Ministers: Income Tax and Benefits (Hansard, 18 May 1999)

§ Lord McIntosh of Haringey
My Lords, as the noble Lord will understand, I am not in a position to comment on the particular tax or benefit circumstances of individuals. But Ministers who draw salaries are liable to pay tax on them. Some Ministers will also receive universal benefits such as child benefit.

§ Lord Saatchi
My Lords, I have come directly from a debate organised by the Centre for Policy Studies 144 where some of our most distinguished economists and academics have been studying the subject of my Question which is to consider the massive overlap between tax and benefit payments. Under the present system the Government collect between £30 billion and £40 billion in income tax and national insurance contributions from around 17 million households whose incomes are less than £20,000 a year. The purpose of my question is to ask Ministers whether they believe it is bizarre that the Government first tax people on low incomes—I believe there are 14 million people who earn less than £10,000 a year but who still pay tax—and then, having so taxed them to reduce their income, they satisfy themselves by means testing that income that those people are in need—

Noble Lords
Question!

§ Lord Saatchi
The Government then provide those people with a range of benefits to restore their income back to the level it was at before they paid the tax. Do the Government agree that that is an absurd system?

§ Lord McIntosh of Haringey
My Lords, unlike my noble friends I detected a question in there! I do not accept that the position is absurd or bizarre. For a number of years taxation has been levied generally on an individual basis. Benefits are quite properly awarded according to family circumstances. Under those circumstances it would be quite impossible to have a streamlined system which brought the two together, much as that may seem desirable to the tidy minds of the Centre for Policy Studies.

§ Baroness Carnegy of Lour
My Lords, does the Minister agree that even now the Government are increasing the expensive recirculation of money paid by taxpayers and then paid back to them in benefit? Do the Government accept that the working families' tax credit legislation will return a taxpayer's money even if he has in certain circumstances an income of £37 a year? Money will be returned to him in the form of tax credit. Is that really a cost-effective way of developing the national insurance and taxation system? I believe that the figures have been agreed by the Minister's noble friend Lady Hollis during the passage of the Bill.

§ Lord McIntosh of Haringey
My Lords, on the contrary, many government policies serve to reduce the amount of money that passes backwards and forwards. As regards the Tax Credits Bill steps have been taken to cancel out the passage to and from the Inland Revenue and the taxpayer. Indeed the Conservative Opposition have tabled amendments which would increase the amount of money passing to and fro rather than the "netting out" principle which has been adopted in the Tax Credits Bill. Therefore the noble Baroness is 100 per cent wrong.

§ Lord Pearson of Rannoch
My Lords, has the Minister read the report, The War of Independence, to which the Question of my noble friend Lord Saatchi 145 relates? Is he aware that that report does much to demolish the wisdom of the position that he put forward in his reply to my noble friend?

§ Lord McIntosh of Haringey
My Lords, it is a very long report. I have read what I can. We did not find the conclusions at all convincing. The comparisons made between the 1950s and the 1990s seem to be unclear and unrealistic. In effect they could damage those who need help the most. If the noble Lord's party is of the opinion—I invite the Opposition Front Bench to confirm whether or not it is the case—that we should no longer have taxation taken from individuals and no longer have benefits directed to families in need, they should say so. They have not yet done so.

§ Lord Higgins
My Lords, on the point made by the noble Lord a moment or two ago—we can return to the broader issues that have just been raised later in the day perhaps on the Tax Credits Bill—is it not the case that the Government are extending social security benefits—namely, the working families' tax credit—to people with incomes of more than £35,000 a year, while at the same time they are reducing people's benefits on the ground that they have capital of only £6,000 a year? Is not that combination quite absurd?

§ Lord McIntosh of Haringey
My Lords, the noble Lord. Lord Pearson of Rannoch, should note that his Front Bench disowns the proposition that he put forward. In reply to the noble Lord, Lord Higgins, no, that is not the case. What was previously a benefit is now being included in the tax system. The purpose of that is to encourage people into work. I believe that the vast majority of people in this country will believe that that is a worthy objective.