner. In any event, payments have to he made directly by the Inland Revenue to the self-employed where there is no employer to provide the wages packet. That means that a substantial proportion of those entitled to WFTC will receive it directly.
We on these Benches have said that we do not like the Bill and we voted against it in the other place. However, we accept that in this House the Government are entitled to have their Bill. Therefore, we shall not support any changes which are wide enough to be regarded as wrecking or near-wrecking amendments such as would be a right for either all employers or all employees to opt out of the payment through the employer.
But since the Government have accepted in principle that in some cases it is legitimate for payment to be made directly rather than through the employer, we do not regard it as in any way improper to try to expand the categories where payment is to be made directly if there are reasonable grounds for doing so and if those changes do not go to the heart of the Bill.
In our view, Amendment No.14 falls within the category of changes to the Bill which it is legitimate to make and cannot be regarded in any sense as a wrecking amendment. It raises the purse-to-wallet issue. It has long been recognised that the best way of helping children in poor families is to get money into the hands of the mother. That is why child benefit is paid to the mother and that is why, until now, family credit has been paid to the mother. Both the Child Poverty Action Group and MENCAP want that system to continue.
I was tempted to table an amendment to provide that WFTC would go automatically to mothers in the case of couples. as Amendment No.16 in the name of the noble Lord, Lord Higgins, provides. I was reluctant to do that because I accept that, to a large extent, that would destroy the main purpose of the Bill to secure a general practice of payment through employers. But the Government have rightly accepted the principle that WFTC can be paid by the Inland Revenue to the caring parent rather than by the employer to the working parent if the partners agree.
9 p.m.
Lord Higgins: Does the noble Lord accept that the choice of how a person wishes to receive the payment does not constitute a wrecking amendment?
Lord Goodhart: If the noble Lord, Lord Higgins, waits a little longer, he will see that what I propose is that in the case of couples, there should certainly be a choice. if they both agree, and ultimately, there should he a fall-hack position in favour of the caring parent if they do not agree. Therefore, in substance, I accept that.
As I said. I do not wish to see the payment go automatically to the mother without any element of choice on the part of the parents. But, as I said, the
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Government have accepted that WFTC can be paid to the caring parent if the partners agree. it should say that I am not entirely happy even with that because it leaves open the possibility of consent being obtained by intimidation. But it is certainly better than nothing.
What is the situation if the couple cannot agree? The draft regulations, which I have seen, simply provide:
"In the case of a claim for working families tax credit, where a married or unmarried couple is included in the family, the claim shall be made by whichever partner they agree should so claim".
There is no default position there at all. By contrast, the corresponding regulation for income support provides that, in default of agreement between the partners, the claim is made by whichever partner the Secretary of State shall, at his discretion, determine. So if there is no agreement, it then goes to the Secretary of State to decide which of them is to receive it, in line, no doubt, with established principles.
In March, the Inland Revenue published a memorandum to say that where there is a dispute between the partners about which of them should be paid and the application for payment comes from the partner who mainly cares for the children, it will consider exercising its powers of care and management by accepting the application even though that application is technically defective.
What does that mean? It means that the Government are deliberately creating a lacuna in the legislation and then proposing to fill that gap by disregarding their own regulations. There is only one possible reason for that; that is, that the Government want to make sure that the mother's right to compel payment of WFTC to herself is kept firmly off the face of the regulations so that she is less likely to become aware of her rights.
That impression has been strengthened greatly by the draft application forms which I have now seen. The claim form itself does not make it sufficiently clear that it must be signed by the claimant's partner as well as by the claimant. That will lead to many defective forms, most of which will result merely from a failure to understand that both partners must sign and not from any disagreement between them.
The explanatory leaflet makes it clear that both parties must sign. It states:
"Your partner will have to fill in his or her details and sign the declaration at the end of the form".
However, it does not say what happens if the claimant's partner does not sign that document. If I were reading that leaflet without any background knowledge, I should certainly draw the conclusion that if the clairnant's partner does not sign, there will be no tax credit. No idea is given by the leaflet that if the caring parent makes a claim and the working parent refuses to sign, the caring parent can still receive the tax credit. That is contrary to the Select Committee's recommendation that payment should normally be to the partner at home but that the claim form should allow payment through the pay packet if both partners prefer.
The Government are trying to run with the hare and hunt with the hounds. They are telling the poverty organisations that in cases of dispute the caring parent will receive the money while they are doing everything

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they can to conceal from caring parents that they have the option to secure the tax credit payment to themselves.
On Second Reading, I said that the Government's proposed method of dealing with that issue was unacceptable. I repeat that. It is more than unacceptable: in my view, it is unlawful. The Inland Revenue's duty of care and management would make it possible to dispense with a second signature on a claim form, no doubt, if it was due to an oversight. But if the regulations provide simply that the payment goes to whichever partner the couple agrees, I believe there is no power in law to pay the credit to one of them in the absence of agreement by both. It is a clear principle that regulations cannot be set aside by reliance on the powers of care and management; nor can they be set aside, as the noble Baroness, Lady Hollis of Heigham, suggested at Second Reading, by reliance on ministerial Statements, either in this House or in the other place.
I have to say, with great regret, that I believe the Government's handling of this particular issue has been disgraceful and that they must include a default provision in regulations. If they refuse to do so, I believe it should be written on to the face of the Bill. I beg to move.
Lord Astor of Hever: I support the amendment moved so ably and eloquently by the noble Lord. Lord Goodhart, and speak also to Amendments Nos.16, 17 and 18.
There has been widespread concern that by paying the WFTC through the pay packet, the credit could be transferred from the woman—normally the main carer in the family—to the man. The TUC stated in its 1999 Budget submission:
"There is a real danger that the WFTC will fail to replicate the success of Family Credit if the wage packet is to be the primary means of delivering the tax credit and this kind of payment system is also likely to divert assistance away from the primary care giver in the family".
There are roughly 300,000 couples currently receiving family credit in which the man is the principal wage earner. Under the WFTC, that could mean that £900 million would be going to men rather than to women. The Low Pay Unit has pointed out that there is:
"a real fear that the benefit currently paid to the principal carer, the mother, will now he transferred to the father's wage packet, which may adversely affect the family budget".
The National Association of Citizens' Advice Bureaux told me that recent research found that money paid directly to mothers is more likely to be used to meet family needs while men use some of the payment as personal spending money. A recent CAB case in Buckinghamshire of a married Asian woman with two young children is an example of the problems that can occur. Her husband was employed but did not pass on any money to her for household expenses. Her only income was child benefit of £20 and family credit of £30. The CAB commented that if family credit was to be replaced by tax credit paid to her husband, the only income under her control would be the child benefit. It seems highly unlikely that she would be able to insist on a new credit being paid to her.
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In practice, many other women may be unable to assert their wish to receive the cash, and those most in need of exercising the choice for cash payments could be the least able to exercise it. The Government said in their manifesto that they wanted to help families. They stated:
"We will keep under continuous review all aspects of the tax and benefit systems to ensure that they are supportive of families and children. "
As so much evidence suggests that less money will be spent on children as a result of the Bill, will the Government reconsider their approach so that the WFTC is paid to the primary care giver in the couple. which would normally be the mother? I am most interested to hear the Minister's reply.
Baroness Lockwood: I have always supported the principle of child benefit being paid to the mother. I certainly accept the comments of the noble Lords, Lord Goodhart and Lord Astor, that where benefit is paid to the mother there is a better chance that it will be spent on the children.
However, the Bill is about a completely different principle. The amendments of the noble Lord, Lord Higgins and the noble Lord, Lord Astor, go to the very heart of the purpose of the Bill, which is to encourage people on benefit into work; that is, to encourage into work those who at present are unemployed jobseekers or those people not looking for work because they feel it is not worth their while to do so.
We need to look at two groups of people in this category. First, there are the lone parents; and, secondly, there is that group of men who seem to opt out of the labour market and often out of the system as a whole. I want to consider those men, particularly the younger men, some of whom have family responsibilities but who have nevertheless grown up in a society where it is not expected that they should go out to work. Something drastic must be done to encourage those young people into work. One of the objects of the Bill is to do just that.
The other group are the lone parents. Again, as my noble friend the Minister said in an earlier debate, lone parents constitute the largest group of people in poverty and we need to do something to encourage them into work. It is a fact that once people move into work, particularly women and even if it is low-paid work, they gain confidence after a period of time and begin to move up the wage scale.
Lord Goodhart: I am grateful to the noble Baroness, Lady Lockwood, for giving way. In a situation comprising a working man and a non-working woman, where the woman says she does not want the money to go to her partner because he will spend it on drink and she will not have it to spend on the children, is the noble Baroness saying that in those circumstances the tax credit should go to the man and not to the woman?
9.15 p.m.
Baroness Lockwood: The trouble with this debate is that nobody is prepared to wait until an argument is developed. I shall certainly come to that point.

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The point I was making is that there is evidence to indicate that the entry wage for people who are unemployed is much lower than the going rate for people already in employment. For example, the average wage of all new entrants is £4 per hour, compared with £5.80 per hour for workers generally; for men, the entry wage is £4.53 per hour, compared with £6.92 for workers generally; and for women the entry wage is £3.66 compared with £4.97.
We can see from those figures that there is a real problem that, when people are re-entering or entering employment for the first time, as is the case with some young men, their wages are much lower. Therefore an incentive is required to get them into work and the purpose behind the Bill is to give that incentive to people generally and to those with whom I am particularly concerned: that is, women lone parents—they make up the majority of lone parents—and young men who appear to be opting out of the system.
Amendment No.14, as the noble Lord, Lord Goodhart, says, is within the terms of the Bill, but the amendments tabled by the noble Lords, Lord Higgins and Lord Astor, go to the heart of the Bill. I therefore oppose those amendments. At Second Reading I pointed out that 50 per cent. of the recipients of the present family credit system are lone parents; 25 per cent. are women in a married couple; and, of the remaining 25 per cent., some are covered already by the Bill but there are other groups about whom we need to be particularly concerned.
At Second Reading my noble friend assured me that, where there was a dispute in families—the point raised just now by the noble Lord, Lord Goodhart—between husband and wife or between the partners, then the wishes of the woman partner would be given priority. I also asked my noble friend on Second Reading what would be the situation as regards women where the choice went by default. I do not believe I received a clear answer to that question. Nevertheless, I should like to press my noble friend on the point. If no choice is put down on the form, will the payment be made to the woman?
There is another ill-defined group. It is perhaps a small group. but one which could cause great concern. I have in mind the situation where not only is there a difference between husband and wife but there is also violence in the family and the woman dares not speak out. Can my noble friend the Minister say whether there are any proposals to try to monitor that situation and ensure that some protection will be given to such women?
The whole question of passport benefits, which is relevant to this matter, will be considered under later amendments. However, if my noble friend could not only give us assurances but also tell us that the draft form is available for revision, I believe she would set our minds at rest. I must say that I agree with the noble Lord, Lord Goodhart, that the form is not as clear as it should be. Indeed, I have made some scribbles on my form as to how it could be improved; for example, by making clear in the brief notes at the top that there is a
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choice between husband and wife, that the payment can be made directly or through the husband's pay packet and, indeed, that both parents must sign the form.
As I said, the whole form is not as clear as it ought to be and I have noticed some other technical points in that respect. However, if we could have some assurances from my noble friend that the form can be amended so as to make it much clearer, I believe we would all feel much happier.
Baroness Fookes: I rise to intervene briefly because I am aware that Amendments Nos.16, 17 and 18, which I support, cut across the Government's intentions and, therefore, are not likely to get very far. However, I would be failing as regards my sense of responsibility if I did not place on the record once again, as I did on Second Reading, the fact that, in my view, these payments ought to go to the mother or to the principal carer, if by any chance that is the father rather than the mother. I realise that this is not what the Government want, but I still believe that this is by far the best way to do it. These three amendments attempt to put this into practice in the Bill.
If the Government are not prepared to accept any of the latter amendments, I recognise that Amendment No.14 is a reasonable compromise. At the very least, hope that the Government will be prepared to accept it, or something along those lines, if Amendments Nos.16, 17 and 18 are unacceptable.
Lord Swinfen: I too should like to express my support for Amendments Nos.16, 17 and 18. I believe that the mother should receive this credit. After all, she is the one who is looking after the children 90 per cent. of the time.
There is one further matter upon which I should like some clarification. Amendment No.14 refers to an "unmarried couple". I have with me one of the draft application forms that the noble Baroness was kind enough to let me have—namely, WFTC6 version 4. Ori page 4 it refers to,
"a woman and man who live together as if they are married and you (one of you if you are a couple)",
and then goes on to specify certain conditions. However, for the purposes of this Bill, I want to know the definition of a couple who are living together. We all know that a man and woman who get married immediately constitute a family. If they have children. that is all well and good. However, if the man takes a mistress and has children by that mistress, does that. constitute another married couple? He may have that mistress for years and a second family. What is the position if a man and a woman live together and have children without getting married? How long do they have to stay together to be considered a married couple?
I know that some relationships where people do riot go through a formal ceremony of any kind will last a lifetime. I am happy with that. I would class them as married couples. We know that today so many so-called couples who may or may not have children stay together for months or years at a time. They may form unions with other people of the opposite sex and possibly have

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other children. Where is there a definition in any legislation to cover this point? Who can make a valid claim for the working families' tax credit? It is quite possible—this is known—for a man to have a whole series of partners, to none of whom he is married (although he may have married the first one), and have children by each of them. What is the position?
We are becoming terribly nebulous. We talk about couples the whole time, but often we are not talking about married couples with a legal responsibility that society as a whole can see. Can the Minister help me on this point when she replies? Are there any legislative provisions or court rulings which enshrine the position in common law?—because at the moment it strikes me that I could go off with all kinds of different women, although my wife would be furious, as she has put up with me for 36 years and I think I owe her something. In fact I owe her a great deal.
Baroness Hollis of Heigham: You owe her everything!
Lord Swinfen: I would like to think so. She is my everything, I know that. As I say, the situation seems to me to be terribly nebulous. I never quite know where we are on this point.
Lord Skelmersdale: I was rather surprised to note on the Marshalled List Amendment No.16 in the name of my noble friend as I thought we had all agreed on Second Reading the first part of the amendment in the name of the noble Lord, Lord Goodhart; namely, that,
"the claim shall be made by and payment shall he made to whichever member they agree should so claim".
I am sure that the noble Baroness and the Government have no problem with that. We also learnt something on Second Reading, slightly by default, from a comment made by the noble Baroness, Lady Lockwood, who said:
"I understand that if there is a disagreement between husband and wife, the wife will receive the benefit". —[Official Report, 12/4/99; col.536]
She was not disabused by the Minister. Therefore I assume that that is the correct position.
I return to the amendment of the noble Lord, Lord Goodhart. We have not got far away from the fact that, in default of an agreement, payment,
"shall be made to the member having the principal responsibility for care of the children of the family".
As has been said by my noble friend and the noble Baroness, Lady Lockwood, in 99.99 per cent. of cases, that person will indeed be the lady of the family. Therefore I do not see why the Government should have any problems in accepting the amendment of the noble Lord, Lord Goodhart, at least in principle.
I have commented on Amendment No.16. Amendment No.17, which stands in my noble friends' names, states:
"Where there is only one earning partner in a married couple the Board shall ensure that any tax credit shall be paid to the non-earning partner".
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That rather goes across the whole purport of the Bill as it has been explained to us at great length—both today and on Second Reading—and no doubt will be explained again. That is not to say it is wrong. I recognise the noble Baroness's position on that.
Amendment No.18 states:
"Where a couple is entitled to working families' tax credit the credit shall be paid to the principal carer in the couple".
That is exactly the same as the second half of the amendment of the noble Lord, Lord Goodhart. Again, I have no difficulty with that. I hope that we shall hear from the noble Baroness that she has no difficulty with the amendment of the noble Lord. Lord Goodhart.
9.30 p.m.
Baroness Hollis of Heigham: Perhaps I may respond to Amendment No.14, which has been moved by the noble Lord, Lord Goodhart, and deal with it last, as well as to Amendments Nos.16, 17 and 18 which have been spoken to by the noble Lord, Lord Astor, and supported by noble Lords on his Benches.
I start by repeating what my noble friend Lady Lockwood rightly said and what the noble Lord, Lord Skelmersdale, suspected I would say. The tax credit is not about support for children as such. Support for children is highly desirable—child benefit does that; child maintenance may do so—but this is about a credit paid essentially through the wage packet to the main earner, if that is his choice, such that we increase work incentives while, at the same time, because it reflects family shape, size and necessities, supporting families. In other words, it is not a benefit in the traditional sense, whether income support or whatever, which is automatically paid to the carer for the support of children. That is not the purpose of this tax credit. Its purpose is to produce an incentive to work, as my noble friend rightly said, and to top up an entry wage to make it a more attractive return for moving into work; a more attractive return for working for longer hours and higher pay. That is its purpose. I hope that all the rest of what I shall say will be understood in that context.
I do not disagree with the points made by the noble Baroness, Lady Fookes, about, for example, the need to look after children or, as my noble friend said, the need to protect women in situations of domestic violence. I share all of those concerns. That is not the purpose of this measure. I certainly join other noble Lords in seeking, as my noble friend said, to avoid any situation in which there is domestic violence, emotional pressure or emotional blackmail in such a way that women within marriage cannot exercise their appropriate rights. I assure my noble friend that the Government have an "across the waterfront" concern about domestic violence. We shall continue to keep the matter under review through the "Ministry for Women", which is located in the Cabinet Office, and we work with the DoH and within my own department to this end. Obviously a good deal of domestic violence is by definition invisible and therefore is not easy to track. I can assure my noble friend that the Government treat domestic violence with zero tolerance.
This group of amendments—whether they are wrecking amendments is arguable: some I suspect are—concern how we propose to handle disputes. As I said, my

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noble friend Lady Lockwood has made the point for me about the credit for work. The amendments press points about the difference between the two tax credits—working families' tax credit and disabled person's tax credit—the role of marriage and, most fundamentally, why we believe that giving couples the choice of who is to be paid is the best way forward. I cannot accept the amendments as they stand.
I shall deal, first, with Amendments Nos.16, 17 and 18, spoken to by the noble Lord, Lord Astor, which do away with choice in various circumstances, and then, in responding to the amendment of the noble Lord, Lord Goodhart, I shall expand on the disputes procedure. I shall try to address his real concerns on that point.
Amendments Nos.16 and 17 seem to disregard the differences between the two tax credits. They suggest that we should treat WFTC and DPTC in similar ways. They propose that the money should go to the carer of the child even if, for example, the earner has qualified by virtue of his disability, is receiving DPTC and there are no children involved. Your Lordships would be wise to keep those two benefits uncoupled because they have different pedigrees and functions. Those differences are not new. They exist currently with family credit and disability working allowance. Working families' tax credit, like family credit, is help for a family whereas disabled person's tax credit, like DWA, is help for an individual who may or may not be married, may or may not have children. They are very different benefit structures in that respect.
In DPTC, an application could come from an individual who is not responsible for any children, so there has to be a special lower basic tax credit. As with DWA, lone parents are eligible for the higher basic tax credit, which puts them on the same basis as lone parents claiming WFTC, which was one of the misconceptions that crept into the Second Reading debate.
DPTC, as with DWA, goes to the disabled individual and is payable to the working individual even where there is a couple. It contains elements to help support children in the relationship and money to help with childcare costs. DWA is not paid to the woman, nor to the caring partner, but to the disabled worker. Disabled person's tax credit will follow that tried, tested and accepted practice—as recognition of the degree to which disability hampers or caps earning potential. It is effectively a partial incapacity benefit, so it would be absurd to talk about paying it to carers or the non-working partner. It is for a disabled person.
The first two amendments would change that by forcing DPTC payments to be given to the woman or partner who stays at home, even where there are no children. That would be wrong. DPTC provides disabled workers with additional money that allows them to take work or continue in work at lower 'wages or, more realistically, for shorter hours by virtue of their fatigue or disability. It has always been accepted that that is the right way to handle those payments, even though, as with WFTC, there may be embedded support for children.
Tax credits, like the benefits they replace, do not distinguish between marriage and any other relationship. The noble Lord, Lord Swinfen, asked what would happen
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in the case of somebody who had a series of relationships, and he questioned the difference between marriage and a couple living together. It is clear in DSS regulations, DSS case law and common law—and the courts have enshrined this—that a couple cohabiting and living as husband and wife are for benefit purposes treated as a household. That means they share household finances and probably sexually cohabit.
If they do not share household expenses but have a series of relationships of the sort described by the noble Lord, I suspect that in some cases the woman would be a lone parent with a live-out boy friend. That would not be a household in DSS terms. A household is where a couple live together, married or not, as though they were husband and wife. As to a man who might be having a relationship simultaneously with his marriage, the presumption there is that the other woman is a lone parent with a live-out boy friend. I hope that makes the situation clear. That is precisely why so much income support fraud occurs. A lone parent continues to claim as such but actually has a live-in boy friend helping to support her. All that is well established in law and we know what makes for cohabitation and what counts as a couple.
If a lone parent cohabits, she loses her benefit and is treated as a dependent on his benefit because they form a household. If we did not treat them that way, a lone parent who cohabited would be privileged over a lone parent who remarried. I am sure that the noble Lord, Lord Swinfen, would not want that to happen. Marriage is not as prevalent as it was. Even where children are involved.. one third are now born outside marriage. Therefore, it is necessary for tax credits to look at the world as it is—of unmarried partners or of couples—when considering the money coming into the family. The noble Lord's distinction would be to the disadvantage of formally married couples.
If the amendment were pressed, there would be first and second class families. Unmarried couples would have free choice of who should receive the tax credit because, in the noble Lord's view, they would not count as a family. Married couples would always have it paid to the woman or in the case of the second, more PC amendment, to a non-earner. That would disadvantage marriage still further. Neither amendment is acceptable in the present day. The thrust of the amendments, taken together—even if noble Lords do not accept my argument that this provision is about producing a work incentive but wish to apply it to the carer—suggests that it is the woman who always cares for the children and the carer is the non-earner. We can no longer assume that that is always the case.
These amendments are simply anachronistic. They belong to a different generation. Some women both work and care for the children. Nowadays, 71 per cent. of married women work. In some couples, it will be the man who cares for the children while the woman works. In a quarter of couple families on family credit, a woman is the main wage earner. Often, the man may be disabled and she is his carer, but he may appropriately supervise the children. He may be self-employed, working from home and also caring for the children while the woman works outside. The amendments impose on the wide patterns that now exist, of sharing

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work and sharing care for children, a pattern that belongs back in the 1950s which probably now applies to only a tiny fraction of the households that make up our society.
Amendment No.18 would require WFTC to be paid to the carer when the application is from a family comprising a couple. In that situation, the couple's choice as to whom the credit should be paid would be replaced by a rule that the payment must go to the principal carer, whether they wished it or not. Couples would have to decide who was the principal carer. Yet, as I have argued, increasingly both partners work and share responsibility for the children. There would need, quite unnecessarily, to be detailed rules to cover all possible circumstances. If the money had to go to the principal carer, who would make that decision? If the Inland Revenue decided who was the principal carer, would the decision be based on pay, hours worked, detailed questioning as to who does the school run? It would be highly intrusive. But if the couple were to decide who was the principal carer to whom the money should be paid, that would be no different from the present situation; namely, the couple can make a choice as to whom it is paid. The amendment either denies the couple choice or requires the Inland Revenue to be intrusive; and it is redundant, because the couple already have a choice as to whom the money is paid. So the main objection to these amendments is that they replace choice with rules.
At the same time as your Lordships wish to offer lone parents a choice as to how they are paid, that is to be denied to couples and the credit paid to the mother whether the couple wish that or not. It is not even clear whether the mother is the main carer; nonetheless, it would be the mother. The whole bundle of amendments is inappropriate in this day and age.
I appreciate that noble Lords aim to ensure that there can be no dispute in the relatively rare cases where the couple cannot decide who should receive the tax credit. But surely it is right that, as far as possible, the couple should make that choice for themselves. I appreciate that there may be concern in some families that the earner may treat the tax credit as his or her own—the example of drunkenness has been given—the extra money in the wage packet being reflected in extra housekeeping for the partner. But that will happen with all the moneys going into that household, including his wage. At the end of the day it is a decision for the couple how they apportion their moneys.
If the concern is mainly about how the tax credit is used by families, we must examine carefully the wording of the amendments. Accepting them would mean that the help given to families by the WFTC is presumed to be supporting the children and payment with better wages cannot achieve that. That is not entirely so for WFTC, and it has not been so for family credit. I repeat. The introduction of WFTC is a work incentive measure to make work pay. While it is focused on families with children who need the help most and who may need higher wages so that their wages are enough for them to live on, the specific help for children is through child benefit, which the Government have
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increased well above inflation and which continues to be paid to the mother. We believe that it is sensible to trust couples to make the decision for themselves, as I am sure they will, and to provide a safety net for those rare occasions when they cannot agree.
The key principle is that WFTC is money for the family, and we expect there to be no difficulty. There could be a number of factors that may be taken into consideration. One or both partners could be working, either employed or self-employed. For those who are employed, the frequency with which the employer pays wages may be a factor. We believe that they should decide for themselves. But in cases, however rare, when families cannot reach an agreement as to which partner is to receive the tax credit, we decided early on how best to respond. As the parliamentary Answer given by my honourable friend the Paymaster General made clear, in cases of dispute of this kind, the tax credit will be paid to the partner who mainly cares for the children.
Copies of the latest draft of the application form have been seen by Members of the Committee and have been quoted tonight. They show that the way in which couples will exercise their choice of which one of them is to receive the tax credit is to decide at the very outset which one of them is to complete the form as applicant (filling in the left-hand column). Drafts of the form and the guidance notes have been sent to a wide range of interested organisations. The approach has been broadly welcomed and comments have focused on making the implications clearer so that the family's choice is better informed. The comments have been reflected in the latest version of the form and the accompanying notes.
I am happy to say that we shall continue to review the form to make clearer what happens in a situation of dispute or default. It is not likely that that will be done by October. In any case, in October payment will continue to be made in the same way as family credit and so the situation will not arise. It will certainly he done by next April.
I hope that the noble Lord will accept that, in terms of the information accompanying the form, we shall take on board the comments about making clear what happens should there he a dispute and what the default procedure should be. That information will be built, as far as possible, into forms and guidance. We shall have to consult on this matter, but I listened to the Committee about the need to make that information clearer.
I now turn to Amendment No.14. The new clause seeks to require regulations to provide that a couple claiming WFTC should be able to choose which of them should apply for and receive the tax credit but that where there is no agreement it should be paid to the carer. I am delighted to say that, as we made clear at Second Reading, the amendment of the noble Lord, Lord Goodhart, is redundant because that is what we shall be doing.
While the regulations cover the choice, they do not include the procedure for resolving disputes where partners do not agree who should claim—and therefore receive—the credit. The reason for that is simple. We believe that they will sort it out by themselves. If they cannot, we expect the Inland Revenue to exercise its

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duties of "care and management- under the tax credit system and, exceptionally, allow the WFTC application form to be signed by one, rather than both, partners.
The noble Lord, Lord Goodhart, pressed me as to the standing of the care and management vis-à-vis regulations which appear to push to the contrary. He was concerned as to whether the care and management responsibility could legally and legitimately override regulations which indicated, to the contrary, that to be valid the form had to be signed by both partners.
The dispute procedure is an exception to the normal rules, which require that both partners sign to say that the information on the application form is complete and correct. An administrative practice is the most efficient way to handle the exception. A more formal approach, by setting down rules in legislation, would be very complex. It would be difficult to cover all the relevant circumstances without leaving the rules open to abuse, and we do not think that that is appropriate.
A formal legislative approach would have to provide a way for the family's income to be reported by only one partner. Clearly one partner is unlikely to know all the necessary details, and even in family credit, which is portrayed as the woman' benefit—or the mother's benefit—the man sti 11 needs to help complete and to sign the claim form.
The administrative procedure copes with this by acknowledging that, quite exceptionally, the Inland Revenue gives up some of its ability to investigate errors properly by allowing only one partner to be involved in the application. That is why it needs to be handled under "care and management". This overruling by "care and management" is not a unique position. For example, the Inland Revenue can and does decide not to collect £10 of tax because it costs £200 to collect it. That is done in terms of "care and management".
The Inland Revenue needs information about the earnings and savings of both partners in a couple because working families' tax credit is based on family income. There may be situations when an application is sent in, signed by the applicant alone, but which shows that there is a partner in the household whose circumstances need to be taken into account for the correct award to be calculated.
WFTC rules require the forms to be signed by both partners, just as with family credit. We anticipate that, as with family credit, this should not cause any problems in the majority of cases and that, as currently, the majority of applications—of which there is a tiny percentage—from couples with only a single signature will be because there has been a simple oversight, in which case the form will normally be returned.
Where an application is received from a couple but signed by only one partner and there is some indication that the reason for its being completed in this way is because there is a dispute between the partners, the form will be followed up rather than returned. We expect this to he very rare. Officials cannot remember half a dozen cases in family credit over the years.
The Inland Revenue will follow it up by contacting the partners directly to confirm that the dispute is about which of them should be paid and that the application
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has come from the partner who mainly cares for the children. Where both conditions are fulfilled the Inland Revenue will consider accepting the application, although technically it will be defective. The details on the applications form may not have been provided by both partners. Only the applicant certifies that the application form is correct and complete. It may be wrong. Consequently, the award will be inaccurate. The absence of a second signature limits the extent to which the Inland Revenue will be able to follow up and correct errors subsequently.
In cases where the Inland Revenue may consider accepting a defective application—one with only a single signature—it will ask the partner to confirm that all the relevant information known to the applicant about the applicant's own and the partner's circumstances has been declared. The application will be subject to a detailed check and risk assessment before a decision is made whether or not to accept it. Where the Inland Revenue finds no evidence to suggest that the application is materially incorrect or incomplete, it will be processed as if it had been signed by both partners. The award will be determined and paid to the applicant. Where the Inland Revenue considers that the application is materially incorrect, the procedure will not be applied. The form will be returned on the ground that has not been fully completed because it lacks the partner's signature.
As consultees have suggested, the form and guidance notes set out what needs to be considered by a couple when making the choice. More recent comments have suggested further changes which refer specifically to what happens in the case of a dispute or tell applicants where to go for help. We are looking at these. We very much hope that we shall be able to embody them to the satisfaction of all concerned in the forms that go out as of next April. In addition, the working families' tax credit helpline is always available and our guidance will be made public.
We believe that the procedure that we have developed correctly addresses the need to deal with cases where families cannot agree on which partner should receive the tax credit. We think that it is right that it should be handled administratively. It will enable the Revenue to cut to the heart of the problem and resolve it efficiently and effectively, and it has been generally welcomed.
To conclude, it will be paid through the wage packet if both agree; it will be paid to her if both agree. A form which lacks his signature may be taken as valid, but a form which lacks the woman's signature cannot be. If there is only one signature and it is his it will be investigated. If it is a simple mistake which is corrected it will be paid in the normal way, if they agree: but if there is a dispute, ultimately it will be paid to her. If there is only one signature on the form—hers—and it reflects a dispute as opposed to an error, it will also be paid to her.
I hope it is clear that there is a choice for it to be paid to the woman as opposed to the working partner or carer. If he wishes it to be paid to him but she wishes it to be paid to her and the form is signed by only one of them, but it is clear that it is not an oversight and it is by

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choice, the matter will be investigated. If it is a dispute it will be resolved with the presumption in favour of the carer.
I apologise to the Committee for giving a rather long explanation but it appears to me to be important given that this is perhaps one of the two big issues at the centre of the Bill. I felt that I should spell it out in some detail at this stage so that noble Lords can reflect on it and decide whether they wish to return to other issues at Report stage.
Lord Goodhart: I am extremely grateful to the noble Baroness for that explanation. I am also grateful for the support that Amendment No.14 has received from all parts of the Committee. I apologise to the noble Baroness, Lady Lockwood, for being too quick off the mark and not quite appreciating the direction in which she was moving.
I welcome the movement that the Minister has made on this issue as far as it goes. It does not, however, remove my concerns on this matter. The noble Baroness has set out extremely clearly what the position will be, and that will be reported in tomorrow's Hansard.
Unfortunately, members of the public who are potential recipients of WFTC will not, in all probability, have the opportunity of reading what the Minister has said. While what she has said is satisfactory, in my view it must also be made clear to those who need to know what their rights are. That is why it is extremely important that the claim form and explanatory leaflet, or at least one of them, should express, as clearly as the noble Lady expressed it tonight, what the rights of the caring member of the couple are in the event of a dispute. Those rights are not adequately explained now. It is unfortunate that we will not have an opportunity to see the claim form or leaflet of instruction until after the Bill has become law. We cannot therefore know, when deciding whether or not to pass amendments, what that claim form will be.
I was by no means persuaded of the Government's reasons for not including any provision dealing with default on the face of the Bill. It is very unsatisfactory that a matter of principle of this kind should be dealt with by the administrative practice of the Inland Revenue and not provided for on the face of the regulations. I am not suggesting that it should be included in the Bill because undoubtedly the regulations would be a better place to include it, but we do not have the regulations.
I am extremely doubtful whether the care and management powers of the Inland Revenue would extend to treating as a settled practice something which could and should be stated on the face of the regulations. My mind would be very much more at ease if the noble Baroness were to seek legal advice on whether the care and management powers of the Inland Revenue enable it to do what she proposes. That advice could then be explained to noble Lords at Report.
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Obviously, one does not wish to divide the House late at night.
Baroness Hollis of Heigham: I understand that this matter has been worked through with the Solicitor to the Inland Revenue, so legal advice has indeed been taken to sustain the position I have outlined on care and management.
Lord Higgins: I should like to make the same point as the noble Lord, Lord Goodhart: it should be the Law Officers who provide the advice.
Lord Goodhart: I should like to see some advice that has come from outside the department. I agree with the noble Lord, Lord Higgins, that there should be appropriate advice from the Law Officers or some independent counsel instructed by them. I would be very much happier if, when we come back at Report—and I shall be putting this amendment down at Report—we could see the independent advice on the validity of what is proposed before I decide whether or not to seek to divide the House at Report stage. Obviously, tonight is not the appropriate occasion to divide the House, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 agreed to.
10 p.m.
Clause 4 [Special provision for certain contacts]:
On Question, Whether Clause 4 shall stand part of the Bill?
Lord Higgins: This is probing in the strict sense of the word. The Minister has been helpful both in responding after Second Reading and in arranging meetings with officials to discuss specific points.
I have a recollection that at some stage in our discussions with officials a particular issue arose on this clause which I had not immediately perceived. Am I right in thinking that there is no ramification which is not apparent on the face of the clause?
Baroness Hollis of Heigham: I think that the noble Lord is saying that he put down the amendment, he cannot remember why he did so, and will I please tell him. In that case, I cannot help him because I believe that the Bill is a model of clarity.
Lord Higgins: I have no wish to press the matter further.
Clause 4 agreed to.
Lord Rix Lord Rix moved Amendment No.15:
Before Clause 5, insert the following new clause—
FUNCTIONS OF BOARD: DISABLED PERSON'S TAX CREDIT-REVIEW OF ENTITLEMENT
(". The Board shall conduct a review every two years of entitlement to the disabled person's tax credit and issue recommendations to the Secretary of State. ")
The noble Lord said: Before I speak to the amendment, perhaps I may pay tribute to my noble friend Lady Darcy de Knayth. Even at this late hour, and with all the problems she may well have in arriving at your Lordships' House, she always remains to speak to any amendments concerned with disability. She is a superb example of what can be done by a disabled person on behalf of disabled people and I should like to pay her every tribute in that respect.
This is a general amendment. It is not dissimilar to Amendment No.63, which will be moved by the noble Lord, Lord Freeman. It asks the board to review the eligibility criteria for the disabled person's tax credit at least every two years, and makes recommendations known to the Secretary of State. I believe that that should be on the face of the Bill because a formal system of monitoring will help with the efficiency and effectiveness of the scheme.
The Minister explained that she expects take-up of the disabled person's tax credit to double compared with take-up of the disability working allowance. I am pleased with that level of expectation. However, the noble Baroness does not say over what period of time, so I believe that careful monitoring is essential.
What differentiates my amendment from that of the noble Lord, Lord Freeman, is that I also request the Government to re-evaluate their policy, in particular with regard to eligibility criteria. The Government should not leave unchecked the predicament of those who move from welfare to work only to find that loss of housing benefit means the loss of up to 96p of every pound earned. I also urge Ministers to consider again the policy of including family income in the tax credit means test. As I mentioned at Second Reading, I believe that the disabled person's tax credit should go some way to compensate for the employment limiting effects of the individual's disability and should not be viewed as an alternative way of supporting family income. I beg to move.
Baroness Darcy de Knayth: I warmly support my noble friend's amendment. First, I thank him for the eulogy, but point out that I am a night owl. If he wanted me to turn up early in the morning for a meeting I would not be half as reliable.
A serious evaluation of the scheme would be welcome by the employers concerned and by disabled people. I have one question for the Minister to answer and I hope that her reply will be helpful and encouraging to my noble friend. Does she expect the Disability Rights Commission to have a part in monitoring the performance of DPTC and the effect of other benefit changes in supporting disabled people?
Baroness Hollis of Heigham: The amendment seeks to specify that the Board of Inland Revenue should carry out a review into entitlement to DPTC every two years. I have every sympathy with the sentiments behind the amendment. The Government believe that DPTC will provide much needed help and work incentives for people with a disability who experience difficulty in moving into work. We are obviously anxious to ensure that the DPTC achieves this. The benefit being replaced,
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the disability working allowance, has largely failed. Only one quarter of those we expected to do so have taken it up because it failed to provide a sufficient incentive to work and it did little to help people who became disabled to stay and work. That is why vie are seeking to change this by introducing DPTC.
Noble Lords will already have seen that DPTC will be more generous, with lower tapers, higher thresholds and improved help with childcare costs. But of course we want to do more if we can and if it will help. That is why we are consulting with various interest groups to seek their views on possible options.
One outcome has already been announced by the Chancellor of the Exchequer in his Budget package. It is a fast-track gateway to DPTC to help with the retention of staff disabled while working. Someone who was on the employer's payroll and being paid statutory sick pay can be assessed for DPTC without first having to drop out of work entirely on to a qualifying benefit, which is incapacity benefit or DLA. In other words, DPTC will allow someone to stay in work. We know that if such people are not kept on by their existing employer they find it difficult to find any other employer. I am sure that when I have the pleasure, probably at the Report stage, of bringing forward an amendment to make that commitment explicit, I will have the support of the entire House. At that stage, DPTC will be able to act as a partial incapacity benefit for someone working and disabled while in work and needing to reduce their hours or pay accordingly.
Another way forward which we intend to use, and which answers some of the concerns raised, is that of piloting some of the changes. The Tax Credits Bill builds on existing social security legislation. Within that, there are provisions for piloting changes. In response to organisations such as RADAR, we shall be exploring that. In addition, we are backing our proposals with the one-year linking rule we introduced last October and extending the 56-day rule for DWA to six months in which people may find work.
I was asked by the noble Baroness, Lady Darcy de Knayth, whether this would be monitored by the Disability Rights Commission. It will depend on the review and how it is conducted, but the Disability Rights Commission is there to ensure no discrimination. It is clear that under Clause 7 and the appropriate schedule there could be a case if the Disability Rights Commission believed that there was discrimination against a disabled person. That is my understanding, but if I am wrong I will write to the noble Baroness and to other noble Lords. Normally, social security benefits as such have not been matters for the equivalent of the Disability Rights Commission. Essentially, it is about active discrimination in employment practice, transport, housing, financial services and the like. However. I can conceive of circumstances in which discrimination applying to someone who seeks DPTC may subsequently become part of the remit of the Disability Rights Commission. In general, I would not expect that it would be because that is not what the Disability Rights Commission was set up to do. However, if I can be more helpful to the noble Baroness, I shall return to that matter. For example, if the Disability Rights

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Commission felt that a type of employer was discriminating continuously against people who should receive payment under this provision, there would be an opportunity for the commission to look at that matter. We can explore that later. I can see that it may have a part to play but, for the most part, as the noble Baroness will know, the Disability Rights Commission is doing a different job.
I hope that all I have said reassures the noble Lord, Lord Rix, that we shall keep fully under review the need to monitor and improve DPTC. Many noble Lords will want to track it and to see whether it is doing what we hope it will do; namely, to improve take-up of the benefit. In that light, I ask the noble Lord to withdraw the amendment. It is not only redundant. My main criticism is that it does not go far enough.
Lord Higgins: I thought initially that the noble Baroness was going to accept the amendment. Will she clarify one point as regards passport provisions for the disabled?
Baroness Hollis of Heigham: Which passported benefits does the noble Lord have in mind?
Lord Higgins: Prescription charges, if that is appropriate.
Baroness Hollis of Heigham: At present, one is entitled to free prescriptions if one is in receipt of DWA, and the same situation applies to family credit. Both of those issues are being considered in the light of the much more generous financial terms of DPTC and WFTC.
Lord Rix: I welcome the Minister's assurance that the scheme will be adequately monitored in terms of its effectiveness. I welcome too the possibility of looking forward to a government amendment on Report. I am glad that the Minister mentioned the pilot schemes in relation to RADAR and the possible involvement of the Disability Rights Commission.
Before I withdraw the amendment, will the Minister clarify whether the operation of the means test will be re-evaluated, in particular in view of the take-up of the credit?
Baroness Hollis of Heigham: Is the noble Lord asking that if the DPTC does not have the take-up we hope and expect we should review the basic income-related element within it? Is it on that which the noble Lord is pressing me?
Lord Rix: In truth, I am asking whether the means test, which includes the family income, will be re-evaluated?
Baroness Hollis of Heigham: I believe that the noble Lord is asking me whether we shall assess the eligibility for DPTC solely on the income of the disabled person and disregard that of the spouse or other income coming into the household.
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I know that that has been pressed by the disability organisations. In the past, benefit entitlement has been household-based. Obviously, we keep such issues under review but at present I should not expect income of other members of the household to be disregarded when looking at eligibility for disability benefit. It is clear that it can go to a single person and is not affected by other income. But where disabled people receive the higher benefit by virtue of the fact that they have a partner and a higher benefit still by virtue of the fact that they have children it would be unreasonable to disregard that on the income side. That is the position at present.
However, experience will show us whether there are problems with this disability benefit, as there was with DWA. We shall continue to look at it because we want to make this benefit a success. The previous well-intentioned efforts by government in relation to DWA, which we all supported, have failed. We hope that we are meeting the problems of DWA but if there are new problems we must return to the matter and consider those problems.
Lord Rix: With the assurance that the means test will be re-evaluated from time to time in the future, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 5 [General functions of Board]:
[Amendments Nos.16 to 18 not moved.]
Lord Higgins Lord Higgins moved Amendment No 19:
Page 3, line 1, leave out subsection (2)
The noble Lord said: It may for the convenience of the Committee if I speak also to Amendments Nos.22 and 25. This is a fairly narrow and technical point. I am simply slightly puzzled. This clause is, of course, concerned with the care and management of the board, which was referred to earlier by the noble Lord, Lord Goodhart. Subsection (2) of that clause, to which Amendment No.19 refers, is concerned with the payment of the revenues received by the department to the Exchequer. I am not clear as to why that is necessary; nor indeed am I clear as to why the department is apparently receiving tax credit, which is dealt with in Amendment No.22, rather than giving it up.
As I understand it, the whole thrust of the Bill is that the Inland Revenue will be disbursing money, not collecting it. More particularly so far as subsection (2) is concerned, I am a little puzzled as to why it refers to the gross revenues of the department. One would expect it to refer to the net revenues. Perhaps the Minister could clarify that point.
10.15 p.m.
Lord McIntosh of Haringey: I am slightly taken aback to hear the noble Lord describe this as a narrow and technical amendment. I thought that he was going to open up the whole range of issues debated with Amendment No.1 regarding the accounting procedures of the Government, which might have been debated in Opposition time at the last budget debate. As it turned out, they were not. I suppose that means that I should

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cut out my eloquent defence of government accounting policies, just as I had to cut it out last time, as nobody attacked me. I am becoming rather blasé about that now.
I have to take the three amendments as a whole and look at their total effect. I understood that the intention of the amendments was to criticise the accounting treatment of the two tax credits and to require them to be treated as if they were benefits. On that, there is clearly a philosophical disagreement between the Government and the Opposition which was aired at some length in the discussion on Amendment No.1.
These amendments, practically, would not work. Amendment No.19 would prevent the Revenue from paying tax credits out of the money they take in. Amendment No.25 would require the Revenue to apply to Parliament for the necessary money by way of a vote. However, Amendment No.22 would not require it; in other words it would remove the requirement that it reflects all of the money in its accounts.
I do not know whether that was the intention of the three amendments but we have to have doubts about whether they would work in practice. I always laugh at counter aphorisms. My favourite has always been Wittgenstein's, "That's all very well in practice but we ought to see how it works in theory". These amendments make clear, as has the debate this afternoon and that in another place, that our difference is a philosophical one of considerable importance. We take the view that these are tax credits administered by the Revenue. They are paid through the wage packet, where their effect will be to reduce or eliminate the tax burden, and, having done that, to augment wages so that those who get it see more clearly that it pays.
There may be more specific concerns about the implication of the treatment we are adopting. I understand that there are concerns about how the Government present their figures compared with how they need to be presented in the national accounts. However, as this has not been drawn into question, all of my defence of net taxes and social security contributions in table B9 of the Red Book is no longer appropriate.
Suffice it to say that the way in which we treat this in the Red Book is not wrong; it is just different from the national accounts. As the Treasury Select Committee made clear in its report. what is important is that we should be transparent about the way we produce our accounts. That is, indeed, as Andrew Minot recognised in his evidence to the Select Committee, what happens in the Green Book.
The issue of accountability still arises. If we are netting the tax credits from tax receipts rather than coming before Parliament specifically to ask for money, it is argued that the Government are less accountable for what they do. That is simply not the case. The board of revenue will be paying out tax credits, but there will be occasions when it will have to collect—that is, receive—amounts of tax credits which have been wrongly paid perhaps because of fraud. So the Bill has to provide for paying and receiving tax credits. The difference does not have any philosophical significance.
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The Bill amends the Inland Revenue Regulation Act in subsection (5) of this clause to require the board of Inland Revenue to separate out the tax credits and present them separately. That is a rigorous requirement. In fact, one might express surprise that it has not been done before. At the moment, benefits are grouped together and estimates put forward for the purposes of the "vote" by the Department of Social Security or any other department. But the Inland Revenue does not just have to produce a reconciliation on a sample basis; it has to ensure that nothing has gone wrong and that the accounting systems are more thorough, because, unlike a vote, the Inland Revenue needs to track payments to and from employers.
If there are concerns about whether there is enough control and parliamentary scrutiny, I hope it will be seen that this is a good deal more effective in the separate report which the Inland Revenue will have to produce than the Consolidated Fund Bill, which is never debated properly in another place and, by tradition, is not debated at all in this Chamber.
I claim that the procedure we have adopted and which would be removed by these amendments is sensible, fair and transparent. It is also the practical way to proceed because it fits in with the way in which employers deal with tax credits and their payment obligations. Employers withhold PAYE tax from their employees and from that pool of money will pay some of their employees the right amount of tax credit. That handling of tax credit on the basis that they are fungible with the employee's tax is fundamental to the administration of employer payments.
Separate records will be kept and each payment will be capable of being accounted for. But in practice the tax credits will be paid out of tax receipts and it is only sensible to follow that through in the way we propose: in the Bill.
Lord Higgins: I am somewhat mystified. I am not sure if I lured the noble Lord into a sense of false security. His reply seems to be based on Amendments Nos.21, 23 and 24, to which we have not yet come. I certainly expect to raise the question of accountancy treatment of these matters at that stage, but I was seeking with these amendments—and with Amendment No.19 particularly—to clarify the position with regard to the question of why subsection (2) of Clause 5, which says it has been netted off before it is paid in, is necessary. Also, I was not quite clear as to why they would be receiving amounts in respect of tax credits. They would presumably be receiving amounts in respect of tax credits that had been wrongly paid. If that is the purpose of subsection (c), I understand that. But, as this is about administration enforcement, I did not think it raised the broad issues the noble Lord was surprised I did not raise with him.
We shall come to the accountancy points a little later and on those we shall need to pursue the matter. I was simply puzzled as to why it was necessary to have

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subsection (2), which, in order to raise the matter, I sought to delete, in order for the matter to operate correctly.
Lord McIntosh of Haringey: It was because the effect of these amendments taken together would call into question the whole way in which we propose to deal with the issue. If I had followed the noble Lord in taking a narrow and technical view, I should have been doing less than justice to the effect of his amendment.
As I said, Amendment No.19 would prevent the Revenue paying tax credits out of the money it takes in. That would be madness. Money would come from the Revenue to the employer in order to pay tax credits while, at the same time, money was coming from the employer to the Revenue in payment of his PAYE and national insurance contributions obligations. That is why we are doing it by netting out and that is what Amendment No.19 would make impossible.
Amendment No.25 would require the Inland Revenue to apply to Parliament for the necessary money by way of a vote. As I explained, a much better way to do it is the way we actually propose; that is, to have the detailed accounts which the Inland Revenue has to produce every year and on which this would be a separate account. Paradoxically, Amendment No.22 would remove the obligation on the Inland Revenue to reflect the money in its accounts. That is why I took the amendment more seriously than the noble Lord appears to take his own amendment.
Lord Higgins: I take the amendment perfectly seriously. However, I will need to consider carefully what the noble Lord has said and study his response. We are clearly somewhat at cross purposes here. It is perhaps a little late at night to pursue the matter in detail. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins Lord Higgins moved Amendment No.20:
Page 3, line 13, at end insert ("and the Board's officials shall be responsible for calculating the tax credit due to individual employees and informing the relevant employers of the tax credit to which their employees are entitled")
The noble Lord said: This is rather an important amendment in contrast to the previous one. We are concerned here with the fact that the board's officials should be,
"responsible for calculating the tax credit due to individual employees and informing the relevant employers of the tax credit to which their employees are entitled".
This reflects an undertaking which the noble Baroness gave at an earlier stage in saying that employers need not worry about working it out because they would be told precisely by the Inland Revenue how much was to be paid to individuals.
I have to confess that, originally, I did not quite understand the way in which the matter operates at present. In reality, I believe that both the previous and the new arrangements involve calculating the amount of what I would like to call benefit but what I am sure the
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Government would term as "tax credit" to be paid on a 26-week basis rather than on a weekly basis. That will raise some further questions with regard to cash flow, and so on, as regards later amendments.
The noble Baroness has assured us that all this will be worked out by the Inland Revenue and that it will inform employers exactly how much to pay out as regards each individual. Indeed, the Revenue will do all the calculations, and so on, and the information will arrive on time so that the employer can take it into account and make the necessary payments.
In other parts of the Bill we come across a complicated system about netting it off, which means that the other receipts that the employer is receiving by way of national insurance contributions or, indeed, income tax are netted off against the tax credits to which some people will be entitled. One of the points which concerns us is whether in reality, given the recent problems with computers, it will be feasible for the Inland Revenue to carry out these functions. However, perhaps the Minister can tell us whether it is to be done on a 26-week basis rather than on a weekly basis; or, indeed, whether it is to be dealt with in some other time period.
Clearly, there will be a problem as regards small business, especially as regards cash flow. I know, for example, that the CBI and others are concerned about whether the Revenue will succeed in making these complicated adjustments and in informing companies of them on time. There is clearly a danger of delays and errors occurring which will impose a considerable cost on business.
Further, will the Minister confirm that the overall effects of making these calculations and asking employers to pay the relevant amounts to individuals will not have an adverse effect on cash flow, even though the matter is "netted off' as it were? I think I am right in saying that at the moment there is some benefit to the employer—however, the noble Lord has more practical experience of this than I—as regards the collection of NICs and tax because they have the use of the money before it is remitted. However, the effect of "netting" this off will nonetheless mean that, overall, the cash flow of companies will be worse than it is at present. Perhaps the noble Lord will confirm whether that is the case. Those are the main points which arise here. There are other points concerning cash flow which arise on later amendments and it may be more appropriate to pursue them when they arise. I beg to move.
10.30 p.m.
Lord McIntosh of Haringey: I dread the thought of being once more at cross purposes with the noble Lord because what he describes as rather an important amendment is one which I believe is totally unnecessary. However, he has quite reasonably and properly used the amendment to give me an opportunity to explain how this measure will work. He asked me some specific questions on how we can be sure that any money will arrive on time and for reassurances with regard to the 26-week period and cash flows. I am happy to give those assurances.

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As to the necessity for the amendment, the Bill already provides that responsibility for calculating the tax credit payable will be with the Inland Revenue from October 1999 onwards. Clause 2 transfers the functions of the DSS in relation to family credit and DWA to the Inland Revenue. So there can be no question of employers being asked to calculate the tax credits payable to their employees. Indeed, Clause 6(2)(a) makes clear that the Revenue will provide employers with notification of their employees' entitlement.
Let me explain how the scheme will work. From October 1999 a special unit of the Inland Revenue will assess all applications for WFTC and DPTC, making 26-week awards as appropriate and notifying applicants accordingly. just as the Benefits Agency currently does for family credit and DWA claims. This procedure will remain unchanged after April 2000 when employees start to receive their tax credits through the payroll.
From April 2000 the Revenue will continue to make assessments of WFTC and DPTC and will continue to pay the credits direct to self-employed and non-earning applicants. But, where the applicant is an employee, the Revenue will make initial payments direct and will notify the employer—giving enough notice for any payroll adjustments—when to start paying tax credit, how much to pay and when to stop. The notification that will be given will depend on how frequently the employee is paid. The employer will usually be expected to take responsibility for paying tax credits for weekly paid employees 14 days after a notification is sent by the Revenue for weekly paid employees and 42 days after a notification is sent by the Revenue in all other cases. Employer representatives have discussed this matter with the Inland Revenue at length and they are satisfied that these notice periods are adequate for all normal payroll cycles. Even where non-standard payroll cycles are used, it has not been possible to identify any cases where they will not be adequate. During the initial 14 or 42 day period the Inland Revenue will make direct payments Therefore, that process will have no cash flow implications.
The start notification will include the daily rate of tax credit to be paid, together with a table of 1 to 31 multiples of the daily rate. So all the employers will have to do is read off from the table the amount of tax credit due, according to the number of days for which they are responsible in a pay period. Employers will simply be carrying out Revenue instructions and will not be responsible for assessing the level of the award.
The noble Lord asked me three questions. He asked me whether the payment would arrive on time. I think I have answered that. He asked me about the 26-week period. I think I have answered that. His third question was about cash flow. In around 90 per cent. of cases, as far as we can estimate, the cash flow implications are that, as the noble Lord suggested in his opening speech, there will be a netting off of some of the money due from the employer to the Revenue for PAYE and national insurance contributions.
The noble Lord was kind enough to remind the Committee that if was responsible for a payroll for nearly 30 years. I can tell him that that was the easy part. It is the VAT return that is the real nightmare for a small employer. Nevertheless, the
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noble Lord is right to say that there is a cash flow benefit, particularly to a small employer, in the gap between the time when he collects the PAYE and the NIC arid the time when he has to pay it out to the Revenue. The noble Lord is right: to say that there will be some reduction in that because the employer will be paying out a little more. There will be a reduction in the positive cash flow benefits of the employer's relationship with the Inland Revenue. It is not possible for us to calculate in advance what that will be. but it will be relatively small and it will be for a small minority of employers. We consider that, in terms of the implied contract between employers and the Inland Revenue ever since the setting up of PAYE, this is not an unreasonable change.
In the minority of cases where the PAYE and the NIC payments are not enough to cover the tax credit, payment will have to be made by the Revenue to the employer. There will be a responsibility on the employer to notify the Revenue of the amount that will have to be paid. We estimate—this again is the result of consultation—that, if a claim is made nine days before the payment date, the employer will get the money three days before the employment date. Those consulted and the Government consider that to be a reasonable bargain.
I hope that I have answered the detailed questions set out in the noble Lord's introduction of the amendment.
Lord Higgins: I am grateful to the noble Lord for his clear exposition. He said that the money will be paid three days before the employment date. Will refunds be paid by cheque and will those cheques be paid three days before? Secondly, the noble Lord said that there will be an adverse effect on the cash flow, or, more accurately, a reduction in the favourable effect on the cash flow, of the employer's relationship with the Revenue for some small firms and for a small number of firms. I am not clear why that does not apply to all firms. Thirdly, he said that the individual recipient of the payment—I use a neutral term—will be informed as to how much he is entitled to and that the employer will be informed. Will the Revenue tell the recipient and the employer? If it is both of those, part of the argument that one can see it in the pay packet is presumably somewhat eroded. We need to consider that point. We shall need to consider carefully what has been said on the administration of the system—
Lord McIntosh of Haringey: I would like to answer those three points, so that they do not arise again. The timing of the payment from the Revenue to the employer, where one is due, depends on whether or not automatic transfer is available. If not, notification will have to be made quite a lot earlier, because cheques will have to clear through BACS in a rather more complicated way. The number of days required depends on how efficient is the firm's credit transfer system.
When I said not all firms will be affected. I meant that not all firms would have employees receiving tax credits. Clearly, all firms which have tax credit employees will be affected—but that is not all firms.

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The notification to the employer will be as I described in detail. The notification to the employee will take the form of an entry in his or her pay slip.
Lord Higgins: I need to study carefully what has been said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins Lord Higgins moved Amendment 21:
Page 3, line 14, leave out subsection (5) and insert—
("(5) The amounts—

(a) of the several payments made by the Board of or in respect of tax credit;

(b) of the expenses of paying and managing tax credit; and

(c) received by the Board in respect of tax credit,

shall be set forth in the accounts of the Department of Social Security, distinguishing in each case between amounts relating to working families' tax credit and amounts relating to disabled person's tax credit. ")
The Deputy Chairman of Committees (Lord Dean of Harptree): If this amendment is agreed to, I cannot call Amendments 22 and 23, by virtue of pre-emption.
Lord Higgins: Amendment 21, with which it would be helpful to consider Amendment 23, is one to which I thought the Minister had given an answer earlier. It suggests that the number of payments,
"made by the Board of or in respect of the tax credit; [or] of the expenses of managing and paying tax credit; and [the amount] received by the Board … shall be set forth in the accounts of the Department of Social Security, distinguishing in each case between the amounts relating to working families' tax credit and amounts relating to disabled person's tax credit".
It is simply an argument for transparency and I hope that the Minister can give a reasonable response. I beg to move.
Lord McIntosh of Haringey: I am glad that I am not being invited to go over the philosophical argument again. If we are concentrating on transparency, I can give the noble Lord the assurance that he seeks.
The amendments would remove the tax credits from the accounts of the Inland Revenue and place the information in the accounts of the Department of Social Security or in a separate report that is to be laid before the House of Commons. Neither option represents a sensible way forward in properly reporting tax credits.
The noble Lord thinks that because credits build on the benefits they replace, they are benefits in another guise—but they are not. The noble Lord argued on Second Reading that because the credits do not go as far as they would have done under the Green Paper with which he was involved in 1972, they are not proper tax credits. The difference is that these credits are going to work and the noble Lord's Green Paper did not take effect.
In the hands of the employer, the tax credits will be intimately entangled with PAYE. Employers will be pooling tax and tax credit and remitting the net amounts to or from the Inland Revenue. The employee's pay slip will of course show tax and tax credit separately, which provides recipients with the transparency they need to be
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certain that tax credits are coming through to them. I agree that tax credits are not being incorporated in the PAYE code. I will not return to our debate on Amendment No.1 but, as my noble friend Lady Hollis made clear, we could not achieve the objectives through incorporation in the PAYE code. So we do not agree that the proper place to account for tax credits is in the accounts of a department that does not administer them. If the tax credits are not appropriate for inclusion in the accounts of the Department of Social Security, and we would argue that they are not, the second amendment suggests that the details should be published in a separate report and not in the accounts of the department that administers and has policy responsibility for them. That seems somewhat perverse.
I have explained how the practical handling of tax and tax credit goes together, and the accounting systems follow, with tax credits being tracked and accounted for alongside PAYE. The natural and logical result would be for the tax credit figures also to be dealt with alongside those for tax and for them to appear in the accounts of the Inland Revenue. The Inland Revenue has policy responsibility for them; they are under the Inland Revenue's care and management; and they should be there to reflect that part of the Inland Revenue's business. Nothing would be gained by separating them out from other parts of the Inland Revenue's business. Tax credits will be shown separately by the Inland Revenue and in the board's report in the same way as MIRAS is presently shown. The obligation to keep adequate accounts of these items will be the same wherever they are to be presented. The figures will be no more accurate for having been presented outside the Inland Revenue's own accounts.
I seek to persuade the noble Lord that the resulting reporting mechanisms will be at least as transparent as those that he proposes and much more logical in that they appear in the accounts of the responsible department.
10.45 p.m.
Lord Higgins: I think we are saying that we disagree on the principle and therefore these amendments would be in line with what we are suggesting and the opposition to them reflects the Government's view on whether this provision is or is not a tax credit. I certainly do not wish at this late hour to go over Amendment No. I again, although that is where the matter rests. At this stage I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos.22 and 23 not moved]
Lord Higgins Lord Higgins moved Amendment No.24:
Page 3, line 22, at end insert—
("( ) The duties of the Treasury under section 155 of the Finance Act 1998 shall include a duty to set forth in the Financial Statement and Budget Report a table showing—

(a) the amounts of the several payments made by the Board of or in respect of tax credit;

(b) the amounts of the expenses of paying and managing tax credit; and

(c) the amounts received by the Board in respect of tax credit,

distinguishing in each case between amounts relating to working families' tax credit and amounts relating to disabled person's tax credit. ")
The noble Lord said: This amendment is concerned with the Finance Act and setting forward in the financial statement the amount of several payments made by the board in respect of a tax credit and the amount of expenses and so on which are incurred.
We have been discussing transparency. This amendment stems from our concern which we debated at length the other evening with regard to how these matters should be presented in the Red Book and other related government documents. In Table B14 on page 160 of the Red Book, working families and disabled person's tax credits appear under the heading, "Accounting and other adjustments. " It seemed to us to that to put in £5.4 billion by 2001 and term it "Accounting and other adjustments" was, to say the least, not frightfully transparent. Our view is that the amount ought to appear under public expenditure as part of the budget of the Department of Social Security, although I suppose that we must now consider whether it appears as expenditure of the Inland Revenue. It would be rather strange if the Inland Revenue had such expenditure. That takes us back to the point of principle. All we are saying is that to describe this expenditure as "Accounting and other adjustments" is clearly wrong.
Earlier, I understood the Minister to say that the Government were meeting this point, although that was in the context of the European conventions on the matter. ft would seem more appropriate to abide by the accounts and conventions of the Office for National Statistics and UK national accounts. If they are the same, I am not clear why this appears as an accounting adjustment. I beg to move.
Lord McIntosh of Haringey: For the sake of clarity, the important table in the Red Book is table B9 on page 154. Although that does indeed emphasise and highlight the Government's definition, which is,
"Net taxes and social security contributions'",
it also includes,
"Other receipts and accounting adjustments'.
which includes contributions to the EU budget.
As far as the issue of accounting conventions and the Office for National Statistics is concerned, the noble Lord will know that ESA 95, which is the most recent European convention on national accounts, was adopted by the Office for National Statistics in November 1998, and the speech which I was not able to give, either a few weeks ago or today, goes into some detail as to why it is appropriate for the Government to adopt those European standards for its national accounts, which are correctly a historical record, and to use the different definition,
"Net taxes and social security contributions",
which is that which is used in the Red Book and which is more appropriate for the purposes of the Red Book.
Lord Higgins: Does a net social security contribution appear as a positive or a negative in this context?
Lord McIntosh of Haringey: The,
"Other receipts and accounting contributions"
are added to the net taxes and social security contributions in the table which is headed "Current receipts".
Lord Higgins: Following the developments to which the noble Lord referred, will it still appear in the next Red Book as an accounting and other adjustment?
Lord McIntosh of Haringey: It will appear in the same way in the Red Book, but the noble Lord will also have access to the national accounts, which will give the figures in accordance with European conventions. As the Treasury Select Committee demanded, the Government are being entirely transparent and are using the appropriate measures for appropriate purposes.
Lord Higgins: On that basis, I beg leave to withdraw the amendment.
Amendment, by leave withdrawn.
[Amendment No.25 not moved.]
Clause 5 agreed to.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No.26:
After Clause 5, insert the following new clause—
PASSPORTED BENEFITS
(". Recipients of a tax credit shall he entitled to the benefits to which claimants of family credit and disability working allowance were entitled under the National Health Service (Travelling Expenses and Remission of Charges) Regulations 1988 as they had effect immediately prior to the coming into force of this Act. ")
The noble Baroness said: Amendment No.26 is grouped with Amendment No.27, both in my name. With the leave of the Committee, I shall speak to both of them.
The first amendment deals with the issue of "passported" benefits. That matter has been raised on a number of occasions during our discussions, but I believe that this is the appropriate place to deal with it and to receive a response from my noble friend the Minister.
Family credit claimants have free prescriptions, dental treatment, glasses and sight tests. They are also entitled to help with maternity and funeral expenses from the Social Fund. The Government have said that those who are presently entitled to "passported" benefits because they receive family credit will continue to be entitled to such benefits when the working families' tax credit is introduced. However, I am informed that it is not clear whether the entitlement would continue beyond the end of the current award on 5th October 1999. Moreover, in evidence to the Social Security Select Committee on 28th October 1998, the Inland Revenue was unable to say whether these "passported" benefits would be transferred to the WFTC and the DPTC.
The intention of the amendment is to provide for that to be done. The increased generosity of the tax credits will otherwise be undermined if the charges referred to as "passported" benefits are to be met by the families

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benefiting under the new legislation. "Passporting" will help to ensure that families in low-paid work retain access to vital medical treatment and other services. It seems to me that this is a very simple issue and I do not intend, at this point in our discussions, to make any further comment on it.
Amendment No.27 deals with school meals. Children whose parents are in receipt of income support and income-based jobseeker's allowance are entitled to free school meals. Children whose parents receive family income supplement, which was the precursor of family credit, were similarly entitled, but when family credit replaced family income supplement that entitlement to free school meals was withdrawn from working families.
The Government have often recognised the importance of school meals. According to the most widely accepted definition, there are about 2.8 million school children living in poverty in the UK and yet only about 1.8 million have an entitlement to a free school meal. According to the Child Poverty Action Group, up to 30 per cent. of children do not go home to a cooked meal. Even mild under-nutrition affects concentration and cognition. Improvements in the nutrition of school children should reduce the risk of chronic degenerative and other diseases in adult life. To extend free school meals is an investment in our children's future.
The combination of WFTC, the minimum wage, increases in child benefit and other measures in the March 1999 Budget will increase the number of families able to meet a low cost but acceptable budget. The extension of free school meals to families in receipt of WFTC will increase that number still further.
I understand that the argument can well be made that the amendment asks for something extra. The recipients of family credit did not have an automatic right to free school meals, but the cost of what is being asked for in this amendment is not excessive when one recalls that the future health and wellbeing of children is at stake. The cost of extending free school meals to all children of WFTC recipients is estimated at £410 million; £210 million if it is limited to children under the age of 11 years.
I hope that my noble friend is prepared to give this a sympathetic hearing as she knows that I fully support the Bill. These are probing amendments. I should welcome a response from the Government on these important issues.
Lord Swinfen: My name is added to Amendment No.26. I am delighted to support the noble Baroness, Lady Turner, particularly as this was a point that I raised at Second Reading which, as far as I recall, was not answered. However, I am aware that the Minister could not answer every single point. It is extremely important that disabled people, who very often rely to a considerable extent on the National Health Service, have these passported benefits. Without them, very often they will be unable to work.
Apart from purely health service benefits, will these tax credits be passported through to the social fund maternity payments, funeral payments, help with home
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repairs and with energy efficiency, which these people receive at the moment, free legal advice and assistance and assisted prison visits? One must bear in mind that assisted prison visits may well help to prevent the break-up of families. It is important for families to stay together. If families break up it is far more costly to the nation as a whole not only financially but in regard to the effect on the children, who need a family with both parents in it to ensure that they grow up to become responsible members of society. I am delighted to support the noble Baroness in this amendment.
Lord Higgins: I too support the noble Baroness. Passported benefits are very important. We touched on this matter in earlier debates. As my noble friend said a moment ago, it is of particular importance to the disabled, not least with regard to medical treatment. When we discussed this matter at an earlier stage the noble Baroness indicated that part of the problem was that, because of the way in which the taper worked, a lot of people with incomes way in excess of £20,000 would suddenly get benefits to which they had not previously been entitled. This is obviously a difficult area. When the matter came before the Select Committee, the Inland Revenue was unable to give an answer. At the moment we still do not have an answer. I think the Government will accept that the Bill should not go through without this point being clarified.
With all the arguments, difficult though they may be, I would have thought that a view would have been taken before now. Can the Minister tell us the conclusion of the Government's consideration or can she at least let us know at what stage we are likely to hear what is happening about what is clearly a very important matter and one which is giving grave concern to people outside who feel that a reasonable solution will not be found?
Lord Goodhart: I welcome the amendment because it raises an important subject for discussion. It would be profoundly unfortunate if those who have incomes with levels which would currently entitle them to family credit and therefore to passported benefits were to be deprived of those passported benefits. However, I can see that the Government have an arguable case for saying that, with the much higher reach up the income scale of the new working family tax credit, there may be a case for not extending the passported benefits to everybody at the higher income levels. The main point here is that we are now within five months of the start of working family tax credit and we still do not know what the levels of passported benefits will be. It is important to know the position before the Bill is passed.
Baroness Hollis of Heigham: These amendments introduce new clauses that aim to give tax credit recipients additional help by passporting recipients to additional benefits.
Amendment No.26 seeks to ensure that WFTC and DPTC recipients are entitled to free prescriptions and other NHS help, in the same way that FC and DWA recipients were. Amendment No.27 seeks to provide that recipients of WFTC should receive free school meals.

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I should like to deal with the issues raised by Amendment No.27 and the school meals point. WFTC is replacing family credit and taking on the major part of the current structure. Family credit has no provision to allow recipients to receive free school meals. There is a very good reason for that. Family credit itself replaced family income supplement, which did allow for free school meals. However, it was found that the take-up level was low, and 30 per cent. of those eligible failed to apply. It was decided that, instead, family credit would include a cash amount to compensate for that situation. In that way everyone obtained the equivalent value, and it was paid throughout the year, not just on school days. WFTC inherits this from family credit, and in that sense it has already provided what my noble friend is asking for. Given the much greater generosity of WFTC over family credit, the grounds for reinstating school meals as a passported benefit back in the old family income supplement days, I suggest, is even less appropriate.
I recognise that there is a particular problem when someone is coming off income support, having had the benefit of free school dinners, and is moving on to working credit and, in future, tax credit: the first four weeks are without pay. It is in that situation that the lack of free school dinners is a heavy expense. We recognise that problem. In the Budget the Chancellor stated that there should be income support roll-on for the first two weeks of the move into a tax credit. Given that benefits such as income support and JSA are paid up to two weeks in arrears, we believe that the two together will at least produce a bridge for that first month.
Other than that, given that it is not incorporated in family credit and that WFTC is more generous than family credit, I hope that my noble friend would agree that her amendment should be withdrawn.
Amendment No.26 relates to NHS passporting. It seeks to ensure that NHS help to free prescriptions should continue as tax credits to replace the current benefits. The Tax Credits Bill works by making family credit and disability working allowance into working families' tax credit and the disabled person's tax credit by changing their names. This gives us the foundation on which to build. It also means that whenever there is a reference to FC or DWA in legislation, be it primary or secondary, from October of this year they will be read as references to WFTC and DPTC.
The importance of the new clause is that it attempts, but does not quite achieve, the goal of preventing changes beyond that renaming. I fear that it will not work because those changes are not a matter for the Inland Revenue, the Treasury and the Bill, but for other departments, especially the Department of Health, and their legislation. From what has been said, I wonder whether this is really what is wanted. Concerns have been expressed generally in relation to WFTC—the noble Lord, Lord Higgins, repeated them earlier today—about the total annual income that a family could receive and still qualify for a tax credit. These are concerns about targeting when we are referring to families who could, through two incomes, be earning over £30,000 or perhaps more per year.
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We have said that we are committed to ensuring that WFTC and DPTC recipients who need it will continue to receive help provided by passported benefits such as those of the NHS low income scheme. As the current situation stands, tax credits go considerably further up the income distribution level. That is not by virtue of the tax credits. The childcare allowance extends it up the income levels.
We are still considering whether it is appropriate to passport all WFTC and DPTC claimants, some of whom, by virtue of their children and relatively high levels of childcare, could with relatively high earnings be receiving a tax credit on these additional benefits.
I am grateful for the non-partisan way in which not only my noble friend (from whom I would expect it) but also the Opposition Benches have dealt with the issue. They share the dilemma of the Government on this matter. It is a question of getting the balance right. The issues are not for a single Minister or department. They cut across Government. The noble Lord. Lord Swinfen. said that passported benefits are not just NHS prescription charges. They include home energy installation grants and assisted prison visits—I take the points he made—funeral and maternity grants, through to legal aid. At the last count, they affected seven or eight different government departments. We have to agree that what is decided is satisfactory and is perceived as fair on the same cross-government basis.
However, I can assure the Committee that we shall set out clearly what we propose in relation to passported benefits for recipients of tax credits before the Bill leaves Parliament. My noble friend is entitled to demand nothing less and that is what we shall do.
I wish that I could have given further clarification of the situation tonight. I cannot do so as the matter is still under negotiation. As soon as the position is clear across all the government departments in respect of all the benefits, I shall be happy to come back and clarify the position.
Lord Swinfen: I am grateful to the Minister for giving way. She said that she would set the matter out clearly before the Bill leaves Parliament. Is she able to do so before the Bill leaves this House? If the other place agrees any amendments that we subsequently make in this House the Bill will not come back here.
Baroness Hollis of Heigham: That is my hope. We are negotiating between seven or eight government departments and the timetable is not in my hands. The prime department is the Department of Health but other departments are involved. The DSS is already clear as to what will be proposed for its funeral and maternity grants. I hope to achieve the same degree of clarity from others. I hope I shall be able to inform the House as quickly as possible; I have no wish not to do so. However, the timing is not entirely in my hands so I shall do my best.
Lord Higgins: I am happy to continue the discussion on a non-partisan basis in order to assist the Minister. It would not be acceptable to us not to know what is to happen about this very important matter. We must have

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an opportunity of debating it in this House. The only thing involved is ministerial time and, surely, even on a cross-departmental basis, having had many months of consideration already, they can make up their minds before Third Reading.
I do not ask the Minister to respond, but in order to assist her, I wish to make clear that we must know where we are on a matter that is causing great concern. In doing so, I accept the difficulty of the argument, not least the problems of people on higher incomes and so forth.
Baroness Turner of Camden: I thank my noble friend for her response to Amendment No.26. I appreciate that there are difficulties, particularly as regards recipients of higher incomes. I am grateful for her assurance that she will do her best to ensure that before the Bill leaves this House we shall know the results of the Government's reconsideration of these difficult issues. In those circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.27 not moved.]
Lord Higgins Lord Higgins moved Amendment No.28:
After Clause 5, insert the following new clause—
MAINTENANCE PAYMENTS DISREGARD
(". —(1) In calculating the value of tax credit payable to a parent with care. maintenance payments received by him shall be disregarded.
(2) In calculating the value of tax credit payable to an absent parent, maintenance payments paid by him shall be disregarded from his income.
(3) In this section, "maintenance payments" means payments made under the directions of a court, or the child support agency, to maintain a child. ")
The noble Lord said: We are coming into the finishing straight. Actually, I find that we have nearly completed a lap, because the maintenance amendment which we are now debating was related to the second group of amendments we discussed today, as the Minister pointed out. However, the points involved are not precisely the same.
There have been a number of representations suggesting that there is some confusion over the recently announced maintenance disregard for the working families' tax credit. Various outside bodies—for example, the CAB—are not sure what the Government intend, in particular as to what type of maintenance is to be disregarded. In February, the Paymaster General suggested that only child support would be disregarded and for the purposes of WFTC there would be a disregard of 100 per cent. for any maintenance paid as a result of the CSA intervention. However, the disregard of child maintenance arranged through the courts is not clear, nor is the situation with regard to voluntary child maintenance. In addition, there is a problem of whether spousal maintenance is to be disregarded and what
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happens in the case of non-resident parents. Perhaps the Minister will clarify those points because there is some confusion. I beg to move.
Lord Goodhart: I support the noble Lord's amendment. I found the reasons advanced earlier today by the Minister as to why child maintenance payments should be disregarded for the purposes of calculating the income of the receiving parent to be very persuasive. However, I find it more difficult to accept what she then indicated; that the payment of maintenance will be disregarded when looking at the income of the paying parent. It raises the difference between first and second families to an unacceptable level.
Let us envisage a situation in which a formerly married couple are divorced. The wife receives £2,000 per year by way of child maintenance and £10,000 per year by way of earned income. Let us say that the husband has remarried and has a second family. Again, he obviously has to pay that £2,000 per year. His earned income is also £10,000.
The position is that the first family will receive the WFTC as though its income were £10,000 whereas in reality, taking into account the child support payments, it will be £12,000. The second family will receive the WFTC on the basis that the family income is £10,000 whereas in reality, after taking into account the maintenance payments which must be made, its income will be only £8,000.
As I understand it, it is not intended that child support or maintenance payments should leave second families in poverty, but at first sight there seems to be an unacceptable degree of discrimination between second and first families. Perhaps the Minister will reconsider that issue.
Lord Swinfen: I support the amendment. Perhaps the noble Lord, Lord Goodhart, will allow me to suggest that the payment would not be reduced by just £2,000 but by more than that because that £2,000 would come out of taxed income, so the second family would be even worse off.
On the earlier amendments, when maintenance payments were mentioned, the Minister said that maintenance payments made under the directions of the court and the Child Support Agency would be taken into account. What is the position of the maintenance payment that is not made in either of those ways but is made under a voluntary agreement between the father and the mother of the child or children in question?
Baroness Hollis of Heigham: The proposed new clause seeks to provide for maintenance payments to be disregarded in calculating tax credit payable to a claimant who is either paying or receiving maintenance payments.
First, I deal with a situation in which someone is receiving maintenance payments. It is clear that there will be a 100 per cent. disregard of child maintenance.
I was then pressed whether the disregard would be affected by the way in which that maintenance were paid, whether by CSA, court order or voluntary

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agreement. I thought that I had answered that previously. There will be a 100 per cent. disregard whether the payment is made by the CSA, through court order or voluntary child maintenance arrangement. I believe that that is what the noble Lord, Lord Swinfen, asked me.
I find it difficult to accept the suggestion that maintenance payments being made by a claimant should be disregarded, as though there were some mirror opposite in that regard. It would mean that the Child Support Agency or the court, having decided that a certain amount of maintenance should be paid from the non-resident parent's income for the upkeep of the non-resident parent's children, the Government should then proceed to subsidise those payments. If this amendment were carried, it would mean that the Government were contributing 55 per cent. of the maintenance to be paid because the taper would kick in after the maintenance had been paid.
I cannot believe that that is the intention of the Committee because the parent with care is entitled to the hill maintenance paid. If Members of the Committee are then saying that it should be disregarded from the father's income, it means that the Treasury—other parents, other fathers—have to make good that deficit. It means, therefore, that instead of him paying the £15 or £25 or whatever is appropriate on his income, the Treasury would be paying more than 55 per cent. of that sum. I cannot believe that that is what noble Lords intend. I believe that the problem noble Lords are having is that they are comparing the woman receiving family credit in the past and who will go on to receive tax credit in the future with the man—the non-resident parent—who is paying.
I suggest to noble Lords that that is not where the equation should lie. It should lie between the single man earning £200 per week who is not eligible for WFTC and who has one child in the first family but, because he is single, now does not have any more children, who, under the new proposals we hope to bring before Parliament soon, will be paying £30 out of that £200.
If he was married, however, or had moved on into a relationship in which the woman had two children, who might not be his biologically, his maintenance assessment under the new proposals would fall from £30 to about £25 in recognition of the responsibilities of a second family. However, what noble Lords would be saying is that in his case, having moved in with somebody, possibly not married, who has brought children into that relationship, possibly not his, the maintenance he should then pay to the first child should be more than halved in comparison with that of a single man. I do not believe that to be even faintly reasonable. The obligations of that second family would be reflected in the reduced maintenance he should pay, not reflected at a higher point at which the taper starts to kick in. Given that, I hope noble Lords will reject the amendment.
Lord Goodhart: Before the noble Lord, Lord Higgins, replies, perhaps I may say that obviously this problem only arises if the father then has a second
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family. Surely the purpose of family credit is to ensure that families with children get adequate support. What is happening here is that a second family will be penalised because the amount of the working families' tax credit will be calculated not on the real income that the father has left but on a kind of notional income which does not take account of the fact that he is absolutely committed to paying a substantial slice of that income, quite rightly, to the first family.
Baroness Hollis of Heigham: No, I emphasise that I am now dealing with the proposals we are about to bring to the House, not with the current CSA, system. There, given the complications of protected income and so on, the equations are very different. It seems to me to be simpler to say what we expect to be the case because the timing will be very similar.
In the new proposals, second families will indeed be properly protected and treated in a balanced way with first families. We expect that protection to extend to stepchildren who are not biologically the children in the second family of the non-resident parent. So, within the second family, we are not talking about first-class children and second-class children.
In the recent consultation exercise, to which there were over 1, 500 replies, it was clear that the percentage we are expecting a non-resident parent to pay to support. a child or children in the first family was about right—that is 15 per cent for one child, 20 per cent. for two and 25 per cent. for three or more—but that that amount should be abated to the extent that there are children in the second family, whether his biologically or whether they have been brought into that relationship by his new partner, so that we do not have first-class and second-class children.
As a result of the consultation exercise, that was broadly regarded as a fair way to proceed. However, if noble Lords accepted the amendment, that would mean that a single person would pay £30. If someone starts a relationship and moves in with a woman—it may not be for very long—who has two children of her own, he would not only have it deducted down to £25 in recognition of that second family responsibility but that would be asking the Government to pick up 55 per cent. of the sum as well by having the tax credits kick in at a lower notional income. So, effectively, of the £25 to be paid, or more than £30 because of the responsibility of a second family, he would pay something like £11.50 and the Government would contribute £13.50. However, if the woman you were paying it to was on income support, and therefore the issue of family credit did not arise and she was even poorer, you would be expected to pay the entire sum, even though it would be netted back by the Treasury off the benefit, all but £10.
Whichever way we work, whether we compare the situation with a lone parent on income support., in which case the full sum would be paid because there would be no question of her maintenance being disregarded, only the first £10; or we compare his position with that of a

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single man or with that of other fathers in work supporting their children, on all three grounds this amendment is unfair. I suggest the Committee rejects it.
Lord Higgins: I find myself trying to relate what the noble Baroness said to my former constituents' specific cases; it makes it a little more concrete. But the noble Baroness has been doing an immense amount of work on the Child Support Agency side and I shall need to consider carefully what she said.
In that context, since she related some of her remarks to what the Government propose, can she give us any indication of timing with regard to those proposals being announced and the passage of this Bill through the House?
Baroness Hollis of Heigham: Obviously we are in election purdah at the moment and that limits the extent to which government can properly make new announcements. But I am hoping that the White Paper will come forward some time next month. I had hoped it would be earlier but for the election purdah. If it is then so decided, I hope to see parliamentary legislation to that effect in the autumn programme. But that is not a decision for me. It is for the appropriate bodies to determine what goes into the Queen's Speech. That would be my hope.
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However, it may be worth emphasising that the new proposals are highly dependent on having a robust computer system. We have had a lot of problems with computers within the DSS and the CSA. Indeed, the computers in the CSA do not talk to the computers in the Benefits Agency and information has to be swapped manually and so forth. Therefore, the timing of implementation, as opposed to the parliamentary timetable, will be heavily dependent on when the robustness of the computer system is ensured. I am sure the Committee will understand that we cannot afford for this to collapse through weak information systems. That is as helpful as I can be to the noble Lord at the moment.
Lord Higgins: The noble Baroness has been most forthcoming. I thank her for that and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringey: I beg to move that the House be now resumed.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at twenty-seven minutes past eleven o'clock.