Lords Sitting of 4 May 1999

Preamble
The House met at half-past two of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.
Prayers—Read by the Lord Bishop of Exeter.

Medicines: Prescription and Supply
Lord Clement-Jones Lord Clement-Jones asked Her Majesty's Government:
What action they propose to take in the light of the review on prescribing, supply and administration of medicines by Dr. June Crown.
The Parliamentary Under-Secretary of State, Department of Health (Baroness Hayman): My Lords, the final report of the review on prescribing, supply and administration of medicines was issued for consultation and comment on 8th March. Comments have been requested by 7th June and we will be considering what action to take on the recommendations of Dr. Crown and her colleagues in the light of all the comments received.
Lord Clement-Jones: My Lords, I thank the Minister for that reply. At this stage will the Government give a commitment to establish the prescribers advisory committee which was recommended by Dr. Crown to extend prescribing rights? Will the Minister also give a commitment to publish the strategy on community pharmacies which has been delayed since last autumn when the Secretary of State promised it—it is now long overclue—which would enable the pharmacy profession to have a much clearer view of its own future in the context of the Crown report?
Baroness Hayman: My Lords, as the noble Lord know s, the establishment of a prescribers advisory committee is one of the main recommendations of the report. The report suggests that professional groups should be allowed to submit applications to that committee. I am sure that we shall receive comments on that proposal during the consultation process. It would be wrong of me to prejudge that consultation, although obviously we are looking at ways in which we can provide better health outcomes, greater convenience for patients and better team working among health professionals, as the Crown recommendations also seek to bring about. The community pharmacy strategy is taking, a little longer than we expected. Many good ideas have been suggested and there are some complex issues to consider. Our commitment to providing high quality primary care, including pharmacy care, near to people's homes is clear. We shall publish that document as soon as we can.
Baroness Gardner of Parkes: My Lords, will this process address the problem of prescribing as between hospitals and other bodies? As I am sure the Minister is
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aware, it used to be the case that a person leaving hospital received two weeks' prescription. That was then reduced to one week's prescription as it comes out of a hospital's budget. It is often not easy for a patient to get to his or her GP within a week to obtain a supply of whatever he or she needs on prescription. Will that problem be addressed by this report?
Baroness Hayman: My Lords, I do not think that it will be addressed specifically by this report because the report concerns extending authority to prescribe medicines to groups of professional people with specific training and experience other than doctors. Therefore it will not alter the situation as regards general practitioners. I appreciate the problems which the noble Baroness has mentioned. Perhaps as a result of the establishment of new primary care groups and their relationships vis-ávis secondary care some sensible protocols will emerge between the two groups.
Earl Howe: My Lords, what prescribing protocols will be put in place for the new walk-in primary care centres, particularly if those centres are manned by nurses?
Baroness Hayman: My Lords, we are currently involved in nurse prescribing, as recommended by the first Crown report. There was some take-up in the first year—that was last year—and the majority of health authorities will begin participating in the scheme in earnest from April this year. Some 1, 200 nurses had received the required training in prescribing by the end of March 1999. We expect the remaining 20,000 to receive training by the end of next year and the balance by 2001. If those nurses—they must be district nurses or health visitors—with special training are involved in the walk-in centres, they will be governed by those arrangements.
Lord Glentoran: My Lords, does the noble Baroness foresee that the role of the pharmacist in the pharmacy will significantly change as a result of this measure?
Baroness Hayman: My Lords, certainly pharmacists comprised one of the groups that the Crown report examined. There is potential for extending the role of pharmacists beyond their current role and beyond their role of giving advice to patients. This could potentially save time for busy general practitioners and provide more convenient services for patients. We need to do this in a safe and cost-effective manner. That is why we have undertaken consultation on the matter. However, there is great potential in this area.
Viscount Addison: My Lords, is it possible that advice may also be given to patients in terms of complementary medicine to supplement the advice given about drugs and prescriptions?
Baroness Hayman: My Lords, pharmacists advise their patients across a wide range of areas. Community pharmacists are particularly valued for their independence of view. I am not sure that their training

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allows them to give a full range of advice on alternative medicines. Obviously the Crown review was looking particularly at prescription medicines.
Lord Campbell of Alloway: My Lords, can the Minister say whether the gratuitous advice, which is given in good faith, is subject to any form of legal liability? Is the advice exempt from legal liability because it is gratuitously given in order to help?
Baroness Hayman: My Lords, like all pharmacists, community pharmacists are a highly trained group of professionals who are subject to professional regulation. Their role of providing advice rather than treatment is well established within the health service and comes within the normal parameters.
Lord Rea: My Lords, one of the recommendations in the report is that,
"new groups of professionals would be able to apply for authority to prescribe in specific clinical areas, where this would improve patient care and patient safety could be assured".
While I agree that that may lead to a more rapid and efficient delivery of medication in some cases, can my noble friend reassure the House that patient safety will be uppermost in the Government's mind while further consultations are continuing as to which groups these might be?
Baroness Hayman: My Lords, my noble friend makes an important point which, in a way, echoes the point made by the noble Lord, Lord Campbell of Alloway. It is important that we maintain the standards of both advice and, particularly, prescription. It is because we have the safety of patients uppermost in mind that we think it right to enter into a consultation period about the recommendations of the Crown report.

Widows'Pensions
2.45 p.m.
Baroness Castle of Blackburn Baroness Castle of Blackburn asked Her Majesty's Government:
Whether and, if so, when an explanatory booklet was circulated by the Benefits Agency to contributors to SERPS, warning them of the effects on widows' pensions of Section 18 of the Social Security Act 1986.
The Parliamentary Under-Secretary of State, Department of Health (Baroness Hollis of Heigham): My Lords, Section 18 of the Social Security Act 1986 introduced changes to the way SERPS would be calculated for those retiring or widowed after April 1999. The main changes were the abolition of the "best 20 years" provision and the reduction in the accrual rate from 25 per cent to 20 per cent. DSS leaflet NP46, previously NP32, A guide to Retirement Pensions, has
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given details of these changes since April 1987 and leaflet NP45, previously NP36, A guide to Widows' Benefits, since April 1996.
Baroness Castle of Blackburn: I think I find the Minister's Answer slightly evasive. I believe she is aware that we are all extremely anxious about the dilemma in which so many contributors to SERPS now find themselves with the halving of widow's entitlement through their SERPS pension. It is that upon which the Minister concentrated so excellently the last time this matter was discussed. Is it not true that her reply means that there has been no notification by this Government—we were not responsible for what happened in April 1996—and there have been no Benefits Agency communications to contributors warning them of the coming reduction in the widow's pension? As they were promised initially by John Major that they would have 14 years' notice to rectify this reduction by other means— and that notice now turns out to be a matter of months—will the Government not give their mind to how to rectify this scandal? If they do not express a willingness to revert to the original SERPS formula for widows, will they at least delay introduction of the change for a decade in order that some of the scandalous failure to give proper notice can be rectified?
Baroness Hollis of Heigham: My Lords, I am sorry if my noble friend thought I was being evasive. She asked a Question about Section 18 but the widows' benefit changes to which she refers come under Section 19. Knowing my noble friend's expertise in SERPS and social security Acts, I took the Question at face value. I agree with everything my noble friend said. In 1986 the previous government halved the potential entitlement to widows from 100 per cent to 50 per cent of SERPS. They took no action whatever to publicise the effects of the changes to their policies so that people could make decent alternative arrangements. A heavy responsibility lies with the Benches opposite. It is for us to seek, if we can, to rectify the failure of the previous government to publicise and inform. We are seeking to do that. We are taking legal advice. However, the proposal of my noble friend to delay introduction of the changes for a further 10 years would cost in the region of £5.5 billion. The Government are taking advice and exploring the avenues. As soon as I am able, I shall inform the House of the Government's proposals.
Lord Higgins: My Lords, is it not the case—as was clear when we previously had exchanges on this subject—that the correct information was not being given by the department under this Government as little as a few weeks ago? Having said that, can the noble Baroness confirm that the Minister of State said very clearly in another place that so far as concerns the lack of information on SERPS the Government are taking steps to ensure that no one suffers as a result of inadequate information? Can the Minister confirm that there is no possibility whatever of the Government reneging on that commitment?
Baroness Hollis of Heigham: My Lords, I had hoped that what I have just said would explain the situation to

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the House. We are taking legal advice about the implications of compensation on the one hand or a possible delay in the introduction of these proposals on the other in order to try to rectify the errors and mistakes made by the previous administration. My honourable friend in the other House has made the Government's position clear. I confirm that.
Lord Goodhart: My Lords, I welcome the statement in the other place. Will the Minister confirm that the compensation scheme which is to be provided will be full and generous and not be a mean scheme slipped out to the press on a Friday in August?
Baroness Hollis of Heigham: My Lords, I have not made any commitment that there will be a compensation scheme or any other form of recompense—a deferral or whatever. All these options are being explored by my right honourable friend the Secretary of State. Whatever way the Government may choose to go, the previous administration dumped us with a multi-billion pound problem, the bill for which is being picked up collectively, presumably, not only by the DSS but by widows and people currently in SERPS who have lost the opportunity, thanks to the previous administration's neglect, to build up alternative financial provision for the future.
Lord Rix: My Lords, will the Minister please explain how the change to spouses' benefits under SERPS which cuts back accrued rights is compatible with the United Kingdom's obligations under Article I of the First Protocol to the European Convention on Human Rights? Is it not a fact that Article I protects the proprietary rights of everyone against arbitrary and retrospective interference by the state?
Baroness Hollis of Heigham: My Lords, I am assured that the 1986 law is compatible with the European Convention. The problem is that the previous administration failed to inform the public about the implications of their policies so that people were unable to make decent alternative arrangements. That is where the problem lies. We are doing our best to rectify it.
Lord Davies of Coity: My Lords, is my noble friend the Minister aware of the words spoken by my right honourable friend Margaret Beckett in 1986 when responding to the Minister at the time, the right honourable John Major? She said:
"It is extraordinary that the Government should place people in such a position. I do not believe that the Government could not make the change transitional. They will be taking away the rights that have been earned. Once the change takes effect, the pension that has accrued will be halved. The whole pension will not be inheriiecl". —[Official Report, Commons Standing Committee B, 27/2/86; col.470.]
In view of the principle that what applied then applies now, does my noble friend agree that the Government should either make changes so that the halving does not take place or, alternatively, introduce a transitional arrangement which displays a greater degree of justice and less discrimination?
Baroness Hollis of Heigham: My Lords, as I said, the Government are looking at all the options. But to
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defer, for example, the introduction of these changes by another 10 years would cost us—the Government and the DSS—£5.5 billion. It would cost that amount to rectify an error made by the previous administration. We are exploring the options but any move in that direction is extremely expensive.

Car Hire and Elderly Drivers
2.53 p.m.
Lord Lucas of Chilworth Lord Lucas of Chilworth asked Her Majesty's Government:
Whether the practice whereby car hire firms refuse to hire cars to over-70 year-olds is contrary to United Kingdom or European legislation or any conventions to which the United Kingdom is a party.
Lord McIntosh of Haringey: No, my Lords. Car hire firms would not be prevented from refusing to hire cars to individuals over 70 years of age by any UK or European legislation, or conventions to which the UK is a party. Informal inquiries have indicated that such a practice is by no means universal. Where it happens, it is a consequence of commercial decisions.
Lord Lucas of Chilworth: My Lords, I thank the Minister for his reply, which is a little disappointing in that there is evidence of a growing practice among car hire companies of refusing to hire cars to those over 70 years of age and, where they do hire a car, enhancing the insurance premiums for those over the age of 70. Those companies are denying that group of people-they make up 39 per cent of motorists today and the percentage is increasing—the opportunity of relinquishing the use of their own motor car in order to use public transport or occasionally to use a hired motor car.
Lord McIntosh of Haringey: My Lords, the Government are sympathetic to those who are denied the opportunity of car hire or who have to pay higher premiums. But even when this Government are widely being accused of being control freaks, we would be going a little far if we were to instruct insurers whom they had to insure and whom they did not insure. We would be entering the insurance business ourselves if we did that.
Baroness Thomas of Walliswood: My Lords, if these 70 year-olds have driving licences, is it not the case that they are likely to be insured anyway, so their insurance is not in any doubt? This seems to be a special discrimination on insurance. Is the noble Lord aware that, for example, visitors of this age group from the United States, where such a practice would be unheard of, are astounded to find that they are unable to hire a car in this country?
Lord McIntosh of Haringey: My Lords, under the Road Traffic Act 1988, the insurance which people of any age must legally have is only third party insurance. What the car hire companies and their insurers are

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presumably doing is protecting their property, which is the vehicle. As to the issue of visitors from the United States, I am not at all sure that I agree with the noble Baroness. When I first tried to get insurance for a car in the United States—I was under the age of 25—I found that only one insurance company in the whole of the state of Ohio was willing to give any insurance for the under 25s.
Lord Borrie: My Lords, does my noble friend agree that, if there is an agreement between car hire firms not to hire out to those over 70 years of age, or indeed an informal arrangement to do that, or instead to charge higher insurance premiums to anyone over 70 years of age, that may be illegal under the Treaty of Rome and under the Competition Act of last year when it is implemented?
Lord McIntosh of Haringey: My Lords, since the Question was tabled we have been able to make only informal inquiries rather than carry out a full survey. But we are not aware of any agreement to deny opportunities to people over 70 years of age. If there were any such agreement, the Consumer Credit Act 1975 might also come into force and the Office of Fair Trading might have something to say about it. On the present information, we have no evidence that the law is being broken.
Lord Bruce of Donington: My Lords, I declare a personal interest in this matter in that I am marginally over the age mentioned in the Question. I ask the Government to inquire whether, if this practice exists on any scale, the age discrimination Act might come into operation. It seems quite intolerable to me, as one whose no claims bonus is awarded every year, that people should be treated in this manner, particularly when they reach the age of wisdom.
Lord McIntosh of Haringey: My Lords, I am delighted to find my noble friend paying tribute to Article XIII of the Amsterdam Treaty, which is the only age discrimination legislation we have in this country. It has not yet been ratified. Once it is, it will allow the European Commission to put forward proposals to combat discrimination. But of course it would be subject to unanimity. I am sure my noble friend will take steps to ensure that it is subject to qualified majority voting.
Lord Carver: My Lords, may I confirm that over the past 14 years I have suffered from this discrimination? I have found it very difficult to hire a car in Greece, Italy and several other European countries and have therefore adopted the habit of taking the car by Motorail. However, the number of places to which one can do that is limited.
Lord McIntosh of Haringey: My Lords, the noble and gallant Lord makes it clear that this is not only a British problem. It is one which is properly addressed by the Treaty of Amsterdam. I am grateful to him for his comments.

Organic Farm Scheme
2.59 p.m.
The Earl of Clanwilliam The Earl of Clanwilliam asked Her Majesty's Government:
Whether there will be a cap limiting the extent of the subsidy payable under the new organic farm scheme.
The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Lord Donoughue): My Lords, since the introduction last month of the organic farming scheme there is no area limit on the subsidy payment to individual farmers entering the scheme because there is no longer a restriction on the area of land that they may enter. Financial provision for the scheme in 1999–2000 is £6.2 million.
The Earl of Clanwilliam: My Lords, I thank the Minister for that reply, and particularly for the support that the Government are giving to organic farming. However, does the Minister understand that the limit of £6.25 million has probably already been overtaken by those who are presently in the line of fire?
Does the Minister agree that in the light of the present controversy over genetically modified foods, however that may be considered, there is an enormous new demand for organic food and therefore a great demand, especially in terms of horticultural work, to stem the flood of imports from Europe?
Lord Donoughue: My Lords, I thank the noble Earl for his remark on what the Government have done. We have indeed doubled the amount of financial provision under our new scheme. The noble Earl is right to suggest that demand may run ahead of supply in this area. It seems to be the case that we have had as many applicants in the first two weeks of the new scheme as, on average, in each year since the scheme was first introduced in 1994. So funds may indeed run out for this year. However, the organic regulations that we laid earlier this year provide a mechanism for carrying applications forward until the following financial year.
Lord Middleton: My Lords, if the prospects are so rosy for organic farming, will the Minister explain why it needs subsidising?
Lord Donoughue: My Lords, I would rather discuss that matter with the noble Lord in the Tea Room afterwards. The schemes are CAP half-funded agri-environmental schemes. The case for funding is that it takes five years to convert, and in the early years there is a significant loss of revenue to the farmer who, for instance, may previously have been heavily subsidised under the arable area payments scheme. If he enters into organic farming, he loses that subsidy. He also has to deal with the heavy toxic state of the soil as a result of the heavy application of pesticides. We support the idea that that conversion should be

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subsidised in order to ease the cost. We subsidise only the conversion period, and our conversion rates are heavily front-loaded for that early period.
Lord Taylor of Blackburn: My Lords, is it my noble friend's intention to attend the public meeting on organic farming to be held in Ambridge this evening in "The Archers"? Will he be kind enough to offer advice as to which way matters should go?
Lord Donoughue: My Lords, I thank my noble friend for that question. Unfortunately I am informed that we have other business nearer home. However, I should be happy to talk to them about the dramatic success of organic farming in this country over the past year or so. A year ago, only 0.3 per cent of land in this country was organically farmed. The figure is now 1.6 per cent. That is well up the league table for Europe. So we have had success. There is a long, long way to go. Retailers are finding that demand is expanding at about 20 per cent a year; roughly 70 per cent of that demand has to be met from imports. It is our aim and hope that, in time, the rapidly expanding demand for organic food can be provided from domestic sources, where the profit premia are very high indeed.
Baroness Miller of Chilthorne Domer: My Lords, if that is the case, I find the Minister's reply quite cheering. Turning to the environmental measures that organic farming so ably supports, does the Minister agree that only about 3 per cent of agricultural spend in this country goes on such measures? Will he therefore look towards dramatically increasing the subsidy paid to organic farms on the basis that this type of farming is so beneficial for British wildlife? Consumers are voting with their pockets to support this approach. Will the Government do so?
Lord Donoughue: My Lords, it is true that the funds that are available specifically to support environmental measures in farming are still low. It was the Government's view that they should be increased. We argued for that in Agenda 2000, and we were not very successful. It is true that organic fanning is an environmentally friendly form of farming, and we therefore support it. The conditions attached to receipt of grant include the highest possible environmental conditions; so support is provided in that way. Given the profit premiums—for lowland sheep there is a premium advantage of 90 per cent in returns, and hill beef has a premium advantage of 60 per cent, as does wheat—one has some sympathy with the noble Lord's previous remarks. Farmers are well encouraged under the new scheme to turn to organic methods. The available profits should be the biggest incentive.
Lord Luke: My Lords, some arable farmers have environmentally sensitive areas on their land. Is it true that such a farmer, wishing to go organic, does not qualify for subsidy unless he forgoes his ESA subsidy? If so, why?
Lord Donoughue: My Lords, it is not true. It is the case that double funding is not permitted under
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European Union rules. When the previous Minister, Jack Cunningham, circulated his review in anticipation of our reforms, it was clearly stated that double funding is not possible. Indeed, it is not desirable and I am sure that noble Lords would not wish to support it. There is a tapering of the organic farming aid scheme to cake into account the ESA subsidy. But virtually all farmers will still be significantly better off by taking up the organic farm aid scheme. The average less favoured area farmer with an ESA, going organic, will still be some £200 per hectare better off. As I said, there is a tapering, a reduction of about 10 per cent for the best land, around 25 per cent in total return over five years for the slightly less good land, but farmers are still much better off. Of course, the ESA scheme is for 10 years and organic aid is only for five.

Protection of Children Bill
3.7 p.m.
Brought from the Commons; read a first time, and to be printed.

Business of the House: Debates, 6th May
Lord McIntosh of Haringey: My Lords, on behalf of my noble friend Lady Jay of Paddington, I beg to move the Motion standing in her name on the Order Paper.
Moved, That Standing Order 38 (Arrangement of the Order Paper)be dispensed with on Thursday next to allow the Motion on Kosovo standing in the name of the Lord Gilbert to be taken first. —(Lord McIntosh of Haringey.)
On Question, Motion agreed to.

Tax Credits Bill
3.8 p.m.
Baroness Hollis of Heigham: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee. —(Baroness Hollis of Heigham,)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair]
Clause 6 [Payment of tax credit by employers etc.]:
Lord Goodhart Lord Goodhart moved Amendment No.29:
Page 3, line 31, at beginning insert ("Subject to subsection (1A), ")
The noble Lord said: I regret that the important and truly fascinating subject-matter of this Bill does not attract a full complement of Members of the Committee. I am sure that all those who are leaving have urgent matters to deal with elsewhere which makes it impossible for them to stay to hear the details that are

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about to be discussed. Perhaps the noise level has now fallen sufficiently to allow me to begin a little more seriously.
I rise to move Amendment No.29 which is coupled with Amendment No.32 which also stands in my name and that of my noble friend Lord Russell. These are amendments of very great importance. They give small employers the right to opt out of payment of the working families' tax credit rather than an automatic exemption. Dealing with it by way of an election eliminates two of the problems which the noble Baroness, Lady Hollis of Heigham, rightly pointed out at Second Reading. First, it is not easy for the Inland Revenue to identify which firms have fewer than 10 employees. However, if employers have to opt out, they will have the responsibility of providing evidence to satisfy the Inland Revenue of their right to opt out of paying tax credits through the wage packet.
The second problem arises where employers have employees of a number that fluctuates around the dividing line. Such employers would probably not wish to opt out because they would not want to stop and start payment of working families' tax credit. Therefore, it is certainly undesirable that there should be a fixed dividing line which means that they have to move in and out of payment of tax credits in that way. Providing for a right of election by the employer, rather than for an automatic exemption, will eliminate that problem. As an alternative, if for any reason the Government preferred it, we would accept a right of election based on the size of an employer's PAYE and NICs bill.
Another problem raised by the noble Baroness at Second Reading was disaggregation. She said that some employers threatened to divide their workplaces into small employment units. Subsection (1B)(c) of Amendment No.32 is intended to block that by providing that the total number of employees employed by connected employers must be taken into account in deciding whether or not there is a right to opt out. I have not attempted to define "connected" in that context. Clearly, some definition would have to be provided. No doubt the Government could, if so minded, insert a definition of the necessary degree of connection.
I believe that the exemption of small employers would bring benefits to both employers and employees. We pressed this amendment in the other place. It is an issue on which we believe we are on very strong ground.
Let us consider employers first. The draft regulatory impact assessment which was prepared for the purposes of this Bill gives the figures. There are in total 1, 170,000 employers. Of those, 670,000—well over half—employ between one and four employees and another 155,000 employ five to nine. That amounts to 825,000 which is nearly 70 per cent of the total. It is expected that some 730,000 employees will receive working families' tax credit, but of those only 70,000 are employed by employers with fewer than five employees and another 30,000 are employed by employers with between five and nine employees. Therefore, allowing employers with fewer than 10 employees to opt out, even if all of
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them exercised that right, would leave no less than 87 per cent of employees receiving their working families' tax credits from their employers.
The draft regulatory impact assessment estimated recurrent compliance costs at £24 million a year for employers with fewer than five employees and £11 million a year for employers with between five and nine. The statement went on to say that, averaged over all employers in the category of those employing fewer than five, the cost would be £37 per annum per employer. That does not sound very much. But, as I pointed out at Second Reading, paragraph 56 of the impact assessment states that only 10 per cent of employers in that group are likely to employ anyone in receipt of working families' tax credit.
As other employers will incur no compliance costs, or virtually none—the efforts of the noble Baroness to suggest that, in terms of reading the documents and so on, they would, seemed to me to be pretty unconvincing—the cost to each employer in this group who does pay the working families' tax credit will not be £37, but about £370 a year. Once again, the noble Baroness shakes her head, but that is the clear logic of the assessment. It states that it will cost £24 million a year for employers with fewer than five employees, of whom there are 670,000. On average, that works out at £37 per employer, but it is said that only 10 per cent will employ anybody who is in receipt of working families' tax credit. I see no alternative but to conclude—there is no reason to doubt it—that the cost per employer in that category of employing somebody in receipt of working families' tax credit will be £370.
The figures suggest that only one in five employers with between five and nine employees will have employees who receive working families' tax credit. The cost to those employers will be rather more than £370. It is not only a matter of cost, but of time and stress. We are not talking about larger businesses with trained bookkeepers and accountants, but about a farmer who works out PAYE and NICs on pay slips on a kitchen table at night after a day's work. I believe that to be a serious hardship.
What is the position of employees? They will lose nothing by allowing small employers to opt out. It is not like the exemptions for small businesses, for example, in relation to disability which deprive some disabled would-be workers of an opportunity to get a job because the premises do not have to be converted. Here, the employees will get exactly the same money whether the employer opts out or remains in the scheme; they will simply get it in two dollops instead of one. Allowing an opt-out will make it easier for people to get jobs.
The Government know that the working families' tax credit will be unattractive to smaller employers. That was why they included Schedule 3 to the Bill to protect employees or jobseekers who are victimised because of their actual or potential entitlement to the tax credit. It also appears to be unattractive to larger employers if the statement to which the noble Baroness referred at Second Reading is to be believed; namely, that if there were an opt-out at least some would be minded to divide their employment into small units.
Therefore, if small employers cannot opt out they will try to avoid hiring anyone who they believe is likely to be able to claim the working families' tax credit. It has been suggested to me that small employers would be acting contrary to their economic interests in so doing because they would be reducing the pool of potential employees from which they could choose. But I simply do not believe that that has any significance in the context. Faced with the choice between two more or less equal potential employees, the employer will go for the one who will not cost the extra £370, or more time with a wet towel at the kitchen table.
There are other advantages to employees. Problems with late payment, non-payment or payment of the wrong amount are far more likely to arise with small employers than with larger employers with proper systems. Equally, privacy problems are more likely to be of concern to employees of smaller employers. While I accept that in practice privacy will not be a serious problem, many employees may think that it is.
Even from the point of the Inland Revenue, there are clear advantages in allowing an opt-out. Most of the problems will surely come from small employers. Most of the cases where the Inland Revenue has to fund payments because the tax credit exceeds the liability of the employer for PAYE and NICs will involve small employers. By allowing small employers to opt out, first, we shall save small business costs of up to £35 million a year in terms of compliance costs. Secondly.87 per cent of employees will receive tax credits through their employers. Thirdly, we shall improve job seekers' chances of obtaining employment from small businesses. Fourthly, we shall improve bureaucracy for the Inland Revenue. I believe that the case for allowing the small employer to opt out is overwhelming. I beg to move.
Lord Astor of Hever: I understand fully the reasons for the amendment ably moved by the noble Lord, Lord Goodhart. I wish to speak to Amendment No.33, and in particular to Amendment No.44, which aim to lift the burden of administering WFTC from small businesses. The Government have admitted that the WFTC will impose both administrative and financial burdens on business. The draft regulatory impact assessment of the provisions in the Bill estimates that the WFTC will cost employers £103 million a year with non-recurrent set-up costs of £43 million. Approximately a quarter of these recurrent costs are estimated to fall on businesses employing fewer than five employees. Businesses have expressed concern at this added administrative cost to their pay rolls as employers will have to bear the burden of distributing it.
In its budget submission, the CBI pointed out that the administration for the credit will be a new burden for companies and the cost will be significant in particular for small companies which are always hardest hit by red tape and will be specifically affected by compliance costs. The Inland Revenue said that smaller firms are more likely to pay low wages and are, therefore, likely to be disproportionately affected.
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TaxAid has serious concerns about the ability arid willingness of small firms to deliver the new tax credits because of the additional compliance burdens imposed on them. It envisages delays and errors in implementing payments and completion of forms by employers.
At Report stage and in the Third Reading debate in another place the Government conceded that employers who do not deduct PAYE and national insurance contributions from the pay of any of their employees will be exempt. I am aware that the Minister addressed exemption for small employers in her letter to my noble friend Lord Higgins. The noble Baroness said that exempting employers with one to four employees would eliminate about two-thirds of employers currently operating PAYE. That is exactly the point. Exempting small employers would remove at a stroke a huge chunk of the regulatory burden that the Government are about to impose.
In her letter the Minister also said that it would be difficult to apply a small firm's exemption. But all that would be needed would be an extra box on tine notice to the employer that tax credits were to be paid. A small employer would tick that box to say that he was exempt and send the notice back to the Inland Revenue. The Revenue would then pay the tax credits. Given that the notices would be sent out at least 14 days before the first amendment falls due, this should allow the Revenue enough time to realise that it would have to continue to pay tax credits directly.
We suggest that the provision should be widened to lift the burden of administering the WFTC from small businesses with a threshold related to the number of employees. Amendment No.33 proposes fewer than 20 which appears to be a figure recognised by the Government. Under the new fairness at work Bill companies employing fewer than 20 are not required to have statutory trade union recognition.
Amendment No.44 allows small companies employing fewer than 20 people a period of two years to give them more time to prepare themselves for change and allow many practical difficulties to be ironed out before they are brought within its scope. This will not interfere with the broad scheme proposed by the Government. But we are concerned that tax credits are being introduced with limited time for consultation and no opportunity to carry out any local pilot exercises which would help to ensure that they work in practice.
Small businesses have been submerged under a welter of time-wasting and cumbersome regulations from the Government and the European Union. They are now being asked to become the delivery mechanism of the welfare state. What they should be doing is creating wealth and providing jobs. In their manifesto the Government said that they would help create successful and profitable businesses and would bring in nevi measures to help them. I therefore hope that the Minister will give serious consideration to these amendments and

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will consider in particular Amendment No.44 so that employees of very small companies can have their tax credits administered by the Revenue until April 2002.
Baroness Turner of Camden: I hope that the Minister will not feel inclined to accept this series of amendments. I do not feel that I can support them.
As the noble Lord, Lord Goodhart, said in moving the amendment, there are a large number of small firms. To do as the amendment proposes would substantially undermine the principles on which the Bill is based. I should not be surprised if the Government were to reject the series of amendments.
I understand that assistance will be available to employers who ask for it and that employers will not be expected to be other than an agent for the Inland Revenue. The employer will have no role in assessment. All he does is what the Inland Revenue tells him to do on the basis of the information that the Revenue has.
It seems to me that small firms should welcome the Bill. As has been said, often it is small firms which complain that they cannot afford the high wages. The tax credit system provides them with a form of wage subsidy. The taxpayer will be assisting them through the tax credit system to pay lower wages than they might otherwise be pressurised into paying. Without it, particularly if unemployment declines, there will be greater pressure to pay higher wages. So small employers should be grateful for the system of tax credits. I believe that there is no case for exempting small employers from the provisions of the Bill. I hope that the Minister will reject the amendment.
Lord Peston: I have no idea what the Minister proposes to do as regards the amendment, but I support my noble friend Lady Turner in hoping that the Minister does not respond positively.
I begin with an acerbic remark (which is not deeply within my nature). I am opposed to Amendment No.44. It appears to be the tactic of the Opposition to say, "We do not like such-and-such a Bill. But if it is to go ahead what we would really like"—I refer to the House of Lords Bill—"is to postpone its operation until some date as far in the future as possible". If we are to go ahead with this Bill, which I strongly support, it makes extremely good sense to do so sooner rather than later.
Secondly, the noble Lord, Lord Astor of Hever, referred to the crushing burden of bureaucracy. What has most damaged small firms in this country has had nothing to do with bureaucracy or red tape: it has had to do with monetary policy. Under the previous administration, we saw a massive rise in bankruptcies, far in excess of anything seen in this country since the Second World War. Noble Lords on the Opposition Front Benches should be congratulating my right honourable friend the Chancellor for the great improvement in monetary policy, which will be beneficial to small firms.
Thirdly, although one favours small firms, one would not want to adopt the principle which states that almost any government proposal to move the economy forward
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will result in colleagues immediately putting up their hands and saying, "Except for small firms". That applies whether we are talking about the minimum wage or whatever. The logical consequence of the argument put forward by the noble Lord, Lord Goodhart. might result in abolishing PAYE for small firms. I was particularly concerned because his remarks appeared to be based on the assumption that there was total administrative incompetence among small firms. I pictured someone with a towel around his head unable to run a firm properly and the noble Lord saying that we ought to encourage small firms to continue that way.
It is about time that the small firms of this country—the few which are not very good—realised that it is not difficult to produce a modern, systematic approach to keeping accounts. The idea that they are still using pen and paper and cannot run a firm using even the most elementary computers also horrifies me. Therefore, I do not find the administrative argument compelling.
However, I wish to reflect on two other issues. First, my noble friend Lady Turner pointed out that, in general, the policy is beneficial to small firms because it enlarges the labour pool from which they can draw. Secondly, the noble Lord, Lord Goodhart, failed to deal with one aspect of the incentive issue. I was taken aback, and I am sure he will speak again. I considered that the argument on size was decisive; namely, that if a firm has 10 employees, on this analysis it would opt out. However, according to the amendment tabled by the Official Opposition, the number would be 20. Whichever, it is, the number is low. I was concerned, first, because the number of employees fluctuates and it was not obvious how the analysis of the noble Lord, Lord Goodhart, dealt with that. I listened carefully, but I was lost.
The second problem related the incentives. We hope that small firms will be successful and become larger. Indeed, by definition, all large firms were once small. We do not want someone to say, "If I get one more person who might be eligible for this benefit, I had better not employ him. " The last thing we want to do is to devise a system which gives an artificial disincentive to the firms.
I have no idea what my noble friend will say, but I believe that the amendments are not helpful to small firms. In particular, they might reinforce administrative incompetence and one should go to great lengths precisely not to do so. One should say, "This is an opportunity for you to improve the way in which you run your business".
3.30 p.m.
Lord Skelmersdale: Of course the Bill is an opportunity for small employers—indeed, any employer— paying at or near the minimum wage. To a great extent, it extends many moons beyond that point. That was discussed last week and on Second Reading. However, just because the Inland Revenue rather than the employer pays over the money for WFTC does not make it a greater or lesser benefit to small firms. It is a benefit to small firms anyway. Therefore, the argument put forward by the noble Baroness, Lady Turner, goes out of the window.

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The noble Lord, Lord Peston, said something which shook me rigid. Has he not noticed that he is in the House of Lords and has been for a considerable number of years? We are hamstrung by convention and rules into not dividing against the Second Reading of government Bills, except on rare occasions. This was not one of those rare occasions. Therefore, however much one disapproves of a Bill—and I disapprove of it fundamentally, as I have made clear a number of times—the only option left to us is to improve it in such ways as we can. It is to be hoped that that can be done by argument and occasionally taking the bull by the horns and going through the Division Lobbies. That may or may not he the case today. It is not a matter for me. Although it is impossible to make what I regard as a bad Bill better, it is within our remit to make a bad Bill less bad. I hope that that will be the case.
I do not regard Amendment No.29 as the most important on the Marshalled List today. The amendment tabled by my noble friend Lord Astor on agricultural workers in scope covers all casual and part-time workers. For reasons which he, I and other Members of the Committee will be able to discuss, it offers a stronger case for exempting them from payment through the wage packet. Nonetheless, contrary to what the noble Lord, Lord Peston, said, many small employers operate on a hand-to-mouth basis and in a total spin as regards the Inland Revenue and national insurance contributions. I have no doubt that inspectors have to visit such firms more often because their accounts are in a muddle. Any extra burden is bound to put their accounts in a greater muddle and that is a bad thing.
Lord Monkswell: When I saw the amendments on the Marshalled List, I presumed that they were probing amendments which would enable the Government to give chapter and verse as to why small firms were not exempt. However, having heard the noble Lord, Lord Goodhart, and others from the Opposition Benches, it seems that they are serious and that concerns me.
The argument put forward by the noble Lord, Lord Goodhart, contained inconsistencies and omissions. First, he subdivided the global figures for compliance cost assessment into the firms which would pay the WFTC. All firms will have to put in place systems and procedures to enable them to adapt to the new situation. Therefore, the compliance cost assessment will be spread over all firms, not just those which might have to pay the WFTC.
Lord Goodhart: I am grateful to the noble Lord, Lord Monkswell, for giving way. I must point out that the impact assessment splits the recurrent costs from the commencement costs. Installing a new system to cope with the changes would be a commencement rather than a recurrent cost. The figures I referred to were recurrent costs.
Lord Monkswell: Yes, but firms will move in and out of the system. The noble Lord, Lord Peston, pointed out that not only can the size of firms change but their wage bills and the amounts they pay individual employees can, too. That must be taken into account.
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Furthermore, the noble Lord, Lord Goodhart, suggested that by allowing some small firms to opt out, the system should be voluntary. I believe that small firms want consistency so that they know where they stand at all times.
They may opt in or opt out. Their circumstances may change and they have to think, "Did I opt out of that or did I opt in?" That is going to be a nightmare for the small firms in which the noble Lord appears to be particularly interested. However, Members of the Committee opposite have not said what this Bill is all about. As I understand it, it is merging the tax and social security systems. It is the first little stage in that process. Therefore, instead of having a vast government bureaucracy—taking money off people in tax and national insurance and having other vast bureaucracies which are shelling out income support, family credit and all other benefits—we actually sort out the national bureaucracy, make it more efficient and bring it together so that we have a one-stop shop operation.
The noble Lord, Lord Goodhart, and the Conservative Front Bench are saying that we are not going to do that, we are going to set up a whole new bureaucracy to pay out working families' tax credits, administered by the Treasury, rather than working through the normal Treasury procedures of the income tax and PAYE and national insurance systems.
I was driven to my feet not only by the details of the argument that has been presented by Members of the Committee opposite but by the fact that they seem to be so serious about it. I dearly hope that this debate can now be called to a halt and that my noble friend can explain to Members opposite what we are about and how it will be beneficial for everybody involved.
3.45 p.m.
Baroness Hollis of Heigham: I would like to speak to Amendments Nos.29, 32, 33 and 44. As my noble friends have said, these amendments would allow smaller employers effectively to opt out of the tax credit system. Amendments Nos.29 and 32 would allow employers of fewer than 10 employees to choose to opt out, and Amendments Nos.33 and 44 would exempt all employers with fewer than 20 employees from paying tax credits.
The first pair of amendments would potentially exempt 70 per cent of all employers except, of course. that the Inland Revenue would not know and would have to negotiate separately with every small business as to whether or not it was electing to opt out.
The second pair of amendments would exempt 80 per cent of employers across the board. As; perhaps the Committee may have suspected, I am afraid that the Government cannot accept either pair of amendments My noble friend Lord Monkswell is absolutely right to say that the point of the Bill is that tax credits will be paid through the wage packet. The amendments seek to take 70 to 80 per cent of employers from the operation of the Bill. In my book, that means that they come close to being wrecking amendments, and shall ask the Committee to reject them.

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The first pair of amendments, in practical terms, because they are concerned with election, would be more difficult to operate. The second excludes more employers and, therefore, more employees from its operation. They are both equally damaging to the spirit and purpose of the Bill.
Two main arguments have been advanced by the noble Lord, Lord Goodhart, and the noble Viscount, Lord Astor. The first is that WFTC is a burden on business and secondly, that employees who, as a result are eligible for tax credits, could find themselves discriminated against and, therefore, without a job. Those are the two arguments that have been advanced this afternoon.
I shall address those arguments in turn. Are they a burden on business? I do not doubt that small firms might wish responsibilities, such as those brought about by WFTC, to go away. I do not doubt, as my noble friend Lord Peston said, that they might have the same approach to the minimum wage, to the application of the Disability Discrimination Act, even to PAYE itself. Yet, in the Government's view, those are proper responsibilities for a business to undertake and, having reached that view, the Government cannot allow businesses to pick and choose which responsibilities they will honour and which they will avoid.
We believe, as my noble friend Lady Turner said, that employees are entitled to those rights, irrespective of the size of the business. Small businesses might have a case if we were asking employers each week to work out from highly complicated tax tables what each individual employee should be paid as wages, what should be paid as a tax credit and then have to repeat that calculation every week; in other words, if we were asking them to do PAYE-type calculations twice over. But, as I hope we made clear on the first day of Committee, all that work of calculation and assessment will be carried out not by the small businesses but by the Inland Revenue. Virtually nothing will be carried out by the employers, who will simply receive a notification from the Inland Revenue as to the additional sum, the daily tax credit, to enter on the pay slip and to pay. I repeat that all of the work involved in calculating the credit will be undertaken by the Inland Revenue and not by the employer. Once that tax credit has been resolved it will be paid at the same rate for six months.
We have always accepted that taking on the responsibility of tax credits means some extra work for employers but we are keeping that to an absolute minimum, which is why we have gone in for extensive consultation. We believe that we have devised arrangements accordingly. As one business representative said, handling WFTC will be very similar to, and certainly no more onerous than, handling a deduction of earnings order now required by the courts. It is a modest responsibility that small businesses, without fuss, sensibly take in their stride.
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I hope it will be agreed that this really is a modest task. The information is taken from the Inland Revenue, added to the pay slip and multiplied by the days at work. That is all.
Lord Skelmersdale: It is not all because, sooner or later, money changes hands.
Baroness Hollis of Heigham: Yes, but the calculation work is undertaken by the Inland Revenue. That is the point I make. Therefore, the work that will be handled by the employer is minimal. The Committee may agree that that work is relatively modest. Nevertheless, the argument of the Opposition is that it is the last straw, adding to the overheads of business in such a way as to undermine its competitiveness. That is hardly the case. I have here the September 1998 figures from Eurostat which compare the non-wage labour costs for business—that is the overheads, the additional costs of each employee over and beyond wages.
In Scandinavian countries, those payroll non-wage costs are on average over 50 per cent. In the Netherlands, they are over 49 per cent; in France and Germany, they are 44 per cent; in Italy, they are 44.5 per cent; in Spain, 38 per cent. The European average is about 42 per cent. One might assume that in the UK those costs might be at the same level as France or Germany at 44 per cent. No they are not. Perhaps then it is at the European average of 42 per cent. No. The UK's so-called burden on business, the average non-payroll labour costs, are 27 per cent, the lowest by far in Europe.
Of course, small businesses will grumble about anything that they are required to do, as employers, which distracts them from running their businesses and therefore, to that extent, takes their eye off increasing their profitability. But that does not mean their view is reasonable, as those Eurostat figures show, or that that responsibility is onerous, as I have sought to argue; it is not. The cost to them is modest. The average cost to all small businesses is about £37 per year, mostly through familiarisation work. I believe that 10 per cent of small businesses are likely to have a WFTC employee at any time.
I shall now engage with the noble Lord, Lord Goodhart, about the statistics that he was pressing upon me. Where a small employer has a WFTC member of staff, and costing the employers time at £20 per hour plus £35 overheads—mostly literature and so on—it will typically cost £135 per year for an employer with up to five staff of whom one is a WFTC employee. It will take five hours a year, which represents six minutes or 70p a week, to handle the paperwork. That is a worst-case scenario. Ninety-six per cent of small employers will spend much less than five hours a year on the paperwork and for those 96 per cent the cost will be much less than £135. Ninety per cent of small firms will spend only about £25 a year and six per cent will spend less than £135.
Despite the remarks of my noble friend Lord Peston, the worst-case scenario is of someone doing the calculations around the kitchen table. Once there are more than five employees, or up to nine or 10, as

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mentioned by the noble Lord, Lord Goodhart—let alone 20, as mentioned in the amendment of the noble Lord, Lord Astor—computer systems and software packages are needed to handle staff payment so the costs will drop dramatically. The worst-case scenario will almost certainly be, on the figures that I have given, £135 a year for a small business with one WFTC employee and using a manual system.
The Government are so determined to help small businesses to meet their responsibilities with as little cost and hassle as possible that the last Budget set up the creation of a small business service, with business guides, seminars, publicity, starter packs and guidance. There is also a new telephone helpline service for new employers, offering fast-track support. There is help for small businesses to move away from manual systems around the kitchen table—much as that is beloved by the party opposite—so that new employers can operate a standardised national payroll system to help with their returns.
The Government are also raising the threshold for quarterly payments of PAYE and lowering the small companies' tax rate from 23 per cent to 20 per cent, as well as introducing the new 10 per cent rate for the smallest firms.
On the WFTC, the Government are offering individual guidance, and if necessary a one-to-one visit to small firms, backed by regional Inland Revenue expert support teams. Of course, very small businesses—I refer to the 80,000 or so which do not have a PAYE or NICs liability—will be exempt altogether.
It is precisely because we do not believe that it is onerous and precisely because we have had widespread consultation that not only do we not accept these amendments, but we do not believe that Amendment No.44, which proposes a two-year delay, is necessary either. Draft regulations have been, and continue to be, discussed in detail with such organisations to ensure that the burden is minimised.
We want small businesses to flourish. We shall help them to flourish. We are generating a climate in which, as my noble friend Lord Peston said, they are flourishing. However, the other side of the huge degree of support that the Government are offering small businesses is that small businesses undertake their proper responsibilities and do not deny employees their rights. It is a contract.
The second argument advanced today—the major argument—is that if some employees attract tax credit and others do not, employers will discriminate against the former and avoid employing them in order to limit their burden. The Government reject that argument. Employers will not be certain whether an employee will or will not be eligible for WFTC. They would need a huge amount of information to decide on potential eligibility. Even then, WFTC may be paid to a partner or via a different payroll. Not only will it be unreasonable for small businesses to seek exemption from tax credits, but it will almost certainly be short-sighted. Small businesses which may employ an employee entitled to a tax credit are, by definition, as
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noble Lords suspected, likely to be low-paying firms, paying the minimum wage or not above it. That is the reason for having WFTC.
Small firms constantly complain about the quality of the labour force that they can attract at such low rates. of pay. Small businesses, quite reasonably. want a labour force that is steady, better trained and reliable. Each new vacancy is costly to fill. A high turnover of staff leads to the cost of constant retraining and often to poor service to the customer. Casual staff, as the Bath compliance study showed, have higher compliance costs than permanent staff. How will small businesses attract: and keep good staff when they offer low pay?
From extensive research, we know that the entry wage associated with a job is what matters to applicants. The 1996 report on lone parents on income support, for example, showed that what determined whether they rejoined the labour market was not the availability of childcare, although that mattered, nor the convenience of hours, although that also mattered, but, above all, the entry wage.
We know that entry wages are low, barely two-thirds of the average wage. Indeed, the median wage for lone parents on entry into work before April was £3.42. Wages climb when someone is in work, but if the entry wage is low, potential employees will not even consider the job. If they have children and receive housing benefit, they will consider themselves better off on benefit.
The pay package determines people's willingness to work. The WFTC means that employees with families will enter work at a wage to obtain the child benefit and tax credit of at least £200 a week. If WFTC is not paid through the pay packet and it does not thereby visibly increase the entry wage, the small employer will find his labour pool restricted to those employees not eligible for WFTC. Who are they? They are largely single people, especially the young, the poorly skilled, perhaps the poorly motivated who will change jobs as soon as they can. It is those people to whom the employer would have to turn.
Paying WFTC through the pay packet will allow an employer to recruit a lone parent with heavy childcare costs or an older married man with several children who, because of WFTC, will be able to afford to take jobs with wages on which, otherwise, only young, single and restless people could manage to live. The small employer will attract and keep a better quality (and probably more loyal) labour force.
The Government are playing their part in helping to train and educate potential staff through the New Deal programme. We are offering, as my noble friend said, a wage subsidy to employers to attract and hold staff. In return, the Government can expect small businesses to play their part—not an onerous part—in administering the tax credit.
Finally, I have a brief set of reasons for asking the Committee to reject these amendments. As your Lordships have suspected, they will be very difficult to enforce. Inland Revenue officials tell me. "It will be an

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administrative nightmare, with much toing and froing between the Inland Revenue and employers and with employees not knowing where they stood".
Why? The Inland Revenue will need to know the number of people employed by a particular employer. That figure is based on end-of-year returns and can be a year out of date. Of course, one could ask employees how many staff are employed, but part-time staff are not necessarily likely to know. It is not, as the noble Lord, Lord Astor, said, just a question of ticking a box. The Inland Revenue would have to check that information. In the process, delays would be built into the system and it would take longer for employees to receive the money to which they were entitled.
Whether the figure provided is under 10, as in Amendment No.29, or the larger figure of under 20, it would present a cliff-edge. Employers can move across that 10 or 20 line several times a year, especially if business is seasonal, or semi-seasonal, such as the hotel trade. In that case individual employees receiving WFTC would find themselves utterly confused, being paid as though they were on family credit for six months and in the next six months being paid through the pay packet, according to whether the employer had taken on another member of staff. With the "cliff edge" in operation, the 11th or 21st prospective employee with the potential to be a WFTC claimant would be unable to be employed. If the 11th or 21st staff member was not a WFTC claimant, would the employer seek to get rid of somebody else currently on the staff and a WFTC claimant? As my noble friend Lord Peston said, a cliff-edge provision is a severe disincentive to business expansion. Most likely, the employer would not expand the labour force or would make "black economy" arrangements.
I believe that these amendments would drive a coach and horses through the Government's intention behind the Bill, which is unambiguously about paying tax credit to show employees that work pays and that tax credits are not income support, but a reward for work. Showing the credit on a pay slip, as an increase in take-home pay, emphasises that. Embedding the tax credit in the tax system will help to break the link with the social security system.
That is why we do not believe it right to exempt between 70 and 80 per cent of employers from this Bill, which is what the amendments would do, and virtually the whole of rural Britain. The credits are not onerous. They will help to offer small employers what they say they most need if their business is to flourish; that is, good, reliable staff. For those reasons I hope that the Committee will reject these amendments.
4 p.m.
Lord Astor of Hever: Perhaps I can pick up one point the Minister made; I am not sure that she read carefully the exact wording of our amendment. She implied that we are trying to deprive employees of something. We are not. We are merely suggesting that
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employees of small companies be paid by the Revenue or that this provision comes into force in two years' time. Neither of these is a wrecking amendment.
Baroness Hollis Heigham: On the contrary. That is why the Government are moving on from family credit. The noble Lord is seeking to continue family credit arrangements for 80 per cent of the employers of this country. As this Bill is about not continuing family credit but substituting tax credits, then any amendment which takes 80 per cent of employers out of the system is, by my definition, a wrecking amendment.
Lord Goodhart: Perhaps I might start with the point in relation to taking 80 per cent of employers out of the scheme. That was a point also raised by the noble Baroness, Lady Turner of Camden. Both she and the Minister said that this would substantially undermine the purpose of the Bill. It is surely inaccurate to say that the purpose of the Bill is to increase the burdens on employers. Its purpose, as part of the scheme, is to put more money into the hands of employees who are in relatively low-paid employment. The percentage of employers therefore that we take out of the scheme is wholly irrelevant. One has to consider the percentage of employees who are taken outside the scheme.
It is extraordinarily difficult to see how a proposal which would leave 87 per cent of employees in the scheme can be regarded as substantially undermining the purpose of the Bill. It would mean that seven out of eight employees would remain in a position where they would receive their tax credits through their employer.
The other argument put forward by the noble Baroness, Lady Turner of Camden, that tax credits provide a wage subsidy is one which I suspect would not be endorsed very warmly by the Minister. It is certainly no part of the Government's proposals—as I understand it—that they intend to help small employers by introducing a wage subsidy that would drive down wages. For those of a historical turn of mind, we certainly do not want to go back to anything like the Speenhamland system of outdoor relief.
Baroness Turner of Camden: Does the noble Lord, Lord Goodhart, agree that the system of subsidy, of the kind envisaged in tax credits, could have the effect of increasing the employment opportunities available because more employers with little resources would feel able to employ people?
Lord Goodhart: That is a point I do not believe the Government would welcome. Indeed, one of the arguments the Government put forward is that the working families' tax credit would not have the effect of driving down wages because there is now a wages floor through the minimum wage.
Baroness Hollis of Heigham: I am grateful to the noble Lord, Lord Goodhart, for giving way. My noble friend did not say that this was a wage subsidy to stop wages from being driven down below the minimum wage level. That is precisely why, in Opposition, we would be uneasy about things like earnings top-up

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schemes without the floor of the minimum wage; otherwise, one is a friend of the "sweater". As an anonymous Victorian said, the point here is that it remains marginal for people with additional responsibilities—the lone parent with high childcare costs, married men with several children—to take the risk of coming off benefit and going into work if the pay being offered is perfectly properly at or just above the minimum wage because they do not see any obvious benefit.
As my noble friend said, by having a tax credit we improve that entry wage from effectively around £3.50 an hour to nearer £5 an hour or thereabouts. As a result. we make it attractive to work; it is a work-incentive; and we do that by subsidising the wage of those who would otherwise be somewhat marginal to the labour market.
Lord Goodhart: We have had this argument before. We accept of course that there may be some incentive in the scheme to get people back to work. But we do not think the number is likely to be large. There have been various estimates but the general figure that comes out of the IFS and other sources is running at around 30,000, give or take 10,000 or so either side, additional people coming back into the workforce. The argument of the noble Baroness, Lady Turner of Camden, is that more employment may he created by driving down wages to the minimum level.
Lord Peston: Perhaps I may interrupt the noble Lord for a minute. This is an important point which is not semantic. As I understand the benefit system as it exists at the moment, where one would lose all benefit if one took a job, one would have to be paid a considerable wage to make it worthwhile to take the job. One way of dealing with that is to threaten people, which was an approach often advocated by noble Lords opposite. Many of us do not believe that to be a suitable state of affairs for a civilised society.
The alternative is to arrange the payment of certain sums in such a way that we do not need such an enormous salary because we do not lose out by taking a job. We can bandy words about as to whether or not that is a wage subsidy, but the economic point is that it does not drive wages down; it simply makes a specific wage more acceptable so people do not have to be threatened to take a job. Of their own free will they will now take a job, which I assume all of us would like to see. even though we may disagree on alternative schemes. That is the enormous advantage of this Bill which should not be undermined in any way whatever.
Lord Goodhart: The advantage of the Government's working families' tax credit scheme, as I said at Second Reading, comes not from this Bill, but from the much more generous payments that are to be made under regulations.
Perhaps I may pass on to what the noble Lord, Lord Peston, himself said. He compared the burden to employers of operating the tax credit system with the burden to employers of operating PAYE. He said if they do one, why should they not do the other. I accept that
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a considerable burden is imposed on employers by the PAYE system, but the reason for that is that a deduction at source system is essential if taxes are to be properly collected. It saves the Inland Revenue from having to track down every last employee to collect their taxes from them. There are therefore, from the point of view of public finances, enormous advantages in having a PAYE system. That is simply not true of what is new proposed where it could just as easily be done, in relation to administration costs, through a direct payment to the employee.
The question then arises in relation to the dividing line. By the time we get to 10 or more employees, it is becoming a reasonably substantial business. There are likely to be computer programmes or bookkeeping staff who will be able to take on board the working families' tax credit without serious problems. Indeed, as the noble Baroness said, the average cost per head of paying working families tax credit will go down sharply as the organisation gets larger.
The noble Lord, Lord Monkswell, said that this was something that would involve a major exception to the Government's plans. The fact is that the Government have already indicated that they are prepared to allow two major exceptions to payment through the wage packet. One is by not requiring payment through the wage packet for perfectly good administrative reasons, for the employer who does not pay tax and NICs—I understood the Minister to say that there are 80,000 of those, so if one in 10 is employing somebody who is entitled to tax credits, it may not be a large figure, but it is not insignificant.
Secondly, and rather more importantly, the Government have, perhaps under pressure from the women's organisations, agreed that couples can choose to have the payment made to the caring partner arid that will come direct from the Inland Revenue, not from the employer. I give way to the Minister.
Baroness Hollis of Heigham: The noble Lord is quite right in what he said about the 80,000 employers. However, the sort of employer that we are talking about could perhaps be someone like the noble Lord himself who may, for example, have some cleaning help at home. It is that sort of situation where it would not be appropriate to bring someone within WFTC. The noble Lord also mentioned the additional cost to both staff and employers. There is no evidence to suggest that that will be the case.
Lord Goodhart: I accept that the burden is not an enormous one because the calculating rate will be done by the Inland Revenue. But there are odd details involved. For example, those concerned will have to convert the daily rate into something that is appropriate to the tax period for which they are charging. But, rather more importantly, among smaller employers to a far greater extent than among larger employers, there will be those who will have to apply to the Inland Revenue for payment because the burden of what they pay out through the tax credits will be larger than what they deduct through PAYE and NICs. lit is virtually inconceivable that more than a tiny minority of

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employers with 10 or more employees would end up in such a situation. It is much more likely that there will be quite a number of them among those with fewer than 10 employees.
It is said that there is an absolute minimum of work involved. However, without providing a full explanation as regards the figures, the Minister did agree that, in what she described as a "worst-case scenario", the cost would be £135 a year for an employer in that category. Nevertheless, she did not explain the point that I raised on Second Reading and which, therefore, she has had some weeks to look into; namely, how she reconciles that with the figure in the same paragraph of the impact assessment which suggests that the total costs for this group will be £24 million—that is £37 per head. Indeed, if one takes into account the fact that only 10 per cent of employers will be employing someone under the tax credits scheme, that works out at £370. There still seems to be an enormous gap.
I agree that there is a certain internal inconsistency within some of the figures in paragraph 56 of the impact assessment, but no explanation has been given in that respect. I shall give way to the Minister in a moment. Surely, it would have been possible for the noble Baroness to have looked into the figures in the three weeks or so since Second Reading. She could then have explained to the Committee what paragraph 56 really means.
Baroness Hollis of Heigham: I attempted to deal with this point fairly fully. The figure of £37 was the average. However, we also said that in the case of an employer with one to five employees, where one was receiving WFTC, we expected the average cost to be about £135 a year, bearing in mind that it should take about six minutes and cost 70 pence a week. That is because some of the costs apply to all employers whether or not they have a WFTC employee. That is why you cannot do the multiplication by 10.
As to the noble Lord's previous point regarding extending choice in the way that applies to working couples, again, that is not the case. If the choice of the couple is for the payment to be made to the man who is in work, he does not have a choice of being paid at home; he can only be paid through the pay packet.
Lord Goodhart: I am perfectly well aware that if the man elects for payment he will receive it through the wage packet and that it will not be paid directly to him. However, if a couple elects for the payment to be made to the caring non-earning parent, the payment does not go through the wage packet. That is a major infringement of the purity of the system.
The Minister made a point about non-wage labour costs and pointed out that the figure for Scandinavia was more than 50 per cent of the actual wage costs. She also mentioned that for France, Germany and Italy the figure was around 44 per cent and that it was 27 per cent for the United Kingdom. My reaction to that would be to say: good, let us keep it that way. It seems to me that
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this is one of the costs which is unnecessary. Indeed, I can see no serious benefit either to the economy or to the employees through doing it that way.
I have no doubt that the Government have carried out widespread consultation. But we have not been told the results of it. It is clear that business, especially small business, is vehemently opposed to these proposals. The poverty groups undoubtedly welcome the higher level of support which will be given via tax credits, as compared with family credit. However, as far as I am aware, they do not put any serious emphasis on its payment through the wage packet rather than directly to the earner. Indeed, I believe that many of them are as worried as we are about the effect of switching from the purse to the wallet—an argument with which we have dealt before.
It may be a short-sighted policy on the part of employers to reject employees who are likely to be eligible for tax credits, but it will not necessarily be that difficult to identify which potential employees are more likely to be eligible. Short-sighted or not, I believe that employers are likely to discriminate in that respect. Of course, the Government have done what they can through Schedule 3 to the Bill to prevent that, but there is no way in which one can identify every case, or a substantial number of cases, in which that is the undisclosed reason for one employee being preferred to another.
The working families' tax credit may increase people's willingness to take up jobs, but I believe that that is due to its total income effect. I am afraid that I remain unpersuaded by what the Minister said. I therefore wish to test the opinion of the Committee.
4.17 p.m.
On Question, Whether the said amendment (No.29) shall be agreed to?
Their Lordships divided: Contents, 161; Not-Contents, 121.

Division No.1

CONTENTS

Aberdare, L.

Butterworth, L.

Addington, L.

Cadman, L.

Addison, V.

Caithness, E.

Ailsa, M.

Calverley, L.

Alexander of Tunis, E.

Campbell of Alloway, L.

Ampthill, L.

Campbell of Croy, L.

Anelay of SL Johns, B.

Carlisle, E.

Annaly, L.

Carnock, L.

AstorofHever, L.

Chadlington, L.

Avebury, L.

Chesham, L.

Belhaven and Stenton, L.

Clanwilliam, E.

Bell, L.

Clement-Jones, L.

Bemers, B.

Colwyn, L.

Biddulph, L.

Cope of Berkeley, L.

Biffen, L.

Courtown, E.

Blaker, L.

Cowdrey of Tonbridge, L

Blatch, B.

Cox, B.

Bowness, L.

Davidson, V.

BrabazonofTara, L.

De Freyne, L.

Brentford, V.

Dean of Harptree, L.

Bridgeman, V.

Deedes, L.

Brougham and Vaux, L.

Denham, L.

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Denton of Wakefield, B.

Miller of Chilthorne Domer, B

Dholakia, L.

Miller of Hendon, B.

Dudley, E.

Monro of Langholm, L.

Eden of Winton, L.

Montgomery of Alamein, V.

Elliott of Morpeth, L.

Morris, L.

Exmouth, V.

Mountevans, L.

Ezra, L.

Mowbray and Stourton, L.

Falkland, V.

Moyne, L.

Fookes, B.

Munster, E.

Freeman, L.

Murton of Iindisfarne, L.

Gainford, L.

Newby, L.

Geddes, L.

Nicholson of Winterbourne, B.

Glentoran, L.

Noel-Buxton, L.

Goodhart, L. [Teller.]

Norrie, L.

Gray of Contin, L.

Northesk, E.

Hampton, L.

Nunburnholme, L.

Hamwee, B.

Oppenheim-Bames, B.

Harding of Petherton, L.

Pender, L.

Hannar-Nicholls, L.

Perry of Southwark, B.

Harmsworth, L.

Quinton, L.

Harris of Greenwich, L.

Rathcavan, L.

Harrowby, E.

Redesdale, L.

Hayhoe. L.

Renwick, L.

Henley, L.

Rodgers of Quarry Bank, L.

Higgins, L.

Romney, E.

Holdemess, L.

Rotherwick, L.

Hooper, B.

Rowallan, L.

Howe, E.

Russell, E. [Teller.]

Hylton, L.

Saatchi, L.

Jellicoe, E.

St John of Fawsley, L.

Kimball, L.

Sandberg, L.

Kinnoull, E.

Sandford, L.

Kitchener, E.

Sandwich, E. B.

Knight of Collingtree, B.

Sharp of Guildford

Lane of Horsell, L.

Seccombe, B

Laudcrdale, E.

Soulsby of Swaffham Prior,

Lawson of Blaby, L.

L. Stodart of Leaston, L.

Leigh, L.

Strathcarron, L.

Lester of Herne Hill, L.

Sudeley, L.

Long, V.

Swinfen, L.

Lucas, L.

Teviot, L.

Lucas of Chilworth, L.

Thomas of Gwydir, L.

Ludford, B.

Thomas of Walliswood, B.

Luke. L.

Tope, L.

Lyell, L.

Tordoff. L.

McColl of Dulwich, L.

Trefgame, L.

McConnell, L.

Trumpington, B.

Mackay of Ardbrecknish, L.

Vivian, L.

Mackay of Drumadoon, L.

Waddington, L.

Mackie of Benshie, L.

Wade of Chorlton, L.

McNair, L.

Wallace of Siiltaire, L.

Maddock, B.

Wigoder. L.

Marlesford, L.

Wilcox. B.

Mayhew of Twysden, L.

Williams of Crosby, B.

Mersey, V.

Winchilsea and Nottingham, E.

Meston, L.

Windlesham, L.

Methuen, L.

Wolfson, L.

Middleton, L.

Young, B.

NOT-CONTENTS

Acton, L.

Brightman, L.

Ahmed, L.

Brooke of Alverthorpe, L.

Allen by of Megiddo, V.

Brookman, L.

Alli, L.

Brooks of Tremorfa, L.

Annan, L.

Bruce of Donington, L.

Archer of Sandwell, L.

Burlison, L.

Ashley of Stoke, L.

Carter, L. [Teller.]

Bach. L.

Castle of Blackburn, B.

Barnett, L.

Clarke of Hampstead, L.

Bassam of Brighton, L.

Clinton-Davis, L.

Berkeley, L.

Cocks of Hartcliffe, L.

Blackstone. B.

Craigmyle, L.

Blease, L.

Crawley, B.

Blytli, L.

David, B.

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Davies of Coity, L.

Marsh, L.

Davies of Oldham, L.

Mason of Barnsley, L.

Dean of Thomton-le-Fylde, B.

Merlyn-Rees, L.

Dixon, L.

Merrivale, L.

Donoughue, L.

Milner of Leeds, L.

Dormand of Easington, L.

Molloy, L.

Evans of Watford, L.

Monkswell, L.

Falconer of Thoroton, L.

Montague of Oxford, L.

Farrington of Ribbleton, B.

Morris of Castle Morris, L.

Gilbert, L.

Morris of Manchester, L.

Gladwin of Clee, L.

Murray of Epping Forest, I

Glenamara, L.

Orme, L.

Gould of Pottemewton, B.

Palmer, L.

Graham of Edmonton, L.

Paul, L.

Gregson, L.

Peston, L.

Grenfell, L.

Pitkeathley, B.

Hacking, L.

Plant of Highfield, L.

Hardy of Wath, L.

Ponsonby of Shulbrede, L

Haskel L

Prys-Davies, L.

Hayman, B.

Randall of St. Budeaux, L

Hilton of Eggardon, B.

Rea, L

Hollis of Heigham, B.

Rendell of Babergh. B

Richard L.

Howie of Troon

Rix, L.

Hoyle, L.

Sainsbury of Turville,

Hughes, L

Sawyer, L

Hughes of Woodside, L.

Scotland of Asthal

Hunt of Kings Heath, L.

Sefton of Garston, L.

Hylton-Foster, B.

Serota, B.

Ilchester, E.

Shepherd, L.

Irvine of Lairg, L. [Lord Chancellor.]

Simon, V.

Islwyn, L

Simon of Highbury, L.

Smith of Gilmorehill, B.

Janner of Braunstone, L.

Stallard, L.

Jay of Paddington, B. [Lord Privy

Stoddart of Swindon, L.

Seal]

Strabolgi, L.

Jeger, B.

Taylor of Blackburn, L.

Jenkins of Putney, L.

Tenby, V.

Johnston of Rockport, L.

Thornton, B.

Judd, L.

Turner of Camden, B.

Kirkhill, L.

Uddin, B.

Lockwood, B.

Varley, L.

Lofthouse of Pontefract, L.

Walker of Doncaster, L.

Longford, E.

Walpole, L.

Lovell-Davis, L.

Weatherill, L.

Macdonald of Tradeston, L.

Wedderbum of Charlton, L

Mclntosh of Haringey, L. [Teller.]

Whitty. L.

Mackenzie of Framwellgate, L.

Williams of Elvel. L.

Resolved in the affirmative, and amendment agreed to accordingly.
4.28 p.m.
Lord Higgins Lord Higgins moved Amendment No.30:
Page 3, line 35, at end insert—
("( ) The Board shall be responsible for paying to each employer with employees entitled to any tax credit the total amount due to their employees at the end of each week. ")
The noble Lord said: This amendment has; virtually nothing to do with the previous amendment, in an important respect. Many of our debates have turned on the virtue or otherwise of paying the working families' tax credit directly to the employee or through the payroll. There have been considerable divisions of opinion on that matter. This amendment is different. It is predicated on the assumption that perhaps the Government's plan will go ahead. Given the majority in another place, that may be the case.
This amendment seeks to minimise the disadvantages of the Government's scheme. As far as I can establish, this point has not been considered by the Government.
I seek to persuade the Government that this matter is worthy of consideration. Amendment No.30 seeks to insert the words,
"The Board shall be responsible for paying to each employer with employees entitled to any tax credit the total amount due to their employees at the end of each week".
As we have already discussed, part of the problem with this scheme is that it is not a true tax credit scheme. A separate arrangement will be required alongside the PAYE system whereby the working families' tax credit is passed from the Government to the employer and on to the employee. The Government have told us that it is important that the payment should be made through the payroll rather than otherwise. We do not agree with that and I do not accept for a moment that that should be the case. However, if that does occur, we want to see a system established with as few disadvantages as possible.
When we discussed this matter while debating earlier amendments, the noble Lord, Lord McIntosh of Haringey, accepted that all businesses will suffer disadvantageous effects as a result of this proposal as regards their cash flow position compared with the present situation. That is common ground between us. We on this side of the Chamber believe that that is one of the disadvantages of what the Government propose. We would like to see that position improved. The noble Baroness has told us time and time again that the measure will not impose a burden on employers because the Inland Revenue will do the necessary calculations and will inform employers how much they need to pay to each employee.
I raise my next point as the noble Baroness laid great emphasis on it in the debate we have just had. I refer to a statutory instrument which we are considering. Throughout our discussions the noble Baroness has told us not to worry about employers having to do calculations in this regard as that will all be done by the Inland Revenue, who will tell employers precisely how much they have to pay to each individual. The noble Baroness has made that point time and time again. I am therefore puzzled by the Draft Tax Credits (Payment by Employers) Regulations 1999 which the Government were good enough to lay before the Chamber.
Unfortunately the pages of the draft statutory instrument are not numbered, which is a shame. That is rather foolish when I come to think about it. About halfway through the statutory instrument is the following heading,
"Relevant employer's … obligation to pay tax credits".
Paragraph 5(1) states,
"On receipt of a start notification in respect of an employee the … employer … shall calculate the tax credit to which that employee is entitled to be paid in each pay period during which the employer will be responsible for paying tax credit to that employee".
I suspect that others who have followed this debate will be as puzzled as I am at that because it would seem to be clearly inconsistent with what the noble Baroness has told us throughout our debates. I should therefore be grateful if the noble Baroness will tell us whether the clear assurance she has given—or perhaps the noble Lord, Lord McIntosh, can tell us this, although the noble
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Baroness has given us the assurance up until now—is correct. We can also consider this amendment on later occasions. Therefore, for the sake of argument, I shall assume that the noble Baroness's assurance was not only made in good faith—which of course it was—but was also correct. However, we need to be clear about why the statutory instrument seems to conflict with that assurance.
Given all the problems and the pages of statutory instruments relating to the mechanics of the matter which the Government now envisage, the whole process is unbelievably complicated. I refer to clawing back part of the money through the PAYE system and the company working out, from its recovered national insurance contributions, its recovered tax payable under PAYE and the deduction of the working families' tax credit, the net amount which it must remit in each tax period to the Revenue. In my view it is unnecessarily complicated. If the Government are really anxious that this provision should be paid through the pay packet—as I say, we dispute that—as the calculations are to he done by the Inland Revenue, the Board should simply pay each employer the amount due to his employees. I do not understand why we are contemplating this chaotic process of deducting sums from this, that and the other rather than implementing the simple process I have just suggested.
Perhaps the Minister will tell us whether my suggestion has been considered. The noble Lord, Lord McIntosh, has great experience of the operational end of business. I am sure he will realise that if there is to be a quite separate system of payments, it should not become involved with the PAYE system in this unnecessarily complicated manner. That poses a far greater burden on business and a problem for all concerned. I hope that we shall be given clarification with regard to the point I made about the statutory instrument. I hope the Government will also say that my suggestion is a possible way of approaching the matter which has obvious advantages. What is now proposed by the Government has obvious disadvantages. I hope the Minister will say that the Government will consider my suggestion and return to the matter at Report stage. I beg to move.
4.30 p.m.
Lord Peston: The noble Lord, Lord Higgins, did not say this is a probing amendment. The amendment raises interesting and important questions. Therefore I hope that it is a probing amendment. The noble Lord mentioned all kinds of matters which are too complicated for me to consider. Therefore I shall concentrate on one simple point which occurred to me when I saw the amendment; namely, the matter of cash flow. We know that the overwhelming characteristic of a small business is that it is in hock to the joint stock banks. Problems arise as it often appears that small businesses are working for the banks rather than for themselves. Therefore we must take this matter of cash flow seriously.
I had assumed that Clause 6(2)(f) on the payment of interest would cover this point; namely, that it appears to me not to be right that the business itself should essentially advance money to the Government in order

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to finance this reform—it is a reform which I strongly support. In other words, the business concerned should not pay out sums and then wait several weeks for the Government to compensate it for that. I had assumed that was what the amendment was about. That seems to me to be an absolutely fundamental principle. I hope my noble friend the Minister will reassure us on that point.
I believe there are two aspects to this matter. First, as the noble Lord, Lord Higgins, says, there should be no delays in payment. That seems to me to be essential. As regards my next point, I assume that we shall not know the details of this matter until we see a statutory instrument, or at least that is my reading of Clause 6; namely, that regulations will be issued. Secondly, if in practice some firms are essentially lending money to the Government to run the scheme, they should at least be compensated with a rate of interest that they themselves have to pay. In other words, that should be included in the regulations. It should not be the case that the Government say, "Oh!We are only willing to pay this much interest even though you pay twice as much to your hank". The noble Lord, Lord Higgins, is right to raise the question. I am confident that my noble friend will be able to answer at least that part of it. I hope that he can reassure us that, whatever else we have said—we disagreed about burdens earlier, although we lost the vote, not the argument on that occasion—this is a question well worth answering and that the Government are not expecting businesses in general, and small businesses in particular, to subsidise the scheme in that sense.
Lord Skelmersdale: Irrespective of subsidy, it seems to me inevitable that, certainly at the beginning of periods of payment, the small business, for example, or any business which calculates its NICs monthly, will for the first three weeks necessarily be paying; then it will take the money off what it owes on NICs and tax. Essentially, it is reclaiming the money even though the Revenue as such does not get involved.
What worries me about the whole scheme is what the Revenue does now. The Revenue is now responsible for claiming tax through the PAYE system. When one first goes into employment without a P45—in other words, without any previous earnings during the course of the year—one is put on an emergency tax code. Eventually, that code is translated into one's proper code. But "eventually" can be a very long time; it can be anything up to six or even eight weeks. If this is to happen with family credit, it does not bode well for the whole system. That worries me tremendously. As far as it concerns casual workers, if this procedure is followed they may never get the money before they leave the employment and they may well go back to a period of unemployment. That is also extremely worrying. I support my noble friend's amendment.
4.45 p.m.
Lord McIntosh of Haringey: I am grateful to the noble Lord. Lord Higgins, for his opening remark. He said that perhaps the thing is remotely possible, as Lewis Carroll would have said, and that the Government's
574
scheme will go ahead. Indeed it will. The Government fully intend to pursue the scheme and we have not been persuaded otherwise by any of the arguments against it.
The purpose of Amendment No.30 is to oblige the Inland Revenue to pay to employers each week the total amount of tax credit payable to their employees. That would certainly involve a huge amount of paperwork for both the Revenue and employers. However, I am glad to assure the noble Lord that, because of the way in which we have designed the employer payment scheme, that is quite unnecessary. Not only is it unnecessary, but it would give rise to the absurd situation of employers receiving a weekly cheque from the Revenue only to pay some or all of the money back in the form of a monthly or quarterly payment to the Revenue of PAYE taxes and NICs deducted from employees' pay.
The noble Lord said that his amendment would minimise any disadvantage to employers. I an-1 afraid it would very much increase the disadvantage to employers. All employers asked to pay tax credits through the payroll will be already operating a PAYE scheme. Therefore, they will all have some PAYE/NICs liability to the Revenue. That is why we are providing in regulations for employers to set off the tax credits they have to pay against their tax/NICs liability. When paying over the PAYE, tax and NICs—and, incidentally, student loan recoveries—to the Revenue, employers will simply reduce the total by the amount of tax credits they have paid. In many cases that will involve one straightforward transaction between the Revenue and the employer instead of two, as would be the norm if Amendment No.30 were accepted.
Perhaps I may refer back to what the noble Lord, Lord Skelmersdale, said on the previous amendment. He said that in the end money will change hands. It will not. All that will happen is that a smaller payment will be paid to the Inland Revenue as payment for PAYE and NICs because the tax credit will be netted off against it.
Lord Skelmersdale: Of course money changes hands. Assuming that the employer does not have more claims than expenditure, he sends a cheque to the Revenue.
Lord McIntosh of Haringey: The employer will send a cheque for a smaller sum. "Money changing hands" implies an additional transaction. That is not an additional transaction. The noble Lord said on the previous amendment that there will be a further transaction. There will not be.
Lord Skelmersdale: One cannot translate part of my argument from the previous amendment to this one. In this case money changes hands. I accept the Minister's statement that it will almost certainly be a smaller amount of money changing hands. In extreme cases, it will be an income from the Revenue.
Lord McIntosh of Haringey: We are talking about burdens. There would be a burden if there were an additional calculation and transaction. There is neither an additional calculation nor an additional transaction. Let me interrupt myself to reassure the noble Lord,

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Lord Higgins, about calculations, and both my noble friend Lord Peston and the noble Lord, Lord Skelmersdale, about lending money to the Government. As far as concerns the calculations, assurances have not only been given by my noble friend Lady Hollis, but I spelt out explicitly on the first day of Committee that the only calculation required of employers will be to convert the daily rate of tax credit and to multiply it by the number of days worked. That is all; no further calculation will be required. There will be a table with 31 days on it, and from one to 31 days will be the figure to be paid out in tax credits.
Lord Peston: Perhaps I may interrupt my noble friend. I hope that he is not saying that it will be impossible for the firm—the employer—to be in credit to the Inland Revenue or for the Inland Revenue to be in debt to the employer. Is my noble friend saying that that cannot happen?
Lord McIntosh of Haringey: I am first addressing the issue of calculation which was raised by the noble Lord, Lord Higgins.
Lord Higgins: The noble Lord seeks to clarify the situation. I quote again from paragraph 5(1) of the statutory instrument, under the heading of,
"Relevant employer's … obligation to pay tax credits".
It reads:
"On receipt of a start notification in respect of an employee the …employer shall calculate the tax credit to which that employee is entitled",
during the period when the employer will be responsible for the payment of tax credit to that employee. It does not say that on receipt of a start notification the Inland Revenue will inform the employer of the calculation.
Lord McIntosh of Haringey: As the bellman said, "What I tell you three times is true". I said it on the first day of Committee; I have said it just now; I say it again: no calculation is required other than converting the daily rate, which is notified to the employer by the Inland Revenue, of the amount to be paid and multiplying it by the number of days worked in the particular period. That is the only calculation required.
Lord Higgins: Then why does not the statutory instrument say so?
Lord McIntosh of Haringey: I think it does. Clearly, if there is going to be disagreement about it we will add to our procedures of consultation. I shall write to the noble Lord if any change in the wording is required. But it is totally explicit as far as I am concerned.
Baroness Knight of Collingtree: Might it not be easier if the SI did not state what my noble friend has just read out to the Committee?
Lord McIntosh of Haringey: I did not say that there was no calculation; I stated the calculation. That is what is set out in the statutory instrument. I really do not know how I can be any clearer.
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My noble friend Lord Peston and the noble Lord, Lord Skelmersdale, referred to delays in payment and to the prospect, as my noble friend put it, of employers lending money to the Government. There is no question of employers lending money to the Government. In most cases the amount of money which is due to the Inland Revenue in the form of payment of PAYE and NICs will be reduced by the amount of tax credits.
The noble Lord, Lord Higgins, used the word "suffer" for that. All I can say is that since PAYE was introduced in 1949, it has been the case that employers have had a short-term cash-flow benefit which will be marginally reduced in most cases. But they have had no right to that cash-flow benefit and it has never been queried that it happened because of the administrative convenience of the PAYE system both for them and for the employee. All that will happen is that there will be a slight reduction in that cash-flow benefit. I do not call that suffering.
There are other cases. We recognise that. We estimate that between 50,000 and 70,000 employers will have more to pay out in tax credits than they pay out in the form of PAYE and NI contributions. In those cases, all they have to do is to notify the Revenue in advance of that fact and, depending on the form of credit transfer—whether they use automated credit transfer or otherwise—they will receive the money in good time to make the payment to the employee. In the worst of all possible cases, when someone messes that up, the Revenue has the power to intervene and make emergency provision.
Lord Peston: My noble friend's argument is decisive and basically satisfies me. However, I am puzzled as to why paragraph (f) on interest payments should include,
"interest on sums due from …the board".
On my noble friend's argument, that cannot conceivably happen because the board will always be paying up. Surely the parliamentary draftsman must have been advised that it was at least possible that the board would end up owing some money to the employer. Although I accept entirely what my noble friend said, if employers are owed sums they should get a proper rate of interest on those sums and not a derisory amount like the current Treasury discount rate.
Lord McIntosh of Haringey: Clause 6(2)(f) merely provides that if money is owed the appropriate rate of interest will be specified in regulations. I can confirm that if something went wrong and the employer failed to make the application in time there would be a rate of interest. The regulations have not yet been drafted to specify what it would be, but I am sure that officials will have listened to my noble friend's point about the rate of interest that would be relevant. The point I have to make is that this has nothing to do with compensating employers for forgone interest or anything else. That is not the purpose of Clause 6(2)(f).
I believe I have made clear that there is no question of lending money to the Government and there is no question of elaborate calculations other than the very simple, straightforward, arithmetical calculation of the

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number of days worked, to which I have referred. Perhaps I may be slightly more explicit about the way in which employers will apply for funding, although, again, I said this on the first day of Committee. Employers will be able to apply for funding from the Revenue in advance. The Revenue will provide funds where they are needed to ensure that employers do not have to dig into their own funds in order to pay tax credits on time. Applications for funding will be made on a special form which the Inland Revenue will provide. From April 2000 this form will be sent to an employer who has been asked to pay tax credits for the first time, and from January 2001 onwards the form will be included in the Inland Revenue's annual employers' pack. so all employers will be prepared in case they need to apply for funds.
This is a simple mechanism for funding. It means that the cumbersome arrangement of money passing backwards and forwards, as envisaged by Amendment No.30, is both unnecessary and inappropriate. I hope that the noble Lord will feel able to withdraw the amendment.
Lord Higgins: I do not find convincing the noble Lord's answer on the statutory instrument and I should be grateful if he would write to me well in advance of Report stage so that we can consider carefully whether change is required.
Lord McIntosh of Haringey: I give that assurance without hesitation.
Lord Higgins: Perhaps I may say in response to that intervention that it shows some of the advantages of publishing statutory instruments in draft. I pay tribute to the Government for going ahead and doing that.
Perhaps I may turn to the substance of the argument. Instead of the company simply being told what to pay to the employees and being given the money, which is a quite separate operation, what is proposed means that the company will have to integrate that calculation with its existing PAYE one, even though it is quite unnecessary to do so.
Lord McIntosh of Haringey: New confusions arise each minute. There is no integration with PAYE. The amount will be notified by the Revenue to the employer who will pay out the tax credit on a separate line from PAYE. The only integration is on the total payroll where they are netted out. That is not integration in the terms that the noble Lord seems to imply.
I agreed to write to the noble Lord on one point. Before I do that, perhaps I may draw his attention to Regulation 4(2)(d), which says that the employer will be told the daily rate.
Lord Higgins: There is integration in the sense that the amount is knocked off and netted off. None the less, I shall consider carefully the various points that have been raised.
Finally, the noble Lord objected to my using the word "suffer". He said clearly that there is a reduction in the benefit which, for whatever reason, employers have
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enjoyed since the 1940s. If that is not suffering. I do not know what is. At all events, this has been a helpful discussion. We shall need to consider carefully what has been said and whether we should return to the matter at Report stage. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins Lord Higgins moved Amendment No.31:
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 rattier than from the employer. ")
The noble Lord said: This is a different kind of amendment. We have already had considerable discussion on whether there is any real advantage in the system which the Government propose—that the working families' tax credit should be paid through the payroll rather than in some other way. As the noble Lord, Lord Goodhart, pointed out earlier, the principle of that has been undermined by the fact that the Government have said that couples where one person is working and one is not will have that option. What we are saying here is that single parents should have that same option and the same degree of choice as couples in the circumstances I have just described.
I am somewhat reinforced in the view that the amendment should be accepted because it has very widespread support. That support comes not only from the National Council for Single Parent Families, the Low Pay Unit and the Trades Union Congress but also from the CBI, the Institute of Directors and the Federation of Small Businesses. All take the view that restricting the way in which the single parent may receive the benefit should not be supported. We share that view and that is why we are moving the amendment.
Perhaps I may say at the outset that it seems paternalistic—I am not sure what the politically correct equivalent of paternalistic is nowadays—to say that lone parents are not able to make up their own minds or understand that if they take a job they will receive a working families' tax credit as well. It is clearly something they are likely to appreciate. There is a simple point in this respect that has not been made previously. Only when they receive the first payslip will they be able to see the credit. Even under the Government's scheme they will not be able to see in advance what the situation is. We are effectively saying that this is a matter in which lone parents should have a choice.
Much of the debate has centred on whether the Government's change of plan will reduce stigma. I have some doubts about the working families' tax credit as opposed to family credit. It is argued that people are reluctant to claim a particular benefit because of stigma. When there is a take-up rate for family credit of 85 per cent by expenditure—the take-up rate by lone parents is something over 90 per cent—it is difficult to see how this change will help to reduce stigma to the extent that there is a greater take-up. The Government have not hitherto given an estimate of the extent to

579
which they expect the change in the system to result in greater take-up. Perhaps the noble Baroness, who is expert in these matters, will clarify the point, which so far as I know was never clarified in another place.
A related question is loss of privacy, particularly, as the noble Lord, Lord Goodhart, said, in small companies, where the individual family circumstances of a particular lone parent will be known far more than would be the case in a larger company. That will be even more the case if the lone parent is in receipt of child benefit as well as working families' tax credit and the equivalent child benefit.
There are additional problems. The system may well result in delays in benefit payment if it is not made directly. Concerns have been expressed that businesses, particularly small businesses, may not pay on time. At present that is not the case. The 'Low Pay Unit has stressed that aspect. Direct payment will be made for the first few weeks, but thereafter there may be delays in payment.
In addition, firms may be deterred from taking people on if they know that they are in receipt of working families' tax credit. At the very least, the firm will be involved in the kind of calculations that we have discussed. So there is a problem in that respect. It was made clear in earlier debates that the costs are regressive in percentage terms so far as small firms are concerned. If some lone parents opt for direct payment rather than having benefit paid through the employer, to that extent the burden on individual firms will be less, and those firms might be more inclined to take on people.
There are also problems with regard to changes of employment and where a lone parent has more than one job. Again, there is a strong case for their having a choice. I emphasise that we are not saying that it must happen automatically, but that they should have a choice as to whether they are paid directly or through the payroll. We do not accept that the arguments advanced by the Government as to the virtues of benefit through the payroll are such that the problems that lone parents may face as a result of not having that choice justify their being compelled—that is effectively what the Government are doing—to have the payment made in a particular way.
These are strong arguments, and there is an overwhelming case for accepting the amendment. As I have indicated, it has widespread support from almost every outside group that one can think of. No doubt the noble Baroness will tell the Committee if there are others who take an opposite view. I beg to move.
5 p.m.
Lord Goodhart: I support the amendment. My noble friend Lord Russell and I tabled an amendment of a rather more limited nature but for a similar purpose. I refer to Amendment No.39. Although it is not grouped with this one as its subject is not quite the same, it comes close to it.
Amendment No.39 provides an opportunity for employees to opt out in certain specified circumstances and to claim payment direct from the Board of Inland
580
Revenue instead of their employer. That is a legitimate and reasonable object. First, there will undoubtedly be problems as regards payment by employers. Some will fail for one reason or another to pay at all. Some will get their figures wrong. Despite the relative ease of dealing with the figures supplied to them by the Inland Revenue, it is not beyond the capacity of some small employers to get the number of days wrong, or to get the multiplication wrong. Some employers will no doubt pay late.
Therefore, there are likely to be acute problems with certain classes of worker; for example, with workers with part-time jobs it is a question of who pays. At the time of the review of the proposals on tax credits by the Select Committee on Social Security in the House of Commons, the Inland Revenue had still not decided. The Select Committee was critical of the failure to decide, and suggested that one of the options that it should consider was direct payment. The Inland Revenue now proposes payment by the main employer. But identifying the main employer is sometimes more easily said than done.
Another class of employee also will have problems. I refer to people on short-term contracts, who usually work intermittently. The tax credit, once granted, runs for 26 weeks. Where a contract is for less than 26 weeks, it is surely simpler and better all round to pay the tax credit directly. If receipt through the pay packet is an incentive for some to take a job, they will not want to opt out. Why not allow those who face problems with payment through the wage packet to opt out? There will be a particular problem for single parents. Couples can, of course, get out of the situation quite easily by agreeing on payment to the non-working partner or the partner in the more secure job. Single parents cannot do that.
Then there is the privacy argument. I accept that from the amount of credit it will not normally be possible to work out details of the family situation of the employee. But in some cases an employee may not want an employer to know that he or she is receiving tax credit at all. There are some communities in this country in which an unmarried woman might well not want her employer to know that she has a child to support. Tax credit cannot be claimed unless there is a dependent child, so the very fact of the claim would indicate to an employer that the woman had a dependent child. If a woman in that position can produce the necessary information to enable the Inland Revenue to calculate the credit, why not allow her to receive the credit direct from the Inland Revenue? I accept that in such a circumstance there will be problems if the Inland Revenue has to carry out compliance checks with an employer. But I do not see why it should be impossible to carry out those checks without disclosing that the checks are for family tax credit, or, if there is more than one employee, which employee is claiming.
If there are cases of reasonable objection to payment through an employer—there certainly are some; if not all that many—why not allow an opt-out? My amendment suggests that there should be certain categories. But why stop there? Having seen the amendment proposed by the noble Lord, Lord Higgins,

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why should one limit the category of those who can opt for direct payment? The Government argue that receipt through the pay packet rather than directly is an incentive to take a job. Even if that is true of the majority of people&—I am by no means sure that it is&—if a lone parent prefers to take the money directly, clearly payment through the pay packet is no incentive to that lone parent to take a job. It may deter him or her. If he or she prefers to get the same money directly from the Inland Revenue, surely it is only a matter of common sense to allow that claim to be made. For those reasons, I support the rather wider version of the similar amendment now put forward by the noble Lord.
Baroness Fookes: I warmly support Amendment No.31. Amendment No.39 provides reasons, but giving the lone parent an absolute right to decide is very reasonable. Members of the Committee will be aware that I am not much impressed by the proposed change to the system as a whole. I have yet to be convinced that it is superior to the present system but, given that I cannot win that argument, I believe it is reasonable that single parents should be given the choice. It is not for nothing that so many outside organisations support this measure. There are very good reasons. Freedom of choice is important in itself. In this age we should give citizens as much freedom as possible to decide how they want to be paid. It is easy to under-estimate individual circumstances. Someone may find it extremely uncomfortable if his or her general circumstances are known to an employer, especially in a small firm. One can enjoy a certain anonymity in a very big firm. That is not so in a very small firm.
This is a very important matter if individuals do not want their circumstances to be known or guessed at. People may not know precisely but will make all kinds of assumptions that may or may not be correct. The individual—the lone parent is often a woman—should have the right to decide without being suborned or required to act in the way the Government wish. For that reason, I support Amendment No.31.
Baroness Turner of Camden: During the Second Reading debate I had some sympathy with the view that in the case of single parents there was an argument in relation to confidentiality, privacy and so on. Since then I have examined the matter again. I wonder whether the argument on confidentiality is slightly exaggerated. In the case of family credit, I understand, the majority of employers have some involvement in and knowledge of their employees' claims. As the noble Lord, Lord Goodhart, indicated, the employer will be aware of the amount paid and nothing else. The noble Lord accepts that it will be very difficult for employers to work out details of their employees' personal circumstances from the single amount involved.
Lord Goodhart: I apologise for interrupting. There is one exception to the statement that the employer will simply know the amount and nothing else. The employer will inevitably know that the claimant is responsible for the maintenance of a child.
Baroness Turner of Camden: The employer will be unable to work out whether the individual is single, how
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many children there are, whether there are any other earnings or whether the person has a disability. I believe that there is that degree of confidentiality. Moreover. as I understand it, the employer is in any event bound by the law in the form of the Data Protection Act and the common law obligation not to disclose personal information about employees. Employers generally hold quite a lot of personal wages information about employees as a matter of course. It goes without saying that if an employer has a pension scheme he will have a great deal of information about the personal circumstances of his employees. I do not believe that the argument on confidentiality is as strong as I first thought at Second Reading. I shall be interested to hear what my noble friend the Minister has to say.
5.15 p.m.
Lord Skelmersdale: I am interested to hear that the noble Baroness is less convinced about the strength of the argument on confidentiality. I wonder whether the noble Baroness has seen the Revenue's draft earnings inquiry form TC500 (version 4 BMSD4/99) which is required to be completed when a new earner straight off unemployment is unable to send in pay slips with the tax credit application. If he has just started a new job he fills in his part of the form and gives it to the employer to fill in the rest. By definition, the point raised by the noble Lord, Lord Goodhart, comes straight to the fore. Once the employer has received this form to be filled in he knows two things: first, that the employee is applying for working families' tax credit; and, secondly, that he or she has a child.
Baroness Hollis of Heigham: I believe that my noble friend made clear that the employer would simply know that the individual was applying for a tax credit, not whether it was DPTC or WFTC. As the Committee is aware, a person can be single and without a child and be eligible for DPTC.
Lord Skelmersdale: That point is taken. Surely. however, the employer will be able to make a very good guess by means of the amount received. First, he knows that the individual is making the application and, secondly, that the individual has received it. After a few months' experience of either benefit he, will be aware. that the levels apply to different persons in different circumstances.
Earl Russell: Listening to the Minister's exchange with the noble Lord, Lord Skelmersdale, reminded me of my noble friend Lord Addington once saying that if a person saw him coming down the street he would never think of him as disabled. Suppose that my noble friend were female and in receipt of the working families' tax credit. It could very well lead an employer to suppose that he was the parent of a child when he was not. I believe we shall find that the issue of privacy—as I am sure the Minister realises after the amount: of work she has done on the CSA—has many more ramifications than any of us can possibly imagine.
There is one other circumstance in which I believe my noble friend's amendment may prove to be distinctly helpful. What is to happen if the employer goes

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bankrupt? Sadly, that happens. The amendment would provide a method of dealing with it. It may be that the Government have to hand a simpler method. If so, the Minister may find that it assists the Committee to say what it is.
Baroness Hollis of Heigham: The object of this amendment is different from that of the proposed amendments to Clause 3 which would ensure that couples had no choice in certain situations whereas they would have choice under our proposals. Here the object is to provide a group of applicants with a new choice.
I do not repeat all of the issues raised at Second Reading, the first day of Committee stage and the previous debate, but I continue to emphasise that this runs contrary to one of the drivers of the policy behind tax credits, which is payment through the wage packet to reinforce the link between tax credits and work. I give an analogy with which the noble Earl, Lord Russell, will be comfortable. As someone who has written the occasional book, one of the things that most irritates me is that reviewers criticise me at great length for not having written a different book. I believe that to be an unfair review. If reviewers want a different book they should write it themselves and not expect me to do it.
This Bill is about tax credits. Every amendment appears to suggest that what are needed are family credits, not tax credits. The Liberal Democrats want to keep the same amount of money through family credit. We are not sure whether the Tories believe in that, given the fact that when we first introduced family credit they wanted it to be paid through the pay packet but were overturned by the Federation of Small Businesses whose vocabulary they still quote this evening.
While at the same time supporting families, with this Bill we seek to encourage work incentive through a tax credit Bill. Therefore, the Government will resist any amendment which seeks to destroy that basic premise of the Bill. This is not family credit (mark II); it is the Tax Credits Bill (mark I). I ask the Committee to respect the philosophy underlying the Bill and not seek to turn it into a different Bill from that envisaged by the Government. To do so is, in effect, to make a wrecking amendment. We have another here today.
The policy underlying the Bill is to provide families with extra help through the wage packet if they are employed, and to give families with two partners a free choice as to which of them is to receive it. But the choice for a family couple is not how the tax credit is paid. I come back to the point raised by the noble Baroness, Lady Fookes. If the person elected to receive it is in work—for the purpose of this argument we shall say it is the man—he will have no choice but to have it paid through the pay packet. The working partner (if, for example, it is the man) cannot choose to have it paid at home but only via his wages. There is no choice as to how the payment is made but only, in the situation of a couple, to whom the payment may be made.
That is why there is no read-across to the lone parent situation. We are not denying the lone parent a choice that couples have. Couples cannot choose how the
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payment is made; they can only choose to whom the payment is made. By definition, if the partner chosen to have the money—perhaps the mother—does not have a pay packet, the Inland Revenue has no alternative but to pay it directly. But the change in payment method is a consequence of the choice of partner, not a reason for offering that choice. Because there are two of them, there is by definition a choice to be made. That applies if there is just one in work, or, increasingly, as with three-quarters of married women now, both are at work. They have a choice to whom it is paid; and how it is paid follows from that choice. If both are in work, either will receive it through the pay packet.
Because the couple have that choice as to whom the payment is made, it also allows, as my noble friend Lady Turner said, the Inland Revenue to protect the position of the carer in those, I hope, rare circumstances of conflict or dispute. The noble Baroness, Lady Fookes, referred to that point on the first day of Committee. There is that protection for a woman who may be in a position of considerable vulnerability.
I repeat: couples do not have the choice to have payment made to the working partner at home. They have only the choice as to whom it is made; and the payment method then follows. If you are in work, it is paid to you through your work. It is exactly the same for lone parents as for couples. Because, by definition, in a lone-parent family there is only one adult, not two, the question as to which of the two it is paid is simply not relevant. The lone parent is not being denied a choice. She is in the same position as the working partner in a family couple when payment is chosen to be made to him. Lone parents are paid through the pay packet. As a single adult, such a lone parent does not need the default powers to pay it to her at home because, unlike in the rare but regrettable situations where there may be dispute, she does not need protection from herself.
Lone parents comprise half the current recipients of family credit. I was asked how much take-up of family credit there is by lone parents. The latest figures indicate that 79 per cent of lone parents take up family credit. They are over half the claimants of family credit and, by definition, they are employed and consequently receive wages. As I hope I have said, for this group, whether women or men, there is no purse-to-wallet argument. They receive the wages, put them in their purse or wallet, go to the shops and purchase essentials using money from their purse or wallet. For them, it is one and the same thing.
I hope that I have addressed the Committee's concern that lone parents are being denied a choice that couples have. It is not true. Couples can choose to whom the amount is paid. But if they choose the person who is in work it will be paid through the pay packet. If the person is in work, that person cannot choose to be paid at home. Exactly the same applies to lone parents. I hope that I have addressed the first argument.
The second argument relates to confidentiality. My noble friend Lady Turner dealt well with the points. Fears about breaching confidentiality are, I believe, unfounded. The lone parent may need to ask the

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employer to certify likely wages once he or she has got the job, as is required for family credit schemes now. But the form only gathers information. It contains no clue as to the employee's circumstances. As I hope has now become clear—my noble friend Lord McIntosh made it very clear—employers will simply be told of the amount they have to pay. They will multiply it by the number of days and will not be involved in any way in computing the amount themselves. Therefore, they have no need to know the circumstances of the person involved.
There were concerns—some have been aired today—that employees' circumstances could be inferred from the amount notified to the employer. That point was pressed on us by the noble Lord, Lord Skelmersdale. I can assure the Committee that because of the effect of the taper, the number of children, the possibility of a second job, and the childcare tax credit, it would be almost impossible for an employer to disentangle someone's tax credit award and have access thereby to personal information. No doubt payment through the wage packet will mean that the employer will be aware that the employee is eligible either for WFTC or DPTC, but that is the extent of his certain knowledge. He will not even know for which of those two credits the employee is applying; for example, whether the woman is entitled to DPTC by virtue of a qualifying benefit, or whether she is a lone parent with several children. The employer will not know.
Employers already have to certify half the family credit certificates. They will not necessarily know any more by handling WFTC. I think that the Committee can too easily assume that there is complete privacy with family credit and no privacy with WFTC. On the contrary, employers already handle over half the certificates as regards family credit. I believe that it is as onerous, or as little onerous, as WFTC. Employers should have no additional information for WFTC than they currently have through handling family credit forms. Family credit requires them in over half the circumstances to certify basic information about wages and hours.
One of the concerns, based on the assumption that the employer would have knowledge which he does not have, was that employers would therefore discriminate against employees who might cause them administrative hassle by claiming tax credits. An employer is unlikely to know enough about the family circumstances of a person when he takes them on to be able to make an accurate judgment. Once the credit has been claimed, it will become clear that the employee is receiving it. But it is precisely to protect the employee in that situation that we have Clause 7 and Schedule 3, which we shall discuss later.
In fact—I am sure it is a consequence unintended by the noble Lord, Lord Goodhart, but I ask him to reflect on it—by giving lone parents a choice of payment method which is denied to couples, the amendment opens up a new opportunity for employers wishing to avoid their responsibilities under tax credit legislation to pressure those employees into getting the tax credit paid directly to there at the next renewal whether or not they want that.
I hope that the Committee will not be disposed to support the amendment. The previous amendment passed by the Committee against the advice of the Government
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will offer 70 per cent of employers the choice to opt out of the Bill. If the Committee were minded to accept this amendment, it would offer 50 per cent of employees the same choice to opt out of the scheme and to be treated as though they were still under family credit. I ask the Committee how it seeks to reconcile two such amendments. What happens, for example, if the small employer chooses to pay through the wage packet and the employee prefers it to be paid at home? What happens if the small employer chooses not to pay it through the wage packet, and the employee wishes to exercise his choice to have it so paid?
This amendment cannot be reconciled with the amendment that the Committee has already passed. In either case, I believe that it is a wrecking amendment. It seeks to turn a Tax Credits Bill for more than half of those who currently claim family credit into a family credit stage two Bill. It leaves open the opportunity for pressure by employers and for more active discrimination than we have discussed so far. For all those reasons, I hope that the Committee will reject the amendment.
5.30 p.m.
Earl Russell: I have been here long enough to know that Ministers do not like amendments to their Bills. They are always tempted to say that amendments are wrecking. That temptation ought occasionally to be resisted. The Minister has argued that this is a wrecking amendment because it stops the Bill being a Tax Credits Bill as the money will not come through the pay packet. However, the Government have already breached that principle in the money which goes to a non-working partner, if that election is made. Already, the Government have allowed a direct payment from the Inland Revenue to be qualified as a tax credit.
From time to time, I have the pleasure of receiving refunds from the Inland Revenue. They have been known to come direct to me and not through my pay packet. When those refunds reach me, I do not suppose that they are social security benefits. Again, the basic principle of money coming through the Inland Revenue, through the tax system, is a more logical definition of what constitutes a tax credit than the insistence, which the Government have already breached, that it should come through the pay packet.
I have always said that Ministers recognise two categories of amendment; the wrecking and the unnecessary. I thank the Minister for conceding that the amendment is not unnecessary.
Baroness Hollis of Heigham: That depends on the original dialectic, which I do not accept. Another category of wrecking amendment, which I perceive this to be, seeks to turn the Bill into something else. What else would you call an amendment which seeks to take more than 50 per cent of those the Bill is designed to help out of the system? Many of them will be working for small employers who will put pressure on them to drop out of the system.
How many people have to be left unaffected by a Bill for it not be wrecked? Is it 10, 5 or 2 per cent? If only 2 per cent were left to be paid through the pay packet,

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would the amendment still not be a wrecking amendment? The amendment would take more than half of all current claimants of family credit and half of those eligible for WFTC out of the scope of the Bill. Fewer than half of those who would receive the benefit would be paid through the pay packet.
I do not know what Members of the Committee call a wrecking amendment, but I believe that anything which seeks to take the majority of employers and employees out of the scheme is a wrecking amendment. We can argue semantics and say 60, 70 or 80 per cent, but that is what the Committee is seeking to do. The Bill will be turned into something it is not; a family credit stage two Bill instead of a Tax Credits Bill.
I had hoped that the noble Earl, Lord Russell, with his considerable experience of family credit and social security, would have taken the point on board, but I repeat that couples do not have a choice as to how the payment is made. It is customary for both partners to work because today three-quarters of married women work. So they have a choice as to whom the tax credit may be made. If the person to whom the credit is made is in work, they do not have the choice that the amendment seeks to offer to lone parents; that, though in work and being paid, they receive the payment at home. If a couple chooses that the person in work shall receive the tax credit, it will be paid through the pay packet.
I am sorry that the noble Earl, Lord Russell, did not take that point on board the first time around. I repeat that a lone parent in work is in exactly the same position as the couple who have chosen the person in work as the recipient; the tax credit is paid through the pay packet.
I hope that Members of the Committee will not accept the amendment. It gives the majority of eligible claimants the opportunity of dropping out of the system and returning to family credit. I believe that less scrupulous employers might press some people into accepting that opportunity. As a result, lone parents will not be receiving a tax credit through their pay packets and therefore they will not see the connection between work and its return. We will then be back to where we were before the Bill was introduced; that is, family credit, a 79 per cent take-up and a considerable reluctance among many lone parents to move into work because they do not see at the point of entering work that work pays. That is what this Bill is about.
I cannot stop your Lordships wrecking the Bill. You have the vote; we know that from long experience. You can do so. But do not kid yourselves that you are doing anything other than taking the heart out of the Bill. You have taken out 70 per cent of employers, potentially, and you now seek to take out more than 50 per cent of employees. So be it, if that is what you want, but do not pretend to yourselves that you are improving the Bill. You are not; you are destroying it.
Lord Higgins: It was noticeable that as against the large number of outside bodies to which I referred as being in favour of the amendment the noble Baroness did not quote one in favour of the Government's position.
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As regards choice, the Minister seemed to quote the figures on the assumption that every lone parent given the choice would decide to take it. She is assuming that they want the choice and she seeks to deny it to them. As regards couples, only one of whom works, it will remain the case that in choosing to whom the payment is made they can decide to have it paid direct.
The Minister said that this was a wrecking amendment. That is a serious point and ought not to go unanswered. Having been in the other place for 33 years, I know a wrecking amendment when I see it. As already pointed out, the Government, having accepted the point about couples only one of whom is working, have undermined the point of principle. At all events, I am advised that the concept of a wrecking amendment is not known to your Lordships' House, It is known in another place. The decision on whether an amendment is wrecking is taken by the Chair and I am grateful to my noble friend Lady Fookes, who was a Deputy Speaker in the other place, for confirming that. If it is indeed a wrecking amendment it is not selected. However, this amendment and one far wider were selected and debated. One of them was voted on in the House of Commons.
While the noble Baroness may bandy around an expression not recognised in this House, it is clear from what happened in the other place that this is not a wrecking amendment. I believe that it improves the Bill and that the outside representations make an overwhelming case for why lone parents, who have been attacked from other sides, should have a choice. For that reason, I seek the opinion of the Committee.
5.38 p.m.
On Question, Whether the said amendment (No.30) shall be agreed to?
Their Lordships divided: Contents, 150; Not-Contents, 103.

Division No.2

CONTENTS

Addington, L.

Camock, L.

Addison, V.

Chadlington, L.

Ailesbury, M.

Chesham, L.

Alexander of Tunis, E.

Clanwilliam, E.

Allenby of Megiddo, V.

Clement-Jones, L.

Anelay of St. Johns, B.

Colwyn, L.

Ashboume, L.

Cope of Berkeley, L.

AstorofHever, L.

Courtown, E.

Attlee, E.

Cowdrey of Tonbridge, L

Beaumont of Whitley, L.

Cranbrook, E.

Belhaven and Stenton, L.

Cross, V.

Berners, B.

Davidson, V.

Biddulph, L.

Dean of Harptree, L.

Biffen, L.

Deedes, L.

Birdwood, L.

Denham, L.

Blaker, L.

Derwent, L.

Blatch, B.

Dholakia, L.

Bowness, L.

Dudley, E.

Brabazon of Tara, L.

Dundonald, E.

Bridgeman, V. [Teller.]

EdenofWinton, L.

Brigstocke, B.

EUes, B.

Brougham and Vaux, L.

Elliott of Morpeth, L.

Byford, B.

Falkland, V.

Cadman, L.

Ferrers, E.

Carlisle, E.

Fookes, B.

589

Freeman, L.

Mowbray and Stourton, L.

Gardner of Parkes, B.

Moynihan, L.

Geddes, L.

Munster, E.

Gisborough, L.

Murton of Liridisfame, L.

Glentoran. L.

Nicholson of Winterboume, B

Goodhart, L.

Norrie, L.

Gray ofContin, L.

Northesk, E.

Hampton, L.

Nunburnholme, L.

Ham wee, B.

Park of Monmouth, B.

Harrowby, E.

Pearson of Rannoch, L.

Hayhoe. L.

Pender, L.

Henley, L. [Teller.]

Phillips of Sudbury, L.

Higgins, L.

Prior, L.

Holdemess, L.

Quinton, L.

Hooper, B.

Rathcavan, L.

Howe, E.

Reay, L.

Hylton-Foster, B.

Redesdale, L.

Jacobs, L.

Renton, L.

Jopling, L.

Renwick, L.

Kimball, L.

Rodgers of Quarry Bank, L.

Kinnoull, E.

Romney, E.

Kitchener, E.

Rotherwick, L.

Knight of Collingtree, B.

Rowallan, L.

Lane of Horsell, L.

Russell, E.

Lauderdale, E.

Saatchi, L.

Long, V.

SUohnofBletso, L.

Lucas, L.

Seccombe, B.

Lucas of Chil worth, L.

Sharp of GuildfonLB.

Ludfoid B.

Simon of Glaisdale, L.

Luke, L.

Skelmersdale, L.

Lyell, L.

Soulsby of Swaffham Prior, L.

McCollofDu]wich, L.

Stodart of Leaston, L.

Mackay of Ardbrecknish, L.

Sudeley, L.

Mackay of Drumadoon, L.

Suffolk and Bisrkshire, E.

Mackic of Benshie, L.

Swinfen, L.

McNair, L.

Teviot, L.

Maddock, B.

Thomas of Gwydir, L.

Mancroft, L.

Thomas of Walliswood, B.

Marlesford, L.

Tordoff, L.

Massereene and Ferrard, V.

Torrington, V.

Mersey, V.

Trefgame, L.

Mestori, L.

Trumpington, B.

Methuen, L.

Vivian, L.

Middkton, L.

Waddington, L.

Miller of Hendon, B.

Wallace of Saltaire. L.

Monro of Langholm, L.

Westbury, L.

Monson, L.

Williams of Crosby, B.

Montagu of Beaulieu. L.

Winchilsea and Nottingham, E.

Morris. L.

Wise, L.

Mounlevans, L.

Young, B.

NOT-CONTENTS

Acton, L

Dean of Thornton-le-Fylde, B.

Ahmed. L.

Dixon, L.

Alii, L.

Donoughue, L

Archer of Sandwell, L.

Dormand of Eisington, L.

Ashley of Stoke, L.

Evans of Watford, L.

Bach, L.

Farrington of Ribbleton, B.

Barnett, L.

Gilbert, L.

Bassarri of Brighton, L.

GladwinofClce, L.

Berkeley, L.

Glenamara, L.

Blackstone, B.

Gould of Pottemewton, B.

Blease, L.

Graham of Edmonton, L.

Brooke of Alverthorpe, L.

Grenfell, L.

Srookman, L.

Hacking, L.

Brooks of Tremorfa, L.

Hardy of Wath, L.

Burlison, L.

Harris of Haringey, L.

Carter, L. [Teller. I

Haskel, L.

Clarke of Hampstead, L

Hay man, B.

Clinton-Davis. L.

Hilton of Eggaition, B.

Cocks of Hartcliffe, L.

Hollis of Heigham, B.

Currie of Marylebone, L.

Howie of Troon, L.

David, B.

Hoyle, L.

Davies of Coity, L.

Hughes, L.

Navies of Oldhani, L.

Hughes of Woodside, L.

590

Hunt of Kings Heath, L.

Peston, L.

Irvine of Lairg, L. [Lord

Pitkeathley, B.

Chancellor.]

Plant of Highfield. L.

Islwyn, L.

Prys-Davies, L.

. Fanner of Braunstone, L.

Randall of St. Budeaux, L.

Jay of Paddington, B. [Lord Privy

Rea, L.

Seal]

RendellofBatxrgh. B.

Jeger, B.

Renwick of Clifton, L.

Kennedy of The Shaws, B.

Richard, L.

Kennet, L.

Sainsbury of Turville, L.

Kirkhill, L.

Sawyer, L.

Lockwood, B.

Scotland of Astlial, B.

Lofthouse of Pontefract, L.

Sefton of Garston, L.

Longford, E.

Serota, B.

Lovell-Davis, L.

Shepherd, L.

Macdonald of Tradeston, L.

Simon, V.

Mclntosh of Haringey, L.

Simon of Highbury, L.

[Teller.]

Smith of GilmorehilLB.

Mackenzie of Framwellgate, L.

Stoddart of Swindon, L.

Mallalieu, B.

Strabolgi, L.

Mason of Bamsley, L.

Taylor of Blackburn, L.

Merlyn-Rees, L.

Turner of Camden, B.

Milner of Leeds, L.

Uddin, B.

Molloy, L.

Varley, L.

Monkswell, L.

Walker of Doncaster, L.

Montague of Oxford, L.

Walpole, L.

Morris of Castle Morris, L.

Weatherill, L.

Morris of Manchester, L.

Wedderbum of Charlton, L

Murray of Epping Forest, L.

Whitty, L.

Orme, L.

Williams of Elvel. L.

Resolved in the affirmative, and amendment agreed to accordingly.
5.48 p.m.
Lord Goodhart Lord Goodhart moved Amendment No.32:
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 (1 A), the Board may make regulations providing for

(a) the method for making or revoking an election;

(b) the method for cancelling an election if the employer subsequently employs ten or more employees; and

(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. ")

On Question, amendment agreed to.
[Amendments Nos.33 and 34 not moved.]
Lord Astor of Hever Lord Astor of Hever moved Amendment No.35:
Page 3, line 46, at end insert—
("( ) that the Board shall not pass to an employer any information other than the amount of tax credit which a particular employee should be paid;")
The noble Lord said: In moving Amendment No.35 I shall speak also to Amendment No.38, which also deals with the issue of confidentiality. Amendment No.35 would protect employees from any unscrupulous employer. There are documented instances of vulnerable employees being harassed by their employers. Amendment No.38 prevents the disclosure' of an employee's private affairs to other employees.
As I said at Second Reading, employees gossip. I thought that my noble, friend Lady Fookes covered this point very well earlier this afternoon. Various noble

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Lords raised the issue of stigma at Second Reading. This amendment aims to minimise that possibility by requiring employers to take reasonable precautions to ensure that only those who deal directly with the payroll are aware of which employees are in receipt of the working families' tax credit or the disabled persons' tax credit. I beg to move.
Lord McIntosh of Haringey: It is helpful that the noble Lord has grouped together Amendments Nos.35 and 38. Amendment No.35 seeks to restrict the information which the board may provide to employers in relation to their employees. I was interested to hear the noble Lord, Lord Astor, describe them as "unscrupulous" employers.
He is clearly motivated—and I understand that—by the fear that the Inland Revenue will divulge confidential information about employees to employers. However, I assure the noble Lord and the Committee that that will not be the case. The draft regulations already make clear exactly what information the Inland Revenue will pass to the employer in relation to tax credit applications.
One situation in which the Inland Revenue will need to contact an employer about an employee's application for a tax credit will arise if the employee has not enclosed pay slips with the application form. In that case, the Inland Revenue will need to ask the employer to verify the applicant's earnings. That happens already when the Benefits Agency is processing claims for family credit and DWA.
As under the current system, the Inland Revenue will tell the employer only that the employee has applied for a tax credit. It will not reveal which tax credit has been applied for, as my noble friend Lady Hollis said in relation to an earlier amendment.
The other situation in which the Inland Revenue will contact the employer is when sending a notification to pay tax credit through the payroll. There again, the employer will be told only that the employee is entitled to a certain amount of tax credit. The employer will not be told which tax credit; nor will the Inland Revenue give a breakdown of the various elements of an award. The employer will be required to enter the amount on the employee's pay slip as "tax credit" and no further details will be given.
The employer scheme already contains safeguards to ensure that the Board will provide only the details which are strictly necessary for the employer to pay the right amount of tax credit to the right person at the right time. I assure the Committee that the Inland Revenue, above all, has long experience of handling large amounts of sensitive, personal information. All Inland Revenue staff must sign a declaration of secrecy prohibiting them from making any unauthorised disclosure of information received in the course of their duties. Any unauthorised disclosure is a criminal offence, punishable by imprisonment and/or a fine. Therefore, the safeguard proposed in Amendment No.35 is unnecessary. I hope that the noble Lord will recognise, given the history of the Inland Revenue, that the protection is even stronger.
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Amendment No.38 seeks to require employers to take reasonable precautions so that the fact that an employee is in receipt of tax credit is not disclosed to any other employee except those directly responsible for the administration of the payroll. I am sure that it is a well-meaning amendment. It is extremely important that the private financial affairs of employees are treated as confidential. But it is not clear to me that a statutory provision is either enforceable or necessary.
As regards enforceability, what are "reasonable precautions"? Who would decide? Is it the intention that employers should be obliged to put in place special administrative arrangements? If so, that would involve additional burdens on business.
How would the Inland Revenue police those arrangements? It is not the Revenue's duty to control employers' administration systems. It is unclear what sanctions could be brought against employers who transgress. It seems to me that the amendment could give rise to a cumbersome and unenforceable compliance regime which would involve costs for employers and government.
In any event, is that really necessary? I have greater confidence in the discretion of employers than has the noble Lord, Lord Astor. Employers already have an obligation to respect the privacy of their employees. The Data Protection Act 1984 imposes a duty on people processing personal information to use that information only for the authorised purpose and not to disclose it to unauthorised persons. As those of us who were involved with its passage through this House will remember, the 1984 Act relates only to computerised records but the Data Protection Act 1998 extends the protection to structured manual records which will include such items as manually prepared pay slips. So employees are already protected against employers who break the rules of confidentiality.
When tax credit is paid through the payroll, it will be shown on the employee's itemised pay slip. It will be just one more item of income. We can safely assume that staff who process the payroll will regard tax credits as being confidential in the same way that pay details are. I see no reason why employers should be any less discreet about tax credit details than they are about pay. I hope that the noble Lord will be satisfied with the safeguards which already exist and that he will not feel it necessary to press the amendment.
Lord Astor of Hever: I am grateful to the Minister for that reply. In view of his firm assurances on Amendment No.35, I am happy to withdraw it. With regard to Amendment No.38, I wish to study closely in Hansard the points which he made. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.36 not moved.]
Lord Astor of Hever Lord Astor of Hever moved Amendment No.37:
Page 4, line 6, at end insert—
("( ) for the payment of the costs of operating tax credits incurred by employers where those employers' annual National Insurance Contributions payments do not exceed £25,000;
The noble Lord said: Amendment No.37 deals with the burden which the WFTC imposes on certain small businesses. It seeks to protect that vital part of our economy and ensure that the Government's Bill does not have the impact of harming those it most purports to help.
The considerable opposition to the impact of the Bill has been very well recorded in your Lordships' House. The Institute of Directors, the CBI, the Federation of Small Businesses, the British chambers of commerce and the Low Pay Unit have all expressed serious reservations about the Government's proposals. Far from being obstructive, they are centred around the negative impact of the WFTC on the management of small businesses.
The Opposition wish fully to align themselves with the view of those organisations. I believe that the noble Baroness was sending the wrong message to the business community when she dismissed those views on Second Reading as nothing more than resisting anything that can be regarded as the proper responsibility of business. That was an inadequate response to the legitimate concerns raised by those very business organisations which this Government have tried to court so assiduously. Small businesses account for half of this country's private sector workforce and employ many low-skilled and semi-skilled workers covered by the provisions of the Bill. The administrative and managerial burdens of the WFTC may well mean that small businesses lay off or do not take on such employees.
The Social Security Select Committee recommended that the Inland Revenue should reimburse small employers' administrative costs. There is no commitment to do that in the Bill. We suggest that employers should be given some sort of compensation and a suitable threshold should be set relating to their national insurance contributions. This is yet another tax which businesses must administer in addition to PAYE, statutory sick pay and maternity pay. In addition, there are proposals in the pipeline to use employers' payrolls for student loan repayments and contributions to the Government's stakeholder pensions. We suggest that they are given compensation in the same way that administrative help is given to small companies which administer maternity pay.
Asking struggling small businesses, employing a handful of people, to take on that task unpaid is too much. They must be compensated for the administrative costs of paying tax credits. I beg to move.
6 p.m.
Lord Goodhart: I hope that the Government will give favourable consideration to the amendment moved by the noble Lord, Lord Astor of Hever.
The amendment is directed at a problem that is now considerably diminished as a result of Amendments Nos.29 and 32, which are, for the time being, part of the Bill and which allow small employers to opt out. Clearly. the Government do not want employers to do that. They have made that very clear. Employers are less likely to be upset and to want to opt out if their costs are reimbursed.
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This amendment follows the pattern set for statutory maternity pay, where small employers receive the amount paid in statutory maternity pay with a 7 per cent top-up. Although it is not stated in the regulations, the reason for that is to cover the additional administrative burden, as the noble Lord, Lord Astor, pointed out. The House of Commons Select Committee on Social Security recommended that the cost should he reimbursed to small employers.
For good social reasons, which we understand and support, the Government accept, as did the previous government, that wages need to be topped up for low paid workers. The present Government have chosen to make employers act as paying agents for such benefits. Those payments are made in the public interest, and not in the interest of the employers who pay them, so it is appropriate that the public purse should bear the costs. I am not concerned if larger employers have to bear the burden—this amendment does not make them do so—because larger employers have payroll programmes, computers and administrative staff to handle wages and PAYE contributions. It would be easy enough to write programmes to handle tax credits as well. However, as we discussed at great length earlier, this will be a serious burden for small employers. Whether the sum is £135 or £370 a year, either sum will be significant.
I accept that employers act as agents for the Government in deducting tax and NICs, for which they receive no payment. However, PAYE deductions go back a long way. They were introduced in 1943 and compensation for administrative costs was perhaps not at the top of people's minds. In the case of PAYE, employers receive some cash-flow advantages because they hand over the deductions later than they pay the wages.
Another important difference is that almost all employers are liable to pay PAYE contributions, but only one in ten small employers, which constitutes a majority of the total number, will pay the working families' tax credit. If they receive no refund of the costs, discrimination will take place in favour of those who do not have employees eligible for working families' tax credit as against those whose employees are eligible for the tax credit.
Earlier, I explained why I believe that smaller employers will be reluctant to employ people who qualify for the tax credit. I believe that they will be much less reluctant if they are refunded the administrative costs that they have to bear.
Lord McIntosh of Haringey: When I first came to this House I was shocked by the phrase, current at the time, and which is still heard from time to time, "The noble Lord has shot my fox". I think noble Lords opposite have shot their own fox on this occasion. They have carried amendments that make the employer's role in tax credits much more optional than before. 'They have cut out the smallest employers from the tax credit system and they have carried an amendment which would introduce an option for lone parents. The arguments that they repeat are based on the Bill as it was, and as the Government wish it to be, rather than the Bill as amended so far.

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As the noble Lord, Lord Goodhart, recognises, the tax system does not provide, and never has provided, for a direct subsidy or compensation to employers who fulfil their obligations in relation to tax. Employers are not reimbursed for operating the PAYE system. It would be hard to justify making an exception for employers who pay tax credits to their employees. That is something that they will do alongside, although not integrated with, their PAYE responsibilities.
I am sorry that I am unable to reply to Amendment No.36. The Liberal Democrat Front Bench was vacant at the time. I had prepared some lovely replies to an amendment which talked about a percentage without specifying that percentage. However, I shall have to concentrate on Amendment No.37.
Lord Goodhart: Omitting the percentage figure was a generous gesture to the Government, which left them entirely free to specify the appropriate percentage in regulations.
Lord McIntosh of Haringey: I noticed that the noble Lord rushed into the Chamber when he realised that his party was less than properly represented by its official spokesmen. I am grateful to the noble Lord for his generous gesture.
Amendment No.37 is similar to Amendment No.36, but would restrict compensation to employers whose annual National Insurance contributions payments do not exceed £25,000. They will tend to be small employers and, of course, they will incur some costs. We have covered that ground fairly thoroughly. The same arguments against paying compensation apply to such employers just as much as to other classes of employer.
Tax credits are part of the tax system and the same rules apply here as for other aspects of tax administration. Compensation is not paid to employers who comply with their tax obligations. To change those rules here and to provide compensation would be the thin edge of the wedge. We would start to have claims for compensation for different classes of employer and different classes of obligation which have been accepted, as the noble Lord, Lord Goodhart, reminded us, for more than 50 years.
The compliance costs to employers of paying tax credits will, of course, vary according to the payroll system used, but I should remind the Committee, as my noble friend Lady Hollis has already, of the many measures that this Government have introduced to help smaller companies. The 1999 Budget included a substantial package of improved support for small business, including the creation of a small business service, a range of new and improved services from the Inland Revenue and Customs and Excise, including a new business guide, a business tax starter pack and guidance for new employers, and a new helpline service for new employers offering fast-track support.
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The Budget featured a number of measures designed to promote the use of IT by small businesses, including the publication of a clear national standard for payroll systems software, to help in tax returns and a discount on returns filed via the internet.
The Budget also raised the threshold for quarterly payments of PAYE tax from £600 to £1,000 a month, thus extending the quarterly scheme to an additional 130,000 employers, who could save up to £100 a year. The Government have lowered the small companies tax rate twice since May 1997. Then it was 23 per cent and now it is 20 per cent.
From April 2000, as the Chancellor also announced in the Budget, there will be a new 10 per cent rate, the lowest rate of corporation tax for small companies among major industrialised countries. Since 1997 the Government have abolished advance corporation tax, bringing a £1 billion cash-flow advantage to business. Many small businesses will benefit from that. Enhanced capital allowances for small companies have been in place since July 1997 and will extend until July this year.
This is an impressive record of help for small businesses and the Government will continue to look for ways to keep down the compliance costs of small businesses. However, to interfere with the tax system in this way and to provide, for the first time, a direct subsidy to employers who fulfil their obligations in relation to tax, seems to us to be entirely inappropriate. I hope that the noble Lord will not seek to press the amendment.
Lord Astor of Hever: I am grateful to the Minister for that reply. In fact, I have never actually shot a fox; we on this side have not shot our fox.
This is a matter of great concern for small firms, many of whom have been in touch with me. We may want to return to it at Report stage. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos.38 and 39 not moved.]
Lord Goodhart Lord Goodhart moved Amendment No.40:
Page 4, line 14, after ("which") insert ("shall in the case of the first regulations made under any subsections of this section be made only if a draft of the regulations has been laid before, and approved by a resolution of, each House of Parliament and in the case of subsequent regulations")
The noble Lord said: As we have heard at considerable length throughout the passage of this Bill, payment through the employer of tax credits, in the Government's view, is the central provision of the Bill. Clause 6 leaves all the details of those payments to regulations. Those regulations, therefore, are of the utmost importance. They define which employers have to pay credits; they say when the obligation to pay starts and stops; they say how the employer and employee are notified and what amounts are due. The regulations say how the payments are to be funded and provide for the funding to be paid to the employer by the Inland Revenue if they cannot be funded by an offset against

597
the PAYE and NICs deductions which are to be made by the employer. The regulations provide for the inspection of the employer's records.
These regulations were rightly described by the Select Committee on Delegated Powers and Deregulation, of which I am a member, in paragraph 16 of our 12th report as,
"a wide-ranging power with considerable administrative and financial implications for employers, including small employers".
The Select Committee said that this Chamber might wish to consider whether the Bill should be amended to provide for the affirmative procedure to apply on the first occasion that the power is exercised. That seemed to be a modest and reasonable proposal. I do not suggest that the affirmative procedure should be used whenever the regulations are changed, because there is no doubt that regulations will need to be changed from time to time and frequently in ways which would make the affirmative resolution procedure inappropriate. But it is a different matter in the case of the first set of regulations. Of course, we have now seen the draft regulations. They are clearly important and very substantial.
The Inland Revenue's response to the report of the Select Committee was distinctly negative. It said that the negative resolution procedure was normal in the tax system. That is true. But it is also true that far more goes into primary legislation on tax matters than on benefit matters. The Inland Revenue also says that the similarity of procedure to PAYE argues that the same procedure should be used for these regulations. Surely that is not a sufficient argument. There are important differences; and even if there are not, the importance of this issue would justify special treatment of these regulations.
The Inland Revenue refers to the extensive consultation which it has held with representative groups and proposes seeking further comments on the draft regulations. That surely reinforces the argument for the affirmative resolution procedure. If the regulations are recognised as being important enough to require extensive consultation, surely your Lordships' Chamber should have the right to debate them as a matter of course. The attitude of the Inland Revenue shows that there is a problem of differences of culture between the Inland Revenue and the Department of Social Security. The Inland Revenue is not used to dealing with benefits and wants to stick to procedures which are appropriate to taxation but not to benefits. I therefore ask the Government to reconsider their rejection of the proposal in this amendment. I beg to move.
6.15 p.m.
Lord Higgins: I am far too junior in this Chamber to be a member of the Select Committee on Delegated Powers and Deregulation, but the point made by the noble Lord, Lord Goodhart, who is a member of that committee, is a fair one. After all, the committee is concerned that delegated powers should not be used unreasonably and when it fears that they are in danger of being nodded through too easily, makes appropriate recommendations to the House. As the noble Lord pointed out, that was the case in relation to some of the regulations which seek to implement this Bill.
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Amendment No.40 is a modest amendment. It does no more than say that such regulations should be passed by affirmative resolution in the first instance and not that that should be the normal procedure in relation to subsequent regulations. I have looked at the draft regulations and again pay tribute to the Government for providing them in advance of the passage of the Bill; that is important. I am somewhat tempted to make a revolutionary proposal—not normally the case in the Conservative Party since our object normally speaking is to conserve. However, even if Amendment No.40 were to be accepted, it would involve only a brief debate on the regulations automatically as opposed to what would happen if the matter was pressed sufficiently on the negative resolution procedure. Even so, it would be a brief debate and there would be no opportunity for amending the regulations. That has always seemed to me—I say this in a non-partisan sense—to be a serious deficiency in our proceedings.
This is a revolutionary proposal. But let us take, for example, the matter we were discussing earlier where there was, to say the least, some confusion between what the regulation appeared to say and what the Government said from the Dispatch Box. The Government kindly said that they would go away and look at the matter again. Of course we accept that in good faith, but at the end of the day, it will be the Government's decision as to whether or riot they change the draft regulations. There is no way in which this Chamber or the other place can amend the regulations. It is essentially in the hands of the Government.
When we study these regulations, which run to many pages albeit with a brief explanatory note on the back, if we try to trace them through we need only to look at page 6—I am glad to see that these regulations have numbered pages—to see a huge list of other regulations to which they refer. Although I have always understood that parliamentary draftsmen are paid far more than Permanent Secretaries, and they have ploughed all the way through it, there may well be points where even those who are as inexpert in these matters as I am may find provisions they would like to amend. Alas, we are not able to do that unless on Report we write into the Bill draft amendments which could be further amended at Third Reading. I am not threatening to do that at this point, although it would be interesting to see whether or not it works.
At the least I would have hoped that the moderate amendment, nothing like as controversial as that I have just been discussing, proposed by the noble Lord, Lord Goodhart, which restricts debate to the first occasion when the regulations are debated, should be accepted. Otherwise, other than dragging in the regulations on a sidewind in debates on this Bill, there is no real opportunity for us to examine them in any detail.
Lord McIntosh of Haringey: I am grateful for the moderation with which the noble Lord, Lord Goodhart, moved this amendment and for the revolutionary fervour with which he was supported by the noble Lord, Lord Higgins. Of course, I have very great respect for the Delegated Powers and Deregulation Committee both as regards its chairman and all of its members, including

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the noble Lord, Lord Goodhart. It is with great trepidation that I seek to persuade them that, on this occasion, they may perhaps have made a mistake.
In doing so, I do not want to follow some of the wilder revolutionary suggestions made by the noble Lord, Lord Higgins. When we come to consider secondary legislation, it is noticeable that it is always the Opposition which would like the power to amend it. I did not notice the noble Lord or any of his colleagues, during the period of 18 years when they were in government, suggesting that Parliament should have the power to amend secondary legislation. It is rather like reform of the House of Lords: all sorts of things come out which were very carefully kept under control in a previous existence. I give way to the noble Lord.
Lord Higgins: I do not have the relevant Hansard references with me and I certainly do not propose to try to find them. However, I did actually suggest this on various occasions when we were in government—but, of course, not while I was a government Minister.
Lord McIntosh of Haringey: Indeed not. It was while the noble Lord was semi-detached and serving as chairman of the Public Accounts Committee and the Treasury Select Committee. That is a very different situation.
As to the noble Lord's suggestion that he might table draft amendments to the regulations and have them debated in the Chamber, I have to tell him that he is not the first to do so. In Opposition, I was known to table as an amendment many pages of regulations and then to suggest amendments to my own amendment. That used to confuse people—
Lord Hollis of Heigham: It gave them ideas!
Lord McIntosh of Haringey: It used to confuse Ministers no end; but it did result in a debate on matters which could not otherwise be debated. Therefore, to that extent, it was helpful.
However, the difference between affirmative and negative procedures is not as clear cut as may be thought. I say that in the presence of the noble Earl, Lord Russell, and my noble friend Lady Hollis, both of whom have a reputation for taking regulations, especially those relating to social security, and bringing them before this Chamber by praying against them. In that way they have secured exactly the same sort of debate that they would have secured if there had been an affirmative resolution, and have caused slightly more fear in government ranks than would otherwise have been the case. I say that because when an affirmative resolution comes before the Chamber, one never knows whether it will be bitterly opposed, but if a negative resolution is being prayed against you certainly know that someone feels very strongly about it.
Therefore, with very great deference to the Delegated Powers and Deregulation Committee, its chairman and its members, I repeat the arguments used by the Inland Revenue in its response to the committee. The negative
600
resolution procedure is the usual process in the tax system; indeed, it is more usual for tax regulations to be made only before the other place, because of the restrictions laid down by the Parliament Act 1911. I give way to the noble Lord.
Lord Higgins: I am most grateful. Can the Minister tell me whether that is also true as far as concerns DSS regulations—that is to say, in switching from one department to another, would this Chamber lose the degree of control that it previously had?
Lord McIntosh of Haringey: I was going to deal with DSS regulations in due course. It is certainly true that this now becomes a matter which may well be ruled a money matter by Madam Speaker, should the question arise. But the particular regulations for payment through the pay packet are setting up a very similar administrative structure to that for PAYE which is currently in the tax system. The administrative structure is the subject of regulations rather than the principle of tax credits. Therefore, we take the view that it is appropriate for the regulations also to use the negative procedure.
However, in response to the noble Lord, Lord Higgins, it is worth mentioning that the powers in social security legislation very frequently provide for regulations to be made by negative procedure. Indeed, I believe that applies to a few thousand a year. These are the ones which the noble Earl, Lord Russell, and my noble friend have been known to pray against. If Members of the Committee look at Section 176 of the Social Security Contributions and Benefits Act 1992, they will see the occasions when that can happen.
The Inland Revenue has spent a considerable amount of time over the past year consulting various representative groups on details of the scheme which is to be established under this clause. The document published in December and the draft regulations made available have been developed as a result of these consultations. I should point out here to the noble Lord, Lord Goodhart, that the fact that there has been extensive consultation does not mean that it follows that there should be affirmative resolution parliamentary scrutiny. Consultation is a normal part of the process of producing Inland Revenue regulations. Indeed, they are nearly all subject to negative resolution procedure.
Therefore, the Inland Revenue will continue to consult on these draft regulations. I come down to the conclusion that, in this respect and on this occasion, the Delegated Powers and Deregulation Committee is in error and that it would be better to stick to the procedures which have been used for tax regulation and for social security regulation in the past. I ask the noble Lord, Lord Goodhart, not to press his amendment.
Lord Skelmersdale: For once, perhaps I may—I hope, helpfully—come to the Minister's aid. When the Delegated Powers and Deregulation Committee considered the Bill, I have a feeling that it did not have the benefit of the very helpful drafts of the regulations which the Government currently intend to implement and which the Minister said can still be amended, if

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necessary, before they are actually laid. The noble Lord, Lord Goodhart, will correct me if I am wrong in that respect.
However, if I am right, I believe that that puts a totally different light on the situation. Given the fact that we have these draft regulations before us—I have four copies and I believe that to be a complete set, although I may be wrong—we can all consider them most carefully; indeed, I have done so. We can satisfy ourselves that they will actually work to administer the scheme which the Government are introducing in the Bill. Of course, they will need changing should noble Lords' arguments of earlier this afternoon prevail in another place, but I think the likelihood of that happening is about as high as my noble friend shooting a fox.
Earl Russell: This is a House matter, not a party matter. In this Chamber we have a habit of changing places. However, we should not make too many short-term points on that theme. This is a matter which concerns all of us and one which will continue to do so. Lord Rippon of Hexham, who was the only begetter of the Delegated Powers Scrutiny Committee, as it then was, used to feel considerable distress when any argument about the committee and its reports became simply a matter of a party vote. I believe that to be a very reasonable approach to the matter It is a concern of the whole House, not just a question of short-term party advantage.
However, that way of treating it—in other words, as a straightforward exchange between the Front Benches—can only be avoided if there is a degree of give in the Government's response to the committee's reports. For many years we had a practice whereby the government of the day did in fact accept practically everything that the committee recommended. That avoided party challenge and party dog-fighting; and, indeed, the seeking of party advantage.
Having listened to the noble Lord, Lord Skelmersdale. I can see that this is not quite a typical case. Whether that is a full answer to the points raised by my noble friend is another question. Indeed, it is a question which I hope may perhaps be discussed outside the Chamber, before we have to decide whether to return to the issue on Report. For the future, hope that this very firm blanket resistance to a report from the Delegated Powers and Deregulation Committee will not be taken for a precedent.
6.30 p.m.
Lord Goodhart: I am grateful for the reply that I have received. However, it is not entirely satisfactory. As regards the point made by the noble Lord, Lord Skelmersdale, it is perfectly correct that the Select Committee did not have before it the draft regulations although it had a fairly comprehensive memorandum from the Inland Revenue on the nature of the devolved powers. In any event, I believe that the answer to the point raised by the noble Lord, Lord Skelmersdale, sounds persuasive. What the Committee is concerned with, as regards the statutory instrument, is not the form that it presently takes in draft, but the form in which it
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is intended that it shall become law. As we have been told, consultations are proceeding. Therefore, I would have thought it appropriate that the House should in due course have the right to consider and debate the finished regulations.
I have a great deal of sympathy with what the noble Lord, Lord Higgins, said concerning a new procedure. There are very strong arguments for having an intermediate structure between the present system of primary legislation and secondary legislation, in which a fast-track procedure could be used. It would shorten the present stages of public Bills. At the same time, it would make possible some form of amendment. That goes well beyond the scope of the present Bill and it is not something that can be dealt with by the Committee. It is simply a stone thrown into the pond producing ripples which I hope will have an effect in due course.
As I have said, I am disappointed that the Government have not given ground on this matter. I do not propose to divide the House on it today and shall consider whether or not it is a matter that should be brought back at a later stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees (Baroness Lockwood): If Amendment No.41 is agreed to I cannot call Amendments Nos.42 to 44 inclusive under the pre-emption rule.
Lord Astor of Hever Lord Astor of Hever moved Amendment No.41:
Page 4, line 17, leave out subsection (4) and insert—
("(4) This section shall not come into force until the Chancellor of the Exchequer has laid before both Houses of Parliament a statement that he is satisfied that employers are likely to be in a position to comply with their obligations under this Act. ")
The noble Lord said: This is a probing amendment. If the Government and the other place accept the amendments passed today we shall be very content. This amendment aims to ensure that businesses will not be required to administer WFTC until they are ready to do so. The Minister told us earlier that all calculations will be done by the Inland Revenue and that work done by employers will be minimal. I am reassured by that. But as the tax credits are being introduced without any pilot exercises, implementation of this untried scheme will impose stresses on employers.
TaxAid suggests that the introduction of tax credits should be deferred for small businesses. It states:
"We believe that this will help to ensure that when the scheme is extended to smaller firms it will be more user-friendly and therefore less likely to be resented by smaller employers or the subject of abuse".
I am told that it has serious concerns about the ability of small firms—many of which cannot afford professional help—to deliver the new tax credits. Employers are already unpaid tax collectors on behalf of the Government for National Insurance contributions and PAYE. They also fund such benefits as statutory sick

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pay, statutory maternity pay and redundancy payments. They need more time to prepare themselves for the change. I beg to move.
Lord Goodhart: I support the noble Lord, Lord Astor of Hever. This Bill contains a fixed commencement date which is unusual in a Bill involving substantial administrative changes within government departments. The time-scale is extremely short. The Government have committed themselves to bringing in tax credits on 5th October this year, which is half-way through the tax year. We do not object to the Government doing that, but only six months later, on 6th April 2000, Clause 6 will come into force. During that period of six months between October this year and April next year, the Inland Revenue will have to iron out the snags in its own administration of tax credits and make sure that employers are ready to deal with payment through the pay packet.
There will certainly be snags. The working families' tax credit may be family credit under a new name, but a number of changes are being made to it, particularly the introduction of childcare credit in place of the childcare disregard. These are likely to create serious, if temporary, problems. The transfer of responsibility from the Department of Social Security to the Inland Revenue will also create problems. I believe that the family credit section of the Benefits Agency will be transferred en bloc to the Inland Revenue, but it will still have to be bedded down into that system.
Everything may go smoothly, but equally it may not. If I were to bet on it, it would be that the scheme will not go as smoothly as the Government hope and expect. At the same time, the Inland Revenue will have to carry out a massive information exercise for employers and set up programmes to help them and to train staff to operate the help programmes. We have great difficulty in believing that that can be done in time to introduce payment through the employers on the proposed date.
But what if it becomes apparent early in the year 2000 that Clause 6 cannot be implemented by 6th April because, if it is, there will be a potential fiasco? The Government will then either have to allow the fiasco to take place or return to Parliament and ask for primary legislation to authorise a further delay in setting up payment through employers.
One hopes, and even expects as a probability, that it will be possible to go ahead on 6th April 2000, but that is a long way short of being able to say for certain that that is the case. Why do not the Government simply reserve the power to delay the impact of this legislation in the second stage (when payment through employers commences) until that scheme is ready? It may turn out that the Government can go ahead on 6th April next year. However, it is surely in everyone's interests that there should be a method short of primary legislation which will enable the Government to delay the working families' tax credit—even if by just a fraction of the delay which has hit the Jubilee Line. Surely it is wise to give the Government some power to defer the implementation of stage two until matters are ready to proceed. Speaking for myself, I would not press this
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amendment, but if the Government insist on continuing with their rigid timetable, they cannot say that they have not been warned.
The Earl of Dudley: In view of the fairly wide comments that have been made about this amendment, I believe I am in order in asking the noble Baroness a question which is causing concern. I could have spoken on Clause 6 stand part of the Bill, but I believe it is appropriate to speak now.
I believe that a number of practical points have not been given very serious consideration in the first part of the Bill. For example, a husband and wife may be employed by two different employers and they may not agree which of them should receive the tax credit. Perhaps the husband wishes to spend it in the pub on a Friday evening while his wife would like to spend it on new clothes for their child. The board of course has responsibility for deciding this matter, but what criteria is it to use in reaching that decision? There is nothing that I can see in the Bill which tells us that. I hope the Minister can comment on that matter as it is appropriate to discuss it in the context of this amendment.
Lord McIntosh of Haringey: These amendments seek to provide that Clause 6 shall not come into force until the Chancellor of the Exchequer has laid before both Houses of Parliament a statement that he is satisfied that employers are likely to be able to comply with their obligations under the Bill. I am grateful to those proposing Amendment No.41 who have spoken also to the two amendments grouped with it as it gives me an opportunity to set out the preparations which have been made. It is important to have fixed commencement dates, not from the point of view of rigidity or the convenience of the Government, but from the point of view of employers who are greatly helped if they know that fixed intervals are already laid down in legislation. They thus know the timetable they have to work to. This situation is rather like the millennium bug except that we could by amendment change the dates we are discussing. It is rather unlikely that we could change the date of the end of the millennium and the start of the next. However, that assumes we have the matter right. I do not believe that we have.
I must say, however, that these amendments are wholly unnecessary. The Chancellor of the Exchequer would not have proposed the payment of tax credits by employers if he had not been satisfied that they would be able to comply with their obligations. We are doing everything we can to make sure that employers are in a position to fulfil their obligations. The Committee may ask how we are doing that. The most important step has been to involve employer representatives in detailed consultations on the design of the employer payment scheme. Regular meetings between Revenue officials and representatives of large and small employers have been held since last May and full account has been taken of employer concerns. Draft regulations have been made available to Members of both Houses of Parliament and will shortly be published for a much wider audience when the official consultation begins. We shall continue to consult the representative bodies on all aspects of the scheme.

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Alongside these consultations we have begun a programme of information and guidance to employers and payroll software suppliers so that they can make the necessary adjustments to their systems in good time for April 2000. Last December the Inland Revenue published a booklet, Working Families Tax Credit and Disabled Person's Tax Credit, which sets out the main features of the scheme. The Revenue's Employers' Bulletin and Notes on PAYE for Computer Users have also alerted employers to the preparations they will need to make over the next few months. Future issues of these publications will give much more detail in the run-up to April 2000.
The plan is for the employers' information packs issued in January next year to include detailed tax credit examples showing employers exactly what they have to do. The Revenue is planning to hold seminars for employers from July this year. These will be backed up by trade press advertisements and promotions in the regional press. From March 2000 onwards, samples of end-of-year stationery—that is, the Revenue forms—should be available from the employers' orderline, with test packs available around June that year.
This education programme should ensure that all employers are fully aware of what the tax credit scheme will mean to them. The noble Lord, Lord Burton, mentioned issues which were debated at some length on the first day of Committee when we considered Amendments Nos.14, 16, 17 and 18. In the interests of mentioning only the amendments which are before us at any one time rather than ranging widely over the Bill, I hope the noble Lord will forgive me if I recommend that he reads the debate on those amendments in Hansard rather than my attempting to respond to them today.
I hope I have succeeded in persuading, the Committee that there is no need for a statement from the Chancellor of the Exchequer on these matters and that the noble Lords who have spoken to the relevant amendments—which would be pre-empted if Amendment No.41 were carried—will not consider it necessary to press them at the appropriate time.
6.45 p.m.
Lord Astor of Hever: I am grateful to the Minister for his reply and for setting out the detailed preparations for employers. The noble Lord, Lord Goodhart, has pointed out the problems that small firms will encounter and the fact that the introduction of these tax credits may not run smoothly. We agree with those comments, as I know do a number of business organisations. However, in the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.42 not moved.]
Lord Freeman Lord Freeman moved Amendment No.43:
Page 4, line 17, at end insert ("if the requirements of section (Preparation of forms, etc.) are satisfied, and otherwise on such day after those requirements are satisfied as the Secretary of State may by order made by statutory instrument appoint")
The noble Lord said: The tax and benefit systems in this country are complicated and perhaps necessarily so because they have to provide a sophisticated and equitable system for beneficiaries. My contention is that the impact on the beneficiaries of our welfare state should be simple and clear to understand. It is the duty of this Chamber, and indeed of legislators in both Chambers, to make sure that not only the primary legislation but also the secondary legislation—the regulations that stem from it—are clear, easy to understand and maximise the legitimate take-up of those benefits. Amendments Nos.43 and 47, which are probing in nature, are designed to elicit from the Government a commitment at least to control the degree of bureaucracy and the bureaucratic complications that inevitably sometimes stem from well meaning legislation.
The new clause which I propose places certain requirements upon the Inland Revenue. This Bill presents us with a transference of responsibilities from the Benefits Agency, with a different culture, to the Inland Revenue, which of course places a great deal of emphasis and importance upon checking the veracity of claims and ensuring that the Exchequer is not unnecessarily pre-empted upon. However, the Benefits Agency has a culture of giving help and support as quickly as possible to a beneficiary and then subsequently in certain cases seeking to ensure through sample checks that the benefit has been appropriately claimed. In the transfer of responsibility from the Benefits Agency to the Inland Revenue there is an excellent opportunity to ensure that the best of the procedures of the Benefits Agency and the Inland Revenue are adopted. The new clause that I propose provides an opportunity to ensure that the best procedures of both agencies are adopted to promote take-up.
I refer to the definition of profit for the self-employed. This may seem a rather arcane point to the Committee. However, as regards the self-assessment form for the self-employed, the definition of profit relies on the use of capital allowances rather than depreciation in an accounting sense. That is an important point because when we transfer from the claim forms used by the Benefits Agency to the claim forms to be administered by the Inland Revenue, I believe it will be helpful to self-employed claimants—perhaps 10 per cent of those claiming working families' tax credit will be self-employed, some of them in very small businesses—if the definition of profit is the same as they use for the self-assessment of tax.
As the Committee will know, there are simplified procedures for self-assessment by the self-employed if their turnover is below £15,000. Just three items have to be reported on the claim form: turnover, costs and profit. I ask the Government to consider at the earliest opportunity—I believe this can be done before the commencement of the new tax year, 2000–2001—using the simplified reporting system already in place and used by the Inland Revenue as regards claims for the working families' tax credit. A broader point attaches to this matter. The Inland Revenue would be well advised

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to amend substantially Form 501 and simply use the self-employed self-assessment tax form or something similar.
Thirdly, I am grateful to the Minister for drawing my attention to the fact that already some changes have been made to the working families' tax credit Form 1 and Form 502 to ensure that the declaration made by a claimant of working families' tax credit is the same as the one used on tax forms. I should like the Inland Revenue to carry through the same welcome changes to Forms 500 and 501. I am not aware that that has yet been carried out.
Fourthly, I am sure that the Committee is familiar with the guidance notes used to complete one's own tax forms. Guidance notes similar to those used for self-assessment would be of great help to claimants. Sensible and constructive changes have yet to be made. They will be made, I am sure, by many groups interested in improving the guidance notes.
Finally, when Mr. Gordon Brown, the Chancellor of the Exchequer, replied to the Select Committee on Social Security in another place, he said that the Inland Revenue would continue to provide "better off' calculations. Better off calculations simply help the claimant to understand whether to apply for the working families' tax credit, for example, and whether the claimant would be better off or not as the case may be. The noble Baroness the Minister has indicated that it is very unlikely that one would be worse off if one did not claim the tax credit. Will the better off calculations be performed by the Revenue? It does not do so at present. Will they be carried out centrally at Preston or locally in individual tax offices? How quickly will they be carried out?
The changes I have recommended to the Committee in the new clause could be achieved by April 2000 when employers take up their responsibilities. The noble Baroness was kind enough to tell me that the tax credit application forms, to paraphrase her words, will necessarily need to build on the current family credit claim form. She argues that this is necessary to ensure that they continue to fit with the Benefits Agency administrative and computer systems. We have a great opportunity here to simplify procedures and use the best of the Inland Revenue's procedures. Bureaucratic systems should be the servant of legislation, not the other way round. I beg to move.
Lord Higgins: The Committee will be grateful for the points made by my noble friend Lord Freeman. It is not very often that accountants and economists agree—I believe that he is an accountant and I once made my living as an economist—but on this occasion we can reasonably do so. There is perhaps a growing concern in the Committee about the question of timing. The noble Lord, Lord McIntosh of Haringey, listed the many preparations which are being made, but there is some concern on the issue, as reflected in earlier amendments. It is very important that we get the forms right—my noble friend moving the amendment knows more about that than I—but I am a little hesitant as to whether the guidance notes for filling in one's self-assessment form
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are really the most appropriate model. I see that the noble Lord, Lord McIntosh of Haringey, is also doubtful about that. Certainly, it is one of the few occasions where I leave the matter to my accountant rather than work out the answers for myself.
My noble friend was right to make the point about the difference in ethos. We need to get the best features of the two departments operating in this area. One's fear is that one will be in some danger of getting the worst features. Certainly as concerns timing, in many respects the DSS is remarkably efficient—leaving computer failures on one side of course and keeping one's fingers crossed for the future of the computer system. On the other hand, the Inland Revenue can be extremely slow. Even with my own simple tax affairs I find that it may be many years before one gets an answer from the Revenue as to what is one's liability. We look forward to what the noble Lord has to say about the very important points raised by my noble friend.
7 p.m.
Lord McIntosh of Haringey: I should say straightaway to the noble Lord, Lord Higgins, that I have just put together all the papers for my next year's tax return. I thought for some time that it might be possible to polish them off during the parts of the Bill being dealt with by my noble friend Lady Hollis. But we are acting so expeditiously and efficiently and in such a friendly way—except when we are beaten—that I shall have to save completing my tax return until I sit on the Front Bench during the House of Lords Bill.
I am grateful to the noble Lord, Lord Freeman, for proposing the amendment and for the manner in which he did so. It gives me an opportunity to say more about the way in which the Inland Revenue develops the forms and the guidance and the constraints on it in producing them. I had intended to say how grateful I was for his recognition in the amendment of the quality of the Inland Revenue's forms and guidance, but he slightly spoilt matters by contrasting the Inland Revenue with the Department of Social Security. It is my duty to defend the Department of Social Security as well. I think the noble Lord, Lord Higgins, is right: there are virtues in both organisations. The DSS has a culture of helping and using sample methods for checking, whereas the Inland Revenue, as a matter of accountancy procedure, has to ensure that every single record with an employer and an individual is, in the end, correct. The noble Lord is right to say that our objective should be to secure the best of both cultures and not risk ending up with the worst of both cultures. Mrs. Patrick Campbell said to George Bernard Shaw that if they had a child she hoped that it would have her beauty and his brains. He said, "What would happen if it had my beauty and your brains?" The affair did not develop in quite the way some might have expected.
The forms and guidance which the noble Lord, Lord Freeman, would like emulated by the tax credit application forms are very good—but they are not perfect and the Inland Revenue would be the last to say that they were. That is why the Inland Revenue continually seeks to improve all its forms and why it has a rolling programme of review. However, there are

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constraints. The application forms will be added to the improvement process and, as with tax returns, the Inland Revenue will look to continually develop and improve them. I should, however, add a note of caution. We must never forget that forms service an administrative procedure and, all too commonly these days, an underlying computer system. That means that changes are not simply issues of design, wording and lay-out, but concern the administrative procedures into which they feed and their computer programmes. Therefore, changes which may seem simple—perhaps because they are issues of lay-out—may be much more difficult if they mean that underlying procedures and computer systems need to be changed as a consequence. I have personal experience after a life-time's work in market research. If one makes a mistake on a questionnaire—perhaps because one has asked the wrong questions or asked the right questions of the wrong people—it can never be remedied. It means that change may be slower or less marked than might otherwise be expected.
I say that because, for the reasons that have been put forward, the tax credits will be built from the benefits that they replace. That means that the administrative and computer building blocks are those that were served by the old benefit claim forms. We have emphasised on other issues how that is the best for customers and carries the least risk. But it must mean that fundamental and radical redesign of the forms is not possible at this stage. We want an incremental approach that builds on the tried and tested systems and we will need to have the same incremental and evolutionary approach to the application forms.
Perhaps I may deal in turn with the four parts of the noble Lord's substantive amendment. I appreciate that the definition of "income" used for tax credits—I shall deal with profits on the second point—remains the one used for benefits from which the tax credits were built. Making the income definition the same as that for tax would clearly reinforce the message that the tax credits are part of the tax system. But in practice there are arguments for retaining the current definition of income, at least at the outset. I have already explained that making incremental changes helps customers and limits risk. Most particularly, keeping the current definition of income helps customers to compare what they would get on other income-related benefits with what they will get from working families' tax credits, where the income calculation would be the same. But I have listened to what the noble Lord said and I can assure him that we shall be keeping this under review.
As for simplified reporting procedures, the simplified procedure for tax returns allows self-employed people with low profits to report annual profits by reporting annual income, expenses and profits in a standardised format without the need for accounts. They are, however, still required to have the documentation that supports these figures and to supply it when requested. As a small businessman, at one stage I looked forward to the relief from the obligation to produce annual accounts which the previous government introduced, but I was never able to make use of it because one always
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really had to have accounts in order to know where one stood. I do not know who actually has benefited from that procedure, except possibly dormant companies.
The tax credit application asks for this information in substantially the same way in relation to the short, snapshot period but the form needs to collect other information about whether the period is representative, to confirm that the application was within the other rules and to make some special adjustments. So the purpose it serves is not quite the same as the tax return. But I can readily accept that the current family credit form has its difficulties. It is prone to error and the: replacement form, while better, is high on the list of Inland Revenue forms for rolling review. I can assure the Committee that the Inland Revenue will be looking carefully, in consultation with representative groups, at how the new form performs in this function and how it can be improved.
I turn to the third part of the noble Lord's amendment, which is about declaration. I am glad to say that the issues on declaration are easily disposed of. As noble Lords will have seen, in the latest version of the application form, which was placed in the Library last week, the declaration has been changed, as the noble Lord, Lord Freeman, wished, and it now follows the format used in the tax return.
On guidance, I hope that the Committee is pleased by the content, look and feel of the draft guidance note that accompanies this version of the draft application form. The aim has been to make it acceptable and helpful, which is the same aim behind the tax return guidance notes. But target audiences are different and, arguably, they do not need precisely the same thing. So, like me, other noble Lords will have had their tax return, complete with entreaties not to put it away behind the clock and forget about it, which is the right thing to do for a form which one is obliged to complete within a time limit. But we want to encourage potential applicants to pick up the application pack, open the application form and read the guidance notes. The balance is different. It needs to be comprehensive and it needs to be helpful, but to replicate the approach used for the tax return would be wrong. What we want to do is to learn from how the tax return was developed through a process of consultation, iteration and usability trials. That is what the Inland Revenue has done and is continuing to do.
The noble Lord asked a specific question about where it is decided who is better off under working families' tax credit. The answer is that there is no change here. The IBIS and Ferret computer programs which are already in use will be used for this purpose.
I hope that the noble Lord and the Committee will feel that, although we cannot accept what is admittedly a probing amendment, we are thinking along very much the same lines and want to achieve the result that the noble Lord wishes.
Lord Freeman: I am much encouraged by the Minister's approach and by his willingness to ensure that sensible amendments are made to the forms and procedures. Indeed, I am so grateful that, while he is on

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the Front Bench and between Divisions and while he is preparing his self-assessment tax form, if he would like some help, perhaps he would have a word with me. With the Committee's agreement, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins Lord Higgins had given notice of his intention to move Amendment No.44:
Page 4, line 17, at end insert ("except in the case of employers who employ fewer than 20 people, in respect of whom it shall come into force on 6th April 2002")
The noble Lord said: I wish to—
Baroness Hollis of Heigham: Perhaps I may seek clarification. We passed Amendment No.29 which concerned the election for employers with fewer than 10 employees. Amendment No.44 applies to those employers with fewer than 20 employees. I had thought that by accepting Amendment No.29 with its pair the alternative pair was made redundant, so to speak. Perhaps the noble Lord can enlighten the Committee. This amendment is not consequential on Amendment No.29. These are alternative pairings.
Lord Higgins: I take the noble Baroness's point. One amendment concerns fewer than 10 employees. Amendment No.44 concerns employers with fewer than 20 employees, who would then have until 2002 to prepare. With great respect, when the noble Baroness replied to the earlier debate she did not cover this point. As to the delay in the time, she did not explain why that was a problem.
Baroness Hollis of Heigham: As far as I recall, what I said amounted to about two lines. As we did not think that this burden of responsibility was onerous and as there had been ample consultation—of the 18 months, 16 had been spent on consultation—we did not feel it necessary to extend the period. I did address that point. I can see that the noble Lord might not accept that argument but I certainly did my best to address it, however briefly. Given that the pairings were in terms of Amendment No.29—fewer than 10 employees—and they were alternatives, and given that the Conservatives came in behind the Liberal Democrat Benches on the matter in order to make those numbers possible, I had assumed that the amendments would not be moved.
[Amendment No.44 not moved.]
[Amendment No.45 not moved.]
On Question, Whether Clause 6, as amended, shall stand part of the Bill?
Lord Higgins: We have already covered a good deal of the ground that is covered in Clause 6, particularly with regard to commencement and so on and whether it is indeed the case that employers are likely to be ready to implement the Bill on the date which apparently is to be specified. The commencement provision appears at the end of Clause 6. It seems worthwhile spending a little time examining the contents of this clause in slightly greater detail.
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Effectively, the position is that the Government will make regulations with regard to the payment of tax credit. Somewhat surprisingly, subsection (2)(a) of Clause 6 requires employers,
"to make payments of tax credit by reference to notifications of entitlement furnished to them by the Board".
We discussed this matter in relation to earlier amendments. We were assured by the Government that, contrary to the statutory instrument we discussed earlier, the Inland Revenue will inform employers of the precise amount they are required to pay. Perhaps the noble Lord will clarify one point. He said that the only calculation that an employer will make, arising under the subsection to which I have just referred, is to relate the payment to the number of days worked. Will the noble Lord spell out exactly how he sees a particular employer carrying out that operation? I was not entirely clear about it.
Subsection (2)(b) of Clause 6 refers to,
"the production of wages sheets and other documents",
in regard to payment of the tax credit in accordance with the regulations. That requirement is understandable; namely, that the individual employer should confirm to the Inland Revenue that he has paid the amount involved.
That takes us back to an earlier amendment. I am not quite clear, given that the Inland Revenue will have told an employer precisely how much is to be paid and an itemised pay statement will have been issued by the employer, why the employer needs also to confirm the amount to the board. Perhaps the noble Lord will clarify that point.
Paragraph (d) at the top of page four contains a provision,
"for the funding by the Board of tax credit paid or to be paid by employers".
I am not clear why the words, "paid or", appear at that point. Presumably the board will be funding the credit if it is to be paid, but not if it has already been paid. Or is it the other way about? I am slightly confused by the wording.
Similarly, paragraph (e) refers to,
"the recovery by the Board of any sums overpaid to employers under paragraph (d)".
That is apparently a recovery arrangement. How is that to be done?
Finally, paragraph (f) refers to interest payments due. The noble Lord, Lord Peston, who is no longer in his place, was concerned about the way in which those sums would be calculated. The noble Lord has already said that the provision will be by statutory instrument, specifying the rate. But can he tell us in principle what that rate of interest will be? Will it be a normal commercial rate, the government borrowing rate, or whatever? Those are the outstanding points.
The Earl of Dudley: I believe the noble Lord, Lord McIntosh, will forgive me if, with respect, I say that he was unduly dismissive of the question I raised in relation to Amendment No.41. There is possibly some doubt as to whether I was right to raise a question

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on parental disputes in relation to that amendment. However, I believe I am in order in raising it on Clause 6 stand part.
Fortunately, the Second Reading debate was not very long, and I have had an opportunity to skim through it. The noble Lord, Lord Goodhart, raised this matter at that stage. He said:
"What then is the position if this dispute is not resolved? The draft regulations simply state that the claim is to be made by whichever partner the couple agrees should claim". —[Official Report, 12/4/99; col.524.]
What happens if the couple do not agree?
The noble Lord raised a second point regarding parental disputes. He said, again at col.524:
"The Inland Revenue memorandum published in March says that if the dispute is not resolved, the Inland Revenue will consider accepting an application submitted by the caring parent without the signature of the working parent".
What happens if both parents are working? What if they are working for different employers and are unable to resolve which of them shall receive the tax credit? What criteria do the Board of the Inland Revenue then use in its regulations? It is a simple question, and it was not dealt with at Second Reading. I should be grateful if the noble Lord, Lord McIntosh, or the noble Baroness would answer the point.
7.15 p.m.
Lord McIntosh of Haringey: First, I apologise to the noble Earl, Lord Dudley, for referring to him as Lord Burton when I first rose to reply. I am afraid that my answer is still the same. I shall attempt to give the noble Earl an answer, but basically the issue that he raises is not dealt with in Clause 6. It was dealt with earlier in Committee. The answer is that if both parents are in work, the tax credit can be paid to either, but only through the pay packet. If they agree, the same procedure will apply. That was described in the debate on Amendments Nos.14, 16, 17 and 18. I recommend that the noble Lord read that debate before Report. If the parents do not agree, the credit will go by default to the mother or the caring partner. I hope that that addresses the major issue raised by the noble Earl.
I have some difficulty with the approach that uses the clause stand part debate to raise issues that have not been raised in specific amendments. I shall do my best to answer. However, if I fail, the noble Earl will have to allow me to write to him. If noble Lords wish to receive answers on specific points, the way to find out is to table amendments, even probing amendments, in order to receive an informed reply rather than having messages coming from the Box at high speed.
The noble Lord's first question related to how the employer does the only calculation that is involved. The employer is told by the Inland Revenue what is the daily rate of tax credit or disabled credit. He multiplies that by the number of calendar days for which he is responsible. That is all he does, and he pays that amount at the end of the period. If it is a weekly period, it is between one and seven; if it is a monthly period, it is between one and 31.
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The second question was why information is called for under Clause 6(2)(b). The documents need to be produced for checking purposes when the Inland Revenue wants to check that amounts have been correctly paid. That seemed to me reasonably clear. I shall have to write to the noble Lord regarding his point about "paid or to be paid".
As to how recovery is carried out, if an employer has been paid too much tax credit, the Inland Revenue will need to recover the amount. The comparable procedures, in reverse, will be those used in respect of employers whose PAYE and NIC payments fall short of their tax credit obligations. It will depend on what procedures an employer has in place. If he has automated credit transfer, it will be a good deal easier than if cheques or drafts have to pass between one and the other. Fundamentally, it will be the same principle as with payments to the Inland Revenue.
Lord Higgins: I understand the noble Lord's point about specific amendments of which we have debated a number. The reason I did not table a specific amendment is that the whole of Clause 6 relates to the payments process, which we have debated throughout. I merely sought to pick up a few loose ends which I, for one, had not fully understood. I well understand that the noble Lord may prefer to write to me about those issues. We have discussed the matter at considerable length; however, I am still not clear, given all the procedures that the noble Lord has outlined, how the Inland Revenue will need to recover an over-payment since it would seem from the noble Lord's remarks that an over-payment will not take place.
Lord McIntosh of Haringey: An overpayment could well take place, just as overpayments and underpayments of tax take place. There may be a mistake by the employer or even—dare I say it—by the Inland Revenue that must be corrected. There is nothing more sinister about it than that. The intention is to correct an inadvertent or even deliberate mistake.
As to interest, the same rate will be applied as applies to PAYE and the rest of the tax system. Interest is charged on underpayments at a broad commercial rate which is fixed by the Treasury at the appropriate time. Presumably, the same will apply to refunds on overpayments. I am advised that the expression
"paid or to be paid"
refers simply to the possibility that in some cases payment will already have been made and in other cases it must be made in the future. I hope that it is as simple as that.
Lord Skelmersdale: My noble friend Lord Higgins referred to loose ends. I have a question the answer to which I certainly do not expect to receive this evening My question is prompted by an observation of my noble friend Lord Dudley. On occasions there will be a new employee who has just come off income support and manages to get two short-term jobs on the same day. One example that springs to mind, which is not a good one, is an individual who has regular employment for three days a week cleaning two houses, offices or

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whatever. What will be the arrangement for the payment of the tax credit? I have sprung this on the Front Bench opposite and do not have the least idea of the answer. Perhaps the noble Lord will consider it and incorporate the answer in the letter to my noble friend Lord Dudley.
Lord McIntosh of Haringey: I am grateful to the noble Lord for his forbearance. For example, one may obtain a job as a dishwasher and be promoted to waiter in the afternoon.
Lord Skelmersdale: That is certainly not the case. If one is promoted within the day no change takes place. The noble Lord and I agree that it is a serious point which deserves a serious answer at some stage, but not tonight.
Lord McIntosh of Haringey: It deserves an answer and I shall write to the noble Lord and place a copy in the Library for the benefit of other noble Lords.
Clause 6, as amended, agreed to.
[Amendments Nos.46 and 47 not moved.]
On Question, Whether Clause 7 shall stand part of the Bill?
Lord Higgins: This is the reverse of what the Committee was concerned with previously. There is a series of points not covered in earlier amendments. Essentially, the clause implements Schedule 3 to the Bill relating to the right of employees not to suffer unfair dismissal. Presumably, the purpose of the clause is to ensure that an employee is not unfairly dismissed if an employer decides that he prefers not to have on his payroll someone who is drawing working families' tax credit because of the administrative problems in which that involves him. If that is not so I am not entirely clear why Schedule 3, which is related to the clause now being debated, needs to be incorporated here rather than as part of the already well-established general law relating to unfair dismissal. Presumably, there is a particular reason why it is felt necessary to legislate specifically in this context, but I am not clear what it is.
Baroness Hollis of Heigham: I am disappointed that we have missed an opportunity to discuss the Agricultural Gangs Act 1867 and all the rest of it, which I would have been very happy to chat about for some time. Having been deprived of that opportunity, I turn to Clause 7. It may assist the noble Lord if I explain the purpose of Clause 7. If he wishes to return to the matter tonight I shall do my best to answer the noble Lord or write to him. Clause 7 introduces Schedule 3, which is a very important extension of existing employment rights to employees who are entitled to receive their tax credits through the pay packet.
We fully expect employers to comply with their responsibilities, and we have done our best to minimise any work that this may involve. But we must also ensure that employees do not feel inhibited in claiming their entitlement through fear of victimisation by their employer in the form of detriment or even dismissal. In
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the light of the Opposition's Amendment No.31, which was agreed this afternoon, where in that situation an employee or lone parent feels pressurised by a less than scrupulous employer this may have particular import. That is the purpose of Schedule 3.
The schedule provides that, as with other employment rights, if employees believe that they have suffered detriment or dismissal simply because they have asserted their right to receive tax credits with their pay they will be able to take their complaint to an employment tribunal. Detriment may consist of any action or failure to act by the employer as a result of an employee's application for tax credits to be paid through the payroll. Examples of this may be refusal of merited promotion, not giving a pay rise which is awarded to other employees, disciplining an employee or singling him or her out for relocation. There will be no qualifying period of service, which means that the right conferred by Schedule 3 will be a "day one" right.
Payment of tax credits by employers is a radical feature of the scheme that this Bill introduces. If employees are to have confidence in this method of payment we must make it clear to them that they will be adequately protected against any form of discrimination at work as a result of receiving tax credits in this way. Groups campaigning for employee rights have welcomed these provisions, and I therefore commend Clause 71 and Schedule 3 to the Committee.
If the noble Lord wishes I can clarify the connection with disabled employees under DPTC, but he may prefer to leave that issue to subsequent amendments when the Committee deals with disability. However, I hope that I have dealt with the question raised by the noble Lord as to the circumstances in which this may be germane.
Lord Higgins: I do not want to detain the Committee for too long. One fully understands the arguments in favour of both the clause and schedule. Even so, one is unclear why the Bill needs this particular clause because it is not already covered by the existing law relating to unfair dismissal. I believe I am right in saying that the schedule makes no specific reference to working families' tax credit, which would be expected if this measure operated within that context.
To put the same proposition another way, either the existing law is already adequate or this schedule, without specifically referring to tax credits, extends the law beyond its present ambit. I am not clear, therefore. why the schedule is necessary. While I fully understand and support its objectives, I am not clear why it is not already covered in law.
Baroness Hollis of Heigham: I believe that it is fairly straightforward. As happened with the minimum wage legislation, it is not within the remit of this Bill to amend employment law in this way, hence the specification.
Lord Skelmersdale: The Minister was unable to provide the answer to my noble friend swiftly enough. The answer can be found at the top of page 20, lines 1 and 2, where specific mention is made of Section 6(2)(a)

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or (c) of the Tax Credits Act 1999. Therefore the Employment Rights Act 1996 is amended by that specification.
Lord Higgins: The noble Baroness said earlier that we do not have power under the Bill to amend the Employment Rights Act 1996.
Baroness Hollis of Heigham: I now have two versions from noble Lords opposite. I understand that, as with minimum wage legislation, we do not have general powers to amend. Therefore it is being done by schedule. I think that it is as simple as that.
Clause 7 agreed to
Clause 8 agreed to.
Lord McIntosh of Haringey: I beg to move that the House do now resume. In doing so, I suggest that the Committee stage start again not before 8.30 p.m.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Business
Lord McIntosh of Haringey: My Lords, unless any noble Lord objects, I beg to move that the Motion standing in my name be postponed until after the conclusion of the Committee stage of the Tax Credits Bill.
Moved, That the Motion standing in the name of the noble Lord, Lord McIntosh of Haringey, be postponed until after the conclusion of the Committee stage of the Tax Credits Bill. —(Lord McIntosh of Haringey.)
On Question, Motion agreed to.

Satellite Communications
7.32 p.m.
Lord Kennet Lord Kennet rose to ask Her Majesty's Government what is their policy towards the future international development of civil and military satellite communications and navigation systems, in particular in relation to the European Space Agency and to the Western European Union.
The noble Lord said: My Lords, it is 200 years since Haydn wrote an opera about a picnic on the moon, and a generation since Armstrong took his step. But we do not seem even now to know what we think about ownership, policing, rights and duties in space.
In a few days my noble friend will chair a meeting of the Ministerial Council of the European Space Agency. The agenda covers just about the whole civil spectrum: the agency does not cover the military side. The noble Lord, Lord Renwick, has put down another Question for a few weeks ahead and I hope that the Minister will be able then to give the House lots of good news about
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what happened. For the moment, we can put our own ideas and questions to the Minister and thank him for being available to Parliament.
Space is used for communicating one to one, and one to millions. The rate of expansion is perfectly amazing. There are also all the functions deriving from having a look at what is below: mapping, positioning, global environmental science, the weather, and of course natural disasters; and sideways and above, the monitoring of space itself, asteroids, and the better view of the universe. Most of those functions are triple use: civil commercial; civil non-commercial; and military.
There will of course soon be the stationing of weapons unless the world wakes up and tries to stop the United States doing that. The US military increasingly uses civil systems for military purposes because that is where the speed of technical advance is: from the civil side. On the other hand, the United States is rightly scared stiff of its own vulnerability to cyberwar of all kinds: hacking, listening to signals, stealing property of one sort or another, corruption of signal, forged signals, even shooting down—all the endless things that the United States military has itself been developing to use against others. It now finds itself, and the commercial firms on which it depends, far more vulnerable than anyone else. The immediate profits, however, are so dazzling that the commercial people are simply not interested in these hypothetical dangers. They are in fact far from hypothetical, as is shown by current events at Los Alamos.
Perhaps we may turn to my noble friend for an account of the actual role played by various sectors in building and operating those systems, both civil and military: I mean international organisations, states, and private enterprise, both national and international. That would help us to consider what role they should have.
What control over the objects and functions is exerted by international organisations and states respectively? Last summer the European Union and the European Space Agency passed a joint resolution towards greater synergy and an extended competence for states. Good. So what arrangements should a civilised state make? Those arrangements have to be both for international control (at present there is nothing but the space treaty); national control (including the military preparedness of each state); and for its own industrial enterprises, both national and transnational.
For the UK there is the terribly familiar conundrum: do we do what the United States would find it convenient for us to do; or do we do what would be convenient for ourselves and our European neighbours? At present the US space industry is conspicuously dominant. Unless we are careful it will soon reach a predominance that we may well find inconvenient, if it has not done so already. The market in all these fields is hugely distorted of course by military considerations, and such a market cannot be allowed to dictate government decisions.
The US military has every hope that it is well on the way to establishing space dominance. This would include weapons in space; and it would include the anti-satellite weapons which were voluntarily banned

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alongside the ABM treaty. Space dominance and information warfare dominance are parts of the announced and already funded policy of Full Spectrum Dominance 2010: this too, the Government must take into account. The Ministry of Defence dislikes admitting the existence of those American policies, but that has to be put to one side. The policies are there and are in operation.
I turn now to a more pleasant subject: Galileo. It is an initiative for a European navigation system being devised by the European Space Agency and the European Union which would for us complement the US global positioning system. For what may come to exist between the EU and Russia, the Russians choose the word "co-operation" rather than "complementarity". It is an interesting difference.
I understand that the DTI supports Galileo, but only subject to other departments sharing the cost. Among those departments would be the Department of the Environment, Transport and the Regions. Its responsibilities for shipping and aviation should make it an obvious supporter. But is it in fact supporting the DTI? And is the Ministry of Defence interested, or is it happy to depend on a system subject, as it knows, to very active United States control?
In passing, what are the Government's plans for the follow-up to Skynet 4? What criteria are there for Skynet 5? Is the value of the UK industrial base taken into account when the decision between US and UK manufacturers is made?
How much money do the Government think it right to put into doing what they believe is right? I give some figures for space spending per country in 1998, expressed in millions of euros: France, 632; Germany, 553; Italy, 269; the United Kingdom, 186; and Belgium, 125. The figures per head in each country for civil space spending are even more striking. The United Kingdom is in 13th place, after Finland and Austria; and in the table for combined civil and military space spending we are in ninth place below Norway and well below Belgium, neither of which has a military space programme. That last table shows the US at 89 euros per capita per annum, France at 30 and the United Kingdom at seven.
On environment, the oceans and so forth, Europe must have its own sources of knowledge in view of the US tendency to refuse international responsibility for its own contribution to environmental degradation.
I return to the militarisation of space. Despite the space treaty, the purpose of which was the reservation of space for peaceful uses for the benefit of all mankind, this militarisation has gone on steadily, particularly with the development of military satellites. So far, the weaponisation of space has not taken place, but the United States has for several years now been developing a laser weapon to be used from above what it considers is, or ought to be, everybody's national airspace, in Boeing 747s, so far the only platform strong enough. This promises a breach of Article 4 of the space treaty. In the language of the treaty: such weapons can certainly cause "mass destruction". What, one wonders, is the
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news of the US transatmospheric space plane which was being planned in 1997, which would among other things disable adversary space vehicles and release weapons against terrestrial targets?
In February 1997, I asked the then Government what inner and outer limits they had set for our national airspace, over which we exercise sovereignty. They answered that no particular circumstances had arisen which had caused them to define the vertical limits of UK airspace. In March 1997, they said that they had not considered the detailed implications of the space-based laser for the UK, and that they were not concerned whether there were military satellites in outer space or not. They did not consider that an agreement on the extent of national airspace was necessary. For years, although the UN General Assembly has had "Prevention of an Arms Race in Outer Space" on the agenda, Britain has tended to abstain or vote against, on the ground that there was no such thing in view. Perhaps it is now time to take these matters seriously: both the dimensions of national airspace and the weapons in space. The laser in the Boeing is due to be tested later this year.
We also need some new law to deal with space garbage. I hope that when the Government publish their new space policy document in July all these things will be seriously considered and dealt with. In considering the time available to get things under control, we must remember that global warming is now bringing the concentric layers of atmosphere, troposphere and stratosphere around the earth closer and closer to each other.
I conclude with a quotation from a paper by the Director-General of the European Space Agency. He stated:
"Today's space systems are the key … to regional and global security and peacekeeping".
In the same document he also stated:
"If in the next century an enlarged European Union wants to play a political and economic role commensurate with its size, economic wealth and cultural heritage, then a full space capability is essential. Full space capability means the autonomy to access space and to define, build and operate complete space systems in all strategic areas".
To my mind, and to the minds of many on all sides of the House, the answer is, "Be European, as usual".
7.43 p.m.
Lord Cope of Berkeley: My Lords, my interest in the subject arises from my previous existence as Member of another place. For some years, Filton, near Bristol, was in my constituency. It included the British Aerospace space facilities, now merged into Matra Marconi. Filton remains Britain's most complete aerospace complex in terms of the expertise in different areas. That is recognised by the fact that the chosen Centre of Expertise for Aerospace and Defence for Business Link is the South Gloucestershire Chamber of Commerce, of which I happen to be the honorary president.
However, the debate is looking forward anxiously to the European Space Agency's ministerial meeting on 11th and 12th May. The ESA is an important organisation of which the United Kingdom should be an enthusiastic member.

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Given the huge sums of money spent on space projects, in particular by the United States and Russia, co-operation between countries of our more modest size is essential, just as it is for aircraft and missile systems. We can no longer "go it alone".
The EU Commission is also involved. Among the items on the agenda for next week's meeting is the proposal that Europe should have its own next generation satellite navigation system, known as Galileo. That would be run by the ESA. It is important that it should be run entirely by the ESA and the member states of that agency rather than by the EU.
There are two basic reasons for that. First, the ESA does not include all the EU countries, let alone the candidate countries, but it does include several countries which are not members of the EU and do not wish to be; notably, Norway and Switzerland. Canada is a co-operating state.
Secondly, I am happy that the EU should be a customer, but I believe that the EU decision-making machinery is unsuitable for such a project. Apart from the problems of the EU's financial management systems, which the new Commission is due to remedy, decisions on the ESA and Galileo need to be made strictly on their merits and not traded for concessions on other matters, as tends to happen in EU negotiations. I have previously attended EU Council meetings in a variety of ministerial capacities and have therefore experienced that.
By contrast, over the years a whole range of European aerospace projects have been co-operative projects between different groups of European countries in both the civil and military areas. Many have been highly successful, in particular the Airbus. Those are the relevant precedents for the running of Galileo.
I believe that Britain should support Galileo and participate enthusiastically in it. I hope that the different government departments mentioned by the noble Lord, Lord Kennet, have been brought together so that we can ensure that we do participate enthusiastically. One can expect that the governments of France. Germany, Italy and so forth will push for the maximum for their companies—and the British Government must do the same. This country already has an outstanding record both in space satellites and in related parts of the aerospace industry. Without active participation in Galileo, all that and the jobs involved will be at risk.
Technology and the technological lead move quickly from firm to firm and country to country if frustrated. Furthermore, we could find our money, through the EU, being used to help our competitors in other EU states. It is not only a question of the immediate work on Galileo, huge as that will be—perhaps £2 billion or more—but the massive potential for work on applications and downstream work. Information services which use positioning information are big business and they will undoubtedly grow in commercial importance. We should continue to be in this sector of technological expertise for its own sake and for the spin-offs.
There is also an important defence angle. Putting it in crude terms, the more different satellite navigation systems there are surrounding the globe, the more
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difficult it is for someone to interfere with them all. At some stage in the not-too-distant future, that may prove a most important factor, because defence systems are. relying more and more in practice on satellite navigation and positioning systems and the old techniques, such as hand-calculated navigation, are falling into disuse. Satellite systems have become quite literally vital, not only for ships and aircraft but for missiles, artillery and ground troops generally. Therefore, both the MoD and our defence contractors, as well as the civilian firms in the field, have an interest in Britain participating fully in Galileo and in other projects.
I hope that the Government will be pitching hard for the Galileo Agency to be set up in the UK. I believe there is great logic in that, given our expertise and experience, and because there is an expectation that Galileo will involve public/private partnership. British financiers have more expertise than any others in that area as well.
Of course, Galileo will not be the only system in action. The present ESA Geostationary Navigational Overlay System already augments both the United States and the Russian systems. In looking to the future, it would be helpful to understand how the Government and the ESA see Galileo working alongside the US and Russian systems. Specification, control and industrial participation are all relevant to this.
I therefore hope that the Minister will be able to give us an encouraging description of the brief which government negotiators will be taking to the meeting on 11th and 12th May in respect of Galileo.
Before I sit down, however, I should like to mention briefly another subject which arises from this Unstarred Question. I refer to military satellite communications, to which the noble Lord, Lord Kennet, also referred, and specifically to the approach of Skynet 5, the next British military communications system.
I understand that the previous co-operation with France and Germany has ceased for timing reasons, which I fully understand, although I believe it is a matter of regret. As a result, the MoD has started negotiations on possible PFI contracts with Matra Marconi Space UK and with Lockheed Martin. However, I am not clear how the Government see military communications developing in the WEU and NATO. It would be helpful to have a steer on that.
There are very important links between military and civilian developments in this regard. As the noble Lord, Lord Kennet said, military systems can use the very advanced work that is being done in the civilian field, and our current leadership in the military field is a great advantage in developing civilian projects also.
I believe that it is right to be particularly vigilant in respect of the question of United States space dominance. I believe that the USA has recently tightened up its own export regime for satellites, but it is also true that US companies have shown a close interest in UK know-how. We must be vigilant to ensure that any restrictions and any co-operation are on a strictly reciprocal basis. The Americans are most

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valuable allies and have been on many occasions, but they are also formidable competitors and one has to watch one's own position in dealing with them.
I believe that space is a most important area of activity for technological reasons, for defence reasons and for economic reasons. The British Government and people should support such activity as much as possible.
7.54 p.m.
Baroness Sharp of Guildford: My Lords, from these Benches, I congratulate the noble Lord, Lord Kennet, on initiating this important debate.
I continue to be astounded by the pace at which technology is advancing in this area, as in others. Today, provided you have the right sort of mobile phone, I gather that there is nowhere on this planet where you are beyond its reach, which, if I might say so, makes the tranquillity of your Lordships' House from the obtrusive ringing of such instruments all the more valuable.
High resolution earth observation satellites can identify ground level features of less than one metre in diameter. Satellites have long provided the key element in ship and aircraft navigation, but now we are beginning to see in-car navigation systems. Soon, if we want it, satellites will be able to run our cars, aircraft, trains and buses without any driver or pilot. I doubt whether we shall be able completely to eliminate human error, and I am by no means sure that I, for one, will be happy to hand over all such controls to "big brother".
All these developments, and more, indicate the enormous potential of this technology and the considerable market that it creates for both hardware and software. At present, these markets are dominated, as we have already heard, by the United States, whose network of satellites (known as the global positioning service or GPS) is run by the Department of Defense. Here we have a classic example of what is known as dual-use technology. The GPS system is the backbone of the military communication, observation and navigation systems. Thanks to its functioning, NATO has been able to follow troop movements and to observe troops in Kosovo, to direct its cruise missiles to very specific targets, and to monitor the impact of their bombardment.
However, GPS is not just for military use. Its civil applications have been booming, especially, of course, for communications applications, as we become increasingly hooked on sending packets of digital information to each other around the world.
I gather that at the moment the projections are that the market in communications technology in 2005 is likely to be worth no fewer than 500 billion euros; for navigation technology systems something like 70 billion euros; and for earth observation something like 25 billion euros.
Given the size of those markets, the question at issue is whether Europe can continue to rely on the US GPS system or whether it should build its own. There are, in many senses, clear advantages to having one world-wide system with common standards and common interfaces. However, the downside, as we have heard from the
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noble Lords, Lord Kennet and Lord Cope of Berkeley, is the dependence, particularly on the US, and particularly, as it is run by the Department of Defense, on the continuing goodwill of the US military. Not surprisingly, the US military has refused any notion of joint control of its system. In other words, while Europe may share and use the system, the US will own and manage it.
As we have already heard, that domination is causing increasing unease. The unease arises both on security grounds—in terms of how far we want to be totally dependent on the goodwill of the US military—and on commercial grounds. There are, as I have indicated, increasingly large markets with lucrative side-markets in areas such as sensors and transmitters which again currently fall disproportionately to US suppliers. The Germans, the French, and even the British are anxious to secure larger shares of those markets.
It is from those origins that Europe's plans for its own global navigation satellite system (GNSS) have emerged, plans that have coalesced into project Galileo. The Commission has proposed a £2.9 billion Euro programme, half to be funded, as the noble Lord, Lord Cope of Berkeley, indicated, by a public/private partnership, but the other half to come from the public purse, with the Commission contributing via its Trans-European Network System (TENS), run from its Transport Directorate-General, to the tune of 500 million euros, as I understand, part from the framework programme, and the remainder to come from the European Space Agency. The proposals have to date been doing the rounds of the lower level committees within the Community but will, as has already been mentioned, be coming before the ministerial meeting of the European Space Agency in May, and decisions are imminent. From these Benches, we hope very much that we shall have a positive response from the Minister today in terms of his support for the European initiative.
Not surprisingly though, the US is not enthusiastic about Galileo because it breaks its monopoly as regards the GPS system. But with markets expanding so rapidly, there is a strong case for competition; for example, European users would have little choice but to accept any user charges which the US may impose. As the noble Lord, Lord Kennet, made clear, it also enables Europe to develop its own military capabilities in that area rather than, as at present, being totally dependent on US hardware and software and the US military system.
The noble Lord, Lord Kennet, mentioned the involvement of the WEU. The WEU has established, outside Barcelona, a small facility which is at present training European capabilities in image interpretation and the development of those facilities. In the first instance, it was used for monitoring and verification purposes. Indeed, I gather that the latter—verification—stimulated the establishment of that Barcelona centre after the signing of the 1990 treaty on the reduction of conventional forces in Europe.
I gather that in spite of that, the potential for satellite observation is not being exploited as it might be in terms of verification. We have learnt from experience in Iraq

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that verification can be the sticking point in many arms control negotiations. It is a vitally important application of the new technology and I seek an assurance from the Minister that its development is being given due weight beside those other applications which, in the short term, are more attractive because they perhaps yield greater profits.
Finally, I should like to put in a word for what is, for me, a home-based industry given that I come from Guildford and that Surrey Satellite Technology, based on the communications system research centre at Surrey University, has pioneered the development of small, low-orbit satellites, known as Little Leo. Those weigh only 300 pounds and can be put into orbit relatively cheaply and used for all manner of observations and data collection facilities—monitoring lorry or train movements and even, as an article in the Observer last Sunday suggested, reading remote gas and electricity meters.
Surrey Satellite Technology is one of Britain's major success stories, where university and industry has met. But I wonder whether enough help is being given to the small players in that sector. Over the weekend, I was speaking to one of the leaders of the research group at Surrey University about this impending debate. I asked him what message, if any, he wished me to convey to the Minister. His immediate response was to say that the British National Space Centre—the DTI group responsible for that industry—is not really interested in small companies. The DTI group's main concern is with the big companies—Matra Marconi and British Aerospace—and with the large lucrative markets, especially the communications markets.
As the noble Lord, Lord Kennet, mentioned, Britain is putting about 186 million euros per year into space technology. That may not be very much beside what the French and Germans are putting in, but beside the current innovation budget of the UK Government, it is quite large. It is a substantial sum. I am not confident that the money is being spent currently in a way which necessarily brings the greatest return to British industry. Is too much going to the established companies to exploit the established markets? Is enough going to those small, new and potentially highly innovative companies to help them to establish themselves? Are we being, as we so often are, too risk-averse in that area? I look forward to hearing the Minister's reply.
8.3 p.m.
Baroness Miller of Hendon: My Lords, I too thank the noble Lord, Lord Kennet, for introducing this timely and important short debate. The debate is timely for two reasons. The first is the events in the Balkans. The military application of satellite navigation systems not only enables soldiers on the ground to know precisely where they are on the surface of the earth within a matter of a few feet; it would also enable artillery fire to be called down on an enemy with the same accuracy. Currently, it is vital for the pinpoint accurate targeting of guided missiles.
Nearly 60 years ago, during the war, British scientists found a way to divert the Luftwaffe's rudimentary radio navigation beams and send the bombers astray.
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I mention that because in March this year, the Daily Telegraph carried the disturbing report that hackers had seized control of a British communications satellite covering Scandinavia and the North Sea, triggering what was described as "a frenetic security alert. "
The Leader of the House of Commons warned of the growing risk of malicious electronic attacks on Britain's critical information infrastructure. I hope that in his reply the Minister will be able to assure us, without, of course, compromising security, that methods are urgently being put in place to prevent communication satellites being interfered with or navigation satellite systems being compromised by either mischievous amateurs or an enemy and thus misdirecting missiles on to, perhaps, civilian targets or even on to empty fields.
The American Global Positioning System (GPS) and the Russian Global Navigation Satellite System, known by the acronym of GLONASS, are military networks. They are very similar. Each uses a network of 24 satellites. The European Commission has proposed that Europe should have its own satellite navigation system, to be called Galileo, both for security and economic reasons. All noble Lords have mentioned that important topic. I shall not dwell upon it as I could not improve in any way on what my noble friend Lord Cope of Berkeley has already said.
Decisions on the project will be taken at the forthcoming ministerial meeting. Bearing in mind its importance to the British aerospace and electronic industries, I hope that the Minister will be able to give an indication of the Government's intentions on participation.
On the technical side, bearing in mind that the American and Russian systems occupy a large part of the available spectrums—what laymen like me call the wavelengths—what sort of deal may be expected to allow Europe to get in?
As regards defence, we currently use Skynet 4 satellites, costing some £427 million, which will need to be replaced around the year 2005. Originally it was intended to build a new Skynet 5 system in conjunction with Germany and France. However, those two countries ran into what I believe were funding difficulties and there was a danger that the project would not be ready in time. Therefore, Britain decided to go it alone.
Written Answers in the other place announced that proposals from industry for the design state of Skynet 5 were being evaluated and that implementation was planned to commence in 2002 with the satellites being brought into service in 2006. It would be helpful if we could be informed to whom the design contracts were awarded. The replies indicated that the Government preferred the system to be paid for by the PFL. I am intrigued as to how that would work in the case of a piece of military hardware. How would those providing the finance be paid? Would the satellites be leased to the Ministry of Defence? Would there be payment per contract, as in the case of a mobile telephone? If private finance is involved, how secure will the system be? I hope your Lordships will forgive my total naivety, but I await the Minister's reply with genuine interest.

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Doubtless the United States will be interested in the UK's military programme and in Galileo. However, bearing in mind the US regime for the export of satellites and other technological hardware, what steps will the Government and the EU take to ensure that there are reciprocal exchanges of information and that no surprise restrictions will be applied belatedly by the United States? My noble friend Lord Cope of Berkeley mentioned that point.
It was possible to finance the enormous cost of developing existing military systems because of the bottomless purses available for the American, European and other military forces. However, the military communications systems have, in common with the rest of the space programme, produced spin-offs for the benefit of civilians. The navigation systems now available to yachtsmen and merchant ships alike are just one application. Some of the ubiquitous mobile telephones can operate from anywhere in the world, as the noble Baroness, Lady Sharp, mentioned. I do not mean just from the next table to one in a restaurant but from otherwise inaccessible and telephone-free places. I telephoned my husband from the plane to say that I would be home in 10 minutes for dinner and he could hardly believe it.
Communication by satellite is growing at a breathtaking pace. It is not unreasonable to predict that in the not too distant future telephone boxes will disappear from our streets. I believe that to be no exaggeration. There were 4 million new domestic users of mobile phones in the United Kingdom last year. Forty per cent of homes—that is some 10.4 million—have access to one and in some cases parents provide them for their children.
Calls to your home or office can be diverted to the mobile phone in your pocket or handbag—wherever you are in the country. Soon a call will be able to find you anywhere in the world. I am sure that the noble Baroness, Lady Sharp of Guildford, agrees with me when I say that I am not sure that that will be a blessing.
The same rapid advances apply to television. I can recall the excitement when the first broadcast was made, by microwave, across the English Channel from Calais on 27th August 1950. The audience was a mere 30,000, compared with the millions who daily take for granted the pictures that we receive in our homes of wars, disasters, other news events and sports, often while they are happening.
Undoubtedly, it was the fact that television could cross frontiers that contributed to the fall of communism. Ordinary people in their own homes could see the standards of life and freedoms enjoyed in the West in contradiction to the lies they were fed by the propaganda machine.
During the Gulf War people in Iraq could see events on CNN that their military censors were trying to conceal. Let us hope that the inhabitants of Serbia are able to receive pictures from the BBC and CNN of what is really happening to the Kosovars.
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The second reason why this debate is so timely is that on 11th and 12th May the seventh European Space Agency Council meeting, at ministerial level, will take place in Brussels. Britain participated in the ESA from its earliest days. Governments of both parties have given it their support from the beginning, but perhaps not as wholeheartedly or to the fullest extent due from a nation which wants to be involved in "the white heat of technology" or take the rightful place that its skilled scientists definitely deserve.
Governments have nothing to do with the work of the ESA. All that governments do is provide the money. It is not government money. but taxpayers' money. Although the government of the day contributed just 3.6 per cent of the development of the Ariane 4 launching system, we withdrew from Ariane 5, which now earns £700 million a year and has 60 per cent of the launcher market. I do not make a political point here. I simply comment that I detect the dead hand of the Treasury here, as in so many areas. I have no doubt that the Minister will assure us of the Government's continuing support for the European Space Agency.
The ESA took a leading part in developing satellites for telecommunications, broadcasting and cable feeds. When the Olympus experimental satellite was launched in 1989, it was the largest civilian satellite in the world. It also provided the high definition television transmissions and capacity for the experimental digital broadcasting which is just about to burst on to the world. The noble Baroness, Lady Sharp of Guildford, also mentioned that.
This month's ministerial meeting will have an agenda prepared by the Director-General of the ESA calling for the provision of funds amounting to billions of euros: 2.6 billion for the year 2000/2001, including 1.85 billion for the scientific programme. Private industry around the world is also providing research funds and facilities in this area, which explains why those shares are enjoying such a boom on world stock markets.
In Brussels, Ministers will be asked for commitments to some 12 major programmes, at least five of which are directly concerned with communications and navigation. Some, like Galileo, will make Europe less dependent on American and Russian systems. There are also programmes for the development of launch vehicles which will serve the same purpose.
Communications and space technology constitute an expanding and fiercely competitive industry. Even the Chinese are now offering facilities for civilian use of their military hardware at prices which, as you may expect from their low labour costs, are comparatively inexpensive.
The ESA is involved in many projects, too numerous and lengthy to mention in this short debate, but we hope that when the Minister returns from Brussels he will see that, either via a communiqué or in a statement to Parliament, we are given the fullest possible report. I notice the noble Lord nods his head.
We shall welcome and support the Government's continued participation in the work of the European Space Agency because that will ensure that Britain continues to maintain its rightful place in the forefront

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of the technology of the new millennium. It will also ensure that Britain remains in the forefront of science and is qualified for and secures its full entitlement of the high grade employment that comes from those expanding new industries.
8.14 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I am grateful to the noble Lord, Lord Kennet, for raising this important topic at such a timely moment. I want to respond to the points that he and other noble Lords have raised. I shall try not to delay noble Lords from getting to their mobile phones and ringing their husbands and wives about dinner.
This is an exciting moment for space science and the space industry. The commercial market for communication and global navigation satellites is expanding rapidly. Earth observation from satellites is playing an increasing role in the monitoring of the Earth's environment and voyages of discovery have already been launched to explore other bodies in our solar system, such as comets and Saturn's moon, Titan. Further missions are planned for launch in the near future, such as Mars Express.
I share the view of the noble Baroness, Lady Sharp of Guildford, of the importance of such commercial developments which are beginning to take place at a rapid rate. I also greatly admire Surrey Satellite Technology Limited, an extremely entrepreneurial company. Some months ago I was delighted to be with the company in China when it was sealing its agreement with the Chinese Government to produce satellites. I was delighted to see that 10 days ago they used a Russian intercontinental ballistic missile to launch the latest satellite.
I can assure your Lordships that in such matters the DTI wants to support small businesses. In the multimedia area we see a lot of innovative small businesses which we want to encourage.
The Government have recently engaged in a wide consultation exercise with the space industry as part of the preparation both for the ministerial meeting and the new space plan. That exercise has helped us to be clear about our top priorities. In the commercial field those are telecommunications, navigation and technology and in the scientific field they are top quality space science and earth observation. In the first two of those subjects, which are the subject of this debate, there are great commercial opportunities. Later I shall give some figures about the size of those markets.
We believe that those exciting programmes will capture the imagination of our young people. We see no reason to take part, for reasons of national prestige, in programmes which will not yield either commercial benefits or significant scientific opportunities. We have not spent as much as other countries, as the noble Lord, Lord Kennet, has pointed out, but our expenditure across both civil and military programmes is, nevertheless, substantial at around £300 million a year. It is also much better targeted than many other countries. We have avoided the trap of national prestige projects, which now hear heavily on some other European countries.
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I am glad that the noble Baroness, Lady Miller of Hendon, did not make a political point about Ariane—I thought that was very generous—as that was a decision of the last Conservative government. In many ways I believe it was a sensible decision. Good decisions were taken to keep us out of some national prestige projects which means that now we have slightly more room for manoeuvre in terms of commercial markets that are opening up.
A major vehicle for the United Kingdom's ambitions in space is the European Space Agency. I say to the noble Lord, Lord Cope of Berkeley, that we are very enthusiastic members of that agency. I believe that the ESA's Director-General is doing a good job in running and improving the agency, but we shall have to ensure steady and continuous further improvement to keep up with world class standards, including the adoption of new approaches, such as the NASA concept of smaller, faster and better.
Her Majesty's Government, therefore, remain a strong supporter of the development of civil satellite communications and navigation in conjunction with our partners in the European Space Agency. We also continue to work with the WEU on defence matters.
We have played a very active and successful role over the past 25 years. During that time UK industry has taken the lead on important telecommunications programmes such as the European Communications Satellite programme and MARECS—a maritime version of it. Those two successful development programmes led to the first generation commercial satcoms systems for fixed telephony within Europe and global maritime communications, which led in turn to the creation of international satellite operators such as EUTEL. SAT and INMARSAT. They have also created substantial UK industrial capabilities.
The provision of satellite telecommunications services is the main drive behind an explosion in opportunities for competitive companies in the space sector. Whereas military programmes have underpinned space revenues in the past, since 1996 commercial revenues worldwide have outstripped those from government. We anticipate substantial markets in digital broadcasting (around 60 billion US dollars), multimedia (40 billion US dollars) and mobile telephones (10 billion US dollars) by 2010 that will offer increasing opportunities throughout the decade.
On 11th and 12th May I will attend an ESA meeting of European Ministers in Brussels. The extensive agenda includes consideration of new programmes in telecommunications and navigation. One of those programmes is designed to promote multimedia technology development and applications using satellites—targeting a market which, as I have already said, is likely to be worth 40 billion dollars by 2010. They include a wide range of applications, including, social applications such as tele-education and. telemedicine, as well as economic applications in the: wake of the explosive growth in the Internet. The programme will be a public/private sector partnership with government investment being matched by private sector funds.

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The UK is already participating in the first phase of that programme with a contribution of around £7 million. We consider this to be an extremely important programme and will be announcing the scale of our participation in the second phase at the time of the ministerial meeting.
A second programme to be considered at the ministerial meeting will continue support for basic system and market definition studies for future satellite communication activity. The UK is currently participating in order to improve the information available to the UK industry and thereby help to promote the growth of the UK satcoms industry. The amount committed so far is 8.7 million euros and a further contribution is being considered.
On satellite navigation, Europe is already implementing a first generation programme which is known as the European Geostationary Navigation Overlay System. This development will augment the signals from the existing US Global Positioning System and the Russian Global Navigation System satellite constellations to improve accuracy and reliability for civilian safety critical applications such as aircraft navigation. The UK has invested over 40 million euros in this programme and is the second largest contributor after France. This contribution has been provided by the DTI, DETR and the National Air Traffic Services.
The European Commission proposed that Europe should build a second generation global navigation satellite system. That would be a European system under civilian control. A decision on whether to proceed is expected to be taken at the European Union Transport Council this June. In the meantime, ESA has assisted the European Commission in performing studies to assess the technical feasibility and likely cost. The UK has already invested 7.5 million euros in this second generation work and is considering a further contribution to the project definition phase which will be considered at the ESA ministerial
The European Commission's proposal for such a second generation system is an exciting one. It is also one in which the UK wants to take a leadership role as it will provide an opportunity for UK industry to increase its understanding of space-based navigation and as a result obtain a larger share of the growing global market in space-based navigation equipment and services. This market is expected to exceed 50 billion dollars a year by 2005. The European Commission's proposal will, however, need to be carefully thought through and planned. A key UK concern is that the system operator should be established early on in the programme so that the system can be tailored to the needs of consumers and does not become producer driven.
In answer to the noble Lord, Lord Cope, in that regard, it will have to be a joint EU and ESA project. I agree with him, however, that the work must be done on the basis of who can perform best rather than being divided up on political grounds. That and other issues will be discussed with our European partners.
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My noble friend Lord Kennet also mentioned the Western European Union. The UK is an active participant in the Union's Space Group, which is charged with responsibility for all aspects of space. The UK also operates its own dedicated military communications system, Skynet 4, which will need to be replaced starting in 2005. The replacement project is known as Skynet 5. The UK entered into a collaborative project—TRIMILSATCOM—with France and Germany but withdrew in August 1998 because UK timescale and performance requirements were not compatible with those of our prospective partners and could not be met in a cost-effective manner. The UK therefore opted last year to pursue a national PFI approach which has stimulated considerable interest from our European allies.
In answer to the question of the noble Baroness, Lady Miller, two consortia led by Matra Marconi Space (UK) Limited and Lockheed Martin Missiles and Space are currently under contract for design phase studies which are due to be completed in late 2000. In answer to my noble friend Lord Kennet as to whether industrial considerations are taken into account, I should say that both industry teams involve British companies. The award of a contract for service delivery will be based on the best value for money.
The UK sees no clear requirements for additional dedicated WEU communications satellites. We believe that where satellite communications are required to support WEU operations they should be met by utilising capacity available from existing military or commercial sources. The UK, in common with other NATO nations, has access to the Precise Positioning Service (PPS), provided by the US Global Positioning System (GPS) at no cost and, in answer to the question of my noble friend, is content from a military point of view to continue to depend on that service. The MoD therefore has no military requirement for an additional European navigation system but would take advantage of such a system should it come to fruition. We believe that if this European system does proceed, as we hope, for reasons of interoperability and sunk investment, it should be 100 per cent compatible with GPS. It must also be designed to ensure that its use could be denied to adversaries. Finally, let me say that I agree with the noble Baroness, Lady Sharp, that in this respect as in others, competition is very healthy.
The UK policy on space surveillance is to rely on existing arrangements with our allies, and it is not our policy to discuss the details of those collaborative arrangements. The UK participates in the WEU satellite centre at Torrejon in Spain and is aware of various initiatives for a European space-based earth observation system. Indeed, the UK also contributes to discussion on such initiatives in the WEU space group.
My noble friend Lord Kennet raised two other important questions. The first related to vulnerability to information warfare. The Government are aware of US anxieties in this area. I can assure the noble Baroness, Lady Miller, that this is an issue with which we are deeply concerned and which we take extremely seriously. The MoD continually updates its threat

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assessment and that is taken into account in requirements definition and system design for projects such as Skynet 5.
My noble friend mentioned the issue of space dominance. Although current US plans for achieving space dominance reflect a US perspective, they also raise defence issues common to the UK and other allied nations, in particular how affordably to achieve superior capabilities to any adversary across the full range of military operations—referred to in the US as full spectrum dominance. From the UK perspective, the issue is principally one of access to space-based information.
The theme of the importance of information to strong defence was, of course, reflected in the Strategic Defence Review. In addition, both the US and the UK place strong emphasis on the need for enduring, international relationships to which we fully subscribe and to which we make an effective contribution.
I hope that my response has answered most of the questions that have been raised. I thank those noble Lords who have spoken in what I believe has been an extremely interesting and very timely debate, especially in view of the ESA ministerial meeting. I should like especially to thank the noble Lord, Lord Kennet, who raised these important topics. I also hope that I have assured your Lordships that Her Majesty's Government are fully aware of the huge commercial and scientific opportunities opening up in space and that we are moving effectively to capitalise on them to the great benefit, we believe, of British industry and British science. I also look forward to reporting back on what I hope will be a very successful ESA ministerial meeting next week, when I respond to the Question which the noble Lord, Lord Renwick, has recently tabled.

Tax Credits Bill
8.30 p.m.
House again in Committee.
Lord Higgins: The House is once again in Committee on the Bill. It seems to me that the expression "once again" sounds as if we have been going for a long time.
Lord McIntosh of Haringey: We were just congratulating ourselves on our amiable progress.
Lord Higgins: Whether or not it is progress is debatable; and whether or not it is amiable depends on whether we win the battle! However, be that as it may, with great respect to the noble Lord and the noble Baroness, I must admit that they have been extremely helpful on this Bill. Our anxiety overall is to—
Lord McIntosh of Haringey: Perhaps I may return to our previous discussions and say:
"Perhaps [you were] right to dissemble your love, But—why did you kick me downstairs"?
Lord Higgins: I started off this whole series of debates with extracts from Lewis Carroll, but they seemed to go down badly. I am tempted to reminisce, but I shall not do so. I shall leave the matter there.
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Clause 9 [Penalties for fraud etc. and failures to comply]:
Lord Higgins Lord Higgins moved Amendment No.48:
Page 5, line 3, leave out ("the amount") and insert ("30 per cent)
The noble Lord said: I should stress at the outset that Amendment No.48 is a probing amendment. It is not surprising to note that noble Lords on all sides of the Committee are against fraud in all its shapes and forms. Nevertheless, if one refers to the particular part of the Bill involved here, it will be seen that subsection (1) states:
"Where a person fraudulently or negligently makes any incorrect statement or declaration … he shall he liable to a penalty not exceeding the amount of the difference specified in subsection (2) below".
In simple terms, I believe I am right in saying that "the difference" is that between the amount that the person was actually entitled to and the amount which he wrongly claimed. Although I may be mistaken. I believe that that means the whole difference between the two. My amendment seeks to make it 30 per cent of that difference.
When one is dealing with people who are obviously, by definition, on low incomes, there is a very real prospect that one will impose yet further penalties on them. Some of the representations which have been made by the Low Pay Unit, and so on, suggest that, as the effect of the Bill is to try to guarantee something like an income of £10,000 a year, if someone, were to make a fraudulent claim for that amount he would be liable to a fine of, say, £3,000. Indeed, even on a basis of £10 per week, it would not seem likely that such a person would be able to repay the amount; indeed, he may be consigned for many years to living with far below the income which the Government feel should be the minimum. However, I do not in any way condone any such fraudulent or negligent claims.
There are other matters relating to the penalties, and so on, to which we can return in a short while. However, despite the fact that the offence itself is very serious, I should like to ask the Government whether they consider that what seems to be a very harsh penalty in some respects is a practicable sort of limit which might reasonably be imposed on people who perhaps negligently, rather than fraudulently, make such a claim. I beg to move.
Lord McIntosh of Haringey: The key to this issue lies in the last few words of the noble Lord; namely, "negligently" or "fraudulently". What the noble Lord is trying to do in subsequent amendments to Clause 9, and not so much in this one, is to make a distinction between the words "negligent" and "fraudulent". There is a distinction but to separate such words absolutely could be very dangerous and might lead to "sub-optimising", if I may put it that way, and producing paradoxically damaging results.
This amendment seeks to change the penalty imposed for making a fraudulent or negligent claim to a tax credit. The clause currently provides that the penalty shall be an amount up to the full amount falsely claimed. I should make it clear that that is in addition to the

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payment of the amount itself, which has been falsely claimed; in other words, the person has to pay back the amount falsely claimed before paying the penalty.
Within that maximum the appropriate level of penalty would be set by the Inland Revenue in accordance with published guidelines, to reflect the seriousness of the false claim and the co-operation given by the applicant to the Revenue's inquiries. The level of penalty can be changed on appeal to an independent tribunal. This provision reflects the penalties that have applied for many years to the submission of false tax returns.
A robust regime to counter fraud is needed for two reasons. Family credit has been vulnerable to fraud in the past; working families' tax credit will be based on broadly similar rules, but it will be more generous than family credit and will be available to a wider variety of applicants. Instead, however, this amendment proposes that the penalty should be a maximum of 30 per cent of the amount falsely claimed. This echoes the level of financial penalty chargeable in the benefit system, but the circumstances are rather different. The benefits penalty is fixed at 30 per cent.
This Bill seeks to introduce a more flexible system of civil penalties which can apply across the whole range of offences. The new tax credits are now part of the tax system and, as such, we feel that the penalty regime should as far as possible mirror that for the rest of the tax system. As for many other parts of the tax system, the Revenue will be issuing a code of practice which will make it clear how the Revenue intends to carry out any inquiries and what the rights and responsibilities of applicants are.
Given the fact that the Select Committee on Social Security and many noble Lords opposite have expressed concerns about fraud—indeed, some Members opposite have expressed much more than concern about fraud—I should have expected them to support this provision. The amendment would clearly dilute the deterrence factor in the penalty provision; indeed, there is much less to lose from "trying it on". This is not the kind of signal that we want to send out about the new tax credits system. Therefore, I must ask the noble Lord not to press the amendment.
Lord Higgins: Perhaps I may delay Members of the Committee for just a little longer. It may have been a slip of the tongue, but I believe that the Minister said that before paying back the amount which had been fraudulently claimed, there was a penalty on top of that amount. I presume, although I may be wrong, that it would be simultaneous; that is to say, the person concerned would be required both to pay back that which he had received, which he ought not to have had, plus a penalty on top. With respect, I do not believe that that is what the noble Lord said.
Lord McIntosh of Haringey: I am sorry that I was not clear. The noble Lord is right. The penalties are in
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addition to the recovery of any amounts falsely claimed which have already been paid out. Mere recovery would provide no deterrent at all.
Lord Higgins: I fully understand that full recovery would provide no deterrent at all. That would be too much of a good thing from the fraudster's point of view. At any given moment, the individual concerned is presumably liable for the two amounts. The question is to what extent in practice it would be possible for the person concerned to pay back the amount within any reasonable time-scale. I believe that I am right in saying that in some other cases it is about £10 per week or something of that kind, from an individual who is likely to be pretty low in resources.
The other point which the noble Lord made is the extent to which we are changing the positions of the Benefits Agency and the Inland Revenue. If I understand him correctly, the Government are saying that quite apart from changing the department responsible, they are also taking the opportunity, if I can put it that way, to tighten the penalties. I am not saying in any sense that we should condone fraud. However, we need to be clear whether the effect of transferring the matter from one department to another is to increase the penalties at any given time. Perhaps the noble Lord can confirm that that is what they are doing.
Lord McIntosh of Haringey: The effect is to increase the possible penalties. I believe that that is the right answer. The clause refers to negligence and/or fraud. The difficulty that one always has is distinguishing between those two aspects. What might appear to be negligence in one case could easily be fraud in the case of the next-door neighbour. We want a degree of flexibility between negligence and fraud. We certainly want the regulations to provide for a penalty suitable for fraud. In extreme cases, there will be criminal prosecutions, but we are anxious not to force them on the Inland Revenue when civil action, recovery and penalties would be a better solution.
Lord Higgins: Am I right in thinking, therefore, that this is an extra-statutory arrangement by the Inland Revenue?
Lord McIntosh of Haringey: The Inland Revenue will have regulations and guidelines to determine how its internal procedures will work in a particular case. I do not believe that some of them will be subject to parliamentary procedures.
Lord Higgins: In the light of the Minister's reply, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
8.45 p.m.
Lord Higgins Lord Higgins moved Amendment No.49:
Page 5. line 11. after ("fails") insert ("without reasonable excuse")
The noble Lord said: In moving this amendment, it may be convenient to speak also to Amendments Nos.50 and 51. The purpose of this amendment is

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apparent; namely, that one should insert the words "without reasonable excuse" as regards a failure to comply with the law which the Government propose to introduce. It may well be that there is an argument as regards reasonableness in this context. I beg to move.
Lord Goodhart: I support the noble Lord, Lord Higgins. It would be inappropriate to make the civil offences under Clause 9(3) absolute. This very simple and straightforward amendment provides that a reasonable excuse is an excuse. It is a wholly appropriate amendment.
Lord Swinfen: I am sure that this amendment is appropriate because similar wording is included in many other Acts.
Lord McIntosh of Haringey: These amendments are mercifully simply and straightforward. There is a mercifully simple answer as well. The amendments seek to prevent a penalty being charged for failing to obtain information where there is a reasonable excuse for the failure. The penalties that noble Lords opposite and the noble Lord, Lord Higgins, are concerned about in this amendment are those imposed in Clause 9(3). The clause provides for a penalty to be imposed for failure to provide information or produce or deliver documents. It applies to powers to seek information from applicants and employers.
In fact, I am pleased to inform the Committee that the Bill already makes such provision. Clause 10(3) provides that Section 118(2) of the Taxes Management Act 1970 shall apply for the purposes of Clause 9(3). Section 118(2) of that Act states that,
"For the purposes of this Act, a person shall be deemed not to have failed to do anything required of him to be done within a limited time if he did it within such further time, if any, as the Board or the Commissioners or officer concerned may have allowed; and where a person had a reasonable excuse for not doing anything required to he done he shall he deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased".
I believe that the wording of this Bill is rather better than that of the 1970 legislation. That may have been before the noble Lord assumed office in the Heath government. Since the reference in Clause 10 to the Taxes Management Act covers exactly the point that the noble Lord has made, I hope that he feels it appropriate to withdraw the amendment.
Lord Higgins: I am not clear whether the noble Lord is accepting the amendment. In the circumstances of a switch from one department to another, why cannot we accept the amendment? I understood the noble Lord to be saying that. Rather than referring the matter back, is it not simpler to put the matter on the face of the Bill? As the noble Lord rightly said, it is a great deal clearer than the legislation still in force. Those reading this Bill will have some difficulty in remembering the previous legislation.
Lord McIntosh of Haringey: There is a perfectly adequate cross-reference between Clauses 9 and 10. I shall certainly ask the parliamentary draftsman to look at the matter again to see whether it can be simplified
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as long as we are agreed that the purpose the noble Lord seeks is achieved by the Bill and the issue is only whether it is done in a roundabout way
Lord Higgins: We can certainly think about it between now and Report stage. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos.50 and 51 not moved.]
Lord Higgins Lord Higgins moved Amendment No.52:
Page 5, leave out line 28 and insert ("Where the Board is satisfied beyond a reasonable doubt that a person fraudulently—')
The noble Lord said: As the noble Lord, Lord McIntosh of Haringey, rightly said a moment or two ago, these amendments are related. I refer also to Amendments Nos.53 and 54. The question is whether one should distinguish rather more clearly than does the Bill between "negligence" on the one hand and "fraud" on the other. Although I understand that it may be a rather subtle distinction in certain cases, it seems that there is a case for distinguishing between the two. As regards fraud, there is a case for prosecution.
That being so, we need to consider to what extent we should allow flexibility in these matters. As the matter stands, it appears to put negligence on the one hand and fraud on the other in the same package without making an important distinction, albeit one which it is not always easy to ascertain in practice. I beg to move.
Lord McIntosh of Haringey: I addressed the fundamental issue behind these amendments when speaking to Amendment No.48. I have some much more objectionable points up my sleeve which I did not believe it appropriate to raise before in case I deterred the noble Lord from moving the amendment.
This amendment seeks to make changes to the provisions for charging a financial penalty on someone who fraudulently or negligently provides incorrect information in response to a formal notice. The penalty provision, as drafted, is a backstop to powers which themselves will be used only when informal methods have failed. It is unlikely to be used much in practice. Therefore in that sense the amendment is far more limited in effect than the noble Lord would. have wished.
Amendment No.52 appears to be in conflict with. Amendment No.53. In order that the Inland Revenue may check the accuracy and honesty of applications for tax credit and ensure that payments are being made correctly by employers, the Bill contains a number of provisions requiring applicants and third parties to supply certain information when asked to do so by the Inland Revenue. To ensure that these powers are effective, there must be sanctions against the provision of incorrect information. Those sanctions are at Clause 9(5) which as drafted provides for a penalty of up to £3,000 where a person provides false information fraudulently or negligently. This is

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intended largely as a deterrent. It closely reflects similar provisions in the tax code, which in practice rarely need to be used.
It may be helpful if I explain what the amendments as drafted would actually do. Amendment No.53 would apply the financial penalty only to cases where the information was supplied negligently. Amendment No.54 would provide that fraudulent cases should be prosecuted. Amendment No.52 appears to be in conflict with Amendment No.53 since it would provide that this Clause 9(5) should apply only where the board was satisfied beyond reasonable doubt that incorrect information had been provided fraudulently. That would appear to leave no room for the operation of Amendment No.53, which applies in relation to negligence.
The amendments, taken together, would be contradictory, and taken separately—this is a much more important point—they are undesirable. Amendment No.52 would place an unnecessarily high hurdle of proof in front of a civil penalty that is intended to apply to cases of negligence as well as to fraud. Amendments Nos.53 and 54 would prevent the financial penalty being used in cases of fraud and would create a distinction between negligence and fraud which is really not needed and actually would be rather difficult to sustain in practice. This financial penalty is intended to be a short and simple deterrent to the provision of false information during the course of an Inland Revenue inquiry.
Amendment No.54 is also unnecessary since a prosecution could be brought by the Inland Revenue where the provision of false information amounts to a criminal offence without the need for specific statutory authority. I hope that the noble Lord will not press the amendments.
Lord Higgins: As the parliamentary draftsman is undoubtedly paid a great deal more than I am, I am quite prepared to accept his interpretation of the amendments. I have just one further point to raise. As is now fashionable—indeed, I think it is now obligatory—when we first discussed the Bill the noble Baroness said that the Bill is in conformity with the European Convention on Human Rights. Am I right in thinking that the related schedule to the clause we are now debating conforms fully with that convention? Will the Minister confirm that?
Lord McIntosh of Haringey: Yes.
Lord Higgins: On that basis I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos.53 and 54 not moved.]
Clause 9 agreed to.
Clauses 10 to 13 agreed to.
Lord Higgins Lord Higgins moved Amendment No.55:
Before Clause 14, insert the following new clause—
REMISSION OF PAYMENT OF NHS CHARGES ETC
(". No regulations made under this Act shall reduce the entitlement to travelling expenses or remission of charges under section 83A of the National Health Service Act 1977 of a person in receipt of disabled person's tax credit, who would also have been so entitled had he been entitled to disability working allowance. "
The noble Lord said: The new clause I propose in this amendment states,
"No regulations made under this Act shall reduce the entitlement to travelling expenses or remission of charges under section 83A of the National Health Service Act 1977 of a person in receipt of disabled person's tax credit, who would also have been so entitled had he been entitled to disability working allowance".
In earlier debates we discussed the relationship between the disability working allowance and the disabled person's tax credit. I believe there is general agreement that the move from one to the other is probably advantageous. Nonetheless it is important that the benefits in the widest sense which accrued under the previous provisions—even though I hope that the new provisions will cover a greater number of people—should not be diminished. This amendment seeks to ensure that that is the case. On that basis I hope that the Government can accept the amendment. I beg to move.
Lord Rix: I support the amendment. Clearly, travelling expenses for those people with a learning disability who are able to undertake work are of the greatest possible use and value. I believe that the amendment covers that point extremely well.
Baroness Hollis of Heigham: As the noble Lord, Lord Higgins, said, we discussed this matter on an earlier amendment. Therefore he will not be surprised if I give him much the same reply. The new clause seeks to prevent the Government from taking away "passporting" from recipients of DPTC. I appreciate the purpose of the amendment; however, it does not achieve its objective. It misunderstands the way in which passporting works. The rules and regulations—which are generally set out in various statutory instruments in the way the new clause suggests—currently refer to family credit or to DWA as a way of identifying a particular group for help. However, the regulations that passport recipients to that help are not made under family credit or DWA legislation but under legislation setting up the help such people would receive. Therefore legislation about passporting to free prescriptions would be made under the National Health Service Act and not under this Act, as the new clause suggests. No regulations about passporting will be made under this Bill.
But, as was said when we debated Amendment No.26 moved by my noble friend Lady Turner, the increased generosity of DPTC will mean—as with WFTC—that the support provided could go considerably further up the income distribution than was the case with DWA. However, I recognise that the amendment seeks assurances for those only on DWA.
As I said in response to the debate on Amendment No.26, we certainly take note of noble Lords' concerns on this issue and their desire to debate it. We are looking

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at what can be done and we shall set out what we intend to do before the Bill leaves Parliament. I am afraid that I have not been able to advance the situation much beyond what I said when we discussed passporting WFTC claimants. However, with those assurances I hope the noble Lord will feel able to withdraw his amendment.
Lord Higgins: I understand the technical point which the noble Baroness makes with regard to regulations. If no regulations can be made under this Bill, it would be inappropriate to press an amendment to state that no regulations will be made under the Bill. That is not a terribly difficult point for the Committee to understand. Having said that, as the noble Baroness rightly said, we discussed the question of passporting earlier. However, that was in a broader context. As the noble Baroness said, one of the problems is that the arrangements now being made go way up the income scale. However, the amendment is concerned with the disabled, not with passporting in general. It would seem strange if the switch from DWA to disabled person's tax credit resulted in some disabled people at present entitled to certain passported benefits suddenly finding they were no longer entitled to them because their income was above a certain level. That is what I understood the noble Baroness to say. She shakes her head and no doubt, as we are in Committee, she will be able to clarify the situation in a moment.
In making my next point I seek to assist the noble Baroness in her continued fight against the Treasury and other malign forces. The noble Baroness says that this matter will be clarified before the Bill leaves Parliament. In my view that is too loose an expression. The Government have had months and months to consider this matter. They have had months in which to consider it since the Bill started its progress through the Commons and the Lords. I understood the point made by the noble Baroness on a previous occasion that a number of different departments are involved and inter-departmental committees have to be set up and so on. Nonetheless it is high time that the Government produced a specific proposal so that this Chamber and the other place in due course, if necessary, can take a view on whether what the Government are doing is right. Otherwise there is genuine concern that particular individuals suddenly will not be entitled to benefits which they previously enjoyed. I therefore urge the noble Baroness as strongly as I can that a decision should be reached on this matter before we come to Report stage. We are entitled to say that the Government have had long enough to make up their mind on this issue. Specifically in this debate, is the noble Baroness really saying that some disabled people who were previously entitled to the disability working allowance and related benefits will not now receive them?
Now I think about it—I am thinking on my feet—this cannot in any way affect people on the ground that their income is too high. This relates only to people who are already receiving the benefit and who should, in our view, continue to receive it. If I may put it another way, the argument advanced for the reason for the delay in saying whether those people who at the moment get
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general passported benefits may no longer have them extended higher up the income scale does not apply as far as concerns the intention of the amendment. I am referring only to people who are already receiving the benefit and who, in our view, should continue to receive it.
9 p.m.
Baroness Hollis of Heigham: I think that the noble Lord is saying that the amendment differs from the previous one in that it confines passported benefits to those who would, were DWA still to be in existence, qualify via DWA for those passported benefits. As I said at the time, the Government are seeking to get the balance right between protecting the position of those who currently hold passported benefits, and who would possibly be worse off if we went over to a new system in which they lost their passported benefits, as against the much wider and higher income scales which will apply not only to WFTC but also to DPTC. That, too, is more generous than DWA. As I said when the noble Lord, Lord Swinfen, was urging me on this matter, the Government will come back with our proposals before the Bill leaves Parliament. But it will be a proposal based on the NHS low-income scheme" not something peculiar to DPTC and WFTC. It will also apply to other areas of low income. Therefore, it is still a matter for negotiation with the DoH.
Lord Rix: Before the Minister sits down. will the negotiations recognise that the costs of disability, both in travel and in living generally, are still greater than those of the low paid?
Baroness Hollis of Heigham: Yes. That was the argument that I advanced against some of the amendments which were pressed when we were last in Committee. The noble Lord, Lord Swinfen, suggested that either the rates of DPTC were applied to the WFTC, at a cost of many hundreds of millions of pounds, or, alternatively, that people on DPTC, disabled people. would have their rates reduced to the level of the working families' tax credit. The argument I used at the time was that disabled people receive on average only 70 per cent of the income of non-disabled people and have expenses which range from £50 to £80 a week more. I think that is common ground between us. I suggested that that was one of the reasons why the disabled persons' tax credit was, family for family, something like £30 more generous. For a family earning £200 a week, with two children under 11, and receiving the 30-hours premium, DPTC was, for that family, just under £29 a week more than WFTC. I said that that was a recognition of the extra costs of disability, as the noble Lord, Lord Rix, has reminded us tonight. That is still the Government's view.
Lord Swinfen: The noble Baroness does not do me justice. I was trying to seek information from the Government as to why the differences were as set out; why the allowance was not very much greater and more beneficial for disabled people; and why whatever was

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taken into account was different from one instance to the other. We can come back to this on Report. I do not wish to labour that point now.
Lord Higgins: We can indeed come back to this matter on Report—I hope to do so—but the problem is that it is more difficult to get to the bottom of such matters on Report than in Committee. Perhaps I may try to narrow the issue. The noble Baroness, if I may say so, is trying to go off into the wider question of passporting benefits. I want to narrow it right down as far as the disabled are concerned. Will she ensure, first, that people who are at the moment receiving disability working allowance and the related passported benefits will continue to do so under the new arrangements, if they qualify under the new arrangements? Secondly, as far as concerns the change from one system to the other, is the noble Baroness saying that considerations with regard to income will apply to disabled people as far as receiving the same benefits are concerned? It would be helpful if, for the reasons I have mentioned, we could be clear about the Government's intentions in advance of Report stage. I am almost tempted to ask exactly what the noble Baroness's hopes are, regardless of the departmental discussions.
Baroness Hollis of Heigham: The noble Lord may press me to narrow the matter but I repeat that I refuse to narrow the matter in that way. As I have said to the Committee on a couple of occasions tonight and during our first day in Committee, we shall return to the issue of passporting and, within that, we shall address the issue of passporting for DPTC and WFTC. We shall return to that issue before the Bill leaves Parliament.
Lord Higgins: The noble Baroness keeps saying, "Before the Bill leaves Parliament", but can she give us an assurance that we will have a specific proposal before us at Report stage?
Baroness Hollis of Heigham: If I was able to say to the noble Lord that he would have the proposal before Report stage, that is what I would have said. The fact that I did not say that means that I do not intend to say that. I repeat: the noble Lord—all of us—will have that measure before the Bill leaves Parliament.
Lord Higgins: That is not satisfactory. It means that on Report—probably with the support of the noble Lord opposite—we shall need to put forward our own proposals on this matter and then, in effect, flush the Government out. We really cannot let the matter go on beyond the stage where the House can take a view on what the Government propose. Procrastinating in such a manner is not a satisfactory way to treat Parliament. I am glad to see that I have the support of the Government Chief Whip, who has rapidly changed from nodding to shaking his head, but whose first reaction was the correct one.
With some hesitation, but largely because I am not in favour of passing into legislation defective amendments—the noble Baroness pointed out that the amendment is defective—I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Rix Lord Rix moved Amendment No.56:
Before Clause 14, insert the following new clause
DEFINITION OF REMUNERATIVE WORK: DISABLED PERSONS TAX CREDIT
(". The definition of remunerative work in respect of which a disabled person's tax credit may be payable shall include remunerative work for less than 16 hours a week as set out in-

(a)section 129 (disability working allowance) of the Social Security Contributions and Benefits Act 1992: and

(b)section 128 (disability working allowance) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992. ")

The noble Lord said: Before I speak to Amendment No.56, perhaps I may remind your Lordships that in Committee last week I paid tribute to my noble friend Lady Darcy de Knayth for her constant attention to our debates on disability. Unfortunately, she is unable to be in her place tonight but I am happy to announce that her understudy is the noble Lord, Lord Swinfen. who will say a few words and will no doubt give his usual immaculate performance.
This amendment abolishes the requirement for disabled person's tax credit recipients to work 16 hours or more per week in order to be eligible for financial support. I explained my reasons for favouring a relaxation of this rule at Second Reading. Many people with learning disabilities may be able to do some work, but may not be able to undertake full-time work. This is not just an assertion; this is the direct experience of MENCAP's employment service, Pathway, which finds that many people with learning disabilities benefit from part-time work. This can often develop an individual's skills or self-confidence and may act as a springboard on to positions involving more hours.
Under current proposals, the system is being carved up to create arbitrary exclusions from in-work benefits. People find that they can work up to four hours on the minimum wage and keep hold of income support and housing benefit; people can work over 16 hours and receive support from the disabled person's tax credit; and people can work for very specific therapeutic reasons and retain benefits. But those who undertake ordinary work for between five and 15 hours per week are afforded no support, even if the work that they do extends their capabilities and promotes their social inclusion.
This is, of course, an idealistic amendment, open to the charge of spiralling spending and liable to draw the predictable response of "We have to draw the line somewhere". My expectations are, however, very realistic. I should like a commitment from the Minister that her department will explore ways of assisting disabled people who work between five and 15 hours, perhaps through a phased entry to the tax credit. During the Second Reading debate, the Minister alluded to the possibility of pilot schemes. Perhaps she might like to tell the Committee in a little more detail about her thinking in this area.
If the ideas are in their infancy, I am sure that disability organisations would welcome the opportunity to discuss this matter further with the Minister and/or her officials. I beg to move.
Lord Swinfen: I am very happy to support the noble Lord, Lord Rix, but not as the understudy of the

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noble Baroness, Lady Darcy de Knayth. I hope that she, the noble Lord and I work as a team from different parts of the House in trying to support people with disabilities. In the past I can recall frequently having the support of the noble Baroness, Lady Hollis of Heigham, and the noble Lord, Lord Carter. I now have the support of my noble friends Lord Higgins and Lord Astor. Wherever I am in the House, I seem to be agin the Government. Therefore, I must be right because governments are not always right. They sometimes forget that they are as human as the rest of us. I have a horrible feeling that most of the time the Treasury tells them what they may do and not what they would like to do. As I have said before, the Treasury seems to have no experience outside the Treasury. It does not really know how the real world works.
I support what the noble Lord, Lord Rix, said in asking the Government to consider ways of supporting a greater number of low-paid disabled people in the workforce. However, we must not forget single parents with very young children, particularly those living in sparsely populated rural areas where there is likely to be a dearth of registered child minders and where they may be too far away, either in distance or time, to be of any practical value. It seems that there is a disproportionate concentration on full-time work in the Government's welfare-to-work strategy. Full-time work benefits the Treasury greatly. But let us not forget the benefit to thousands of people who work part-time. The benefits system should not mitigate against part-time work for those who wish to try it and where it is the only work they can practically take.
Lord Higgins: I support the noble Lord, Lord Rix, and the strength of his arguments and those of my noble friend because, when this point was debated last Monday, the first day in Committee, the noble Baroness asked why I was not supporting the noble Lord, Lord Rix. I said that I thought it was obvious that I supported the noble Lord, and I stood up and did so formally, whereupon the noble Baroness turned down the amendment. I thought that rather unfair. I have great pleasure in supporting the noble Lord's proposal.
Lord Goodhart: 1, too, support the noble Lord, Lord Rix. This is an extremely desirable amendment. Certainly, the noble Lord made a very strong case as an exception to the general principle that tax credit should be payable only where there is a substantial amount of work. There is a strong case for the more limited hours of therapeutic work in the case of the those claiming disabled person's tax credit. I hope that the Government will look upon the amendment sympathetically.
9.15 p.m.
Baroness Hollis of Heigham: The purpose of the amendment is to redefine remunerative work for disabled people to include work of less than 16 hours a week. I am sorry to disappoint the noble Lord, Lord Higgins. It is clear that whenever he stands up to support the noble Lord, Lord Rix, he brings with him faint comfort. He might be advised in future not so energetically to do so.
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There is a real difficulty here. The issue concerns us all and has aroused much discussion from the day DWA was introduced. We all want to see and help disabled people into work. Members of the Committee will not need reminding that this Government have introduced a new deal for disabled people with pilot schemes across the country. We are introducing personal advisers and work trials for disabled people. Also, I am pleased to report that, as of last October, we have been able to introduce the linking rules so that disabled people who move into work and then find that they cannot sustain work can return to the higher level of benefit arid not. so to speak, go down the snake and to lower rates and have to climb up. Thus we have reduced some of the risk—laid off the risk, as it were— on to the government benefits system. I do not think there is any dispute between us, on all sides of the Chamber, that we want to do everything we possibly can to help disabled people back into work. After all, the 2 million or so people on incapacity benefit once had a job. It would be to their pleasure and to ours if we could encourage them back into work.
But disabled person's tax credit, like WFTC, is not primarily an income support benefit; it is a work support measure. We have to make a distinction, a definition of what counts as work, so that on one side there are work support benefits—currently family credit, in future tax credit—and, less than the dividing line of work, what we then get is a disregard for some part-time earnings to support income support or disability benefit. The question is whether that line is properly drawn at 16 hours. We believe that it is.
Sixteen hours represents two full days a week or three to four part-time days a week. We believe the 16 hours is the point at which there is a clear commitment to work, which entitles a person who meets the other criteria to the much more generous in-work support provided by DPTC rather than out-of-work benefits. We want to ensure that the system helps, rather than hinders, people who want to move from benefits to work.
Disabled people who work less than 16 hours are, of course, able to keep the first £15 of their earnings. We particularly want to overcome the lack of awareness of the therapeutic earnings provision within incapacity benefit. Therapeutic work is a valuable opportunity. It is a first step back to independence. The therapeutic earnings limit has been increased this month from £48 to £58 per week. So effectively there is already a series of steps. People have a disregard when working modest hours of £15 to top up either income support, disability premium or incapacity benefit. People may be doing therapeutic work in which case they can keep £58 a week of the earnings from that. Finally, if they work more than 16 hours, under the qualifying benefit rules or fast track procedures people may be entitled to DPTC. This improvement, together with the greaser generosity of DPTC compared to DWA, and the proposed new fast-track gateways to DPTC will, we believe, greatly enhance work opportunities available to disabled people.
We are keeping under regular review all aspects of the DPTC. We have discussions with the Disability Benefits Forum and are piloting possible improvements

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to tax credit. We certainly plan to use pilots on various aspects of both WFTC and DPTC. However, I am afraid that I cannot, despite the invitation to do so, give any commitment as to what aspects of the DPTC will be piloted. However, I shall certainly bear in mind the concerns and issues raised in this debate. I am sure that the disability organisations will note them.
I believe it is right to say that a person who works 16 or more hours a week is in work and that therefore the benefits that are appropriate to supporting someone in work apply to that individual, but that someone who works less than 16 hours a week is essentially either in part-time work with a disregard or is engaged in therapeutic earning. While I understand the intention of the noble Lord, Lord Rix, in moving the amendment I regret that I am unable to accept it. I ask the noble Lord to withdraw his amendment.
Lord Rix: Before the noble Baroness sits down, perhaps she can explain for a simple soul like me the maximum amount of money that can be earned by a person with learning disability who works over five hours but is unable to work up to 16 hours. What is the maximum amount of support that can be given?
Baroness Hollis of Heigham: A person with a learning disability may be on severe disablement allowance, which is topped up by income support if the SDA is below his income support entitlement. If he is not living at home with parents he may be entitled to housing benefit and CTB and keep the first £15 of his earnings.
Lord Rix: I cannot over-emphasise the benefits of part-time work both to disabled individuals, particularly learning disabled individuals, and society. I hope that the Minister will think again about what support can be offered to disabled people who work part time, but I am delighted to hear the figures that she has quoted. No doubt the subject will be revisited. I believe that the Minister is working with the Disability Benefits Forum in this regard. For now, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Goodhart Lord Goodhart moved Amendment No.57:
Before Clause 14, insert the following new clause—
HOUSING COSTS
(". In section 135 of the Social Security Contributions and Benefits Act 1992 (the applicable amount) after subsection (1) there shall be inserted—
"(1A) The applicable amount prescribed for a working families' tax credit and a disabled person's tax credit shall include an amount for prescribed housing costs."")
The noble Lord said: This is a probing amendment only because I recognise that in practical terms it is quite impossible to include a housing cost element in working families' tax credit at this stage. Therefore, this is purely a matter for the future rather than inclusion in this Bill.
This was an issue taken up by my honourable friend Professor Steven Webb in the other place. While the taper is reduced from 70 to 55 per cent for working
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families' tax credit as compared with family credit, an increase in the claimant's earnings will also lead to the loss of housing and council tax benefits. For people who receive all three—working families' tax credit, housing benefit and council tax benefit—and also pay PAYE and national insurance contributions, the marginal rate of tax (to use that shorthand) is reduced only from 96.9 to 95.3 per cent. If the person in the same situation does not receive council tax benefit it is reduced only from 92.7 to 89 per cent.
There is also a problem with home owners who have mortgages. They receive payment of their mortgage interest under income support but not under family credit now or, as proposed, working families' tax credit. There is therefore a disincentive for home owners to get low-paid jobs. Professor Webb says that the only people in his constituency, where the unemployment rate is extremely low, who cannot afford to take jobs are those with mortgages.
These problems would be reduced if an element of housing costs was built into the definition of the applicable amount. Almost everyone who receives these tax credits has housing costs in the form of either rent or mortgage interest. To replace housing benefit in part by a housing element in tax credits would reduce the number of people with extremely high marginal rates, which we all recognise is a serious disincentive. The housing element would also contribute to mortgage costs and give better incentives to home owners to seek low-paid jobs.
I recognise the enormous difficulties in the reform of housing benefit due to great differences in rents and housing values in different parts of the country. To take a slightly random example, we all know that the housing values in Hartlepool are a great deal lower than those in, let us say, Notting Hill. The housing element in the working families' tax credit would have to be much less flexible and less geared to actual costs than housing benefit. I do not believe that it could completely replace housing benefit. But even if the housing element in tax credits would have to be supplemented by a continuing housing benefit in some places, it would reduce the problem of the very high marginal rates and remove the disincentive to home owners with mortgages.
I understand that the Government are intending to review housing benefit. Is the Minister in a position to undertake that in the course of that review they will at least consider the possibility of incorporating a housing element in tax credits? I beg to move.
Lord Astor of Hever: I understand the reasons for the probing amendment put forward by the Liberal Democrats. They are right to raise the issue of housing costs and work incentives for lower income families. Labour's manifesto maintained that its housing strategy would address the needs of home owners and tenants alike. However, housing costs have not been considered in the Bill. After all, housing benefit forms one of the largest chunks of the social security budget. As a result, a confused position is already more confused. One wonders whether some of the people the Bill aims to help will be better off.

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It seems odd that someone can be given the working families' tax credit or the disabled person's tax credit with one hand but could find his local council reducing his housing benefit by a corresponding amount with the other. If the Government are trying to cut the £12 billion housing benefit bill, this seems no way to do it.
More importantly, if local councils deduct from housing benefit the same amount as the tax credit, can the Minister tell the House how that will act as an incentive to get people back to work, which is the objective of the Bill'?
Baroness Hollis of Heigham: The clause is similar to that introduced on Report in the other House. As there, it is aimed at probing the intentions of the Government on the way that housing benefit will interact with the WFTC and the DPTC. It is the interaction of benefit tapers, such as that for housing benefit with the two tax credits, which produce high marginal deduction rates. Academic research—some of it by the noble Lord's honourable friend Professor Steven Webb—indicates that the difficulties of replacing out-of-work help for mortgage costs may be a barrier to entering work.
We can all accept that there is a problem by definition. However, it may be worth reminding the Committee that the Liberal Democrats' proposals outlined by Professor Webb could be very costly. The figures I have are that a flat-rate £30 mortgage interest credit would cost around £1.1 billion; and, if applied to rented accommodation net of HB, would cost a further £0.6 billion, the two together totalling £1.75 billion. We are talking about very large sums, even at a flat-rate element of something like £30 a week.
None the less, I wonder whether Members of the Committee are beginning to overestimate the problem we now face. The new tax credits already do two things that help in this area. The more generous help that the credits provide will help to float more people off the interaction of those three tapers, which the noble Lord, Lord Goodhart, rightly identified as producing high marginal deduction rates (MDRs). At present 25 per cent of people on family credit also claim and are entitled to HB and CTB; and for them we have high marginal deduction rates. That is undeniable.
In future, as a result of the more generous lift of WFTC, instead of 25 per cent of people claiming family credit, housing benefit and council tax benefit, the figure is likely to be 2 per cent. So the proportion of people affected by very high MDRs will diminish sharply. That is one of the good things that can come from the problems that we discussed during the first day in Committee relating to shallow tapers and greater generosity with WFTC. Fewer people will be affected by the triple taper.
Secondly, the lower taper within WFTC and DPTC—55 per cent. compared with 70 per cent at present—will mean not only that fewer people will be affected but that fewer people who are affected will see high marginal deduction rates. Under family credit, three-quarters of a million people face MDRs of 70 per cent plus, but under WFTC it will be only one-quarter of a million. That is a fall of two-thirds, or half a million people. Therefore,
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in both ways the generosity of the basic credit and the greater shallowness of the taper will reduce the problem considerably.
As the Economic and Fiscal Strategy Report made clear, the Government believe that Britain's current housing system is failing those in need. Our ambition is to modernise housing policy; to make the housing and labour markets fairer for all concerned, In his Budget Statement, the Chancellor indicated that over time he wants the Government's better deal for work to include help with housing costs for both renters and homeowners going back to work. But personal housing support will need to be reformed gradually. The current system of housing benefit is too complicated to be integrated with WFTC and DPTC. Even if personal housing support were simplified, the systems for administering the element for housing costs in the two tax credits will take the IR many years to restore.
Furthermore, the current structure for social rents would need to be reformed before we could move in this direction. The Government have been working in partnership with local authorities to develop proposals for the certification and improvement of the existing system of housing benefit. For the future, the: Government are looking at options for strengthening the link between social rent and the size. location and condition of properties. The Government will consider further reforms over the coming months and will announce details in a housing policy Green Paper later in the year. There will be extensive consultation with all concerned.
Given, first, that the problem is much less severe; secondly, the imputed cost of what might be the import of the Liberal Democrat amendment; and, thirdly, the statement of intent in the Chancellor's Budget, I hope that the noble Lord will be able to withdraw his amendment.
Lord Goodhart: At the beginning of my speech I indicated that this was a probing amendment introduced in order to hear a statement of the Government's intention. We have had that from the noble Baroness and I am grateful to her. In those circumstances. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
9.30 p.m.
Lord Swinfen Lord Swinfen moved Amendment No.58:
Before Clause 14, insert the following new clause—
(". At the end of subsection (1)(b) of section 129 of the Social Security Contributions and Benefits Act 1992 (disability working allowance) there shall be inserted "or is the parent of a child under 16 entitled to any rate of either component of disability living allowance or for the disabled child's premium". ")
The noble Lord said: In moving Amendment No.58, I shall speak also to Amendment No.60 in the name of the noble Lord, Lord Rix. The purpose of my amendment is to extend entitlement to the disabled person's tax credit to families with a disabled child. That will benefit parents with low incomes and those restricted to part-time work due to caring responsibilities. It will also boost the Government's

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welfare-to-work strategy. Families with disabled children incur disability-related expenditure and have a higher ongoing regular extra cost. The disabled person's tax credit is therefore the most applicable in-work benefit. It is paid at a higher rate than the WFTC because it recognises these costs.
I strongly support Amendment No.60 tabled by the noble Lord, Lord Rix, because often the only option for childcare provision is that in the home specially adapted for the disabled child. His amendment should therefore be agreed to by the Government. I beg to move my Amendment No.58.
Lord Higgins: I support the amendment. My noble friend Lord Swinfen spelt out clearly the reasons why it ought to be accepted and referred to the related amendment in the name of the noble Lord, Lord Rix. As I know from my constituency experience, there are real problems with regard to disabled children in the home and the need to adapt buildings to cope with their problems. I hope that we shall receive a sympathetic response from the Government.
Lord Rix: My amendment has been grouped with Amendment No.58, although I believe that each addresses a slightly different subject. However, I am extremely grateful for the support given to me just now by the noble Lord, Lord Swinfen.
Perhaps I may express to the Minister my overall support for this very important Clause 15, which enables the Secretary of State to make regulations regarding new categories of childcare provider for tax credit purposes.
This clause was introduced by the Government in another place, demonstrating their willingness continually to improve on the scope of this legislation. Indeed the Minister has very kindly written to me and to others informing us of the Government's commitment to investigating further improvements to assist parents of children with special needs. I have tabled this amendment for the sole purpose of probing for further information on work in progress to extend verifiable childcare so as to enable those who look after children in their own home to benefit from the tax credit.
These arguments are well rehearsed but cannot be sufficiently reiterated. It is deeply unfair to penalise the parents of children with learning disabilities who require intensive support and care which can only be met in the child's home. They too should have access to childcare credits. I am aware that this may raise problematic issues in terms of accreditation but I urge the Government to solve this problem for disabled persons' tax credit and working families' tax credit recipients as a matter of urgency.
Baroness Hollis of Heigham: The proposed new clause, Amendment No.58, aims to widen the scope of DPTC to able-bodied couples with disabled children. It is grouped with Amendment No.60, which seeks to enable the new system for proven childcare providers to extend to care provided for disabled children in the home.
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I turn first to Amendment No.58. The desired effect of the new clause would appear to be to widen entitlement to DPTC to the working parents of disabled children, even if the parents themselves are able-bodied. I have to say, although I do not want to get hung up about this, that the clause would not have that effect. The qualifying rules for DPTC, as for DWA, which it replaces, have another leg which the clause does not address. The parents of the disabled child would still need to be in receipt of a "qualifying benefit" in the period—to be extended from 56 days to 182 days by this Bill—prior to the claim being made. That would rather frustrate what appears to be the object of the clause.
The clause proposes to extend eligibility to able-bodied parents who have disabled children and for the child's disability to be the gateway to this tax credit. But supporting parents of disabled children, desirable though that is, is done through other aspects of legislation, in particular the disability living allowance. It is not the object of the DPTC, which remains a work incentive measure for disabled people and non-disabled people alike.
DPTC is a tax credit aimed at helping people who have a disability or illness which puts them at a disadvantage in getting a job to move into or remain in work. That is why DPTC, not WFTC, has the lower credit for an individual who is not responsible for any children. In other words, DPTC is a personal and not a household benefit. The tax credit which is aimed at supplying help to families with children is the WFTC.
However, the clause raises the question of how the tax credits should help disabled children. In an earlier amendment (Amendment No.10), we debated the differences between the two benefits and what would be the two new tax credits. I acknowledge that DPTC—like DWA, upon which it builds—has a specific additional credit for a disabled child, whereas WFTC, like family credit, does not.
As I pointed out on earlier amendments, the new tax credits have been built from the platform that the benefits provide, and specific changes are being made to enable the tax credits to deliver their objectives in response to points raised during the development period.
These differences, repeated tonight, were raised during the debate on Amendment No.10 by the noble Lords, Lord Swinfen and Lord Rix. I said then that the point which he raised was a proper one for us to reflect upon, and that remains the case. The noble Lord said that he was delighted that the Government would be tabling an amendment. I said, no, that we were reflecting and not committing ourselves to any further amendment. However, we recognised that there was an issue on which to reflect.
Amendment No.60 aims at a slightly different target but still relates to providing help where there is a disabled child. It proposes that Clause 15, which was introduced on Report in the other place, should be amended so that there is a specific mention of care for disabled children in their own homes. That was a point raised by the noble Lord, Lord Rix, at Second Reading.

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However, Clause 15 of this Bill is not the place for this amendment because the clause enables a wholly new category of approved childcare providers to be created and, most importantly, achieves that by accrediting organisations with appropriate quality assurance schemes for that approval.
The measure is aimed specifically at out-of-school care for those aged eight and over who are catered for to only a limited extent under the current rules for eligible childcare. The clause is particularly important because of the increase in the age limit to 14 year-olds or 16 year-old disabled children to help with childcare costs. I do not believe that the noble Lord would want help limited to disabled children just within that age group, which is what the proposed clause would push us to.
I have sympathy with the sentiments expressed by the noble Lord both today and at Second Reading. Those sentiments are widely shared. The general principle of what the Government are doing is to make good quality childcare more affordable as part of those work incentive measures. That is in line with the Government's national childcare strategy as set out in the Green Paper, Meeting the Child Care Challenge.
We are aware of the problems which disabled children face. On 13th January, my honourable friend the Paymaster General said that,
"the Government is looking at all the types of childcare provided currently, their quality assurance and whether the types of eligible childcare for the childcare tax credit could be extended. We arc looking particularly at care provided for children between 11 and 14--who are beyond the age covered by most of the current regulatory arrangements—and at care provided for disabled children where there may be special care needs".
We shall continue to reflect on what can be done.
I should point out also, in relation to both amendments, that the issues raised are generally matters for regulations. If the noble Lord were not to press the amendment, that would not impede us reflecting on how we should take forward those issues.
The disabled child credit in DWA is set out in regulations, as it will be for DPTC. The categories of eligible childcare providers are also specified there. Having said that and having said in relation to both amendments that we shall reflect on them, I ask that Amendment No.58 be withdrawn.
Lord Swinfen: I shall read with care what the Minister said. I may return to this matter at a later stage. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Goodhart Lord Goodhart moved Amendment No.59:
Before Clause 14, insert the following new clause—
SOCIAL SECURITY ADVISORY COMMITTEE
(". Section 170 of the Social Security Administration Act 1992 (social security advisory committee) shall apply in connection with tax credits as if references in that section to the Secretary of State were references to the Treasury or the Board arid as if this Act was one of the relevant enactments as defined in that section. ")
The noble Lord said: Section 170 of the Social Security Administration Act requires the Social Security Advisory Committee to give advice to the Secretary of State in connection with the discharge of his functions under the relevant enactments. Those enactments are defined to include the Social Security Contributions and Benefits Act which continues to be the primary legislation governing the WFTC in the same way as it now governs family credit.
Section 170 also authorises the Secretary of State to ask the committee for advice. The effect of the Bill is that the Secretary of State will cease to have functions in relation to tax credits under the contributions and benefits Act because those functions will have been transferred to either the Treasury or the Board of the Inland Revenue. Nothing in the Bill provides for the committee to give advice to the Treasury or the Board of the Inland Revenue.
A similar point arises under Section l72 of the Social Security Administration Act which requires the Secretary of State to refer to the committee in draft any regulations that he proposes to make. By an oversight, my amendment does not refer to Section 172 but I assure the Committee that if we bring back the amendment on Report, we shall certainly include on that occasion a reference to Section 172 as well as to Section 170.
On Section 172, of course, it will not be the Secretary of State who makes draft regulations in relation to tax credits. So there will be no obligation to refer those draft regulations to the committee. One may ask rhetorically: why is it that the committee is excluded from this role in relation to tax credits? Surely, the Treasury and the Inland Revenue will need advice as much as the Department of Social Security does at present, and indeed probably more so, because the Treasury and the Inland Revenue will be less familiar with what I might call broadly benefit issues than is the DSS. Surely, the committee performs a valuable role and it should be allowed to continue to do so. I beg to move the amendment.
9.45 p.m.
Lord Higgins: I support the amendment of the noble Lord, Lord Goodhart. As the amendment refers to the Secretary of State, it echoes the debate earlier which also referred to the Secretary of State. I have often wondered why we do not say, in legislation, which Secretary of State is concerned. In the debate on Clause 15, as I understand it, it was the Secretary of State for Education, whereas in this context presumably it is not the Secretary of State for Education but another Secretary of State.
The curiosity is that if it is the Chancellor of the Exchequer, apparently he is not included within the category of Secretary of State. The noble Lord, in his amendment, seeks to widen the reference to include the Chancellor of the Exchequer. I believe that he is right in saying that the Inland Revenue, the board and the Chancellor are more likely to be in need of advice from the Social Security Advisory Committee than is, for example, the noble Baroness who, I gather, will reply to the debate.

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Ever since I took up my present task on the Front Bench on social security matters, I have had the impression that increasingly less work is being given to the Social Security Advisory Committee. We discussed a Bill last year which appeared to exclude the committee. Can the Minister say whether it is the Government's intention that it should have an important role? Can she also say, in the context of the point made by the noble Lord, Lord Goodhart, whether it is important, given the switch from the Department of Social Security and its Secretary of State to the Chancellor of the Exchequer, that the committee should be concerned with the Inland Revenue and the other departments?
Earl Russell: Perhaps I can say a brief word in support of my noble friend's amendment. Although I did not have the privilege of hearing the debate on Clause 2 stand part on the first day in Committee, I have read Hansard.
I understand that the Minister does not think that there will be a big culture problem between the two departments. However, there are bound to be adjustments. In making those adjustments, I believe that the advice of the Social Security Advisory Committee would be extremely valuable. Inevitably, there will have to be some marrying up of cultures and some adjustment in the process. I believe that some outside comment on how the system is working would be extremely valuable to the Government as well as to us.
In addressing the Minister, I do not need to stress the value and quality of reports of the Social Security Advisory Committee. The noble Baroness and I have spoken to those reports enough times for me to know that she is as well aware of their quality as I am.
We shall need a great deal of expert advice on regulations as they come forward. In any other field, I know of no advice that is quite as independent, as expert and as regularly available as that we receive from the Social Security Advisory Committee. The Minister may say that this is a work incentive and not a benefit, but if she looks at reports by the Social Security Advisory Committee in 1993 on the role of incentives in the benefits system she will see that those are some of the best reports produced by that committee. They suggest to me that the committee will be entirely at home, within its cultural remit, in working in this area. It could save the Government a great deal of trouble in the future. They might perhaps like that.
Lord Swinfen: I wonder whether, on this amendment, the Minister can answer a question I posed earlier to which I do not recall receiving a reply. The Treasury spends its time trying to cut down the costs of the other ministries. With that in mind, and with the Chancellor of the Exchequer in the Cabinet, I asked what Minister in the Cabinet would be arguing for those who are in need of both these tax credits. Who will be fighting to make certain that these people receive high enough tax credits? Or will it be entirely up to the Chancellor of the Exchequer?
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The nature of the Chancellor's job—I am not being personal because it will apply to whichever government are in office—is to make certain that the Treasury outgoings are reduced to the lowest possible level. Which Minister in the Cabinet will be fighting to make certain that the people who qualify for tax credits receive sufficiently high credits?
Baroness Hollis of Heigham: The proposed new clause seeks to provide broadly that Section 170 of the Social Security Administration Act shall apply to tax credits. That provision establishes the role of the Social Security Advisory Committee. Its role is to advise the Secretary of State for Social Security in connection with the carrying out of his functions. The new clause therefore proposes to extend the remit of the committee to providing advice to another department—the Board of Inland Revenue. The SSAC at the moment has no remit but to advise the Secretary of State.
Perhaps I can say that I defer to no one in my admiration for the work of the Social Security Advisory Committee. I have attended its meetings. I have the highest regard for Thomas Boyd-Carpenter, who chairs it. I agree that the report of 1993, which I know well, was a powerful one and, indeed, a reading of the latest annual report of the committee, which I am sure Members of the Committee have read, confirms our high estimate of its work.
The committee has regularly not only discussed regulations that come to it from the Department of Social Security which are traditionally at some distance from a Bill and therefore not open to the usual scrutiny in that regard; but it has also taken on board discussion of specific issues, reflected on them and reported. All of that is highly valuable.
At the moment, SSAC currently has no remit to do anything other than advise the Secretary of State. "Secretary of State" is a generic term because obviously it is the Prime Minister who allocates specific responsibilities to specific departments. The Board of Inland Revenue is a statutory body.
Lord Higgins: Perhaps I may interrupt the noble Baroness; it may avoid her taking longer on the point later on. The Minister is rightly saying which Secretary of State is determined in the way she described. But, for example, in relation to Clause 15 there is reference to the Secretary of State who is in fact the Secretary of State for Education as I understand it. Presumably on the basis of what she has just said—namely, that the Social Security Advisory Committee is to give advice to the Secretary of State for Social Security—it would be precluded from giving advice to the Secretary of State mentioned in Clause 15.
It has always seemed to me odd that one should not be more specific in legislation, making clear to which Secretary of State one is referring in any given context. In any event, can the noble Baroness say whether the Social Security Advisory Committee will be able to advise the Secretary of State referred to in Clause 15?
Baroness Hollis of Heigham: The Social Security Advisory Committee is not a general social security

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advisory committee on all areas of social policy, irrespective of which department they fall into. That is not its function. Its function is to advise the Secretary of State for Social Security and in particular to advise on regulations which may not have had the same possibility for parliamentary scrutiny as regulations which are attached to a Bill. Beyond that it engages in wider issues associated with social security, but it is not an advisory committee to the Department for Education. The Department for Education has its own professional advice, including its own chief advisers, Ofsted and the like, as does the Department of Health.
Lord Goodhart: I am most grateful to the Minister for giving way. Is not the answer to the question posed by the noble Lord, Lord Higgins, the fact that the Social Security Advisory Committee would have no power to advise the Secretary of State for Education and Employment under Clause 15 because this legislation is not one of the relevant enactments as defined in the Social Security Administration Act 1992? Indeed, is it not a fact that the power to make regulations under Clause 15 is not one that can be read back into the Social Security Administration Act?
Baroness Hollis of Heigham: The noble Lord may well be right. Certainly, that is also my understanding. However, it is very clear that the function of the Social Security Advisory Committee is to advise the Secretary of State for Social Security. If other areas including childcare regulations and the like—for example, passported benefits—fall outside the direct remit of the Secretary of State for Social Security, they would not come within the advisory role of the Social Security Advisory Committee.
The Board of Inland Revenue is a statutory body with statutory duties as set out under the Inland Revenue Regulation Act 1890. It is answerable to Treasury Ministers and to Parliament. That is the proper channel for advice and help. It would not be appropriate for a committee which has been set up to advise the Secretary of State for Social Security to extend its remit to advise the Board of Inland Revenue.
However, having said that, I recognise the concern of noble Lords that draft regulations on tax credits should be exposed to interested and expert parties for comments, as happens with SSAC. However, I can provide a response in that respect. The normal practice of the Inland Revenue is to publish all major regulations in draft for comment. In practice, they are reaching a much wider audience than would be the case with SSAC. In addition, the Revenue's record on targeted consultations is very good; for example, as I said, as regards the regulations dealing with the payment to employers, it has been consulting regularly over the past year with groups representing business, both small and large, and payroll managers. Therefore, the proposed new clause is unnecessary because there is already a
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clear practice within the Inland Revenue. As a result of my response, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Swinfen: Before the Minister sits down, can she answer the question that I put to her?
Baroness Hollis of Heigham: I shall do so with pleasure. If I recall the noble Lord's question accurately, I believe that it was motivated by a suspicion that the Treasury was dominated by the desire to cut costs and save money. Therefore, if that responsibility passed to the Chancellor of the Exchequer, there would be no advocate for disabled people or families falling within the working families' tax credit system, as is the case at present where there is some division of responsibility between the DSS and the Treasury. Have I expressed the noble Lord's view correctly?
Lord Swinfen: Yes. The noble Baroness is quite right.
Baroness Hollis of Heigham: I am glad of that at least. The noble Lord put that point to me on a previous occasion. I simply do not recognise that description. There are two points involved. First, it is obvious that the Treasury is acting on behalf of all of us as custodian of public money. Indeed, it is the usual cliché: the Government do not own the money; it is our money, taxpayers' money. The Treasury has to ensure that it is prudently and wisely spent and that the flows of expenditure and income match appropriately.
Secondly, we do not doubt that the Treasury has a housekeeping role. However, to assume from that that the Treasury is not therefore an advocate for investments in social policy is simply wrong. One only has to look at the experience of the past two years where, under this Chancellor of the Exchequer, leading a Labour Treasury within a Labour Government, we have seen an increase in real terms in child benefit which is tar greater than anything that happened during the preceding 18 years. We have also seen £40 billion of investment going into health and education—a far greater amount than anything in recent years. We have seen a commitment of resources to the minimum income guarantee for pensioners and a commitment of resources to the New Deal and to the working families' tax credit. Indeed, we have seen a commitment of resources towards alleviating the poverty of disabled people, of children and of pensioners.
We have a Chancellor of the Exchequer who does not hoard money. He believes in investing in the common wealth of this country, which is the human capital of our people. He wants business, the Treasury and departments to invest to ensure that we are spending on creating strength and opportunity for people and not simply continuing, as in the past, to spend money to perpetuate people on benefits in ways which lock them out of the mainstream of society. I do not have to predict what the Chancellor is going to do. We have to look at what has happened in the Budget over the past two years. We have seen greater expenditure and investment in people and public services than anything thought conceivable even three years ago.
10 p.m.
Lord Swinfen: The noble Baroness appears to be legislating for one person as Chancellor of the Exchequer. They come and go. Others may well be in the Chancellor's shoes in the future. In addition, the Chancellor of the Exchequer was in the extremely fortunate position of inheriting a sound economy and benefiting from that which may not always be the case. The trouble in the Balkans at the moment could flare up and become very expensive. There may well be problems in raising funds to give away on tax credits. We may then be in a very much more difficult position. To have one person only responsible for reducing the expenditure of departments and the same person responsible for ensuring that people have adequate tax credits is not satisfactory. I am sure that the noble Baroness will not agree with me, but to my mind that is not satisfactory.
Baroness Hollis of Heigham: It is understandable that the noble Lord speaks about the experience gained in 18 years of Tory government in which the Chancellor of the Exchequer may very well have served as a block on the development of social policy. That is not the case under the Labour Government.
Lord Higgins: The remarks of the noble Baroness a few moments ago are quite extraordinary unless one assumes, as appears to be increasingly the case, the Chancellor of the Exchequer takes over everything. The whole basis of the Government's spending arrangements is for departmental Ministers to press their claims for increased expenditure and greater priority for their particular department. That is the way it works. In turn the Treasury tends to say no and a compromise is eventually reached. The idea that one can forget that and that the Chancellor will decide every priority without reference to the department is unrealistic and likely to prove disastrous. I believe we are going rather wide of the amendment. I do not believe that that is the way in which these matters work. If we had the kind of situation that the noble Baroness described it would be very dangerous.
As regards the more substantive matter, the noble Lord, Lord Goodhart, is saying that, given the switch from one ethos to another, namely, the DSS to the Inland Revenue and the Treasury, there is need for advice. His amendment seeks to ensure that the Social Security Advisory Committee, which is expert in these matters, is able to give that advice to a department not familiar with that particular area. It seems to me that the noble Baroness's response reinforces the case for the noble Lord's amendment.
Earl Russell: I am not going to reply to the party political broadcast. I wish to get back to the amendment. If I understand the noble Baroness correctly, she is saying that the central point against the amendment is that the function of the Social Security Advisory Committee is to advise the Secretary of State for Social Security. I understand that. Were that not the case the amendment would be unnecessary and I am sure that that is not the case.
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I am also sure that the Minister has piloted through his House far too many Bills dealing with the transfer of functions to argue that it is impossible for Parliament to transfer functions should it wish to do so. Parliament could perfectly well give the Social Security Advisory Committee the power to advise the Treasury, the Chancellor of the Exchequer or anyone else. It is not impossible. The point at issue is simply whether Parliament wishes to give the committee that power. I would argue that there is a strong case for doing so because we are transferring to the Treasury an area which, even if it is not a pure social policy issue. is an issue which has quite considerable social policy implications.
Without wishing to make any pejorative reflections on the Treasury whatever, that is not the Treasury's normal sphere of expertise. It is also a sphere in which expertise is not as readily available to the Treasury as it has hitherto been to the Department of Social Security. I argue that, if we made the expert advice of this extremely high quality committee available to the Treasury, we could save us all a great deal of trouble.
Lord Goodhart: The Government's response to this amendment seems to indicate that in their mind appearances are more important than reality. The Social Security Advisory Committee performs extremely useful functions in relation to benefits and, so far as I can see, the only reason it is not to be allowed to continue that function in relation to the working families' tax credit is in effect the name of that benefit or credit; that is, the idea that the working families' tax credit must not be treated in any way as if it were a social security benefit. That is ironic when one considers that at least for the time being the primary legislation which will continue to govern the working families' tax credit is the social security contributions and benefits legislation.
I am glad to hear that the Inland Revenue intends to consult widely on the draft regulations. Nothing in this amendment is intended to restrict the Inland Revenue's power to do so and to consult as widely as possible. However, the Social Security Advisory Committee is in a position to give the Inland Revenue extremely valuable advice. The Inland Revenue should be required to seek that advice and to consult the Social Security Advisory Committee. I must confess that I find the Government's response on this issue extremely disappointing. While at this time of night I do not intend to divide the Committee, this is an amendment which we may well seek to bring back at Report stage. For the time being, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 14 agreed to.
Clause 15 [New category of child care providers for tax credit purposes]:
[Amendment No.60 not moved.]
Lord Goodhart Lord Goodhart moved Amendment No.61:
Page 8, line 32, after ("which) insert ("shall in the case of the first regulations made under this section be made only if a draft of the regulations has been laid before, and approved by a resolution of, each House of Parliament and in the case of subsequent regulations")
The noble Lord said: This is the final amendment in my name and that of my noble friend Lord Russell. During the debate on Clause 6 I moved an amendment asking for the affirmative procedure to be used for the initial regulations governing payment of tax credit through employers. A similar issue now arises over the new childcare regulations under Clause 15. These are novel and important regulations.
Under family credit, disregard of childcare costs was allowed for registered childminders and other registered daycare providers. For family credit, there were no separate childcare regulations because family credit made use of the existing scheme of childcare registration under the Children Act 1989. Registration under that Act is carried out by local authorities and the rules on the basis of which they conduct their registration functions are contained mainly in the Act itself. Those who have to be registered under the Children Act are providers of care for children under the age of eight. The local authority registration will continue to be the test for eligibility for childcare credits for children under eight.
However, childcare credits will be capable of being claimed under the working families' tax credit for children up to 14, or indeed up to their 16th birthday if they suffer from a disability. Therefore new rules are needed to cover care for children from the ages of eight to 14. These are provided by a new set of regulations which will be made not by the Treasury but by the Secretary of State. As the noble Lord, Lord Higgins, mentioned in the debate on the previous amendment, that will be not the Secretary of State for Social Security but the Secretary of State for Education and Employment.
The Bill provides not for registration of providers by local authorities but for approval by accredited organisations—therefore, to some extent, one could say it is being privatised. The draft regulations which have been published lay down the rules for accreditation. To be accredited, an organisation must operate a satisfactory system for approving care providers; it must have a good record and reputation in the field of childcare; it must have the ability to ensure the quality of childcare provided by those whom it approves. Schedule 1 provides a detailed list of matters to be covered by the system to be adopted by an accredited organisation. Those matters must include the setting up of an independent award panel to take the decisions; the setting out of criteria to be met by providers; the provision of trained quality assessors; the provision for an appeal against a refusal to approve; and the provision of a complaints procedure.
Schedule 3 sets out the matters which are to be included in the criteria for approval. Those criteria must include ensuring the health, safety and welfare of all children; the employment of sufficient staff; the offering of a planned programme of supervised activities; and the operation of an equal opportunities policy. These regulations, therefore, are extensive and of great importance because they will be the whole bedrock of the childcare that is to be provided for children from their eighth birthday up to their 14th birthday.
The Delegated Powers and Deregulation Committee said:
"In view of the width and significance of the power the House may wish to consider whether the bill should be amended to provide for the affirmative procedure to apply on the first occasion that the power is exercised".
The Government response in this case, as in the case of Clause 6, was, I regret to say, negative. They said:
"The draft regulations will be published and comments will be actively sought from key opinion formers in the childcare field'.
That is right. But Parliament should be allowed to debate these issues before they become law.
As I said earlier, consultation is not enough, nor is the publication of these draft regulations now. Further consultation is to take place; it is clear that these regulations are not in their final form. The final form could be substantially different and Parliament should have a chance to look at these regulations in their final form, which it can do only if the affirmative procedure is used or if someone goes through the elaborate and, frankly, unnecessary business of praying against the regulations. Once again, I ask the Government to reconsider their decision not to use the affirmative resolution procedure even on the first occasion when these extremely important new regulations are introduced. I beg to move.
Lord Higgins: I support the amendment of the noble Lord and I hope that the Government will take into account the points that he has made.
Lord Haskel: I welcome the additional help with childcare costs for children from eight to 14 and 16 for disabled children. It is certainly a major development and I congratulate the Government on it. However, the scheme is complicated. Indeed, there will be two tiers of regulation. There will also be the quality assurance scheme, about which the noble Lord, Lord Goodhart, has spoken. The scheme will be welcomed by parents and by organisations involved in childcare. However, it is complex and it is new, as the Delegated Powers and Deregulation Committee has pointed out. It seems to me that, with all the complexity and novelty, parents and childcare organisations might benefit from the debate which goes with an affirmative procedure. Perhaps the Government might benefit from hearing the expert views of noble Lords in the House when we debate the affirmative procedure. Perhaps my noble friend the Minister may wish to give further thought to this matter.
10.15 p.m.
Earl Russell: I shall not repeat what It have already said tonight about the standing of the Delegated Powers and Deregulation Committee. We have already debated one amendment dealing with a recommendation of that committee which was not accepted. If it should happen again, one might be tempted to say that one such accident might happen to any government but two savours of carelessness.
Baroness Hollis of Heigham: Never carelessness by intent or by intent aforethought.

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This amendment seeks to provide that the regulations to be made under Clause 15 should be made using the affirmative procedure when the powers are first introduced. It may help if I begin by describing briefly what Clause 15 does.
As many noble Lords will be aware, WFTC builds on the rules for family credit and the new childcare tax credit WFTC builds on the definition of eligible childcare used in family credit. However, there was a gap here in relation to childcare for the eight to 14 year-old age group. Clause 15 aims to plug that gap by extending the range of quality childcare for this group that will be eligible for the childcare tax credit. I am delighted that so many noble Lords, including my noble friend Lord Haskel, welcomed this extension of government policy. Indeed, I think the relevant government departments are to be congratulated on taking it forward not just to 12 but to 14 through to 16 for disabled children. That is a major extension of the support we can offer working parents.
The two departments—the Inland Revenue and the DfEE—have worked up this scheme, which will create a new type of childcare provider which can be added to the list against whose costs the parents can claim the childcare tax credit. The scheme will enable parents to use a wider range of childcare—breakfast clubs, after school clubs, holiday clubs; the kind of provision that is more appropriate for older children—regardless of whether they are run by a school or use school premises. As I said, the proposal has been widely welcomed. It will make an important contribution to national childcare strategy. It will help working families and boost the provision of good quality affordable childcare for older children. The regulations under Clause 15 are to provide for this new scheme for the accreditation of childcare providers.
The amendment seeks to provide that these regulations should be made by the affirmative procedure, at least in the first round. Perhaps I may paraphrase the remarks made earlier by my noble friend on Amendment No.40. The clause currently provides the power for regulation followed by the negative procedure before both Houses. Sometimes your Lordships seem to suggest that if regulations are dealt with by the negative procedure the House does not have the opportunity to scrutinise them. That is simply not true. As my noble friend Lord McIntosh said, on many occasions the noble Earl, Lord Russell, and I prayed against regulations under the negative procedure and we had exactly the same kind of debate and the same kind of scrutiny as we would have had under the affirmative procedure.
Earl Russell: Perhaps I may elaborate on that. It has happened to me that I have put down a prayer and then found that time was not available to debate it. As regulations become more frequent, that may happen to others.
Baroness Hollis of Heigham: I stand to be corrected and I would not wish to challenge the noble Earl's memory—perhaps I would like to challenge the noble
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Earl's memory. I recall that on at least one occasion we ran out of time in terms of the 40-day rule. I have been in the House since 1990 and I cannot recall not being able to debate regulations by virtue of there being no time. The Government have to make time available if noble Lords are praying against regulations. We have certainly run out of time because of the operation of holiday periods and so on—that can indeed be an obstacle—but not because of what the noble Earl has suggested.
Earl Russell: It was neither a social security regulation nor under this Government. It is a rare event. I hope it may remain so. But regulations are becoming more frequent and we need the security.
Baroness Hollis of Heigham: The noble Earl has not described to us a situation in which he sought to pray against regulations but he was not permitted to do so because of pressure of government business. I cannot conceive of that. We have certainly run out of time because, as I said, we have failed to come within the 40-day rule. That may be influencing, perfectly properly, the noble Earl in his concern.
Under the negative procedure, noble Lords have the right, the power and the duty to scrutinise legislation. On social security legislation, I have on occasion held up a regulation by the negative procedure. We debate such matters as we normally would. In addition. draft regulations will be published formally and the DfEE will be actively seeking comments from key opinion formers in the childcare field. That will give many interested parties an opportunity to comment. The regulations are open to public consultation. We are indeed anxious to ensure that they are right and that they do what they are required to do.
1 have listened with great interest to the points made in the debate. We are delighted that the principle of the clause has been so widely welcomed. I recognise the concerns, not merely of Members opposite but of the noble Lord, Lord Haskel, on this side, that the regulations should be further scrutinised. As I have said, the DfEE will publish draft regulations formally for comment. I do not wish to be unco-operative. In the light of the views expressed. and because this policy development is important—it is very good news for parents and children—I should like to reflect further on this issue to see whether I can be more helpful and perhaps return to the House on the matter on Report.
Lord Goodhart: I am grateful to the noble Baroness for agreeing to reconsider this issue. In the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 15 agreed to.
Clause 16 [Northern Ireland]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No.62:
Page 8, line 42, leave out from ("credit") to end of line 43.
The noble Lord said: Carelessness or not, it is a fact of parliamentary life that over 90 per cent of Northern Ireland legislation is debated by your Lordships outside prime time. Tonight is no exception. That said, I make

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no apology to the Committee for unashamedly producing what may best be described as a stage two probing amendment. For the benefit of the Committee, no, I have not got the wrong Bill.
Clause 16(1) provides for WFTC and DPTC to be excepted matters under the Northern Ireland Act 1998 and outside the legislative competence of the Northern Ireland Assembly. I am sure we all agree that that is absolutely the right thing to do.
Unfortunately, there is a problem. Subsections (2) and (3) of Clause 16 together provide a loophole in the Government's intentions by allowing the Northern Ireland Assembly to amend or repeal the employment rights order as amended or applied by Schedule 3 to the Bill, provided that the amendment or repeal affects employment rights generally. The fact, as stated in the Explanatory Notes, that WFTC and DPTC are excepted matters could otherwise prevent that. I could describe this as a stage two probing amendment, stage one being the question that I asked the noble Baroness the Minister at Second Reading, to which she helpfully produced a reply in the form of a round robin letter to my noble friend Lord Higgins. The letter stated:
"However, it seems unlikely that any Northern Ireland Assembly would want to deny the citizens of Northern Ireland the important employment rights which are available to their counterparts in Great Britain".
Legislation is very often about coping with the unlikely. If the Government blow a hole in their own Bill, I question it not once, but twice. Does the Minister have anything to add in regard to my worries on this issue? I beg to move.
Lord Astor of Hever: I commend my noble friend, with his perceptive eye for detail, on picking up this point. The Committee should be grateful to him. As my noble friend said, he raised this point at Second Reading. The Minister stated in her letter to my noble friend Lord Higgins that the Northern Ireland Assembly would be unlikely to repeal this order; but the inconsistency is there. I look forward to the Minister clarifying this point in more detail.
Lord McIntosh of Haringey: The effect of this amendment would be to allow the Northern Ireland Assembly to single out for repeal or amendment the protections contained in Schedule 3 for those entitled to WFTC and DPTC. I am puzzled that the noble Lord should want that to happen. It is extremely unlikely that the Northern Ireland Assembly would ever want to deprive the people of Northern Ireland of the protections enjoyed by their counterparts in Great Britain except in the context of a wider reform of employment rights.
Perhaps it would be helpful if I explained the intention and effect of Clause 16 as it stands in the Bill. Subsection (1) provides that WFTC and DPTC will, like tax matters in general, be excepted matters under the Northern Ireland Act 1998 and therefore outside the legislative competence of the Northern Ireland Assembly. So far, so good. But the Bill also contains the Schedule 3 provisions amending employment law. Employment law is not an excepted matter. It is a transferred matter and therefore within the legislative
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competence of the Northern Ireland Assembly. The Northern Ireland legislature has always been able to have different provisions in employment law from those that apply in Great Britain, although it has chosen, with only rare exceptions, to have exactly the same provisions.
The situation is that the Tax Credits Bill not only covers WFTC and DPTC, which are excepted matters, but also amends employment law which is a transferred matter for Northern Ireland. So a compromise was necessary and this is achieved by subsections (2) and (3) of Clause 16. It is exactly the same compromise as was reached in relation to the National Minimum Wage Act on which the provisions of Schedule 3 are modelled. The compromise is reflected in subsections (2) arid (3) of Clause 16. It enables the Northern Ireland Assembly to amend the Schedule 3 protections as part of a general amendment applying to similar protections in Northern Ireland law, but it does not allow the Assembly to single out those protections for special treatment. The effect of the noble Lord's amendment would be to allow the Northern Ireland Assembly to single out the protections for those entitled to tax credits for amendment or repeal in contrast to provisions in other comparable legislation such as the National Minimum Wage Act.
I apologise for this somewhat technical digression on Clause 16 but I hope I have persuaded the Committee that the clause as it stands strikes just the right balance between the rights of tax credit recipients throughout the United Kingdom and the right of the Northern Ireland. Assembly to amend Northern Ireland employment law as it sees fit. I hope that the noble Lord will, agree to withdraw his amendment.
Lord Skelmersdale: In introducing and explaining my amendment the Minister has done a better job than I did in moving it. I rather wish that he had moved it himself. However, he did not take the Committee much further forward. The matter that my noble friend and I addressed was that, however unlikely, the Northern Ireland Assembly could repeal its employment rights legislation. If it did so it would repeal its part of Schedule 3 to the Bill, which no one wants to happen.
I readily accept the comment of the Minister that I have tabled the wrong amendment to deal with the matter but we do not want the Northern Ireland Assembly—or do we?—to have the slightest chance of throwing out the baby with the bath water. That would be a mistake. For that reason I have pursued the matter. I shall read carefully what the Minister said. At this stage I am fairly sure that I shall have to return to the issue at the next stage of the Bill. However, at that stage it will no longer be a probing amendment. Even I cannot produce a stage three probing amendment.
Lord McIntosh of Haringey: I hope that I can persuade the noble Lord that he does not have to come back to the matter at Report stage. I did not criticise the drafting of his amendment. I thought that what the amendment intended was quite clear. I did not seek to say that the amendment was defective, but that it ignored the compromise which had been reached in other legislation between the Northern Ireland and the

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rest of the United Kingdom on employment law and tax credits. I sought to persuade the noble Lord that when there is a general change in employment law in Northern Ireland that should be a matter for the Northern Ireland Assembly because that is one of the transferred functions, but that the Assembly should not be encouraged or allowed to pick out amendments to this legislation and therefore produce an anomaly for recipients only of working families' tax credit and disabled person's tax credit.
That was the argument I sought to put. I do not expect the noble Lord to respond now, but between now and Report stage I hope that he will feel that I have made his amendment unnecessary, rather than that it was in any way defective.
Lord Skelmersdale: If I were being unkind, I would say that my suspicions deepen. However, as I said, I shall read the remarks of the Minister. In the meantime, I can do no better than beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 16 agreed to.
10.30 p.m.
Lord Freeman Lord Freeman moved Amendment No.63:
After Clause 16, insert the following new clause—
REPORT ON FIRST YEAR OF OPERATION
(". The Board shall lay before Parliament no later than 31st January 2001 a report on the performance in the first year of operation of each of the working families' tax credit and the disabled person's tax credit, setting out—

(a)the targets set for take up of each tax credit and actual performance against those targets;

(b)the comparative time for finally determining claims compared with the final year of operation of family credit and disability working allowance;

(c)the targets set by the Board for fully accurate determination of entitlement to tax credits and actual performance against those targets, and

(d)the percentage of claims which were—

(i)submitted by claimants in an incorrect form,

(ii)fraudulent, and

(iii)incorrectly determined by the Board (whether or not the determination was subsequently rectified). ")

The noble Lord said: This is a probing amendment, but I hope that it will commend itself to the noble Earl, Lord Russell, and the noble Lord, Lord Goodhart, with whose earlier comments in Committee I find myself much in agreement, in particular as regards the role of the Social Security Advisory Committee.
Noble Lords may find my amendment a poor substitute for what was argued earlier. It requires the Inland Revenue to report to Parliament and to reveal the take-up rates for the working families' tax credit and the turnaround time rates. I wish to associate myself with the comments of my noble friend Lord Swinfen. He referred to the cultural difference—a point I made earlier—between the practices of the Benefits Agency and of the Inland Revenue. That is not a criticism of the Inland Revenue; it is a fact.
In response to an earlier intervention in Committee, the Minister referred to the policy of the Chancellor of the Exchequer. The noble Baroness was right. I do not quarrel with her comments. But there is a difference between the policy of the Government and the administrative culture of a department. Therefore, the purpose of my amendment is to reveal to Parliament in due course what happens in terms of the administration of the working families' tax credit.
I should like to draw two parts of the clause to the Committee's attention. First, there is the requirement to report the take-up rate as against the target which the Inland Revenue either will have set itself or have had set for it by the Chancellor of the Exchequer. I find it disappointing that the take-up rate as reported by the Social Security Select Committee in its report of 3rd February 1999 is 70 per cent by volume. Seventy per cent of those estimated to be eligible have taken up family credit. I think that the target should be higher. That in no way implies a compromise with the importance of ensuring that there is no fraud in applications for the working families' tax credit.
In the other place on 9th March the Paymaster General is reported to have indicated—and I paraphrase—that on behalf of the Government he was assuming that the take-up percentage for WFTC would be slightly higher than for family credit. I find that disappointing. If there are people in need under the scheme, the duty of the Government and the Inland Revenue, which from 6th October will be taking over responsibility for WFTC, is to ensure that that take-up rate is improved upon. The target should be higher and I would like the Inland Revenue to report the take-up for the first full year of operation.
Secondly, I am concerned that the time taken to process such an application might become significantly greater than is presently the case for the assessment of family credit. The pre-award processing time within the Benefits Agency for family credit is on average five working days. I stand to be corrected, but that is the only statistic I can find. It bears out my constituency work experience in the other place. Five working days compared with the time that the Inland Revenue could take if the cultural practice of the Revenue is to be followed could be significantly greater by several weeks. The process is verify then refund. The principles of the Benefits Agency are process, pay, sample check and penalties where appropriate. That is a very different approach.
Therefore, I commend to the Committee a change in procedure. That is that after two weeks, for example, the Inland Revenue should process the application and ensure that it is paid and, where necessary, check afterwards. That will represent a major change in the procedure.
We need a balance between higher take-up to benefit those in need and fraud prevention. I note what the Social Security Select Committee stated in its report of 3rd February when it expressed concern that the Benefits Agency under the DSS had not in its pilot study of fraud instituted a more wide-ranging review. The figures we have to hand are alarming; almost a

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50 per cent rate of fraud or error in claiming family credit. I do not believe those statistics because the sample was far too small. However, the report of the Select Committee was published after the Bill had largely completed its passage in the House of Commons. It asked what improvements will be incorporated in the design and administration of the WFTC to minimise the risk of losses to fraud in the future. Those questions, to the extent they have not been answered by the Government, deserve answer. I beg to move.
Lord Higgins: I support the amendment. My noble friend Lord Freeman has had extensive experience in government. He is right to stress the importance of clearly appraising the way in which the new scheme will work. Throughout the debate there has been considerable doubt about the effect of the transfer from the DSS to the Inland Revenue. Indeed, during the course of the debate the DSS has received many compliments. Leaving on one side problems with computers and so forth, it has conducted its business so as to ensure that benefits reach people on a timely basis.
It is appropriate that my noble friend should suggest that if we change the system we should evaluate how successful or unsuccessful it has been in its introduction. He suggests that a full year would be appropriate.
I would like to pick up one or two particular aspects of what he suggested. He suggested particularly a target for take up. In that regard, I am still not absolutely clear whether it is the view of the noble Baroness that the take up will be higher under the new scheme than it is under the existing scheme. If that is so, it is surely appropriate to set targets in relation to the performance which we have at the moment under the DSS with regard to family credit. Perhaps she would give us some indication of the extent to which she expects the take-up under the new system to be better and perhaps even to suggest something that might be an appropriate target in that respect.
The other matter which my noble friend suggested in particular is the question of how quickly the claims will be determined. If I understand it correctly, the Government are proposing that the Revenue shall reach these assessments very quickly indeed. With regard to cash flow, if it is necessary to pay a balance in the direction of the company rather than the other way about, it will do so within a matter of three days. We certainly need in that area—and perhaps this is an extension of my noble friend's targets—to have some idea of what the situation is.
The hour is late and I will not go much further in expanding my noble friend's proposals. They seem to me to be eminently reasonable. We should not embark on the whole of this new system without being assured that the way in which it works out in practice will be evaluated after the event.
Lord Goodhart: I rise briefly to support the principle of the amendment moved by the noble Lord, Lord Freeman. It is arguable that there is a case for saying that the report ought to cover not the first year but the first 18 months of the scheme. If it covers the first year, it will only in fact cover six months of its
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operation relating to payment through the wage packet. I think that might be too short a period to enable an adequate evaluation of that process to take place. It may be that an appropriate date would be the 18 months ending in April 2001, with a report by 31st July that year rather than 31st January.
It is clear that information of the kind referred to in this amendment must be provided if Parliament and the country as a whole are to be able to do a proper evaluation of the success or otherwise of the tax credit scheme. The Government may take the view that this is a matter which can be adequately provided for by means other than an amendment to the Bill. If that is so, I would listen to their views with some respect. I hope very strongly that the Government will be able to give us an absolute assurance that, at the appropriate time, whether after 12 or 18 months of operation of the scheme, they will provide all the information referred co in this amendment.
Lord Blackwell: I too would like to support my noble friend by asking the Government to give serious consideration to this amendment. I believe there is merit in this kind of report back to Parliament after any changes of this magnitude have been introduced in this form. In this instance, I believe there is a wider interest in the application of the principle of shifting from the payment of benefits directly to tax credits. It is a principle which I imagine the Government might want to consider in other areas of policy. The particular benefit applied to direct payments has, of course, always been that there will be a higher take-up than through tax credits. Having introduced this kind of change in this specific area of policy, I consider that it would be very helpful to have a like-for-like comparison of what the take-up rates had been, so that general lessons could be learnt.
10.45 p.m.
Lord Skelmersdale: I support my noble friend. Indeed, I asked the noble Baroness last week when would be an appropriate moment at which to start probing those matters. I seem to recall that she said that, although the figures were published quarterly, it would not be practical until after a year. Therefore, the noble Lord, Lord Goodhart, rather took the words that I was about to utter out of my mouth, except that I should not be quite as generous as he was, in suggesting 31st July. I would opt for 30th June, but what is the difference?
Lord McIntosh of Haringey: I too rise to support the principle of the amendment moved by the noble Lord, Lord Freeman, because it is one for which the Government have the greatest sympathy. The noble Lord is seeking to require the Board of Inland Revenue to lay before Parliament a report after the end of the first year, setting out the various targets which it has set and the performance achieved. I agree absolutely with the spirit of the proposed new clause.
It is right that the board, taking responsibility for tax credits, should set targets and be seen clearly to monitor their performance. Every Member of the Committee

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who has spoken has confirmed that. We want to ensure that tax credits are paid quickly to the right people and at the right level. We are all in agreement about that.
The only difference that I have is in the requirement to lay a report before Parliament. That is not because I believe that the board should not do that but because it already does so. The board lays a report before Parliament every year. The report covers the aims and targets of the department spreading over all parts of its business. Clearly, in future, the report must cover separately WFTC and DPTC. That cannot simply be subsumed into the report on the operation of PAYE and the board's other responsibilities.
WFTC and DPTC will be the responsibility of the Inland Revenue, so tax credits will be included in the board's report, with figures on performance and amounts paid. The board's report is, therefore, the appropriate place to include details on the performance of tax credits.
Let us take the individual issues as set out in the amendment. First, as regards targets, the board will publish details of performance against targets set for the tax credit. The amendment refers to take-up targets. We have never declared a take-up target of that kind. The figures which the noble Lord, Lord Freeman, cited were simply a conservative assumption for statistical purposes in the Answer to a Parliamentary Question of 9th March. Obviously, we are keen to have as high a target as possible and targets are being discussed between the Board of Inland Revenue and Ministers. But we do not think it is a particularly good idea to set a target at this stage.
On paragraphs (b) and (c) in the amendment, the noble Lord asked about finally determining claims and full accurate determination of entitlement. If he means by that the position when the claim has been determined at the end of the possible appeals process—and that is the only thing it can mean—in practice, it would not be possible for the board to set meaningful targets as it has no way of knowing who or how many applicants may exercise their right of appeal.
As regards paragraph (d), the noble Lord asks about fraudulent claim. The board will certainly wish to monitor both the number of cases of identified fraud and the numbers of claim which are referred for further investigation or inquiry as part of the compliance regime for the new tax credit. The board's report to Parliament already includes details of compliance activity, and the board would expect to include details in respect of new credits in the same way.
On turn-around times, the board will publish its key operational targets for the credits and the performance achieved against those targets. It is considering with Ministers the extent to which turn-around targets are appropriate in the light of DSS experience.
The noble Lord referred to the follow-up to the fraud study. The Benefits Agency has shared the results of the pilot study and the emerging findings of the benefit fraud inspectorate with the Inland Revenue. Risk assessment is a part of the Inland Revenue's fundamental approach and a system is being designed to address the tax credits risk. The findings of both the pilot study and the follow-up
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study are helping with the design of the system, but some procedures designed for family credit will not be appropriate for working families' tax credit.
I hope that the noble Lord, Lord Freeman, will see that the targets and achievements on tax credits will be carefully monitored and reported on. The noble Lord, Lord Blackwell, is quite right that when making such a change in social policy, it is essential that there are adequate monitoring and recording procedures. In the light of what I have said, I hope that the noble Lord will feel that there is no need for this new clause.
Lord Freeman: I am grateful to the Minister and to other noble Lords for their support for this probing amendment. I shall certainly read the record carefully. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 17 to 20 agreed to.
Schedules 1 and 2 agreed to.
Schedule 3 [Rights of employees not to suffer unfair dismissal or other detriment]:
[Amendments Nos.64 to 66 not moved.]
Schedules 3 and 4 agreed to.
Schedule 5 [Use and exchange of information]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.67.
Page 26, line 43, leave out (""121F—) and insert (State)"')
The noble Baroness said: The purpose of Amendments Nos.67 and 68 is to up-date cross-references to other legislation and the purposes referred to in Schedule 5. The references are to provisions in Section 110 of the Finance Act 1997. Those provisions were recently amended by the Social Security (Transfer of Functions) Act 1999. For the information of the Committee, the provisions referred to in the schedule relate to exchanges of information between the Board of Inland Revenue and the DSS. Schedule 5 as a whole contains provisions to allow the necessary exchanges between the Revenue and the DSS to take place to ensure that the business of the two departments may proceed.
The amendments are technical and seek to ensure that the cross-references are correct. I ask the Committee to accept them. I beg to move.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.68:
Page 26, line 44, at end insert ("(supply to Inland Revenue for purposes of tax credit of information so held)")
On Question, amendment agreed to.
Schedule 5, as amended, agreed to.
Remaining schedule agreed to.
House resumed: Bill reported with amendments.

Local Authority (Stocks and Bonds) Amendment) Regulations 1999
10.53 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey rose to move, That the draft regulations laid before the House on 30th March be approved [15th Report from the Joint Committee].
The noble Lord said: My Lords, these regulations are part of a series of six that accompany the transfer of responsibility for the Central Gilts Office (CGO) from the Bank of England to CRESTCo. Their purpose is to ensure that investors in certain local authority stocks can continue to use the CGO system to transfer their holdings after the merger has taken place. They amend the Local Authority Stock and Bonds Regulations 1974 and are necessary because the 1974 regulations contain a definition of the CGO which assumes that it is the responsibility of the Bank of England.
I would not normally expect to have to trouble your Lordships with what is by any standards a routine and technical matter. However, the power to amend the 1974 regulations was repealed in 1989 when the law relating to the raising of capital by local authorities was changed. The repeal was understandable at the time but leaves the Government in the awkward position of needing to amend the 1974 regulations but not being able to use the negative resolution power under which the regulations were originally made.
The only option now is to use the wide-ranging powers to amend the law relating to security settlement which the Treasury has under Section 207 of the Companies Act 1989. Because these powers are wide ranging they are quite properly subject to the affirmative resolution procedure. I am pleased to be able to say, however, that the regulations themselves are mercifully short and simple and seek to do two things only. First, they omit a definition of the CGO which will be redundant after the merger; secondly, they amend the definition of those who are entitled to use the CGO service to one that is consistent with it being the responsibility of CRESTCo. I commend the regulations to the House.
Moved, That the draft regulations laid before the House on 30th March be approved. [1.5th Report from the Joint Committee]. —(Lord McIntosh of Haringey.)
Lord Higgins: My Lords, there is no limit to the versatility of the noble Lord, Lord McIntosh of Haringey. At the beginning of business today he was discussing whether or not 70 year-olds should be allowed to hire cars. He concludes with these regulations having survived a large number of exchanges in the course of the day. Indeed, I am beginning to wonder who was responsible for the regulations in 1974. It depends where they were in relation to the general elections of those days. I myself may have been responsible.
I have one or two points to put to the noble Lord. Essentially, as 1 understand it, the regulations transfer responsibility for these matters from the Bank of England to CRESTCo Limited. I am not clear what the
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statutory status is of CRESTCo as against the Bank of England, which obviously has a unique position. But what concerns me particularly—it is always helpful when the explanatory note is longer than the order itself—is that the arrangements made effectively switch the transfer of these stocks from a situation where they may be transferred in writing to one where they are transferred by computer. I believe that that is one of the implications of the regulations. If so, one should be a little concerned, given all the problems associated with the millennium bug.
Many problems may arise in that context. If the only record of whether a stock is owned by a specific organisation or person is on a computer, which may go wrong at the millennium, many difficult questions are raised. If that is so, is there a case for at least some written record to he printed out of the computer just ahead of the year 2000? That is my only major concern. Other than that, the noble Lord referred to six other orders. Perhaps he can give some indication of what they are going to cover.
Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord for his comments. CRESTCo is the corporate security settlement service which was recommended by the Bank of England security settlement priorities review and received near unanimous support from the market. The Government were not involved in the setting up of the Central Gilts Office and legislation necessary to facilitate its setting up was not expressed in terms which required a continuing operational involvement by the Bank.
CRESTCo is a recognised clearing house under the Financial Services Act 1986 and is the operator of the relevant system approved under the uncertificated securities regulations of 1995. The public interest in CRESTCo is catered for by the appointment of Mr. Mike Williams, the chief executive of the debt management office, and Mr. Alastair Clark, an executive director of the Bank of England, to the board of CRESTCo.
The noble Lord referred to the fact that the settlements tend to take place by computer nowadays and the consequent risk of the millennium bug. I can assure him that hard copy records will be maintained. I am not saying that nothing will go wrong; I never say that about the millennium bug. But the noble Lord's specific fear about the lack of hard copy is covered in the plans.
Does the noble Lord really want me to read out the other five orders? They have terribly complicated names. They were listed in the House of Commons procedures on 21st April which the noble Lord can inspect if he so wishes. I commend the regulations to the House.
On Question, Motion agreed to.
House adjourned at eleven o'clock.