Tax Credits Bill

HL Deb 26 April 1999 vol 600 cc96-140

8.40 p.m.

House again in Committee.

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 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 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?

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 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 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 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 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.

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.

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 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 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". 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 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 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 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 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 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-visregulations 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 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 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.

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 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, 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 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.

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 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 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.

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 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 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 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.

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 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.

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 moved Amendment 21:

Page 3, line 14, leave out subsection (5) and insert— ("(5) The amounts—

1. (a) of the several payments made by the Board of or in respect of tax credit;
2. (b) of the expenses of paying and managing tax credit; and
3. (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 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 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—

1. (a) the amounts of the several payments made by the Board of or in respect of tax credit;
2. (b) the amounts of the expenses of paying and managing tax credit; and
3. (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 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 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 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.

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.

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 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 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 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 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 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 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.

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.