Tax Credits Bill

HL Deb 04 May 1999 vol 600 cc550-617

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 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 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 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.

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 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 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.

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.

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.

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.

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 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 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 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 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 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 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 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 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.

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.

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 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 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 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 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, 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.

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 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 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 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 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 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, 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 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 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 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 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 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, 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.

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.

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.

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 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

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

On Question, amendment agreed to.

[Amendments Nos.33 and 34 not moved.]

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 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.

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 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.

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.

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.

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 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 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.

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 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 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 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 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 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 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 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.

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 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 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 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 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 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 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 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.

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 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.

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 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 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) 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.