Tax Credits Bill

HL Deb 28 June 1999 vol 603 cc79-97

7.40 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)

My Lords, I beg to move that the Commons reasons be now considered.

Moved, That the Commons reasons be now considered.—(Baroness Hollis of Heigham.)

On Question, Motion agreed to.

COMMONS REASONS

[The page and line refer to HL Bill 39 as first printed for the Lords.]

LORDS AMENDMENT

1 Clause 6, page 3, line 31, at beginning insert ("Subject to subsection (1A).").

The Commons disagreed to this amendment for the following reason:

1ABecause it is not appropriate for smaller employers to be exempted from paying tax credit to their employees.

Baroness Hollis of Heigham

My Lords, I beg to move that the House do not insist on their Amendment No. 1 to which the Commons have disagreed for the reason numbered 1A. I shall speak also to reason numbered 3A.

Amendments Nos. 1 and 3 were introduced by the noble Lord, Lord Goodhart, and were passed by this House, during our Committee stage debate of the Tax Credits Bill. They would allow employers with fewer than 10 employees to elect that any tax credit payable to their employees should be paid by the board. They would also enable regulations to be made governing the making and revoking of such elections.

The House of Commons has now considered the amendments and has disagreed to them. The reason given is that it is not appropriate for smaller employers to be exempted from paying tax credit to their employees.

Your Lordships will not be surprised to learn of this decision in another place. As I said when we debated these amendments in Committee, payment of tax credits by employers is central to the Government's policy of making work pay, and be seen to pay. The tax credits will be inextricably linked to the rewards of work because they will be shown on the employee's payslip as an addition to net take home pay. This will help to break the perceived link with benefits and will reduce the stigma which is often attached to claiming in-work support.

So these amendments really strike at the heart of the Government's tax credit policy by potentially exempting up to 825,000 employers—70 per cent of the total—from paying tax credits. The amendments would also be extremely complicated to operate because of the difficulty of identifying quickly those employers who would be eligible for the opt-out and wished to elect it. As I pointed out in Committee, in all cases of doubt the Inland Revenue would have to contact employers to check, first, how many people worked for that employer, and, secondly, whether or not the employer was prepared to pay tax credits through the payroll. That would mean delays in finalising tax credit awards and confusion for employees who would not know where they were from one award period to the next if employers moved in and out of the "fewer than 10 employees" category.

Your Lordships made much of the fact that employer payment of tax credits imposes some additional burdens on business. As I have said before, the Government have from the outset recognised that there will be some extra costs to employers in paying tax credits through the payroll and we are doing everything possible to keep those extra costs to a minimum. Since May 1998 we have been consulting representatives of employers and payroll software suppliers on the details of the scheme and significant changes have been made to meet the representatives' concerns.

We have also, as your Lordships are aware, decided that small employers who do not operate a PAYE scheme should not be asked to pay tax credits through the payroll. This is a practical measure to ensure that employers who currently have no dealings with the Revenue in their role as employers—for example, if they employ simply a nanny or a gardener—are not brought into the Revenue's employer database simply through once having a tax credit recipient on their payroll.

The new Small Business Service, announced in the Budget, will provide better and more targeted support and assistance to small businesses with: a new business guide, business tax starter pack and guidance for new employers; and, as was raised by the noble Lord and the noble Earl, Lord Russell, a new helpline service for new employers offering fast-track support.

As part of the Small Business Service all new small businesses will be provided with assistance with their payroll operations from April 2000. The DTI is currently consulting on the method of delivery of that service. The intention is that the service should be delivered by means of a voucher scheme whereby all eligible businesses would be able to redeem a voucher with any commercial provider on a list held by the Small Business Service. That scheme should do much to ease the burden on small firms which are running a payroll.

Specifically, in the tax credits context, all employers will be given ample guidance in the coming months and after April 2000 enabling them to pay tax credits smoothly and with the least possible extra work. There will be a targeted publicity campaign which will involve all the media. There will be seminars across the country which will be of particular interest to small businesses.

I hope that all I have said will convince your Lordships that Amendments Nos. 1 and 3 are unnecessary and inappropriate. They have been considered at length in the other place and have been firmly rejected there. The House of Commons did what this House asked it to do; namely, to think again. The Commons thought again and overwhelmingly reaffirmed the position which existed at the end of the Bill's passage through the other place. Therefore, I urge your Lordships to accept the Commons reasons for disagreeing to Amendments Nos. 1 and 3 so that the passage of this Bill will not be further delayed.

Moved, That the House do not insist on their Amendment No. 1 to which the Commons have disagreed for their reason numbered 1A.

Lord Goodhart

My Lords, I am not surprised that the noble Baroness has asked us to reconsider Amendments Nos 1 and 3, and I doubt that she will be surprised by the fact that, although we have reconsidered them, we think that they were right and proper amendments.

These amendments provide for payment of working families' tax credit by the Inland Revenue direct rather than through the wage packet in the case of small employees. The amendments were moved by me and supported by the Conservatives on Report.

The purpose is to give employers with fewer than 10 employees the right to ask the Inland Revenue to make payments direct. It is an opt-out, not an exclusion, and for that reason it would, to a large extent, get round the difficulties of those employers whose number of employees fluctuates above and below 10. Those employers in that situation would obviously be unlikely to wish to opt out because of the inconvenience to them of alternating between having to be in the scheme and out of it.

There are already some circumstances in which payments of WFTC will be made direct by the Inland Revenue; for example, where a couple agrees that payment should be made to the caring parent. So there does not appear to be any great point of principle involved in enlarging the list of cases in which payment is made direct.

The Government insist that payment through the wage packet is necessary to increase the incentive effect of the tax credit. I do not believe that. It is true that the tax credit will give people greater incentive to take a job but that is because of the considerable increase in the total family income which will result from the increase in the tax credit. The fact that the income may come in two dollops, not one, cannot make a ha'p'orth of difference. I believe that workers are sufficiently intelligent to know that the extra money which they receive does not come from their employer's own pocket even though it comes through the wage packet. Therefore, if there is any stigma effect in having an income which comes partly from the Inland Revenue, that stigma will not be eliminated by this scheme.

Against that, payment through the wage packet will impose significant burdens on many small employers. As the noble Baroness said, there are some 825,000 employers with fewer than 10 employees. The draft regulatory impact assessment suggests that about 100,000 of those will employ someone entitled to the tax credit. Therefore, the great majority will not. But payment through the wage packet for that 100.000 who are so entitled will involve significant extra time and cost. The impact assessment statement suggests that the recurrent costs to small employers who must pay the tax credit will be £370 per year. That figure looks to be somewhat on the high side and it may be that it is not entirely accurate. However, the impact would be quite substantial.

I do not believe that the Inland Revenue would find great difficulty in finding the employers with fewer than 10 employees in order to find out whether or not they were entitled to opt out.

Since Third Reading in your Lordships' House, as the noble Baroness mentioned, the Government have devised a scheme to enable some initial payments to be made by way of vouchers. That will deliver a limited degree of help to new small employers but the scheme is minimal and, as I understand it, is not intended to cover the recurring costs which are the main burden. It is simply intended to cover the start-up costs. The CBI certainly believes that the scheme is inadequate and would prefer smaller firms to be exempt, as we proposed.

Furthermore, 38 per cent of employers with fewer than 10 employees still use manual payroll systems. The working families' tax credit will be a particular problem for them. They will not be helped by any software that the Government are able to provide for those who have automated processing systems for wages.

We therefore took the view that our amendment imposed no detriment on employees, unlike, for example, the exclusion of small employers from an obligation to designate stakeholder pensions for the benefit of their employees under the Welfare Reform and Pensions Bill which we believe would be detrimental to employees. Our amendment relieves small employers from a significant burden without any corresponding detriment to employees. We regret, therefore, that the Government have not seen fit to accept a useful amendment which, in our belief, does no damage to the principle of the Bill.

However, we now reach the point of considering whether to insist on the amendments. Insisting on amendments is a powerful weapon. It is not quite, perhaps, a nuclear weapon, but it is certainly a highly explosive one. That weapon needs to be reserved for occasions of outstanding importance: in football terms, "Premier League amendments". These amendments are important, certainly Division 1, but at the end of the day I feel that they do not quite make it into the Premier League. We do not believe, therefore, that this is an appropriate issue on which to force a battle between your Lordships' House and the other place and we do not propose to insist on the amendments.

Lord Astor of Hever

My Lords, it is not every day that I find myself in agreement with spokesmen from the party of the noble Lord, Lord Goodhart. However, as far as concerns this amendment, I am in complete agreement with what the noble Lord so eloquently said. We, on this side, feel that the Government are wrong. I agree with the noble Lord, Lord Goodhart, that the amendments are right and proper.

The Government are sending a message to the business community that they can expect a return to the sort of highly destructive, business-unfriendly regime last seen under the Labour government in the 1970s. The Minister recognised that there would be some extra cost to employers. However, the Government have under-estimated the administrative and financial burden that WFTC will create, particularly as there is no reimbursement of costs to firms on the lines of that operated for maternity pay.

No less a person than one of "Tony's cronies", the noble Lord, Lord Haskins, chairman of the Better Regulation Task Force, has said publicly that the Government have under-estimated the impact on small businesses. The Better Regulation Task Force was set up by the Prime Minister specifically to cut red tape on business. The Government therefore appear to have two contradictory objectives. On the one hand, they tell the business and small business lobby groups that they want to reduce the burdens on business. If that is really the case, why not accept the amendment? On the other hand, their real objective seems to be to increase massively time wasting and cumbersome burdens. Any noble Lord tempted to doubt that should read The Price of Fairness from the Centre for Policy Studies. The authors say that Labour's social legislation will add £4.6 billion to business costs and eradicate 880,000 jobs.

The Minister mentioned the voucher scheme. Do the Government feel that this scheme is sufficient to alleviate the administrative burden which the WFTC will create? This is an area of special concern to the CBI which, as the noble Lord, Lord Goodhart said, is concerned that the vouchers will not reflect the cost of administering the tax credits.

In Committee, the Minister stated that virtually no work will be carried out by employers. She reinforced that by saying that work for employers will be minimal. If that really is the case, why is it necessary for employers to attend seminars, as she mentioned? Do the Government now accept that administering the tax credits is more complicated than the Minister first said and now needs explaining in detail at seminars?

How can the Government possibly hope to persuade hard-pressed businessmen and women to attend these seminars? Do not the Government feel that the time of such people would be better spent running their businesses, providing jobs and creating wealth? Certainly, that is the message which the Trade Secretary has been trying to send out.

Finally, will the Government review the situation a year after the legislation comes into force? It will surely be necessary to check that there are not the excessive administrative burdens and costs on businesses, particularly small businesses, which they themselves fear will happen?

Baroness Carnegy of Lour

My Lords, I rise briefly, in view of all that has been said by my noble friend and the noble Lord, Lord Goodhart. It seems extraordinary that the Government continue to maintain that it is not appropriate for small employers to be exempted from this provision. Small employers feel very strongly about the matter. Surely, the Government know that. I understand that they have established in their minds the need for employees to see the tax credit arrive with their wage packet. I do not believe that employees are as dumb as the Government think. They will understand very well that they are receiving an income supplement because they are in a job, however they receive it. It is unfortunate that the Government, who are flying a very strange flag, disregard the anxiety of employers who have under 10 employees and feel strongly about this. I am sorry about the Government's decision.

Baroness Hollis of Heigham

My Lords, I thank noble Lords for their contributions. I regret that so far the Government have not been able to persuade them of the propriety of our position. However, in response to the first point, we firmly believe that the entry wage of people going into work should be seen to be a qualitative leap from the benefits they would otherwise receive. This applies particularly to lone parents who will make up perhaps over 50 per cent of those on WFTC. The best way of doing that is to break the link of that tax credit with its former benefit wraparound, which is family credit. We believe that, and the research we commissioned indicates that our views are correct.

People want jobs where the entry wage, which they will receive through the wage packet, is a qualitative leap from what they would otherwise enjoy from benefit books, giros and so on. To some extent the proof of the pudding will be seen as this develops. However, the research from the Institute for Fiscal Studies already suggests that if we bring this alongside other improvements by government changes to national insurance and the like, in the longer term we can expect to see 250,000 extra people coming into work. That is from an independent organisation. We obviously hope that those figures could well be surpassed. However, we believe, as all our research shows, that it is the entry wage, and the perception of what comes in the pay packet, that determines the willingness of people to return to work.

Lord Goodhart

My Lords, I am grateful to the Minister for giving way. Am I right in assuming that the figure of 250,000 is the total of those likely to be persuaded into work by the working families' tax credit and not the difference between the figures of those who would be in and those who would be out merely because small employers were not part of the scheme?

8 p.m.

Baroness Hollis of Heigham

My Lords, that is true. We are talking about the total figure and not the specific tranche. As I said, it included WFTC, NICs and the temporary starting rate. It did not include the national minimum wage. But we expect the result to be an increase of something like 47,000 people in employment over a one-year period; up to 290,000 (I said 250,000) in the long run. This is the work of the Institute for Fiscal Studies.

The noble Lord is absolutely right. But the point remains—the institute established it—that the entry wage is what determines people's perception of whether or not it is worth while returning to work, particularly for lone parents. They come into work from a position of being in benefit whereas many of the couple families will already be in work and will need to acquire this benefit because, perhaps, temporarily their income has dropped, whether through shorter hours or because the partner has dropped out of work or whatever. So for lone parents in particular, the entry wage is important. This is a qualitative improvement and that is the philosophy behind the tax credits system; that is, that work pays and is seen to pay.

Lord Swinfen

My Lords, before the noble Baroness leaves that point, perhaps I may ask a question. The person seeking work will know what the employer is prepared to pay as a straightforward wage. But it is the Inland Revenue which will decide what the tax credit is to be. Before the individual takes a job, how will he know what tax credit he will receive? That is what will determine whether or not he takes a job. Will there be somewhere he can go for advice?

Baroness Hollis of Heigham

My Lords, there is a short answer and a long answer. The short answer is that he can certainly obtain advice as to what the implications will be. The noble Lord will also remember that lone parents on income support will be enjoying a four-week rollover for their first month of work. At the end of that time, they will receive their pay packet. At that point, they will have an option to continue to stay in work. If their entry wage is not high enough—they will have been buffered for the first four weeks by a rollover of income support—they will be able to go back on to benefit. That is why we want to see the world of work being a qualitative improvement from the world of income support, together with all the related benefits that they hitherto received. I repeat, most lone parents going on to WFTC will have come off income support. Income support will carry them for the first month. If the entry wage that they receive in their pay packet is insufficient, they will retreat back into the world of economic inactivity, and I am sure that the House does not want that.

We firmly believe that this is not an unreasonable responsibility for employers. I have to repeat this because we said this both in debate and in letters, but it is worth reaffirming. The average cost to the small employer will be £37, six minutes a week or 70p per week per employer. We believe that this is not an unreasonable burden.

Where it becomes difficult is for the small employers who have manual payroll systems. There the burden is not so much WFTC, but the existing burden of PAYE and NICs. Therefore the Business Advice Centre—I was asked what its role was—and the vouchers are part of an effort to help small businesses to move out of manual systems and into the software packages which will allow them not only to deal straightforwardly with WFTC, but also with the other more onerous burdens (no one suggests that they should not pay them) of NICs and PAYE. That is the point.

I go further than that. We believe that WFTC is not a burden on employers; and we believe that it will not only attract lone parents particularly into the labour market, but also that it will be to the benefit of employers because it will widen the labour pool from which they can draw their staff. As a result, we believe it to be in the best interests of business, of staff and of lone parents. I hope therefore that your Lordships will not press the amendment.

Lord Astor of Hever

My Lords, before the Minister sits down, I specifically asked about the vouchers. Does she feel that the amounts offered are sufficient to alleviate the costs of administering the tax credits?

Baroness Hollis of Heigham

My Lords, I should say first that the income support rollover is two weeks rather than four. Housing benefit is the longer one.

The documents that were sent out for consultation suggest that we are thinking of vouchers in the region of £50 to £200 which can be redeemed against a registered list of suppliers. From my modest knowledge of IT systems, that would make a substantial contribution to a modest software package. But it is a consultation document, and if it needs to be tweaked, the Government will listen very seriously. This is part of a wider effort to ensure that small businesses come into the 21st century in terms of their support systems, not just for WFTC, but also for the far more difficult responsibilities of NICs and PAYE.

Lord Astor of Hever

My Lords, does the Minister expect the Government to review the tax credits after a year?

Baroness Hollis of Heigham

My Lords, after six months we shall be moving from the current system of paying family credit into payment through the employer. At that stage we shall be reviewing how we are doing and shall continue to monitor the situation. If the Government's policies are not delivering the responses we want to see, obviously it would be foolish of the Government not to take that into account. But all the research, all the evidence and all the public responses—the reviews have been very good indeed—indicate that this is the way forward for the future of the tax and benefit system. As a result, we shall be able to help more people into work and to stop the poverty of unemployment being transferred to the children.

On Question, Motion agreed to.

LORDS AMENDMENT

2 Clause 6, page 3, line 35, at end insert— ("() The Board shall ensure that any single parent can decide to receive payment of any tax credit direct from the Board rather than from the employer.")

The Commons disagreed to this amendment for the following reason:

2ABecause it is appropriate for tax credit paid to employees to be paid by their employers.

Baroness Hollis of Heigham

My Lords, I beg to move that the House do not insist on their Amendment No. 2 to which the Commons have disagreed for the reason numbered 2A.

The amendment, which would have given lone parents a choice not available to other applicants, is not about putting lone parents in the same position as couples; it would allow lone parents to choose whether to receive tax credits in their pay packet or direct from the Revenue. That is not a choice open to couples.

Insisting on this amendment would mean a major policy change, not just a minor shift at the margins. The matter was fully discussed here, where it was decided that it would be better to give this choice, and in another place where it was decided that it would not. We should not insist on the amendment.

Before putting the point formally, it may be helpful if I recap the arguments. I have already alluded to one; that is, that it gives lone parents the same choice as is open to couples, where it clearly does not. The other two major arguments were that it would allow lone parents to preserve anonymity; and, thirdly, that it secures lone parents against being pressurised, discriminated against or victimised by their employer. I shall take each of those three arguments in turn.

The argument in relation to choice and the analogy with couples is that in practice couples have a choice because they can choose which one of them is to receive WFTC. In the main, they will be families where the man works and the woman stays at home to care for the children. But I dispute that it concerns choice as to how the tax credit can be paid and that it can be paid at home.

If both partners in a couple are in work, they can choose for the tax credit to be paid to her; but in that case, it can be paid to her only through the wage packet. If he is in work and she is at home, they can choose for it to be paid to her, in which case it will be paid to her at home because she does not have a wage packet through which it is paid. If she is in work and he is at home and they choose for the tax credit to go to her, again it can be paid only through her wage packet because she is in work and not at home. Therefore, the analogy with lone parents is simply not valid. Lone parents are not being denied something that couples are being given. Lone parents are in work and therefore they will be paid through the wage packet in exactly the same way as though the choice in a couple was to pay to the mother and she was in work, in that she too could only be paid through the pay packet. That is the analogy.

The second argument concerns fears that tax credit payments will breach confidentiality. Lone parents will be treated no differently from anyone else. Employers will simply be told, as with other recipients, of the amount to pay. They will not be involved in any way in gathering personal information or determining the award themselves. Debates here and in the other place revealed concerns that employees' circumstances could perhaps be inferred from the amount they receive from the employer. We sought to allay those fears whenever they surfaced, either during debates or in writing to noble Lords. Perhaps I may assure the House yet again that because of the number of separate elements—the effect of the taper and the childcare tax credit—it will not be possible to work out what someone is being paid. No doubt payment through the wage packet will mean that the employee is eligible to one of the two tax credits, either WFTC or DPTC, but that will be the extent of the employer's certain knowledge.

Your Lordships' third concern was that employers would be able to discriminate against, or apply pressure to, groups of employees who might cause them administrative hassle by claiming tax credits. Employers are unlikely to know enough about a person when they take them on to make an accurate judgment about whether or not they are likely to qualify for tax credits. The evidence of research done for the DSS into family credit says that employers did not have enough information about potential recruits to adopt such tactics. There will be no more opportunity at that stage of recruitment than there would have been under family credit. Research carried out for the Joseph Rowntree Foundation has also shown that employers are increasingly seeking the least possible information at the time of recruitment to avoid possible charges of discrimination.

Once the credit has been claimed and awarded, it will become clear to any employers administering payment through the wage packet that the employee is getting a credit. It was because of the possibility of discrimination at that point that the anti-discrimination provisions at Clause 7 were included.

There is a danger in what was proposed in the amendment. Giving single parents alone a choice of payment method could say to employers—albeit the small number of bad ones who might wish to avoid their responsibilities—that searching out lone parents in their workforce might be a productive strategy. It would give them information about which employees they could approach to persuade or pressure them into asking to receive the tax credit directly. That is an uncomfortable thought and one that weighs against the amendment.

Given those explanations, and in the knowledge that Amendment No. 2 was rejected by an overwhelming majority after careful appraisal in the other place. I ask your Lordships not to insist upon it.

Moved, That the House do not insist on their Amendment No. 2 to which the Commons have disagreed for the reason numbered 2A.—(Baroness Hollis of Heigham.)

Lord Higgins

My Lords, the House will be grateful to the Minister for spelling out many of the arguments made previously. The purpose of our original amendment was to ask the other place to think again. I thought it appropriate to listen to the debates in the other place.

I confess that whenever I go to another place and sit in the Gallery, particularly during Prime Minister's Questions, I get the impression that there has been a serious mistake. Everyone appears to be sitting on the wrong side. On the occasion in question, that was not so. While there were a number of Members on the Opposition Benches, the only ones on the Government Benches were the Minister and the Whip, albeit that they were joined by the PPS half way through the debate. It is extremely arguable that the other place paid appropriate attention to what is undoubtedly an important matter.

It may be that Members in the other place were watching the debate on television. One of the problems is that MPs tend to watch the proceedings on TV in their rooms rather than be present in the Chamber. I always thought that an unfortunate development and certainly not one to which that House agreed. The amount of attention that seemed to be given to the debate on the Floor of the House on 22nd June was not as great as one might have expected, given the importance of the issue.

As I pointed out in Committee, not only did the National Committee for Single Parent Families support our amendment, as one might expect, but the Low Pay Unit, the Trades Union Congress, the Confederation of British Industry, the Institute of Directors and the Federation of Small Businesses all came down in favour. In Committee, I asked whether anyone had come out in favour of the Government's position but the noble Baroness did not respond. Perhaps she would like to do so now.

In the debate on the previous amendment, the Minister referred to the research by the Institute for Fiscal Studies, which is equally applicable to Amendment No. 2. The noble Baroness suggested that 250,000 people, who, presumably, would not otherwise be in work, were likely to go into work. The general employment situation is such that more people are becoming employed, but presumably those are an additional 250,000 people.

It was not at all clear to me whether the IFS analysis referred to the incentive for people to get into work, involving massive expenditure of £1.5 billion, rather than the method of payment. If the Minister is to make a case for either the previous amendment or this one, it would have to hinge on the method of payment that would result in an increase of 250,000 jobs. Perhaps the noble Baroness can say whether it is the method of payment rather than the extent of the wage subsidy—as it has been described by a number of outside groups—that is likely to do that.

The reason given by the other place for rejecting an amendment that your Lordships felt appropriate is that, it is appropriate for tax credit paid to employees to be paid by their employers". Following the debate and Division in another place, a select group would have gone to a little room behind the Chair to think up reasons for rejecting your Lordships' amendments. It does not seem that they did a good job of drafting. One would have expected the reason to be that it is appropriate for tax credit only to be paid to employees by their employers rather than the form of words on the Marshalled List. There is no supporting argument. The reason does not say why it is appropriate for tax credit paid to employees to be paid by their employers.

I refer also to whether the choice that we say should be given to lone parents is reflected in the choice that the Government have already given to couples but not, as the noble Baroness rightly spelt out—and I always admire how she manages to make her arguments so clearly from the Dispatch Box without reference to her notes—so far as married couples or partners are concerned who are both in work. We accept that that is something on which the Government have stood firm. However, the Government have said that where one person is working and the other is not, they will have a choice as to which of them receives the tax credit and by which method—whether through the pay packet to one person or the other.

Baroness Hollis of Heigham

My Lords, I must correct the noble Lord. We have said that there will be a choice as to which person the credit is paid—not that they may choose how it is paid. If she is at home, it can only be paid to her at home. If she is in work, it can only be paid to her in work. There is no choice as to how it is paid, only to whom it is paid. That question does not arise with lone parents because there is only one person to whom the credit can be paid—the lone parent.

Lord Higgins

My Lords, I fully accept that there is only one person to whom the credit can be paid where that is a lone parent. It is also the case—because if it is paid to one partner it is paid in one way and if to another partner, it is paid another way—that, to the extent that they are given a choice one way or another, they can determine which way the credit is paid.

Baroness Hollis of Heigham

Yes, my Lords, that happens if one of them is at home—not at work. Equally, they can still give that same choice to her and they would both be in work. Or they could give that same choice to her and she would be in work, not he. In other words, they are determining to whom it is paid. They are not determining the mechanism by which it is paid. The mechanism follows the choice of who it is.

Lord Higgins

Yes, my Lords—and to that extent, they have the ability to decide that it will be paid one way or the other, by deciding to which partner it will be paid. In any case, we believe that it is appropriate that lone parents should have the choice. That is the point we seek to make and it arose in the debate in another place. Referring to my honourable friend Mr. David Willetts, Dawn Primarolo said that, we are reaching the end of our consideration of the Bill. Does he accept that the purpose of the tax credit is to provide a work incentive and to reinforce the rewards of work, and that, throughout our consideration of the Bill, that has been our central argument in support of the Bill? My honourable friend replied: The argument that we have to boost in-work incentives does not mean that we have to compel people to receive the payment in a specific way".—[Official Report, Commons; 22/6/99; col. 959.] Effectively, what we were arguing for with this amendment—and it is still a sound argument—is that the lone parent should have the choice as to whether or not this is paid through the pay packet.

There is an inherent view—I said a "paternalistic approach" in Committee—that lone parents are unable to comprehend the fact that if they are in work they get more, in the sense that they get what they are paid by way of a wage and they get what they are paid by way of a benefit. The idea that a lone parent, or indeed anyone, is incapable of understanding that rather simple point seems to us to be quite extraordinary.

In addition, as regards lone parents taking a job, it is only when they are actually in the job and see their pay packet that they realise they get more when they are in work. It is not something that they are able to see in advance. In any event, once they are in the job, they then find that there is a distinction as far as concerns their pay packet; but they also get a tax credit. For other reasons which have been elaborated in considerable detail both in Committee in this House and also in the other place—for example, the arguments about whether or not there is a stigma (we already know the extent to which family credit is taken up is very high), and the question of confidentiality, about which we still have some doubts—we think it is perfectly reasonable, and will not significantly influence the extent to which people will go into work, that lone parents should be given this choice.

I have one further point to make in relation to the attitude of the Government. I have in mind the use of an expression by Ms Primarolo in another place, which I do not think is one that the noble Baroness has used. She said that we must have the arrangements for paying the amounts to lone parents because it will drive home that work pays. Again, it seems to be to be a rather harsh attitude towards lone parents that you have to drive home to them the fact that they will be paid. As many outside groups have suggested, it is largely in the form of a wage subsidy. As I understand it, it is still the case that, once they get their pay packet, they will be able to see that this is something which is separate from the basic wage.

In debating the previous amendment, my noble friend pointed out that there is a burden on businesses. There is a real danger here, not for the vast mass of small businesses or large businesses but for some businesses which are less reputable than the others. For example, if a small business of the kind I have just described finds that it has to go through the necessary procedure to pay someone through WFTC as against paying someone who is not in that category, it may choose to avoid the administrative hassle and problems involved if it takes on someone who is getting working families' tax credit by taking on someone who is not receiving the benefit. To that extent there may indeed be some degree of discrimination. The Government have sought to meet that point by way of clauses in the legislation relating to non-discrimination. On the one hand, that demonstrates that they believe there is such a risk; but, on the other hand, we cannot be sure that this will not happen in practice.

For all those reasons, it seems to me that the amendments we put forward were appropriate. I regret the fact that those in another place did not appreciate our arguments and that the Government have continued to maintain their dirigiste attitude towards the policy, which we believe is not justifiable.

Lord Goodhart

My Lords, on our amendment the noble Lord, Lord Astor of Hever, began his remarks by saying that, somewhat unusually, he agreed with everything that I had said. Perhaps I may now return the compliment by saying that, on this occasion, I agree with every word that the noble Lord, Lord Higgins, has said.

The Government's arguments for rejecting this amendment are, frankly, inconsistent with their grounds for rejecting our amendment. Our amendment was rejected because of the view that there was no serious burden on employers, or certainly no burden serious enough to require steps to be taken to deal with it. On this amendment, the Government are saying that small employers will object to the payment of tax credit through the wage packet to an extent which will deter them from employing people who claim tax credit. Indeed, the Government have thought it necessary to include provisions in Schedule 3 to deal with employers who do discriminate. Therefore, unless one assumes that small employers are likely to behave in a wholly irrational manner, those two arguments cannot both be correct.

I believe that there is a burden here and a serious risk of discrimination. There is, in practice, as the noble Lord, Lord Higgins explained, a choice for couples—at least where there is one non-working partner. In that case, the working partner can agree that the payment is made to the non-working partner. If that is not choice, I do not know what is.

As far as concerns single parent employees, there may be cases—they will not be frequent but, when they happen, they could be considerably distressing—where an employee actually does not want the employer to know, for reasons of privacy, that he or she (usually it will be "she") has family responsibilities. Further, even if discrimination is not a problem and even if the employee does not mind the fact that the employer will know that she is a single parent, she may well be deeply concerned about the possibility of discrimination as regards taking her on as an employee. Discrimination is a possibility, notwithstanding Schedule 3 to the Bill. There may be a genuine fear of discrimination, which leads an employee to want to get the tax credit direct rather than through the wage packet. Certainly a job is better than a right to claim compensation for discrimination under Schedule 3.

Ultimately, the argument is a very short one. If a single parent employee wants WFTC to be paid by the Revenue direct, payment through the wage packet cannot possibly be an incentive; indeed, it could be a disincentive. For those reasons, it seems to me that this amendment is also a thoroughly reasonable one and one which I very much regret the Government did not see fit to accept.

Baroness Hollis of Heigham

My Lords, the noble Lord, Lord Higgins, opened his remarks by suggesting that, as there were only a few people on the government Benches in the other place, the Government should not have won, even though there was a vote. If that is an argument that the noble Lord wants to press, will he now say that no one on his Benches tonight should vote if he were minded to press the matter because they have not heard the argument? If the noble Lord cares to take a vote just from those present who have heard the debate, I would encourage him to do so. Indeed, if we confine it to those present in the Chamber, I am reasonably confident of the outcome. If not, someone will have my guts for garters tomorrow. I do not believe that the noble Lord was serious about his point. He knows perfectly well about the judgment of the House of Commons. They were asked to think again. They have done so; and they gave an overwhelming verdict.

I turn to the more substantive points made by both the noble Lord, Lord Higgins, and the noble Lord, Lord Goodhart. Both noble Lords persist in believing that couples have a choice in this matter but lone parents do not. I am running out of syntax in which to explain this matter. I again remind the House that 51 per cent of the current family credit population are lone parents and 49 per cent are couples. About a quarter of those couples have the Female as the main earner. In that situation, if a decision is taken to pay the money to her, the couple have no choice but to have it paid through her pay packet. In that case, the female is in exactly the same position as if she were a lone parent as opposed to having a dependent spouse who happens to be male and living at home If she is in work and the money is going to her, it must be paid through her pay packet. If she is at home and the money is going to her, it will be paid to her at home. The choice concerns to whom it is paid, not how it is paid. If she is in work, she cannot say, "I want it paid to me, but I want it paid at home". She has no choice but to have it paid through her pay packet, just as is the case with a lone parent.

I have used trisyllabic words, bisyllabic words and words of one syllable. I cannot believe that the noble Lords, Lord Higgins and Lord Goodhart, do not understand that point. I regard it as a piece of sophistry when they say that because two people are involved and they can decide to whom it is paid, they therefore have a choice. They have a choice as to whom it is paid but not how it is paid. Therefore, the claim that couples have choices which lone parents do not is not valid.

The noble Lord, Lord Higgins, suggested that no stigma attaches to family credit and therefore it is perfectly reasonable to continue to pay family credit and that it has a high take-up. However, that is not true. Only 79 per cent of those entitled to family credit take it up. It has the lowest take-up of the main income-related benefits. However, some 95 per cent of those on IS claim that benefit, and 97 to 100 per cent of those eligible for housing benefit claim that. Some 90 to 95 per cent of those eligible for CTB claim that benefit. Therefore, in terms of take-up, family credit has always been one of the lowest income-related benefits to be claimed. Although the position has improved somewhat in recent years—the take-up has increased from 69 to 79 per cent—the take-up is well below that of other income-related benefits. The noble Lord picked up the point—

8.30 p.m.

Lord Goodhart

My Lords, I am most grateful to the noble Baroness for giving way. The take-up in terms of the amount of money that could be claimed is, I believe, substantially higher than 79 per cent. I believe that the figure is around 85 per cent.

Baroness Hollis of Heigham

My Lords, expenditure is always higher than the case load. However, about 21 per cent of those who could claim a useful addition to their in-work pay fail to do so. We do not believe that that same failure to claim will arise in connection with WFTC by virtue of the fact that it will be paid automatically through the wage packet.

The noble Lord said that my honourable friend had said that work pays and that we would drive home that message. It is easy for us to be complacent about the details of the social security system. I should like to share with the noble Lord a statistic that shocked me when I read it the other day. I read that 60 per cent of those out of work who claim housing benefit believe that if they enter work they will lose their housing benefit. That is not true. Everyone who has listened to this debate today in this Chamber knows that that is not true. However, the majority of people outside the Chamber believe that it is true. They believe that if they enter work, they will lose their housing benefit. If there is that level of ignorance about the social security system, it is not surprising that lone parents do not claim family credit when they are entitled to do so. It is not surprising that they do not realise how much better off they will be in work as compared with being on benefit. If they do not have that information, they will not make an informed choice.

One of the aims of WFTC is to empower lone parents to make an informed choice so that they will know what they can expect to obtain when they enter work as opposed to being on benefit. The noble Lord, Lord Higgins, insisted that family credit was a wage subsidy. That is a little rich as the previous government introduced family credit without the underpinning of a minimum wage. That meant that family credit was a subsidy not to the employee, but to the low-paying employer who knew that he could pitch wages where he liked, knowing that the taxpayer would take the strain. It is precisely because the working families' tax credit is being introduced following the introduction of the minimum wage that we know that no longer will support for low wages be a subsidy and a sweatshop charter, as it was under the previous government.

The noble Lord, Lord Goodhart, said that an employee may not want an employer to know about his or her family responsibilities. I thought that we had discussed this at considerable length in Committee and on Report. Employers will not be able to infer details of an employee's circumstances from the amount of tax credit that is paid. They will simply not be able to "deconstruct" that back to its component parts.

Lord Goodhart

My Lords, I am most grateful once more to the noble Baroness for giving way. I apologise for intervening again. I have made this point several times before. I accept entirely the fact that the employer will not be able to know details of an employee's family situation. However, the employer will be able to know the one absolutely essential feature; namely, that the claimant—the employee—has family responsibilities.

Baroness Hollis of Heigham

Yes, my Lords. In other words, the employer will know that an employee forms part of the perhaps two-thirds of his workforce who could be married, widowed, co-habiting or have children, as opposed to those who are single. The employer will know that a certain employee is simply not single; that is all he can know. He will not even know whether a person is disabled. That person may be entitled to a disability tax credit and be single. The employer will not even know that. I think that the noble Lord's example pushes at the very edges of reasoned information.

The noble Lord also argues that there is inconsistency between the Government's position on lone parents and the earlier amendments on employers. That is not the case. We have argued that the burden on employers is not disproportionate. That is why we are against an exemption. However, that does not mean that some employers may not take the opportunity to avoid any extra work that is involved if they can. There will always be some who will seek to duck and weave. We do not want to expose employees—particularly vulnerable employees—to that kind of pressure.

I hope that for all those reasons the House will affirm the decision of the Commons. I do not refer necessarily to the argument about the sparsity of attendance in the Chamber tonight compared with the sparsity of attendance in the Commons. I refer to the false argument that lone parents are not analogous to couples in this respect. They are in the same position as couples with regard to making a choice as to whom the money is paid. I refer to the argument that family credit has a relatively low take-up compared with other income-related benefits, as opposed to what we expect will be the relatively automatic payment of the working families' tax credit. I again make clear the point that work pays. We shall ensure that work pays without the taxpayer subsidising the low paying, unfair, exploitative employer. As I say, I hope that the House will affirm the decision of the Commons.

Lord Higgins

My Lords, before the noble Baroness sits down, I hope that she will answer the two points that I raised. First, does the suggestion of the Institute for Fiscal Studies that 250,000 extra people will be employed refer to the method of payment or to the extent that the working families' tax credit is a wage subsidy? Secondly, have any outside bodies supported the view that the noble Baroness has expressed with regard to the method of payment?

Baroness Hollis of Heigham

My Lords, on the first point, the noble Lord disappoints me. If he had read the report which he is happy to argue about, he would know the answer to his question. The report does not even seek to go into that level of detail. I am surprised that I have to tell the noble Lord this because I would have expected him to have read the report and to have shared his views on that report with the House tonight before engaging in this kind of debate.

Lord Higgins

My Lords, I am aware of that, but the answer is not in line with the argument which the noble Baroness expounded earlier in reply to the noble Lord, Lord Goodhart.

Baroness Hollis of Heigham

My Lords, the argument surely is that we know that only 79 per cent of those who are entitled to family credit take it up. We know that loan parents constitute the majority of claimants—about 51 per cent of those on family credit. We know that as a result there is money not going to homes, even to those in work. We also know that many lone parents in particular who want to enter work feel that they cannot afford to do so because they fear that they risk losing benefit. They feel that they are better off not being in work. We believe that the working families' tax credit will take care of all of those problems and will benefit lone parents. Therefore, I hope that your Lordships will acquiesce in the Commons overturning the amendments tonight.

On Question, Motion agreed to.

LORDS AMENDMENT

3 Clause 6, page 3, line 35, at end insert— ("(1A) Any employer employing fewer than ten employees may elect that any tax credit to which an employee is entitled shall be paid by the Board instead of being paid by him. (1B) For the purposes of subsection (1A), the Board may make regulations providing for—

1. (a) the method for making or revoking an election;
2. (b) the method for cancelling an election if the employer subsequently employs ten or more employees; and
3. (c) two or more connected employers to be treated in specified circumstances as if each of them employed the employees employed by the other connected employers as well as the employees employed by himself.")

The Commons disagreed to this amendment for the following reason:

3ABecause it is tot appropriate for smaller employers to be exempted from paying tax credit to their employees.

Baroness Hollis of Heigham

My Lords, I have already spoken to the amendment. I beg to move.

Moved, That the House do not insist on their Amendment No. 3 to which the Commons have disagreed for the reason numbered 3A.—(Baroness Hollis of Heigham)

On Question, Motion agreed to.