Tax Credits Bill

HL Deb 24 May 1999 vol 601 cc713-68

8.10 p.m.

Baroness Hollis of Heigham

My Lords, I beg to move that the Bill be now further considered on Report.

Moved, That the Bill be further considered on Report.—(Baroness Hollis of Heigham.)

On Question, Motion agreed to.

Lord Higgins moved Amendment No. 15:

After Clause 5, insert the following new clause—

PASSPORTED BENEFITS

(" . Recipients of a tax credit shall be entitled to the benefits to which claimants of family credit and disability working allowances were entitled under the National Health Service (Traveling Expenses and Remission of Charges) Regulations 1988 as they had effect immediately prior to the coming into force of this Act.")

The noble Lord said: My Lords, it may be for the convenience of the House if, in moving Amendment No. 15, I speak also to Amendments Nos. 30 and 31. I believe that originally they were grouped separately, but that it would be helpful to discuss the three amendments together as they are in many respects similar.

Much of the subject matter which arises with these amendments was discussed at col. 237 on 18th May when I suggested by way of an amendment that the consideration of the Bill on Report should be deferred until we were given more information on the Government's intentions with regard to the provision of passported benefits. I had hoped that as a result of tabling that amendment it would be possible for the Government to reach some conclusion with regard to what they propose to do on passported benefits. We have made some progress. I must at this point congratulate the noble Baroness, Lady Hollis, on her birthday as I did not have the opportunity to do so earlier this afternoon.

Baroness Hollis of Heigham

My Lords, I thank the noble Lord for his comments. As a birthday present, I should like to have no Divisions tonight. I hope that we shall also go home early.

Lord Higgins

My Lords, I am not sure that I can give that undertaking, but I hope that we can make reasonable progress in the light of the replies given by the noble Baroness on this happy occasion.

The words the noble Baroness originally used in Committee were that we would return to this issue before the Bill left Parliament. We seem to have made some progress in as much as she has stated clearly that the position will be made clear by the time we reach Third Reading. However, I in no way go back on what I said earlier; namely, that it is deplorable that the House should still be uncertain as to the position on this issue months after the Bill was originally introduced. I do not accept the point which the noble Baroness made on previous occasions; namely, that this is not an important aspect of the Bill.

When passing any legislation, the House must necessarily consider the repercussions of changes. What appears to have happened here is that the Government are moving from family credit to working families' tax credit, but it is not the least bit apparent, even now at this late stage, what the position will be with regard to those benefits which previously have been received automatically under the old scheme by those who are entitled to them. It is not clear to what extent they, or indeed new claimants, will receive those benefits in future under the system which is proposed in this Bill. We believe that it is important that that situation is clarified and that the House should have an opportunity to express a view with regard to the solution which the Government will eventually produce.

It is said, on almost every issue of moment in this House, that if something seems to be wrong we have a duty to ask the other place to think again. On this occasion, the other place has had no opportunity to consider the appropriateness of the Government's proposals. Members of the other place have put forward their own views, but they have not been able to comment on the Government's position. It is not even clear whether any passported benefits will be obtainable automatically under this Bill, or whether or not they will be means tested.

Having said all that, I understand that the noble Baroness is still no more able to give us any further guidance on what the Government's intentions are than when we met on the first day of Report stage. It is likely that the Third Reading will take place soon after we return from the Whitsun Recess. Therefore, we shall have little opportunity to frame any amendments. It is important that the Bill should be open to amendment and that the House should be able to express a view on whether what the Government propose is or is not satisfactory.

Earlier in our debates the noble Lord, Lord Goodhart, suggested that the Government might—as they have commendably done on a number of other occasions—put forward specific statutory instruments in draft which we would consider. It appears that that will not now be possible. Does the noble Baroness envisage that by the time we reach Third Reading draft statutory instruments will be available on which we can comment? If they are satisfactory, that is the end of the matter. However, if they are not satisfactory, the position becomes more difficult because one cannot amend a statutory instrument.

I have another point which I hope the Minister can clarify at this stage as that would be helpful. She has laid great stress on the difficulty of obtaining interdepartmental agreement between Ministers, or indeed—as far as one can gather—between officials. I believe that she mentioned six or seven departments. Which departments and which benefits are involved? I have experienced some difficulty in "totting up" the number of departments that are involved and equating that with the number that she mentioned. Some of the departments come under the Department of Health and others come under the Home Office. It would be helpful to know exactly which departments will be involved.

These are probing amendments. They have been tabled in the hope that we shall obtain a little more information on the Government's intentions before we reach Third Reading. I beg to move.

8.15 p.m.

Lord Goodhart

My Lords, I support the noble Lord, Lord Higgins. We debated this matter at some length on the first day of Report stage. It is clearly unsatisfactory not to know the position until Third Reading when there is no possibility of tabling an amendment to discuss the subject. As I understand it, we shall not have draft regulations before Third Reading. We may simply have to grin and bear it in the circumstances. Nevertheless, this is not a satisfactory situation. I hope that it will not happen again.

Baroness Carnegy of Lour

My Lords, with regard to our discussion in this Chamber on a previous occasion, it seems to me that noble Lords on this side of the Chamber are not, as I fear the noble Baroness suspected, simply trying to be difficult and to be awkward legislators. We are thinking about the individuals whom this Bill will affect and the Government's aim of trying to ensure that people see that work pays. However, they will not see that work pays if some benefits which they have received under the family credit scheme may no longer be payable. The working families' tax credit may then be worth less to them. We need to know as much as possible about this matter.

If the noble Baroness cannot answer my next point now, I hope that she can give me the answer at Third Reading. What will be the position with regard to the Scots Parliament, to which health is devolved and therefore—I take it—the matter of funding free prescriptions? How will it know the amount for which it will have to budget if it does not know what the Westminster Parliament is doing from day to day about working families' tax credit? That could create an awkward situation for the Scottish Parliament. I may be wrong. There may be some interlinking of which I am not aware. Presumably the Scottish Office is one of the departments that is being consulted. Perhaps the Minister can tell us.

The Scottish Parliament is not yet in a position to make decisions and has not had time to consider its budget. Supposing that a decision is made in relation to working families' tax credit that involves Scottish Parliament expenditure. How will that legislature know how to budget? It would be helpful if the Minister could tell the House, or write to me.

Lord Swinfen

My Lords, when this subject was last raised, the Minister said that she could not answer for other departments. I remind her that Ministers in this House speak for the Government, unlike Ministers in the other place who speak only for their own departments. That is something of which the noble Baroness used to remind Ministers in the previous administration.

Baroness Hollis of Heigham

My Lords, I did not say that I could not speak for other government departments but that because it was a matter for other government departments, I was not yet in a position to inform the House of the proposal. That is entirely different. The noble Lord, Lord Swinfen, should know better than to misrepresent my words.

Lord Swinfen

My Lords, I accept what the noble Baroness says, but this House has not had the opportunity properly to discuss the matter, which means that Members of the other place have not done so either.

We must put some form of amendment into the Bill before it returns to the other place so that its Members have the opportunity to discuss the proposals.

Baroness Hollis of Heigham

My Lords, I acknowledge, as I did a week ago, that this matter is of concern to your Lordships, who will recognise that the issue is complex. The Government are committed to providing help through the low-income scheme to those who need it. Replacing family credit and disability working allowance with WFTC and DPTC represents a major policy shift in the target group for, and delivery of, in-work support. It raises the question of whether tax credits continue to be an appropriate means of identifying the target group for other benefits such as the low-income scheme. There is no longer such an obvious alignment between family credit as an indicator of low income and the recipients of benefits through a low-income scheme. The Government have given careful consideration to that question and how any change to the current passporting arrangements might work in practice.

I cannot go further than I did a week ago when I made it clear that we will be coming back to the issue at Third Reading, not on the second day of Report stage. The Government have no wish to discourage your Lordships from having the opportunity properly to debate the proposals. I reiterate the commitment to set out the Government's intentions on Third Reading and I am happy to take a relaxed view of the discussions at that point on that issue. That will give the House the opportunity to discuss our proposals.

Amendments are not necessarily appropriate because it is not appropriate that this is part of the primary legislation. Like the noble Lord, Lord Goodhart, I doubt that draft regulations will be ready in time. Nonetheless, that will not stop your Lordships, when you see fit, seeking to debate the regulations in due course.

The noble Baroness, Lady Carnegy of Lour, and the noble Lord, Lord Higgins, asked about the array of passported benefits and the interrelationship between the territorial departments. Apart from passporting on to free prescriptions, which is the biggest item in terms of the cost to government, recipients of family credit are otherwise currently entitled from the Department of Health to welfare foods, such as cheap baby milk; cheap home insulation, which is a matter for the Department of the Environment, Transport and the Regions; legal advice and assistance, which is a matter for the Lord Chancellor's Department or its Scottish equivalent; the remission of court charges, which is also a matter for the LCD; help with travel costs for prisoners' wives, which is a matter for the Home Office; and maternity and funeral grants, which are matters for the DSS.

Given that all those passported benefits have different implications for the territorial departments, it would be more appropriate for me to write to the noble Baroness, with a copy to the noble Lord, setting out the arrangements for each of them.

I am sure that there will be adequate and appropriate time for discussion on Third Reading, and in light of that, I hope that the noble Lord will withdraw his amendment.

Lord Higgins

My Lords, one understands the difficult position in which the Minister finds herself, but so does the House. This is not in any sense a partisan matter. If the outcome from the Government i s satisfactory, there will be no problem, but it is important that the House should have the opportunity to discuss and, crucially, to amend whatever the Government propose because that will be the consequence of the change from one system to another.

I had some difficulty getting the number of departments up to six. I identified the Department of Health, the Home Office and the DSS. Presumably they include also the Inland Revenue—although, understandably, the Minister did not mention that department.

Baroness Hollis of Heigham

My Lords, then there are Scotland, Wales and Northern Ireland.

Lord Higgins

My Lords, in which case the House will be grateful to my noble friend Lady Carnegy of Lour for her comment about devolved responsibilities. Unless I misunderstood the Minister, she did not say whether responsibilities would be devolved.

Baroness Hollis of Heigham

My Lords, given the six or seven different passported benefits and the seven or eight government departments if Scotland, Wales and Northern Ireland are included separately, each has different arrangements and reserve matters. I thought it would be more helpful to write to the noble Baroness, with a copy to the noble Lord.

Lord Higgins

My Lords, that is an important point. As the noble Baroness did not give a categoric reply one way or the other, my understanding is that some responsibilities will be devolved. I do not know which. No doubt we shall discover that in the Minister's letter. If some responsibilities will be devolved, presumably any decision that this House makes on, for example, prescription charges, would create one situation in Scotland and another elsewhere.

We are all in new territory as far as devolution is concerned. But am I right in thinking that some decisions on passported benefits will not necessarily be the same in England as in Scotland, if the Scottish Parliament were to take a different view from that taken in this House with regard to England?

One hopes that the Government will come forward with statutory instruments. It seems extraordinary that at this stage the Government are still not ready. I do not go along with the noble Lord, Lord Goodhart, with whom we are otherwise much in agreement, that we must grin and bear it. If we do not like what the Government propose, we shall have to consider moving and voting on an amendment that will take the matter back to the other House, so that there is time to consider the Government's proposals. That would seem only fair in the circumstances, given the dilatory way in which the Government have been moving. Subject to that—unless the noble Baroness wishes to intervene on the particular point I have made—I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.30 p.m.

Lord Higgins moved Amendment No. 16: After Clause 5, insert the following new clause—

PUBLICATION OF TARGETS

(" .—(1) The Board shall publish annually targets for the speed and accuracy with which claims are to be processed and payments are to be made.

(2) Targets published under subsection (1) above shall include targets for—

1. (a) the speed and accuracy with which initial claims are to be processed and paid by the Board;
2. (b) the speed and accuracy with which renewal claims are to be processed and paid by the Board;
3. (c) the speed and accuracy with which claims are to be processed and paid by the Board where the employer has failed to make a payment;
4. (d) the speed and accuracy with which claims are to be processed and paid by the Board where the claimant is involved in a trade dispute lasting more than one pay period.

(3) The Board shall publish annually a report showing how it has performed against the previous year's targets set out in subsection (1) above.")

The noble Lord said: My Lords, I beg to move Amendment No. 16, which stands in my name and that of my noble friend Lord Astor of Hever. We have not previously considered the amendment, which reflects concerns that have been expressed outside.

The amendment seeks to set fairly specific targets for the Government so far as concerns the way in which the Inland Revenue carries out with speed and accuracy the tasks imposed upon it by this legislation, particularly the way in which claims are processed and payments made. A fairly major change will take place when the responsibility passes from the DSS to the Inland Revenue. Perhaps the noble Baroness will confirm that I am right in saying that the computer arrangements and the staff involved, with some augmentation—new members of staff will need to be trained—will be transferred directly from the DSS to the Inland Revenue. In that context, I am not clear whether their location will also be changed or whether they will stay physically in the same place, albeit with expanded accommodation.

One cannot help but feel that, in some respects, speed and accuracy are not likely to be improved as a result of the change. To give credit to the Department of Social Security—if not to its computer system—one recognises that, at the moment, family credit payments seem to arrive fairly much on time, unlike some other social security benefits. The speed of the Inland Revenue—its fleetness of foot, one might say; perhaps I should not say that in my present circumstances—is not remarkable. Very often one finds Inland Revenue payments and adjustments being carried out years after an event.

The amendment proposes that targets should be published so far as concerns these various matters. That proposal is very much supported by outside bodies such as the National Association of Citizens' Advice Bureaux. Targets should be set not only with regard to initial claims, but particularly with regard to renewal claims—as the amendment makes clear—and to the speed with which the department deals with problems when an employer has failed to make a payment. That problem does not arise at the moment because payment is made directly. If the Government remain adamant that payment is to be made by the employer, we should have targets in order to check that it is being done speedily. One particular problem which has been drawn to our attention concerns the making of claims during a trade dispute.

As I understand it, there are existing targets for payments in some of the Benefits Agency's various operations. Indeed, in some cases they are quite tight targets which historically have been met. In short, while the CAB and others draw to our attention significant delays in the present arrangements, one cannot help but feel that both in the transitional period, and perhaps in the longer term, matters will be not dealt with as they have been previously. As there are already targets, I hope that the amendment will be acceptable to the Government.

I have two final points. First, apparently there is already a considerable backlog as far as concerns Benefits Agency payments. I am not referring to pensions and so on, but to a more general backlog. Perhaps the noble Baroness can give us some indication of that.

Baroness Hollis of Heigham

My Lords, I am a little puzzled. The noble Lord said that it was not a backlog of benefits. Clearly, we are not talking about a backlog of appeals or of compensation. What backlog did the noble Lord have in mind?

Lord Higgins

My Lords, as I understand it there is a backlog with regard to payment of the existing benefit which the working families' credit will replace; namely, family credit. If that is not so, I am quite prepared to accept the noble Baroness's assurance.

Baroness Hollis of Heigham

My Lords, that is not SO.

Lord Higgins

My Lords, I am quite happy to accept that.

I wish to raise one further point. The Inland Revenue's plans have been published and it has suggested that it might not be possible to arrange payment promptly because an employer may not have the money, a point to which we shall no doubt return later. Generally speaking, one hopes that the Government—mindful of the difficult circumstances of many of those receiving working families' tax credit and disability benefits and so on—will introduce a system of targets. If the Government do not like the targets suggested in the amendment, perhaps they will suggest something more quantitative at a later stage of the Bill.

Lord Skelmersdale

My Lords, my noble friend has put flesh on the bones of a question which was asked in Committee but not answered. I made the point that the Inland Revenue currently takes a number of weeks to get someone off the PAYE emergency code on to his proper code. In extreme cases, that can take between six and eight weeks. That does not bode well for the transfer of family credit to the Revenue.

I should like to make two points. First, how quickly is family credit paid to a recipient at the moment? Let us imagine, for example, that I was unemployed and that I went for an interview and was accepted for a job starting on, say, Thursday week, and I then filled in the form for family credit and sent it off. Assuming, of course, that the application was accepted—which goes without saying—when could I realistically expect my first family credit payment to be made?

Secondly, does the noble Baroness expect any changes in payment times to occur as a result of the changes made in this Bill in transferring the responsibility from the Department of Social Security to the Inland Revenue? As I said, the precedents are not terribly good.

Baroness Fookes

My Lords, I support the amendment. First, it is very important for recipients of the benefit to know that they will get a quick and good service. It seems to me that the setting of targets is a very good way of making those responsible for the payments sharpen up their act and ensure that there are no delays. Most of us are able to point to previous delays in various matters by the Inland Revenue; the precedents are not good.

Secondly, today the Government have announced their intention to bring forward a freedom of information Bill. It seems to me that this kind of information falls very neatly into the categories where one would expect more open government.

Lord McIntosh of Haringey

My Lords, the amendment provides that the board shall publish annually targets for the speed and accuracy with which various categories of claims are to be processed and payments are to be made and shall publish annually a report showing how it has performed against the previous year's targets. We are fully in sympathy with the concerns behind the new clause and we agree absolutely that it is right that the Inland Revenue, in taking responsibility for the new tax credits, should not only set targets for its performance in key areas but should also be open to scrutiny as to how well it measures up to those targets. The success of the tax credit scheme will depend very largely on the speed and accuracy with which the Revenue gets the tax credits to the people entitled to them. It is only right that these matters should be in the public domain. So I have no hesitation in giving noble Lords the assurance that they seek that the board will be publishing details of key operational targets and of the performance against the targets set for working families' tax credits and disabled person's tax credit.

We are considering at the moment what the targets should be. Again, I can assure noble Lords that the concerns expressed in the debate will help the Government's deliberations about the priority to attach to different areas of work on tax credits and how best to ensure that the Inland Revenue's performance reflects those priorities. In particular, I think that the point made by the noble Lord, Lord Higgins, about initial claims and renewal claims is a valid one which ought to be considered for inclusion in the targets to be published.

The noble Lord, Lord Skelmersdale, asked about the processing time. The intention is that the processing time should be five days and that the payment could be made on the Tuesday a week after the claim has been made. The noble Lord will be reassured to be reminded that once a claim has been processed it stays at the same figure for 26 weeks, so there is some security in that sense.

We are also taking account of the point made by the noble Lord, Lord Higgins, about an employee who is involved in a trade dispute. If it lasts for less than a whole pay period, the employer will pay the full amount of tax credit due even though the pay might be reduced because of the dispute. If it lasts for the whole of a pay period or longer, the employer will not be expected to pay the tax credit but must, as soon as possible, provide the employee with a certificate of payment showing the amount of tax credits paid and the period they cover. The employee will be responsible for passing that to the Inland Revenue, which will then pay the tax credit direct to the employee until informed by the employee that he or she has returned to work. We are already giving detailed consideration to what targets and what measures of speed and accuracy will be involved. We are grateful to those noble Lords who have participated in this debate for pointing out particular cases.

As for reporting on performance against any targets which the Government set, the subject of the third part of the amendment, I am glad to confirm that the board will, as a matter of course, be reporting on how well the tax credit targets are being met. The board already lays before Parliament an annual report covering the aims and targets of the department in all the areas of its work. That will include working families' tax credit and disabled person's tax credit and those will be reported separately because the tax credit office will be a separate division within the Inland Revenue. The board's report is the appropriate place for setting out both targets and performance in relation to tax credits. I hope I have persuaded your Lordships that there is no need for another report as is called for in the amendment and therefore that noble Lords will not seek to press the amendment.

8.45p.m.

Lord Skelmersdale

My Lords, before the noble Lord sits down, if he expects that the Inland Revenue or the separate division of the Inland Revenue dealing with tax credits will be able to act on them within five days, why does it take six to eight weeks for an emergency code to be translated into a real code?

Lord McIntosh of Haringey

My Lords, it is reasonably well accepted that the existing family credit is paid fairly well up to date. It is the family credit staff who are being transferred to the Inland Revenue who will be responsible for these payments. On behalf of the Government, I do not accept any criticism about emergency tax codes, but I do suggest that that is outside the scope of discussion on the Bill.

Lord Higgins

My Lords, the Minister was doing extremely well until the very last minute. One of the reasons why I was prompted to move the amendment is the number of cases in which the time for payment has amounted to six weeks or three months. I accept that that may not be typical, but it was important to raise the matter. The Minister has given a very forthcoming reply. I am a little worried that this kind of report may be buried in the department's annual report. He said that the information will be set out separately, which is of some advantage. The way in which departmental reports are now produced, which is due of course to the activities of the previous government, is vastly better than it was before. From years on the Treasury Select Committee, I know that we have made a good deal of progress there, but it is important to have this information, particularly for the transitional period.

I have one final point to make. Concern has been expressed about what will happen when industrial disputes occur and industrial relations are not likely to be at their best. It may be difficult for someone who is in fear of losing his job to bring to the attention of the authorities the fact that he has not been paid on time. No doubt the noble Lord will wish to consider that point.

This is the first amendment to which I have actually had a forthcoming reply in the sense of seeing movement. I think that we are making progress. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 [Payment of tax credit by employers etc.]:

Lord Higgins moved Amendment No. 17:

Page 4, line 4, at end insert— ("( ) Regulations under this section shall not provide that an employer shall pay tax credits to an employee unless he has received, either directly or by way of deduction from remittances which he is otherwise obliged to pass to the Board, finance to pay the tax credit.")

The noble Lord said: My Lords, this is a rather inelegant amendment, for which I must be held responsible. We are saying that we should not have regulations which require an employer to pay tax credits to an employee if he has not received the money which he will pass to the individual employee. Earlier in our proceedings we discussed at some length the whole issue of cashflow and so on. I do not wish to delay the House any longer on that point. Perhaps I may therefore use the amendment to ask the Minister whether the Government accept that it would not be appropriate for the regulations that will implement the proposals in the Bill to require the employer to pay money to an employee if, either by way of changes in the specific remittances made to the company or by way of deducting from the positive cashflow that the employer has already received as a result of collecting PAYE and NICs, the employer has not received it. I beg to move.

Baroness Carnegy of Lour

My Lords, this is an important matter to which it is well worth returning. The CBI and the representatives of small businesses are worried. One of the reasons for their worry is the wording of Clause 6(5)(d). It states: for the funding by the board of tax credit paid or to be paid by employers (whether by way of set off against income tax or national insurance contributions for which they are accountable to the Board or otherwise)". It has been pointed out by the CBI that where there are a number of low paid people in a smaller business the amount of tax they pay is often considerably less than the working families' tax credit would be. That could mean that they would be in deficit for a while until they received money from the board. This point has been answered in different ways at different stages already, but I would be grateful if the noble Lord would make it very plain that in fact employers will not be in deficit on this. They really are concerned about the point because they fear that they might be paying money to the recipients which they will have to fund themselves. I hope that we shall get a very clear and unequivocal answer on this.

Lord Swinfen

My Lords, I should also like to support this amendment. It is extremely important that this amendment, or something similar, is put into the Bill for those firms, no matter how large they are, which are operating very close to being profitable or unprofitable. If they find they are having to fund tax credits out of their own pockets it could just push them over the edge into unprofitability. That in the long run could lead to large numbers of people becoming unemployed.

Lord McIntosh of Haringey

My Lords, I do not at all complain about any inelegance in the amendment to which the noble Lord, Lord Higgins, referred. I complain about myself, because obviously I did not make myself clear at the Committee stage. I thought I had given the most complete and absolute assurance that the circumstances which the amendment supposes would not actually arise. So I was rather surprised to find the amendment on the Marshalled List again. However, I must try again. The amendment provides that an employer would not pay tax credit to an employee unless he had received direct funding from the Inland Revenue or indirect funding by setting off the tax credits against the amount he was due to pay to the Inland Revenue: presumably PAYE, national insurance contributions and any student loan repayments.

This is exactly what is already provided for in Clause 6(5)(d) of the Bill, to which the noble Baroness, Lady Carnegy, referred and in the draft Payment by Employer Regulations. Therefore an amendment of this kind is completely unnecessary. The phrase, "paid or to be paid" simply reflects the fact that the funding is either direct or indirect but it is still funding, and funding in advance. No employer is required to pay any money in the form of tax credits which is not already to hand either in the form of his setting off against the amounts due to be paid to the Revenue or in the form of direct funding.

Let me tell your Lordships again about the way in which employers will receive funding to pay tax credits. All employers who will be asked to pay tax credits through the payroll will already be operating a PAYE scheme and so they will all have some PAYE or national insurance contributions liability to the Revenue. In addition, some employers will be deducting student loan repayments from their employees' pay and they will be responsible for paying these amounts also to the Revenue. Therefore the draft Payment by Employer Regulations provide for employers to set off any tax credits they have to pay against their total tax, national insurance contributions or student loan liability. When they are paying over PAYE, NICs and student loan recoveries to the Inland Revenue they will simply reduce the total by the amount of tax credits they have paid.

This mechanism is explained in the Inland Revenue booklet on Working Families Tax Credit and Disabled Persons Tax Credit and is clearly set out in draft Regulation 6 of the Payment by Employer Regulations. Of course we recognise that some employers will not have a large enough liability to the Inland Revenue to cover the tax credits that they have to pay. Such employers will be able to apply for funding from the Inland Revenue in advance. So the Inland Revenue will provide funds where they are needed to ensure that employers are not out of pocket. Draft Regulation 7 covers the arrangements for advance funding.

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 is being asked to pay tax credits for the first time. From January 2001 onwards the forms will be included in the Inland Revenue's annual employer's pack. If any of your Lordships have been employers and have seen this pack you will know that it is a weighty one. All employers will be prepared in case they need to apply for funds. I hope it is clear that the Government have no intention of asking employers to dig into their own pockets in order to pay tax credits.

I have been asked what happens if the employer has no money to pay the tax credits. The noble Lord, Lord Swinfen, in particular talked about a firm which is on the brink. Employers of course will have a duty to see that the money is available on pay day, and when they are notified to start paying tax credits they will need to do two things. First, they will have to make arrangements as soon as possible to pay tax credits, ensuring that the person processing the payroll has all the tax credit information that is needed. If they have any doubts they will have to check that there will be enough money available to pay the tax credits, and apply for Revenue funding if necessary. As soon as it is clear that the money will not be available, the employer must tell the Inland Revenue and in certain circumstances—in other words when it is necessary—the employer may step in to ensure that the payments are maintained. We are not talking a very large number—

Lord Skelmersdale

My Lords, I am sorry to interrupt the noble Lord but surely he has got that wrong. It is not the employer who has to make certain: it is the Inland Revenue which has to make certain.

Lord McIntosh of Haringey

My Lords, I am grateful for that correction. Yes, of course, the Inland Revenue may step in to ensure that payments are maintained. We are not talking about a very large number of employers. Our estimate is that between 50,000 and 70,000 employers throughout the whole country will have to receive funding because their payments on PAYE, NICs and student loan recovery will not be enough to cover the tax credits. But even in those cases there is no question of employers digging into their own pockets, and this amendment is not necessary.

Baroness Carnegy of Lour

My Lords, before the noble Lord sits down and with the leave of the House, can he tell us how accurate employers are going to have to be in assessing the money they will need? This is one of our great concerns. The noble Lord said that if an employer reckons he is going to be out of funds for paying the working families' tax credit: he will be able to apply for more money. Will he have to prove in detail what he requires or can he make a general assessment? I hope the noble Lord will be able to tell us that because it is quite important to individual employers, especially small ones.

Lord McIntosh of Haringey

My Lords, the employer will get from the Inland Revenue all the calculations: these will all have been done by the Inland Revenue and so the employer will get a single figure. He will know how many employees it applies to and it will be very straightforward for him to calculate how much he will have to pay out in tax credits. I have dealt with a payroll for many years and one of the easiest things to calculate month by month is the amount that you have to pay out in PAYE and national insurance contributions. It is in a book with 12 monthly pages. You keep a record on the inside front cover of what you pay out, and I can assure your Lordships that every employer knows exactly what he is paying out. He will have no difficulty in assessing whether the cashflow benefits that he gets will cover the tax credits.

Lord Swinfen

My Lords, before the noble Lord sits down, if the Inland Revenue needs to step in to provide funding, how long will that take?—because if the employee is paid on a weekly basis he will want to paid at the end of that particular week.

Lord McIntosh of Haringey

My Lords, the employer must make the application in time, and it depends on whether his staff are paid weekly or monthly. Provided he makes the application within the time specified in the regulations he will get the money on time.

Lord Higgins

My Lords, the House will understand that the noble Lord is overcome with nostalgia for his previous calculation of PAYE forms. I always found it extraordinarily difficult, but obviously he is much better at these matters than I am. The noble Lord has given a clear undertaking on the basis of the amendment and confirmed what he said previously. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 18 had been withdrawn from the Marshalled List.]

Lord Astor of Hever moved Amendment No. 19:

Page 4, line 7, at end insert— ("( ) for the funding by the Board of an additional sum (calculated as a percentage of the tax credit paid by an employer) to be set off (as provided in paragraph (d)) by, or paid to, employers or any category of employers by way of compensation for the administration cost of paying tax credits;")

The noble Lord said: My Lords, in moving Amendment No. 19 I should like to speak at the same time to Amendment No. 20. These are probing amendments which will provide the House with the chance to debate the administrative burdens of the WFTC on business and to hear the Minister's reply—I am not certain who is to respond to the debate—in the light of a recent and sensible comment by Jack Cunningham. In a speech to the Social Market Foundation on the new government approach to regulation and reform of the Regulatory Impact Unit, he said that, government must be more realistic about how much time small businesses have to cope with regulation".

He went on to say, small firms need to be able to concentrate on running their business and securing new work".

He was determined that, the Government's new approach to regulatory control will take account of small firms' concerns".

Small firms are concerned at the administration costs of paying the credits, and I hope that the Minister will take account of their concerns. The time and paperwork involved in being unpaid tax collectors are ever-increasing and weigh disproportionately on small firms. These amendments would allow for small firms to be reimbursed their costs, which is commonplace on the Continent.

Amendment No. 20 proposes the 'funding of the costs of employers of less than 500 employees. We have chosen the figure of 500, which is the CBI's definition of a small and medium-sized enterprise. Small businesses in particular are not attempting to avoid their responsibilities. Many small firms simply do not have the resources or back-up to administer the system effectively. Large firms have payroll systems and personnel departments, but this kind of work becomes a nightmare on the kitchen table for a small business owner.

We wish to ensure that when employers are asked to administer these tax credits the system is workable. All that will happen is that smaller firms will have to seek expensive professional help or divert resources and manpower from core activities to comply with this requirement and the other burdens of legislation that affect them. We do not feel that this can possibly pass the test set by Jack Cunningham.

At the rate the Government are going, businessmen in small companies will cease to be entrepreneurs as they will have to spend so much time as unpaid administrators of the Government's welfare system. The Minister has just maintained that the work to be done by employers in administering tax credits is minimal. That is disputed by employers' organisations, who point out that employers will have to log each start and stop notice so as to take the right action on each pay day and insert the correct amount on the payslip of each claimant. They will then have to add up the total tax credits paid to all employees on any one pay day and deduct that total from the PAYE tax and national insurance that they have to pay to the Revenue. An employer who will be out of pocket and therefore able to claim an advance of money from the Revenue will have to estimate the amount needed and get the evidence together for his claim.

In addition, there will be mistakes and the employer will be blamed. An employer may pay the wrong person on the incorrect instructions of the Revenue and will have to spend more time correcting that mistake. Small business organisations are incensed by the misleading statement that the Revenue rather than the employer will do all the work. One suggested to me that Ministers should be conscripted into small companies' payroll departments for a month and they would then understand. I beg to move.

Baroness Carnegy of Lour

My Lords, it seems to me that the Government have accepted the principle of reimbursing employers for the work that they do in relation to benefits in the case of maternity benefit. I remember operating the system for somebody on maternity leave, paying her salary while on leave and claiming it back from the department. Extra was paid back to cover the administration that I had had to undertake. I forget the proportion but I regarded it as very reasonable and human of the department. There is a principle within the Department of Social Security that may be related to this point.

Lord Goodhart

My Lords, we on these Benches—in view of the absence of my noble friends perhaps I should say "I"—recognise the problems of small businesses. The problem that this Bill creates for small employers is, at any rate for the time being—although I fear what may happen when this Bill goes back to another place—much reduced by the amendment passed at Committee stage to exclude small employers from liability to make payments of tax credits through the payroll.

I find a good deal of difficulty in supporting Amendment No. 20, or Amendments Nos. 21 to 23, which have not yet been spoken to but which I would have difficulty with for the same reason. Apparently they are all based on the idea of refunding to the employer the actual costs incurred. I believe that that would involve massive bureaucracy and an opportunity for fraud and would give employers no incentive to minimise their administrative costs. Further, Amendment No. 20 gives help to quite large employers who could well afford to carry the costs involved. A business with, say, 499 employees could have a wages bill comfortably in excess of £10 million a year.

Amendment No. 19 seems a good deal better, perhaps not surprisingly, as it is similar to an amendment which I tabled at Committee stage. It proposes to set a percentage addition to the tax credit payments so that the calculation is simple and an incentive to minimise costs is preserved. That idea is based on the funding system for the administrative costs of statutory maternity pay. The amendment gives the Government power to decide where the dividing line falls between the small and large employer and a discretion in deciding the appropriate percentage rate.

The Government have argued that there is no compensation for the cost of administering PAYE or national insurance contributions. That is perfectly true. But, in that case, why make an exception for statutory maternity pay? The answer must be pragmatic. An employer of any size cannot escape paying PAYE or national insurance contributions. The only employers who do not do so are those employing perhaps a gardener, or a cleaner in the house, for a few hours a week. Small employers employing up to 10 people can seek to avoid employing pregnant women, or women likely to become pregnant. So they have had their costs refunded in order to avoid the disincentive of employing those members of their staff.

For the same reason, we should not give small employers an incentive to avoid payment of tax credits through the payroll. In addition, PAYE and NIC deductions compensate employers to a limited extent by the cash flow effect. The payment of the deducted contribution occurs some time after the payment of the wages. That cash flow effect is reversed in the case of tax credits.

However, I am somewhat ambivalent about Amendment No. 19 at this stage. The exclusion which we have already achieved of employers with fewer than 10 employees makes the amendment largely unnecessary. That was why we did not table our amendment again on Report. We look on it effectively as an alternative to the amendment passed during Committee stage.

Lord McIntosh of Haringey

My Lords, I was amused by the suggestion of the noble Lord, Lord Astor, that Ministers responsible should be conscripted to the payroll department of small firms for a month. It was not just the idea that small firms have payroll departments—they do not; the boss does the work—but because I have done so not just for a month but for many years. I have to repeat what I have said in previous stages of the Bill. The burden which is supposed to be imposed on small employers from the tax credit proposals is very small indeed. The burden imposed by the requirement on all employers to operate the PAYE and national insurance contribution system is substantially larger than what is proposed in the Bill. And even that is dwarfed by the burden imposed by value added tax, which is a transaction-based activity which requires every financial transaction to be recorded and calculated for a VAT return on a quarterly basis. As a matter of practical experience, I cannot accept the accusations about the burden of tax credits on small employers.

I have difficulty in speaking only to Amendments Nos. 19 and 20. Amendment No. 18, which was withdrawn, and Amendment No. 23 are clearly alternatives which set a threshold of the amount of the annual national insurance contribution payments. Amendments Nos. 20 to 22—they appear, illogically, to be in different groups—are three alternatives which set the threshold of the number of employees. Amendment No. 19—it was not moved by the Liberal Democrats in Committee, not because a previous amendment had been carried but because the Liberal Democrat Front Bench was empty at the time and no one was present to move it—seeks to achieve exactly the same objective by calculating the sum as a percentage of the tax credit paid by the employer. I have only to speak briefly of the cost of the amendments to make it clear why the Government cannot accept them. Amendment No. 19 would cost £35 million per 1 per cent of compensation paid. Amendment No. 20 would cost £60 million.

Lord Goodhart

My Lords, in view of my original paternity of Amendment No. 19, perhaps I may ask how the Minister can come up with any figures at all since it depends on the level at which the Government decide what is a small business.

Lord McIntosh of Haringey

My Lords, Amendment No. 19 is not about small businesses; it is about all businesses, large and small. It sets the figure as a percentage of the tax credits paid by the employer, whether the employer has five employees or 5,000.

Lord Goodhart

My Lords, the amendment states: employers or any category of employers". Therefore, the Government could say that it would apply to employers with fewer than five employees, fewer than 10 employees or fewer than 20 employees.

9.15 p.m.

Lord McIntosh of Haringey

My Lords, I believe that the noble Lord, having accepted paternity of this amendment, ought to have thought a little more about what he meant by "percentage" and by "categories". The same applies to the noble Lord, Lord Astor, who has moved the amendment and taken over paternity. I have made the simplest assumption that there will be some percentage and I have assumed that it applies to all employers. If I had really wanted to, I would have constructed a table, but, frankly, it is not worth the effort. However, to say only that it is £35 million per 1 per cent of compensation paid makes the case. Amendment No. 20 would cost £60 million; Amendment No. 21 would cost £50 million; Amendment No. 22 would cost £40 million; and Amendment No. 23 would cost £30 million. Therefore, the amounts of money are not insignificant.

Our objection to the amendments is primarily one of principle. As I explained in Committee when similar amendments were proposed, the tax system does not provide, and has never provided, for a direct subsidy or compensation payment to employers who fulfil their obligations in relation to tax. Tax credits will be part of the tax system and the normal tax rules will apply.

As regards the comments about statutory maternity pay, perhaps I may say in parenthesis that it is not part of the tax system; it is a benefit. Tax credits are part of the tax system and it would not be appropriate to introduce an anomaly into that system. There is no reason why tax credit administration should be treated differently from PAYE administration, for which no compensation is paid or has been paid for a period of more than 50 years.

To change the rules here and provide compensation would be the thin end of the wedge because it would be very difficult to draw the line between tax credits and other parts of the tax system. The knock-on effect could therefore be extremely expensive for the Exchequer and for taxpayers generally once the "no compensation" principle had been undermined.

Although I have no direct knowledge, I do not deny that in other countries employers may be compensated for their time; but not in this country. They never have been and no government of any political persuasion have sought to do so.

Amendment No. 23 singles out employers with an annual national insurance liability of less than £20,000, presumably because these will tend to be small businesses which, so the argument goes, will incur disproportionate costs when they pay tax credits through the payroll. While I am on that point, I cannot accept the statement of the noble Lord, Lord Astor, that the burdens of being unpaid tax collectors are ever increasing. The burdens of national insurance contributions and PAYE have not changed for many years. The increase proposed here is minimal and does not involve employers paying the tax credits out of their own pockets.

Amendments Nos. 19 to 22 would go much wider, providing compensation in one case for all employers. However, I accept what the noble Lord said about the provision which could be made in different cases. In the other case, it would provide compensation for up to 500, 100 or 50 employees.

We do not deny that there are some costs, although they must be seen in the context of advantages to employers of an enlarged labour pool as a result of the working families' tax credit and the disabled persons' tax credit. But the way to minimise burdens on employers is surely not to introduce a potentially expensive anomaly into the tax system, which is what these amendments do. A far better approach is to continue what we have been doing for the past year: consulting representative employers and payroll providers of all sizes in order to ensure that the details of the scheme meet their concerns and impose minimal costs on employers generally.

When I debated these amendments in Committee, I gave a long list of the fiscal measures which the Government have introduced in recent Budgets to protect and help small businesses. I shall spare your Lordships that list again today. But if anybody thinks that this Government are not concerned about the health of small businesses, they are very wrong indeed, as the noble Lord, Lord Astor, recognised by his use of those very apt quotations from Jack Cunningham's speech.

The amendments do not have any sound basis. They would damage the whole principle on which we have calculated the tax system for a period of 50 years or more. I urge the noble Lord not to press the matter to a Division.

Lord Astor of Hever

My Lords, I am grateful to the Minister for that reply. I take the point of his personal experience in those matters. I am grateful also to my noble friend Lady Carnegy for mentioning the precedent of statutory maternity pay.

The Minister referred to my comments about Jack Cunningham. I said that Mr Cunningham stated that the Government must be more realistic about how much time small businesses must spend in coping with regulation.

Both myself and most small business organisations are not sure that the Government, with the exception of Jack Cunningham, understand fully how onerous and costly it will be for small firms to administer those tax credits. However, I said that these are probing amendments and in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 20 not moved.]

Lord Astor of Hever moved Amendment No. 21:

Page 4, line 7, at end insert— ("( ) for funding the administration cost incurred in paying the credit by employers of less than 100 employees;")

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 22 and 23. In Committee, when I moved similar amendments, the noble Lord, Lord McIntosh of Haringey, accused me of having shot my fox. However, as the noble Lord, Lord Goodhart, pointed out when speaking in support of the amendment, the Government have made it clear that in the other place they will overturn the amendment allowing small employers to opt out. The business community is also expecting that.

Bearing that in mind, and mindful of the fact that the Social Security Select Committee recommended that small employers should receive an additional reimbursement to alleviate their administrative costs, we offer these amendments to the Government as an alternative. They could agree that the funding should apply to employers with fewer than 100 employees, as provided in Amendment No. 21, or they may wish to opt for Amendment No. 22, which relates to employers with fewer than 50 employees. However, the Government may prefer Amendment No. 23. There is a precedent for small firms' exemption for employees whose earnings and national insurance contribution payments do not exceed £20,000. Those employers recover 100 per cent of the statutory maternity pay paid out, plus 5 per cent to compensate for administrative costs. My noble friend Lady Carnegy referred to that.

Why should small employers receive compensation for administering SMP but not WFTC or DPTC? Those companies are not charitable institutions and they should not have to sub the Government. As the noble Lord, Lord Goodhart, said in Committee, making small employers act as paying agents would be a serious burden for them, and it is appropriate that the public purse should fund the administrative costs which they have to bear.

While this Government came to office promising an enterprise culture for businesses, the practical effects of so many of their actions have been wholly negative through a combination of administrative and financial burdens. Nowhere is that more apparent than the acute effects on small businesses. Not only do they provide a vital part of the UK economy but they provide also a high proportion of jobs for those who are low-skilled or semi-skilled and who desperately want the opportunity to work.

Recent research by the University of Bath on behalf of the Inland Revenue quantifies the burdens which firms face, despite what we have just heard from the Minister, by administering income tax, national insurance and statutory sick and maternity pay. It also illustrates that these burdens are a significant barrier to job growth in smaller firms. The pattern of compliance costs is highly regressive against smaller employers in that the bottom 30 per cent (by PAYE and national insurance collected) shoulder 75 per cent of the costs. To help them, I beg to move.

Baroness Carnegy of Lour

My Lords, the Minister seemed, in a strange way which I did not understand, to reply to these amendments before they were moved. Perhaps he had not noticed the grouping.

However, that gives me an opportunity to take issue with him on his argument that the reason why the principle applies with statutory maternity pay and cannot apply to this is that this is part of the tax system. It is only part of the tax system in that the Government are giving it to the Inland Revenue to do. It is an earnings supplement. We had this discussion in Committee. If it was a tax rebate, it would be part of the tax system. I do not believe that is merely nit-picking. It is an earnings supplement and is one way of doing it. That is the way the Government have chosen. It seems to me that it is a benefit and not part of the tax system.

I am sorry that the Minister used that argument. Perhaps it is because it is an Inland Revenue brief and it hopes it will become part of the tax system in due course; I do not know. However, he should not really have used that argument.

Lord McIntosh of Haringey

My Lords, I suppose it would be fair to say that I shot my own fox. The noble Baroness is quite right. I could not find any difference in the arguments to be used on Amendments Nos. 19 and 20 from those to be used on Amendments Nos. 21 to 23. Indeed, Amendments Nos. 21 and 22 are alternatives to Amendment No. 20. Amendment No. 23 is an alternative to Amendment No. 18 which has been withdrawn. The noble Baroness is entirely right. In order to put the case properly, I felt it necessary to respond to all the amendments together. If I had heard any particular new points I would have sought to respond to them on this occasion, but I do not believe I have.

The noble Lord, Lord Astor, has quite rightly drawn attention to the importance of small businesses in our economy. As I believe I made clear, the Government entirely agree with that. We seek to reduce the burden on small businesses.

Lord Astor of Hever

My Lords, I am grateful to the Minister for giving way. I was not just drawing attention to what small businesses do but to the costs on them in administering the tax credits.

Lord McIntosh of Haringey

Yes, my Lords, I accept that. However, the arguments I used, based on experience as well as the principle upon which we oppose the amendments, have made it clear that the additional burden involved in the administration of tax credits is very small compared to the burden which has existed for many years. Indeed, it is significant that the burden of tax credits on employers is not incremental. In other words, the smaller employers are much more likely to have no employees with tax credits than larger employers.

This gives me an opportunity to respond to the noble Baroness, Lady Carnegy. I repeat the arguments I used before. Statutory maternity pay is a benefit. The purpose of compensating employers for the administration of statutory maternity benefit is precisely as she set out in her speech on the previous group of amendments. The Government wanted to ensure that employers were not deterred from employing people who are entitled to statutory maternity benefit. That is simply not the case with tax credits or disabled person's tax credits. It is not possible for employers to know the financial circumstances of their employees from the fact that they are entitled to tax credits.

There are many reasons why a family should be entitled to working families' tax credit. The calculation is done entirely by the Inland Revenue and there is no possibility of disclosure of the financial details of the individual employee from the fact that a tax credit is payable. The objection in principle which applied to Amendments Nos. 19 and 20 applies equally to Amendments Nos. 21 to 23 and the Government cannot accept them.

9.30 p.m.

Lord Astor of Hever

My Lords, I am grateful to the Minister for that reply and am sorry that he was not more receptive to our amendments. I am sorry also that he could not agree with what Jack Cunningham said; that is, that small firms need to be able to concentrate on running their business and securing new work rather than administering these tax credits.

I thank my noble friend Lady Carnegy for once again mentioning the precedent of SMP. We have received strong representations from organisations that represent small businesses and they are extremely unhappy on this point. However, at this time I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 22 and 23 not moved.]

Lord Higgins moved Amendment No. 24:

Page 4, line 25, at end insert— ("( ) Regulations under this section shall not require an employer to calculate the tax credit to which an employee is entitled during the period when the employer will be responsible for payment of tax credit to that employee, other than to relate the calculation made by the Board of the employee's entitlement to tax credit to the length of time the employee is employed.")

The noble Lord said: My Lords, I was a little mystified by the earlier discussion and perhaps the Minister should inquire who suggested the grouping. The whole set of amendments were somewhat similar but we did not think it appropriate to dissent from the groupings.

I thank the noble Baroness, Lady Hollis, and the noble Lord, Lord McIntosh of Haringey, for writing to me in relation to specific points relevant to this amendment. Indeed, throughout the proceedings they have been helpful in that respect and the noble Baroness, replying on behalf of her colleague, was kind enough to write to me and my colleagues to explain precisely how the Government envisage the system working with regard to payment of tax credits by employers.

This amendment seeks to spell out that explanation in black and white. If I understand correctly, the Government are saying exactly what is stated in the amendment. If that is on the record it will be helpful should there be any subsequent dispute. The noble Baroness was good enough to send me an extract of one of the statutory instruments setting out the way in which the regulations will operate in relation to the employer.

Perhaps I may make one point which is relevant to both this debate and the previous one. It is not helpful for the Minister to say, "We did not worry about the cost of operating this system in small businesses because it will be mostly done by the employer". I believe that was his argument, but it is a strange argument. If the entrepreneur of a business is being distracted by becoming an agent for social security payments—or in this case Inland Revenue payments as defined by the Government—that is a higher cost than if he were employing someone who did nothing else. Adam Smith and the pin factory suggest that a degree of specialisation would be more efficient. If the entrepreneur is having to do it, that is a disadvantage rather than, as the Minister was seeking to suggest, an advantage.

I do not wish to delay the Committee any longer. Perhaps the Minister can confirm my understanding that the Government envisage precisely what is said in Amendment No. 24. In that case it will not be necessary to put the amendment on the face of the Bill. I beg to move.

Lord McIntosh of Haringey

My Lords, I certainly hope that I did not say we do not need to worry about the cost to small businesses, because those costs are incurred by taking up the time of the entrepreneur. I was simply making the perhaps trivial point that small businesses do not have payroll departments. It is still a cost and we worry about all costs. I used to work on a Saturday afternoon when I had an office in central London and I would find from time to time that the landlord had locked the outside door and that I could not get out. Having completed my VAT return and the PAYE and NIC entries, I had to climb out of the window, jump down about 10 feet and get out though the fire escape. I do not recommend that to any entrepreneur, and it is a definite deterrent that the Government do not in any way support.

The noble Lord, Lord Higgins, invites me to put on record in Hansard the assurances and explanations which were given by my noble friend Lady Hollis in her letter, and I am delighted to do that. The main point I should like to make is that under no circumstances will employers be involved in processing applications for tax credits or in assessing the level of tax credit awards. That will always be the business of the Inland Revenue.

From October 1999, when the tax credits are introduced, the Inland Revenue will process all applications and will do all the calculations necessary to work out the level of tax credit awards. The Revenue will pay the awards direct to all successful applicants, whether they are employees, self-employed or non-earners.

From April 2000, when employer payment begins, there will be no change to the application and assessment procedure. The Revenue will continue to process and assess all applications and inform all applicants of the level of their award. The only change after April 2000 will be that, whereas self-employed and non-earning recipients will continue to receive their tax credit direct from the Revenue, employees will receive theirs through the payroll where appropriate.

What will happen when an employee is awarded a tax credit? The Inland Revenue will notify him of the award and tell him the daily rate at which payments will be made over the 26-week period of the award. The notification will also explain that initial payments will be made direct by the Revenue but that after a certain date the employer will take over payment.

At the same time the Inland Revenue will notify the employer when to start paying tax credit, how much to pay and when to stop. Employers will always be given enough time to adjust their payrolls before starting to pay tax credits (14 days notice in respect of weekly paid employees, 42 days in all other cases).

The start notification will include the daily rate of tax credit payable to the employee and a table showing the 1–31 multiples of the daily rate. The daily rate refers to calendar days, not working days. The only calculation the employer will have to make is to read off from the table the amount of tax credit payable, according to the number of days in the pay period for which he is responsible. For example, if the employer's responsibility starts on 21st June for an employee paid monthly at the end of the month, he will have to pay 10 days' worth of tax credit up to the end of June (21 to 30 June). Therefore, he will need to use the Revenue-provided table to arrive at the tax credit due; that is, 10 times the daily rate. In subsequent months he will read off the 30 or 31 multiples of the daily rate to find out the appropriate tax credit amount for a particular month. That amount will be added each month to the employee's net pay.

If noble Lords are interested, this is all neatly illustrated in a table on page 9 of the Inland Revenue booklet, Working Families Tax Credit and Disabled Person's Tax Credit. Draft regulations 3(2) and 4(2) of the Payment by Employer Regulations also set out the information which the Revenue must provide to the employer and employee respectively. Draft regulation No. 5 spells out what the employer needs to do.

I hope that I have addressed the concerns of noble Lords. I have stated publicly what was contained in the letter and therefore hope that the noble Lord will be able to withdraw his amendment.

Lord Higgins

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Goodhart moved Amendment No. 25:

Page 4, line 29, 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: My Lords, this is one of two amendments; similar amendments were discussed in Committee. This amendment concerns the approval of regulations to be made under Clause 6, while the other amendment relates to the approval of regulations to be made under Clause 15. Clause 6 will be implemented through regulations. The Government have produced draft regulations and that is helpful; but it is not yet enough. Those regulations are still open to change. I believe that the principle should be that the final regulations should be approved by Parliament, rather than Parliament relying on drafts which are not finalised at the date of the relevant debates.

Of course, these are very important regulations which are central to the whole operation of the tax credits system; for example, Regulation 5 of the draft regulations contains the employer's obligation to pay tax credits through the pay packet. Regulation 6 provides for the employer to fund the tax credits by what can be described as "deductions from deductions". Regulation 7 provides for the funding of the employer by the Inland Revenue where the employer cannot cover the tax credits by deductions from PAYE or NICs. Therefore, the regulations are plainly at the heart of the Bill.

It seems reasonable, therefore, that on the first occasion when the regulations are made, if not subsequently, the affirmative resolution procedure should be used so that Parliament has an opportunity to debate and confirm them without having to rely on a Prayer against the regulations under the negative procedure. That is what the Select Committee on Delegated Powers and Deregulation recommended. I am a member of that committee, and we said: This is a wide-ranging power with considerable administrative and financial implications for employers, including small employers. The House may wish to consider whether the Bill should be amended to provide for the affirmative procedure to apply on the first occasion that the power is exercised". That proposal was rejected by the Inland Revenue. Indeed, the Revenue did so in a letter which I shall paraphrase, although I shall paraphrase only slightly because the following is pretty much what it said. The recommendation was rejected on the basis that the Inland Revenue did not think it was appropriate for its regulations to be subjected to the affirmative resolution procedure. I must say that I do not believe that that is an acceptable response. I am not blaming the noble Baroness because it is not her department. She has no responsibility for what the Inland Revenue says. However, whether or not those arguments are correct, I repeat that I do not think that is an acceptable response.

The Inland Revenue argued that the PAYE regulations involve the negative resolution procedure. But, of course, PAYE was introduced in wartime and I think that it is at least possible that people were not thinking in as much detail in 1943 as they do now about whether the affirmative or negative resolution procedure is more appropriate.

The attitude of the Inland Revenue is all the more surprising because the Government have accepted that the affirmative procedure should be used for the first regulations to be made under Clause 15 on childcare. Those regulations will also be important. However, I believe that they are no more important to this Bill than are those which are to be made under Clause 6. The difference is that it is the Department for Education and Employment and not the Inland Revenue which is responsible for the regulations under Clause 15.

The latter increases our concern that the Inland Revenue culture is inappropriate for the payment of tax credits. Whether or not you call tax credits a "benefit", they are clearly a distribution of money which is contrary to the Inland Revenue's basic purpose, which is to collect money. The Inland Revenue is not used to making payments out. Indeed, it is not used to the rather different emphasis which applies to the making of regulations which are involved in the distribution of money—whether called "benefits" or "tax credits"—in a similar form to benefits Therefore, I ask the Government: whether they are prepared to reconsider the method by which the first regulations to be made under Clause 6 will be approved. I beg to move.

9.45 p.m.

Lord Higgins

My Lords, I rise to support the noble Lord, Lord Goodhart, in his amendment. He specifically refers to the recommendations of the committee. I must say that the response which we have received from the Inland Revenue—namely, that this is not something the Inland Revenue is concerned with—does not seem to me a reasonable response. After all, we are concerned with ministerial responsibility, not that of officials. One presumes that the Revenue's response was endorsed by Ministers. But certainly a doctrine that no Inland Revenue order could be subject to scrutiny and voted upon in the way that the noble Lord, Lord Goodhart, described does not seem to me to be acceptable, whatever the precedents may be.

As regards this Bill, the idea that we are switching from a situation where the affirmative resolution procedure is permitted to a situation where it is not permitted because the Inland Revenue is involved does not seem to me to be acceptable. As the noble Lord rightly stressed, that underlines our concern that the attitude, regime, ethos—call it what you will—of the Inland Revenue may pervade what has previously been that of a government department with a rather different approach to these problems.

On the first occasion the regulations come before the House we should be able to consider them. However, they are still not amendable. We have already expressed appreciation of the fact that the Government have published the draft regulations, but that does not resolve the problem of their not being amendable. I have much sympathy with what the noble Lord has said. If he felt inclined to register a protest by calling a Division, I would be inclined to support him. But be that as it may, we look forward to hearing what the Minister has to say. I hope very much that he can accept the amendment.

Lord McIntosh of Haringey

My Lords, the last thing I wish to do is to seek to hide behind departmental differences, or indeed seek to hide behind the view of the Inland Revenue as opposed to the view of Ministers. As the noble Lord, Lord Higgins, rightly says, the response of the Inland Revenue to the Delegated Powers and Deregulation Committee was given on ministerial authority. I speak on behalf of the Government and not on behalf of any particular department.

Therefore it is with great sadness that I have to tell the House that our response has not changed since the lengthy debate we had on this subject at Committee stage. Before I repeat the reasons which I gave on that occasion I must tell the noble Lord, Lord Higgins, that the issue here is not one of scrutiny, voting or amending; we are talking about the difference between negative and affirmative resolutions. Both of them are forms of scrutiny. It is perfectly possible for negative resolutions to be prayed against in this House or in the other place. They have to be scrutinised by Parliament in exactly the same way as affirmative resolutions.

Similarly, although this House passed on the Motion of the noble and learned Lord, Lord Simon of Glaisdale, a resolution that this House has an unfettered right to vote on secondary legislation, it has been the convention of this House for many years—both on affirmative and negative resolution procedures—that we do not vote against these orders for the very straightforward reason that a vote against them would require the order to be relaid because there is no opportunity for the other place to reconsider the matter. An order falls if it fails to be passed by both Houses.

I shall repeat my explanation of why we provide for the negative resolution procedure through both Houses. That is the usual process in the tax system and it is more usual for tax regulations to be laid only before another place because of the limitations on this Chamber's powers in respect of money matters.

Lord Higgins

My Lords, I was slightly surprised to hear the comment of the noble Lord, Lord Goodhart. Is it the case that Inland Revenue resolutions are never by affirmative resolution?

Lord McIntosh of Haringey

My Lords, I believe that to be the case. It is the case also that they are not even subject to the negative resolution procedure before this House. I may be able to expand on that point in a minute.

Lord Swinfen

My Lords, I am a little concerned that in future, because this could be construed as a money matter, a negative resolution will not come before this House.

Lord McIntosh of Haringey

My Lords, that is entirely possible. It is for Madam Speaker to rule whether it is a money matter. If the noble Lord will hear me out, it would be better if I pursue my arguments without interventions that try to anticipate what I am going to say.

These regulations for payment through the pay packet are setting up a similar administrative structure to that for PAYE currently in the tax system. Therefore, we take the view that it is appropriate for the regulations also to use the negative procedure. As I said in Committee, the powers in social security legislation frequently provide for regulations to be made by the negative procedure.

I am sure that noble Lords are motivated by concerns that there will not be proper scrutiny of the regulations. Your Lordships and Members of another place will be able to study the draft—as the noble Lord, Lord Higgins, fairly acknowledged. In addition, the Inland Revenue intends shortly to publish formally the draft regulations which will give many interested parties the opportunity to comment. The Inland Revenue has spent considerable time over the past year consulting representative groups on details of the scheme. The document published in December and the draft regulations were developed as a result. The Inland Revenue will continue to consult on the draft regulations.

I hope that noble Lords accept that it is with no sense of defiance towards the Delegated Powers and Deregulation Committee—for which we have individually and collectively the highest respect—that we suggest on this occasion that it may have got it wrong and that it would be better to stick with procedures that have worked well in the past.

Lord Skelmersdale

My Lords, before the noble Lord sits down, perhaps he can clear up some confusion in my mind. He told my noble friend Lord Swinfen that the statutory instruments flowing from the legislation would not be discussed by this House. I seem to recall that in answer to a similar question on. Second Reading, the noble Baroness, Lady Hollis, said exactly the opposite. Who is correct?

Lord McIntosh of Haringey

My Lords, it is not for the Government to determine whether any particular regulation or piece of legislation is ruled to be a money matter. That is for Madam Speaker to rule, not for us to say. The regulations will be available for scrutiny by this House unless they have been ruled by Madam Speaker to be a money matter. All I did in response to the noble Lord, Lord Swinfen, was acknowledge that that might be the case.

Lord Goodhart

My Lords, I am most grateful to the noble Lord, Lord Higgins, for the thought that he gave to my amendment. I was tempted when he suggested that he might support me if I sought a Division. I might have accepted his invitation if we did not have the draft regulations before us. The draft regulations are of considerable importance. Although I said that I thought they were not enough, the difference between us would not justify my seeking to divide the House. The amendment was brought forward as a protest at what we regarded as the somewhat high-handed attitude of the Inland Revenue rather than with the intention of dividing the House and seeking to have the amendment placed on the face of the Bill. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Skelmersdale moved Amendment No. 26: After Clause 6, insert the following new clause—

PAYMENT OF TAX CREDITS BY BOARD

(" .—(1) Section 6 above shall not apply to the payment of tax credits to employees whose contract of employment is for less than ten weeks. (2) The Board shall make payments of tax credits directly to the employees specified in subsection (1).")

The noble Lord said: My Lords, by this stage of the Bill we know a lot about the change from family credit to the working families' tax credit, and about the disabled person's tax credit. We know who is to receive it; how steep the angle of the taper is to be; how it is to be paid; by whom; the daily rate and so on. We have come a long way.

However, there is a further issue that I wish to probe. On the second day in Committee, I said that I regarded the amendment of my noble friend Lord Astor on agricultural workers as the most important on the Marshalled List: and that, by definition, it went much further than he intended. In the event, he did not move his amendment. But, by tabling the amendment, he clearly regarded the method of payment of short-term casual workers as a definite worry.

Under the current scheme of family credit, when such workers are in work they are paid straightforward family credit. If they are in work for the 26 weeks for which the credit runs, there is obviously no problem. The same applies under WFTC. If, however, they have several periods of work with lay-offs in between, they still get family credit for the full 26 weeks, if necessary topped up to income support levels when they are not working. Whether or not they are working, they currently receive their money through the Post Office.

However, it seems to me—as, I suspect, it does to my noble friend Lord Astor—that there is a problem with WFTC. As we have been told over and over again by the Minister, this replacement benefit is to be paid by the employer through the wage packet. That is all well and good if the employee is working but, by definition, the people that the amendment seeks to address are not working continuously for the full period of their award. Two questions therefore arise. First, who is to pay them when they are not working? Secondly, should the same payment method be used throughout the award? I beg to move.

Lord Astor of Hever

My Lords, I support Amendment No. 26, which stands in my name and that of my noble friend Lord Skelmersdale.

My noble friend referred to my Committee stage amendment on agricultural workers, which covered casual and part-time workers. Although I did not move it—much to the disappointment of the noble Baroness—I agree with my noble friend that the method of payment for short-term casual workers is unsatisfactory. I have in mind such people as agricultural seasonal workers who come and go throughout the year. The NFU has pointed out that paying the WFTC through the pay packet will involve farming employers having to keep signing their workers on and off the payroll, which will be an administrative nightmare. Other examples of workers with intermittent employment are seasonal packers for clothes, Christmas Post Office workers, waiters (in some cases) and shop workers taken on for busy periods.

The replacement benefit is to be paid through the wage packet. I agree with my noble friend that that will be fine if the employee is working. But, as he said, the people the amendment seeks to address are not working continuously for the full period of their award. look forward to the Minister's reply to my noble friend's questions, particularly on who is to pay employees when they are not working.

10 p.m.

Lord Swinfen

My Lords, I wish to support the amendment. As the Bill stands, it will be impossible for employers to take on casual workers, very often for only a few days at a time. The noble Baroness the Minister shakes her head. She will no doubt put me right when she rises to reply to the amendment, or perhaps her noble friend will do so. The amendment is purely a matter of practicality. I hope that the Government will either give a satisfactory explanation or accept the amendment.

Lord McIntosh of Haringey

My Lords, this is not what my brief says, but I think that the amendments are intended to be helpful. I am quite sure that they are. However, I am sorry to say that they strike at the heart of what we are attempting to do and would have perverse effects which would be undesirable.

We recognise that in practice some employees on very short contracts may well find that they are paid their tax credits direct by the Inland Revenue rather than through their employer. I shall come on to show how that will be the case and the examples given by noble Lords are relevant to that. But that will happen because their particular circumstances make the payment by the Inland Revenue the only sensible approach. It does not mean, as the amendment would provide, that all employees on short contracts must be paid directly from the Revenue. Perhaps I may repeat the arguments for paying working families' tax credit and disabled person's tax credit through the payroll.

The employer scheme will reinforce the message that tax credits are a reward for work. It will emphasise tax credits as part of the tax system and will help to break the link with benefits, thus reducing the stigma of claiming in-work support. So we should not be looking for ways of excluding any category of employee from the scheme. In particular, since the tax credits scheme is a work incentive measure, it seems perverse to try to exclude all employees on short-term contracts. For many of these people, a short-term contract may be the first step on the employment ladder. These are just the people we are anxious to encourage to stay in work and move up the earnings scale rather than relying on out of work benefits.

Of course, as noble Lords have said, many employees on short-term contracts are casual, part-time or seasonal workers, but many of them will have their contracts renewed. Indeed, we hope that will happen frequently. For those employees, payment through the payroll will be the norm. I can assure noble Lords that the tax credit scheme has been carefully designed with the interests of tax credit recipients in mind. Although payment through the payroll will be a key feature of the scheme, the Inland Revenue will never ask an employer to pay tax credits unless we can ensure that entitled employees receive their tax credits on time and without hassle.

Two conditions will have to be met before employer payment is instigated. First, the Revenue will give employers adequate time to adjust their payroll before they can start paying tax credits—14 days in respect of weekly paid staff and 42 days for all other cases. Secondly, no employer will be asked to pay working families' tax credit or disabled person's tax credit unless there is time for at least three tax credit payments before the end of the employee's tax credit award period or the end of the employment contract, if earlier. That means that a very substantial number of the cases to which the amendment refers will be paid by the Inland Revenue.

The point of setting these conditions is not only to make things as convenient as possible for employers but also to ensure that we do not jeopardise the prompt and efficient delivery of tax credits to employees who are entitled to them. In the case of employees on contracts lasting less than 10 weeks, there may not be time for the Inland Revenue to ask the employer to pay tax credit. In that case, the Revenue will pay the employee direct throughout the 26-week tax credit award period. The tax credit scheme, therefore, already adopts a pragmatic approach which will ensure that payment via the employer will not be attempted when it would clearly be inappropriate. What I have just said about it being through the 26-week period deals with the issue raised by the noble Lord, Lord Skelmersdale, about the period in which the employee is not an employee; in other words, when he is not working. A special provision in the Bill would be quite unnecessary. In the light of what I have said, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Skelmersdale

My Lords, I was not sure which of the "heavenly twins" was going to answer my amendment. Had it been the noble Baroness, I would have sympathised with her on having to work at this hour of night on her birthday, but I would have pointed out too that I made my maiden speech in your Lordships' House on my fifth wedding anniversary. Nobody listened to a word I said. The only comment that was made included congratulations to my wife on getting rid of me!

That said, I am very comforted indeed by the response of the noble Lord the Deputy Chief Whip to my amendment. Indeed it was intended to be helpful. My interest was not on the employer's side; it was on the practicality of employees—perhaps one might call them erratic employees in this case—getting their family tax credit on time. I am interested by the noble Lord's comment that unless three continuous tax credit payment periods are completed, the automatic assumption will be that throughout the 26 weeks this will be paid by the board. I rather think that that is a mistake because the second period of employment might well be for the rest of the tax credit grant award period: in other words, for the rest of the 26 weeks. In that case it would be entirely logical and would fit in with the purpose of the Bill, which has been emphasised over and over again that the employer should pay.

I readily accept that my 10 weeks is the wrong period. I shall have to think it out again. But I was also slightly worried by the noble Lord's formulation of the words "three tax credit payments". Are these weekly or monthly payments, or does it depend on—there is no need for an answer now because we can come back to it—

Lord McIntosh of Haringey

My Lords, either.

Lord Skelmersdale

Either, my Lords, or both? In that case I am even more worried, not from the point of view of being a member of the Opposition on a government Bill but from the point of view of pure practicality. I shall read carefully in Hansard what has been said, and if I feel it is necessary come back to the matter at the next stage of the Bill. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 [Penalties for fraud etc. and failures to comply]:

Lord Higgins moved Amendment No. 27:

Page 6, line 26, at end insert— ("(9) The Treasury shall provide appeal tribunals within the meaning of the Social Security Act 1998 and general and special commissioners with sufficient funds to enable them to determine expeditiously appeals against determinations made under this section.")

The noble Lord said: My Lords, I beg to move Amendment No. 27 which stands in my name and that of the noble Viscount, Lord Astor. The noble Baroness will recall—how can anyone forget?—the debates that we had on this subject last year on the Social Security Bill. Clearly this piece of legislation will impose more burdens on the tribunals concerned. It is important that this should remain within the social security system and perhaps the noble Baroness can confirm whether that is so. Earlier the noble Lord, Lord Goodhart, and I, stressed the difference between the attitude of the Social Security Department and the Inland Revenue. There is certainly a difference in attitude between the appeal tribunals so far as the Revenue departments are concerned. There are rather different arrangements from those with regard to the Social Security Act.

The amendment seeks to ensure that appeals are dealt with expeditiously. My understanding RS that the system is under considerable strain at the moment. Average waiting times, I understand, are currently seven months, with some applicants waiting over a year for a decision in their case. The number of appeals continues to rise. Apparently in 1997–98 the number was 25 per cent up on the previous year and 56 per cent up on the year before that. This is a considerable burden. But when one looks at the figures for the ITS, the figure for 1998–99 was 55,000. That seems to me an extraordinarily low figure. For the year 1999–2000 the figure is only 54,386. Am I wrong in thinking that is a cut in real terms on the budget of the ITS? If so, it seems extraordinary, given that this Bill, among others, will add to the burdens on the appeals procedure. I am not clear why the noble Baroness appears to be puzzled. My understanding is that the budget is a cut in real terms, while at the same time the burden on the appeal service is increasing.

Can the noble Baroness tell the House what increase she expects in the number of appeals as a result of the introduction of the working families' tax credit system? At the moment, the number of appeals relating to family credit is low; it is only 2 per cent of the total number of appeals being heard by the service. Obviously, that figure is likely to increase with the working families' tax credit, if only because more claimants are involved. In addition, the appeals service will hear appeals that are related to whether a person has acted negligently or fraudulently and on the appropriate level of penalty. One would regard that as a considerable extra burden.

The essence of the amendment is to point out that the budget appears to be going down and the workload is going up. Can that be right? I look forward to hearing from the noble Baroness as to whether what I have described is the true situation. Perhaps she can also give some idea of what is happening as far as concerns the training of tribunal members and whether that is included in the budget.

Baroness Hollis of Heigham

My Lords, I saw the House emptying rapidly on the other side and I took it that there was no longer any enthusiasm for these proceedings.

This amendment would have the effect that the cost of the tribunals adjudicating appeals against penalties determined under Clause 9 would be separately considered in setting the funding of these tribunals. Perhaps I may quickly recap how and by whom appeals under the tax credits legislation will be heard. Appeals by applicants (employees) relating to their applications and awards will be heard by the new unified appeals tribunal (UAT) which is being set up as a consequence of the Social Security Act 1998, which happily occupied the noble Lord and myself for many hours last year. The UAT replaces a number of specialised tribunals as well as the current Social Security Appeal Tribunal. This change as well as others brought in by the 1998 Act: is designed to improve the efficiency of the handling of appeals from benefit claimants.

The UAT members who will hear tax credit appeals will, we believe, have the best mix of skills and experience to deal with the kinds of issues that involve tax credit applicants. But appeals from employers as a consequence of their role in administering tax credit payments through the wage packet will involve issues that are much more akin to those that arise on the administration of PAYE. Therefore, those employer appeals will go to the Tax Appeal Commissioners, as we believe that they have the appropriate expertise to deal with such issues; in other words, there will be two streams of appeal according to the appropriate expertise.. Those relating to employees will go to the new unified appeals tribunal and those relating to employers will go to the Tax Appeal Commissioners.

This ensures that appellants, whether applicant employees or employers, have their problems put before the most appropriate tribunal from the outset, although my honourable friend the Paymaster General announced in the other place that in due course—it may be a very long way down the path—jurisdiction for applicants' appeals will also pass to the Tax Appeal Commissioners and they will hear all tax credit appeals. But that is for the future.

The noble Lord, Lord Higgins, raised concerns about delay in hearing appeals. There is a backlog of work with the current social security appeal tribunals. The approximate delay is seven months at the moment. That was precisely why we passed the Social Security Act last year. During the second half of 1999 the decision-making and appeals programme (DMA) will deliver changes to current arrangements for making decisions and handling appeals in benefits and child support. The changes aim to deliver a modern, clearer, simpler, more streamlined and more accessible welfare system. The emphasis is on making real improvements for claimants.

The current system has several problems. For example, decisions on claims are fragmented and notifications are confusing. Getting mistakes put right is complicated and claimants often have to appeal. Then appeals take far too long to decide—seven months on average with some appellants waiting over a year for a decision. The appeals system is complicated. There are five different sorts of tribunal, each with different rules. A three-member tribunal hears all cases, however complicated or straightforward; and appeals which have no prospect of success (because they are counter to the law) still have to be handled in the usual way, without explanation, so appellants wait months only to find that their appeal could not have succeeded by definition. For example, they may claim DLA for a child under five and the law makes it clear that no child under five can be paid DLA.

Under DMA, some essentials will not change. As now, claimants and clients will get decisions based on the facts and law with the right of appeal to an independent tribunal. But under the new system, the focus will be on getting the decision right first time. Claimants unhappy with a decision will be invited to contact the decision-maker within one month of the date of notification decision. This will give them the opportunity to examine with the decision-maker the reasons behind the decision and to correct any errors. If the decision is found to be wrong, it can be put right without the need for the individual to go to appeal. Appeal tribunals will be able to focus on the issues raised in the appeal. As we discussed at great length in Committee, and on the previous Bill, the tribunals will comprise one, two or three members with the appropriate expertise for the issues raised. Appeals which have no prospect of success will be handled more quickly. Demanding targets for the administration of appeals will be published and the results reported on.

The settlement of disputes by agreement, without the need for a formal appeal hearing, has been the cornerstone of tax appeals since the very beginning. Only those cases where the Revenue cannot come to an agreement with the appellant go before the tax appeal commissioners.

Putting all that together, we believe that we shall be streamlining the appeals system, with a unified appeal tribunal system for employees. The appeal will go before a one, two or three member tribunal as need be. That will allow for greater and more adequate deployment of skilled staff and will lead to more expeditious hearings. It will break into the backlog and lead to a more efficient procedure.

That may meet the point raised by the noble Lord about the workload increasing and the budget reducing. The workload will be handled in such a different way that it will be on a new basis of costing. I shall be happy to write to the noble Lord with a further explanation of the costs of the new system.

10.15 p.m.

Lord Higgins

My Lords, will the Minister confirm the figures that I quoted? Was there a cut in real terms as regards the budget of the ITS between 1998–99 and 1999–2000? I may have missed her reply as regards the number of appeals expected under the new system compared with the old.

Baroness Hollis of Heigham

My Lords, we cannot be sure. Given the new methods and procedures, we hope to obviate the need for a number of the appeals held. I refer to what we call the meritless appeals in the sense that they cannot succeed, as well as those appeals based on the resolution of difference which can be achieved by negotiation. We hope that as the number of appeals will be reduced, those appeals heard will be handled more expeditiously because we shall have a better deployment of staff. Some appeals on matters of fact can go to a one-member tribunal. Others which require perhaps complicated medical evidence can go to a two or three-member tribunal. If one puts those two factors together, one sees that they should speed up the hearings, reduce the costs of the system and allow for far more disputes to be resolved without going through the appeals procedure. That was the purpose of last year's DMA Bill.

I shall write to the noble Lord on the costs of the service. We expect the workload to fall in consequence over time.

I have gone into those factors at some length because I thought that the purpose of the noble Lord's amendment was to make sure that the appeals system is expeditiously handled, as we all want. But the noble Lord's amendment would not achieve what he intends. The amendment is about funding. The DSS will be responsible for funding the appeals service. Similarly, the Lord Chancellor's Department is responsible for funding the tax appeal commissioners. In both cases, the adjudication of appeals against penalties under Clause 9 will be one of the tribunal's duties taken into account in ensuring that this work can be carried out efficiently. The financing of that work is one aspect of that planning process. That will be so, regardless of the amendment.

If the amendment were accepted, the cost of appeals against penalties under the clause would have to be separately identified funding agreed with the Treasury. That work would carry its own costs. So it feeds on itself, if I may put it that way. Given that the work would be taken into account in planning the work of the two tribunals, there would be no advantage for appellants if the amendment were accepted.

I hope that I have answered the noble Lord's substantive point that we expect the new DMA to kick in during the second part of 1999, which will reduce the pressure on the appeal system. The amendment does not achieve that. It requires a separate costing to be identified by the Treasury and separate analysis to be undertaken for that purpose. It will not help the length of time taken to hear appeals.

For that reason, we cannot accept the amendment. It is an unnecessary complication. I suggest that the noble Lord does not pursue it further.

Lord Higgins

My Lords, we are grateful for the Minister replying to the amendment which I did not move. It was probably the amendment I intended to move in the first place! Be that as it may, I am still not clear whether the budget will be cut. The noble Baroness may wish to intervene in my remarks, but in just one second.

Secondly, in the light of our discussions on the Social Security Bill last year, one remains concerned about some aspects, in particular single member tribunals. I drew to her attention safety risks, where particular social security claimants may be rather less stable than others who appear in front on them. But that is a broad issue I do not want to go into again. Perhaps we could know whether the budget is cut or not.

Baroness Hollis of Heigham

My Lords, forgive me, but I believe that I said three times that we are reviewing the total budget in the light of the expected work patterns. If I have further information on that, I shall write to the noble Lord.

Lord Higgins

My Lords, I am most grateful for that reply. We have the estimated budget as it stands. Presumably, as is normal in the Treasury, that is set in concrete. But if it is to be reviewed we should welcome that and therefore I beg leave to withdraw the amendment.

Amendment. by leave, withdrawn.

Lord Higgins moved Amendment No. 28: After Clause 9, insert the following new clause—

DISCHARGE OF FUNCTIONS BY OFFICERS

(" The Chancellor of the Exchequer shall each year lay before each House of Parliament a report relating to the discharge by officers of the Board of their functions under section 9 and Schedule 4.")

The noble Lord said: This is a probing amendment in relation to the Bill and the discharge of the department's responsibilities with regard to fraud and so forth. The proposal is that each year the Chancellor shall lay before both Houses a report relating to the discharge by officers of the board in relation to their functions under Clause 9 and Schedule 4. Obviously, it is important that there should be accountability as regards these officers and it seemed appropriate to suggest that such a review would cover the point.

As I said in regard to the earlier amendment, there is concern about work that is being done in relation to fraud and the appropriate ways in which that could be considered. I beg to move.

Lord Swinfen

My Lords, will there be an annual report of the amount paid out under working families' tax credit and disabled persons' tax credit so that those of us who wish can add it to the amount paid out under social security benefit?

Lord McIntosh of Haringey

My Lords, in case I forget to answer the noble Lord, Lord Swinfen, I shall do so at the outset. Yes, of course there will be a report on the amount paid out, but it would be illegitimate of the noble Lord to—no, he can do what he likes with the figures! Of course he can.

Amendment No. 28 relates to Clause 9 and Schedule 4 to the Bill. Clause 9 sets out the penalties to be imposed on individuals who receive excessive payments because they have not told the Inland Revenue the truth about their circumstances and on employers who refuse or persistently fail to make payments, or who fraudulently or negligently pay or receive the wrong amounts. For the vast majority of honest individuals and employers, these provisions are totally irrelevant.

However, it will be an important part of the Inland Revenue's duties to identify and take action against the minority who abuse the system. Schedule 4 relates to the penalties concerned. Of course we agree with the movers of the amendment that it is important for Parliament to be informed each year of the way in which the Inland Revenue is performing its new responsibilities for administering the tax credits.

Before I leave the point about the way in which the revenue is performing its new responsibilities, perhaps I may return to the response I gave on Amendment No. 16. I gave the House assurances about other targets; for example, aiming to process fast-track claims in the same way as the Family Credit Unit does currently—within five days with rapid payment thereafter. I may have given the impression, wrongly, that that could apply across the board, which is not what happens at the moment and could not happen in the future. However, I hope that your Lordships were pleased to hear that we shall aim to maintain the fast-track process for new claims from employees.

I return to the reporting procedures. The Board of the Inland Revenue lays before Parliament each year a report on its aims, targets and performance against those targets for all of its work. The board's report to Parliament already includes details of compliance activity and the board would expect to include details in respect of the new tax credits in a similar way. The Government are considering which targets will provide the best measure of the performance of the department in all aspects of the administration of the new tax credit.. I assure the House that the concerns raised in the debate on this amendment and on earlier amendments will be taken into account in that process. The targets and measures will be included in the board's annual reports from next year. Therefore, there is no need to make an additional report to Parliament.

On earlier amendments, I heard complaints about the number of reports which are produced. It is the Government's responsibility to produce reports, particularly when encouraged to do so by the Opposition. But we cannot ensure that noble Lords and anybody else read the reports which are produced. With the assurance that the existing reporting arrangements are sufficient, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Higgins

My Lords, the House will be grateful to the Minister for that response. It is not just a question of individual Members reading the reports. It is a question also of Select Committees and so on scrutinising them. As I said earlier, that degree of scrutiny has improved considerably over the years. However, in the light of what the Minister said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 12 [Disclosure of information]:

Lord Higgins moved Amendment No. 29: Leave out Clause 12

The noble Lord said: My Lords, this amendment relates also to Schedule 5 with regard to the disclosure of information. I wish to make one broad point. Over the years, much concern has been expressed about disclosure of information between government departments. Some years ago now, we tightened the rules considerably. In any event, exchange of information between the Revenue departments and elsewhere in government were subject to fairly tight controls on the basis of disclosure being permitted only at a reasonable level within the Civil Service. That was an important form of Chinese Wall, I suppose one might call it, to ensure that people had confidence that the information provided to the Revenue would remain confidential and not be used in a context different from that within which it had been provided.

The problem is that, in effect, the Revenue is taking over another government department. To that extent, one presumes that everything which was previously restricted from disclosure between the Inland Revenue and the Department of Social Security will no longer be so because it will all come within the Inland Revenue.

Can the Minister say whether that Chinese Wall is effectively being demolished by the takeover of the Revenue of this aspect, and indeed a number of others, of the Department of Social Security, or whether there will be some restraint on transfer of information between what used to be two separate departments?

10.30 p.m.

Baroness Hollis of Heigham

My Lords, we were slightly baffled as to what the noble Lord was proposing with the extraction of Clause 12. We could hardly think that he was in favour of confidentiality that allowed for people committing fraud to get away with it, and so on. However, we presumed it was a probing amendment, as indeed is the case, in order to find out the guidance or self-regulation under which the Inland Revenue will work. I am happy to attempt to give the noble Lord the explanations or descriptions he seeks.

The clause is entitled, "Disclosure of Information" and needs to be considered against the backdrop of the Inland Revenue's rules on confidentiality. The Revenue has a strict legal duty of confidentiality to ensure that information about a person's tax affairs is not disclosed to any third party except for the purpose of its duties or as otherwise required by law.

The Revenue places a high priority on the preservation of confidentiality regarding people's tax affairs. It wants to ensure that the same strict legal rules on confidentiality are also applied to tax credits. That is what Clause 12 provides. It brings the tax credit functions within the Revenue's strict legal rules about disclosure of information. It will ensure that information about tax credits is kept as securely as any other tax information.

The disclosure of any information received or held by the Revenue and its officers, or any person providing services to the Revenue, is subject to the sanctions set out in Section 182 of the Finance Act 1989. That may be what the noble Lord was referring to. That section makes any unauthorised disclosure of information a criminal offence punishable by imprisonment or fine.

This clause amends Section 182 so that it also applies to information relating to tax credits. Therefore the Revenue's confidentiality rules will apply to this. I hope noble Lords will agree that it is essential to keep that information confidential and that they will support the provision. This is, indeed, what the Act does. I do not believe there is any difference between us on this.

The other part of the clause contains provisions on exchange of information. As I have explained, the Revenue operates under strict rules of confidentiality. Information is only provided outside the department through statutory gateways.

Therefore, if there are to be exchanges of information between the Revenue and another department, that needs to be provided for in legislation. After October 1999 and the introduction of WFTC and DPTC, the units dealing with tax credits will need to exchange certain information with the DSS in order to carry out their respective functions. They will also need to exchange information with local authorities, which administer housing benefit and council tax benefit, to enable those authorities to calculate correctly the level of benefits, avoid duplicate claims and continue their compliance activities, as established under legislation relating to fraud introduced by the previous administration, with a fair degree of support from our side.

We have therefore provided, in Schedule 5, for exchange of information between the Revenue, DSS and local authorities in relation to social security benefits, child support, war pensions and tax credits. The provisions are on similar lines to those already enacted in the Social Security Contributions (Transfer of Functions, Etc) Act 1999 for the merger of the Contributions Agency with the Revenue.

It is important to emphasise that the changes in this clause and schedule with regard to exchange of information do no more than allow the Revenue, DSS and local authorities continued access to information that is essential for carrying out their respective functions. This reflects the fact that because WFTC replaces family credit, the functions relating to FC are being transferred to the Revenue, but the connection with the DSS will need to be maintained.

It is important also to note that the schedule clearly provides that information exchange between the Revenue and the DSS can only be used for the purposes of their respective specified duties.

The effect of the amendment would be that such essential exchanges would not be possible. That would affect not only the effective administration of WFTC and DPTC but would also make it extraordinarily difficult to administer child support, war pensions, housing benefit and council tax benefits if the existing exchange of information was not carried through to the Inland Revenue.

I hope that has given the noble Lord a description of what Clause 12 does and how necessary it is. The Inland Revenue needs to continue the existing arrangements that the DSS has, both with other sections of the DSS and with local authorities if what were benefits and are now to become tax credits are to be effectively administered.

I hope the noble Lord will be satisfied on those two points: first, the strict duty of confidentiality which has been tightened up, and the Chinese Wall principle that has been maintained; and, secondly, that the exchange of information that will continue is no more or very little more than that which currently operates under family credit. However, because the Inland Revenue is taking over, it needs to keep these gateways. I hope on both those counts the noble Lord will be satisfied and withdraw his amendment.

Lord Higgins

My Lords, before the noble Baroness sits down, perhaps I may try to focus my point. Will any information be transferred from the Inland Revenue to other government departments which at the moment is subject to the control that it should be transferred to another government department only above a certain level of seniority in the Civil Service?

Baroness Hollis of Heigham

My Lords, without writing to the noble Lord I cannot tell him about the level of seniority. My understanding is that there will be no additional flow of information from the Inland Revenue to other government departments, other than that necessary for the purpose of this Bill; that is, the same flow of information that the DSS would have used with local authorities. That was set up by the previous administration, of whom the noble Lord was a supporter.

The one exception to that of which I am aware, which again will be covered by primary legislation through the welfare reform Bill, is the right of the Child Support Agency, as a last resort, to have access to Inland Revenue records of the self-employed where they are apparently deliberately failing to comply with their duties of child support. That is the only instance that I can bring to mind.

Apart from that, the noble Lord's fears are groundless. He is right to raise these questions, but all proper protections are in place and the Inland Revenue will have only such powers as are necessary for it to carry out its appropriate duties. They are built on the powers that currently exist for the DSS.

Lord Higgins

My Lords, I am grateful to the noble Baroness. I still have a feeling that there is a point here that we ought to pursue. However, I look forward to seeing what the noble Baroness has to say in writing and we can take it from there. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 30 and 31 not moved.]

Clause 14 [Persons qualifying for disabled person's tax credit]:

Baroness Hollis of Heigham moved Amendment No. 32: Leave out Clause 14 and insert the following new clause—

PERSONS QUALIFYING FOR DISABLED PERSON'S TAX

CREDIT

(" .—(1) Subject to subsection (6) below, section 129 of the Social Security Contributions and Benefits Act 1992 (disabled person's tax credit) and section 128 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (equivalent provision for Northern Ireland) shall he amended in accordance with subsections (2) to (5) below.

(2) In subsection (1), for "or (2A)" there shall he substituted ", (2A) or (2C)".

(3) In subsection (2)(a), for "56 days" there shall be substituted "182 days".

(4) After subsection (2B) there shall be inserted the following subsections—

"(2C) A person qualifies under this subsection if—

1. (a) the condition mentioned in subsection (2D) below is satisfied;
2. (b) a medical practitioner (within the meaning of the Administration Act) certifies, not more than 14 days before the date when the claim for disabled person's tax credit is made—
1. (i) that in his opinion the person will continue to have the disability in question for a period of at least six months; or
2. (ii) that in his opinion the person will continue to have that disability for the remainder of his life; and
3. (c) the level of the person's expected earnings is lower, by at least the required amount, than it would have been if he had not had the disability.

(2D) The condition is that there are 140 qualifying days. the last falling within the period of 56 days immediately preceding the date when the claim for disabled person's tax credit is made, which are days in respect of which—

1. (a) statutory sick pay has been payable to the person;
2. (b) the lower rate of short-term incapacity benefit has been payable to him;
3. (c) income support has been payable to him on grounds of incapacity; or
4. (d) earnings have been credited to him under regulations made under section 22(5) above.

(2E) For the purposes of subsections (2C) and (2D) above—'

1. (a) the required amount, in relation to a person's expected earnings, is—
1. (i) 20 per cent of what those earnings would have been if he had not had the disability; or
2. (ii) if the amount given by sub-paragraph (i) above is less than the prescribed mount. the prescribed amount;
2. (b) qualifying days are days forming part of a single period of incapacity for work within the meaning of Part XI of this Act; and
755
3. (c) income support is payable to a person on grounds of incapacity if and only if he satisfies the condition in section 124(1)(e) above by virtue of being a person who—
1. (i) is, or is treated as, incapable of work for any purposes of this Act; or
2. (ii) is treated as capable of work by virtue of regulations under section 171E below.

(2F) Sections 3 and 112 above shall apply as if this section were included in Parts I to V of this Act."

(5) In subsection (8), after "allowance" there shall be substituted ", or the level of a person's expected earnings,".

(6) In section 128(2E)(c) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992, as inserted by subsection (4) above, for "124(1)(e)" there shall be substituted "123(1)(e)" and for "171E" there shall be substituted "167E".

(7) In section 11(3)(b) of the Social Security Administration Act 1992 (repeat claims), for the words from "he" to "that paragraph" there shall be substituted—

1. "(i) he qualified under subsection (2) of section 129 of the Contributions and Benefits Act by virtue of paragraph (a) of that subsection, or of there being payable to him a benefit under an enactment having effect in Northern Ireland and corresponding to a benefit mentioned in that paragraph; or
2. (ii) he qualified under subsection (2C) of that section or of section 128 of the Northern Ireland Contributions and Benefits Act,".

(8) In section 9(3)(b) of the Social Security Administration (Northern Ireland) Act 1992 (corresponding provision for Northern Ireland), for the words from "he" to "that paragraph" there shall be substituted—

1. "(i) he qualified under subsection (2) of section 128 of the Contributions and Benefits Act by virtue of paragraph (a) of that subsection, or of there being payable to him a benefit under an enactment having effect in Great Britain and corresponding to a benefit mentioned in that paragraph; or
2. (ii) he qualified under subsection (2C) of that section or of section 129 of the Great Britain Contributions and Benefits Act,".

(9) This section, except subsection (3) above (and subsection (1) above so far as relating to that subsection), applies to claims made, or treated as made, on or after 1st October 2000.")

The noble Baroness said: My Lords, I am delighted to move this amendment and hope that noble Lords share my pleasure. I would find it graceless if they did not.

This new clause will enable more disabled people who want to work to do so. It provides the legislative underpinning to deliver the policy announced by the Chancellor in his Budget. Like the original Clause 14, this new clause builds on the existing DWA rules by giving people moving off various out-of-work incapacity benefits 182 days—six months—instead of 56 days in which to find a job and apply for DPTC. The clause also introduces a new fast-track gateway to DPTC to help people who become ill or disabled while working.

One of the valid criticisms regularly made to us by disability organisations is that disabled people actually had to drop out of work in order to acquire the qualifying benefit to obtain DWA if they should subsequently find work. The process of dropping out of work meant that they lost the employer who alone was likely to keep them in work while they were disabled. It is that specific problem, which we all recognise, which the new clause is designed to address.

The fast-track gateway will be an additional route to DPTC. The present qualifying conditions will remain in place for people who, for example, are in receipt of DLA or who want to move into work after being in receipt of out-of-work incapacity or disability benefits.

I remind your Lordships that to receive DWA at the moment, a person must either be in receipt of one of a range of incapacity or disability benefits, such as DLA, at the time of the claim, and must have been receiving certain benefits within a specified period prior to the claim—for example, a higher rate of short-term incapacity benefit.

Those qualifying benefit rules, as I am sure your Lordships will know—certainly, the noble Lord, Lord Swinfen, will know—do not do enough to help people who become disabled while they are in work. As those people have never been disabled before, they have never been in receipt of any of the out-of-work disability or incapacity benefits. Their disability may not be severe enough for them to qualify for DLA, so the only option is for them to drop out of work in order to requalify in order to get access to DPTC. As a result they lose their jobs and employers lose the experience and expertise of a valued employee. The evidence shows that people who become disabled while working are most likely to find work with their existing employer, and if he does not employ them no one else is likely to. The longer someone is out of the labour market, the less likely they are to return to it.

It is to pick up a problem with DWA that we are introducing this clause in order to produce a fast-track gateway to DPTC—to make it financially possible for newly disabled people to stay in work even if, because of their disability, they either have to move to a less demanding (and therefore less well paid) job or need to reduce their working hours in their existing job.

Let me now explain how the fast-track gateway will work, as set out in the new clause. From October 2000 a person will be able to apply for DPTC if he/she meets the following conditions. The first is that he or she has received, for 140 days, statutory sick pay, short-term incapacity benefit paid at the lower rate, income support paid on grounds of incapacity, national insurance credits only or occupational sick pay. Linked periods of incapacity will count as long as together they add up to 140 days. The second is that he or she has a condition which puts him/her at a disadvantage in getting a job. The third is that a medical practitioner certifies that the illness or disability will last for at least six months, or for the rest of the applicant's life if that is likely to be shorter than six months. The final condition is that on returning to work the applicant will receive earnings at least 20 per cent less than would have been the case if there had been no disability.

Once a person has made a successful initial application for DPTC, he or she will of course be able to make a repeat application if the illness or disability continues at the end of the 26-week award period. Subsection (7) of the new clause amends Section 11(3)(b) of the Social Security Administration Act to ensure that the conditions which a fast-track gateway person has to meet on making a repeat application will be exactly the same as those affecting other repeat applications. In other words, the requirement for a 20 per cent drop in earnings will apply only at the time of the initial fast-track gateway application. After that, successful fast-track applicants for the DPTC will be on all fours with those who started on DPTC via the qualifying benefit route.

The idea of the fast-track gateway emerged from informal discussions between the Government and the disability lobby on the problems faced by people who become disabled while in work. The Chancellor announced the fast track in outline in his pre-Budget report in November 1998. A formal consultation followed, and the proposals were warmly welcomed by the disability lobby, whose suggestions for improvements have been reflected in the final design. The policy was finally announced in the Chancellor's Budget in March this year.

Since then the Government have gone further in addressing the needs of disabled people. As your Lordships will be aware, my right honourable friend the Paymaster General announced on 17th May that from October 2000 the WFTC will include an additional premium worth £21.90 a week for each disabled child in a family receiving WFTC. This additional premium is already payable under DWA and wall continue under DPTC.

At the same time the Paymaster General also announced that the Government are now considering widening the range of eligible childcare for the childcare tax credit to cover certain types of paid care provided for disabled children in their own home. The Paymaster General said that the Government would be consulting interested organisations over the next few months to enable detailed proposals to be developed.

These were all measures that were raised in your Lordships' House at Second Reading. They were all raised in discussions with the Disability Benefits Forum and other disability organisations before the Bill came to this House.

I am absolutely delighted about these three important measures to help disabled people: the changes to the fast-track gateway; the additional disability premium worth £21.90 for every disabled child of a WFTC family; and being able to care for a disabled child in their own home.

This clause will provide much-needed support for people who have the misfortune to become long-term sick or disabled while they are working. Rather than giving up work altogether and claiming out-of-work benefits, such people will be able to stay in work, even though it may be work of a lesser amount in nature or shorter hours on reduced earnings, and have their income topped up by DPTC. In other words, DPTC for the first time will be doing what we have longed for DWA to do but which it has failed to do, which is to be a partial capacity benefit—the old alchemist's stone that we are all searching for.

In view of the warm welcome given to this and other measures by groups representing disabled people, I hope that noble Lords will enthusiastically support the new clause. I beg to move.

10.45 p.m.

Lord Swinfen

My Lords, I welcome this amendment and shall not go into great detail about it at this time of night. However, I have one query. What will be new subsection (4)(2C)(c) says that a person qualities if, the level of the person's expected earnings is lower, by at least the required amount, than it would have been if he had not had the disability'", I have made a note beside that wording, which reads, "Who says?" If the person who has the disability has been working on piece-rate, the answer is quite obvious because you can see the amount by which his work has slowed down and that he is not able to produce as much. However, that is not the case in many jobs. I just wonder how you judge whether a person's ability to earn has decreased as a result of the disability, because that will vary. I have in mind the difference between a 19 per cent loss of earnings and a 21 per cent loss of earnings. It is easy to work out the figures, but it is the actual earning power that concerns me. How is that to be judged?

Lord Higgins

My Lords, my noble friend the Opposition Chief Whip suggests that this is clearly a birthday present for the noble Baroness. Indeed, I believe that that is probably the case. Of course, we understand her feelings on this particular subject. However, this is yet another example of recycling the same piece of news over and over again. As the noble Baroness rightly pointed out, this was originally foreshadowed some considerable time ago. None the less, it is helpful.

The noble Baroness was kind enough to write to me and my colleagues about the new clause and has now put it on the record. As I indicated earlier, there is not perhaps a case for having a correspondence course, but for having a debating Chamber. To the extent that the noble Baroness has spelt it out very clearly this evening, I do not want to delay the House any longer. However, the noble Baroness will no doubt want to reply to the point just made by my noble friend.

Lord Goodhart

My Lords, I, too, greatly welcome this new clause. It seems to me to be an admirable idea. However, I have one very small quibble to make which I hope will not be seen as looking a gift-horse in the mouth; namely, why is it necessary to leave it until October 2000? I realise that it would not be possible to introduce it in October of this year, but I wonder why it could not perhaps be introduced in April 2000 rather than waiting until October. Having said that, I reiterate that I think this is an admirable amendment and one which we certainly are very happy to see included in the Bill.

Baroness Hollis of Heigham

My Lords, I am delighted at the overwhelming enthusiasm which has come from the Benches opposite. It is very welcome at this time of night. However, I must say that it seems to me that the noble Lord, Lord Higgins, is being a little churlish. Indeed, if we fail to trail something and give notice that we shall be introducing something later in a Bill, we are told that we are springing it on noble Lords and that they have not had adequate or ample time to discuss it, prepare for it, take advice on it, reflect upon it and move amendments to it. But when we do give adequate notice so that noble Lords will know what we are doing and can take advice, consult and, if they want, bring forward possible amendments at a later stage, we are told that we are "recycling".

The noble Lord's version seems to suggest that we only recycle good news and that we fail to consult when the news is bad. As I said, that is rather churlish at this time of night, given the care that we have taken to ensure that the Opposition Benches know of the Government's intentions, precisely because this is a major and difficult change to introduce technically. Therefore, we wanted noble Lords to have ample time to reflect upon it and to make such consultations as they deemed necessary and appropriate.

In fact, it is for reasons of practicality as regards the technicalities that this will take until October 2000 to introduce. The changes between DWA and this new fast-track provision are quite detailed to finesse. We shall have to work closely with the organisations involved to ensure that we get the small print correct right through the regulations and the like. We need to take care in that respect.

A query was raised about the 20 per cent. Of course, there always is a cliff edge, but that figure was chosen because it represents the case of someone in work who has suffered a disability, which will seriously affect his earning power if, as a result, he loses the equivalent of one day's worth of earnings a week. That was how we arrived at the figure of 20 per cent. But of course, the amount paid will be certified by the employer and if, as a result, the person qualifies by virtue of his or her disability and reduced earnings, he or she will be eligible for DPTC. However, they will be eligible for that while remaining in the job they currently hold.

It would not be appropriate for someone to receive a benefit when, although disabled, his earnings were not affected by his disability. Such a person may be a high earner irrespective of his disability. He may, for example, be confined to a wheelchair, which will not impede his ability to be a skilled computer or IT processer earning a substantial salary. Such a person may receive DLA by virtue of his disability, but it would be unreasonable for him to receive DPTC. The point about DPTC is to ensure that someone whose earnings drop by virtue of a disability but who has negotiated with his or her employer either to do a job with reduced responsibilities or to do a different job within the same organisation—so he or she does not fall out of the labour market—will be compensated for that through the tax credit. I believe that is a decent, proper and splendid thing to do.

Lord Swinfen

My Lords, I thank the noble Baroness for giving way. If someone has a disability and he stays with the same employer, that is quite an easy matter to judge. However, if someone has an accident which results in a disability which means that he is away from work for some months—he may be in hospital and then have to recover from the accident—and then obtains another job with a different employer, it is much more difficult to ascertain whether that person's earning ability has dropped by 20 per cent. It is not the earnings that are so important but the ability to earn. Earnings are not static. Piece-work is easy to judge, but creative work is much harder to assess.

Baroness Hollis of Heigham

My Lords, perhaps I spoke too fast, given the lateness of the hour. This is a procedure additional to the existing route. The case described by the noble Lord, Lord Swinfen, would come under the existing routes of DPTC and DWA—in other words, it would be a case of DWA turned into DPTC. The noble Lord mentioned the case of someone who has fallen out of work because of an accident, has been in hospital, has come on to a qualifying benefit, has changed employer and as a result will be eligible for the existing structure and pattern of DWA, which will have become DPTC.

What we are introducing in addition to that—not to replace it—is what we call the fast track procedure for people for whom we can intervene while they are still on statutory sick pay with their existing employer, so that they can have the confidence that they can go back to work—possibly with reduced hours or doing a different job within that organisation—with that employer. However, to enable them to do that, we need to know about their disability and their earnings level. As I say, the case that the noble Lord mentioned is not likely to fall within the fast track procedure but rather within the alternative, basic mainline procedure which is the existing DWA procedure turned into DPTC.

On Question, amendment agreed to.

Clause 15 [New category of child care providers for tax credit purposes]:

Lord Higgins moved Amendment No. 33:

Page 8, line 36, at end insert ("( ) provide that where child care is provided by an adult member of the family to which the working families' tax credit or the disabled person's tax credit is payable, the Secretary of State shall take into account, for the purposes of subsection (1), an amount equivalent to the average charges made by persons in the new category;")

The noble Lord said: My Lords, as regards my response to the previous amendment it certainly was not my intention to be churlish. I was only glad to see how delighted the noble Baroness was with it. I think it is an improvement which should be welcomed. I certainly would not wish it to be thought otherwise.

The proposals in this Bill with regard to childcare were much advertised in advance but failed to appear for a long time; in fact the House of Commons had an opportunity to debate them only on the final day in that House before they came to this House. A number of aspects of the matter have not yet been fully discussed and perhaps we may return to them at Third Reading. When the provisions eventually appeared in the other place, they were largely related to the question of what organisations might be approved of rather than any thing else.

The purpose of this and the following amendment is to seek the Government's view in respect of individuals who provide childcare. Such individuals may enable others to return to work when they might not otherwise have been able to do so. The Government seem to be restricting assistance entirely to organisations such as playschools, which provide formal care, rather than including relatively informal care.

If people who would otherwise be at home looking after children are to return to the workplace, one would have thought that some informal arrangements were also important, but possibly not practical without a degree of financial support. It is curious that the Government will provide financial support to a formal organisation but not an individual childcarer. I thought that it would be helpful to move this amendment to see whether the Minister can clarify the situation. In light of her response, we might return to the issue at a later stage. I beg to move.

Lord Goodhart

My Lords, as this amendment is potentially of considerable importance, I ought to make our position clear, even at this time of night. I had some difficulty working out what the amendment is intended to mean. As I read it, it intends to provide childcare credit where an adult member of the family is concerned, meaning necessarily the caring parent, because the "family" for these purposes comprises the parents and the children. Having heard the noble Lord, Lord Higgins, I think that he means members of the family in a broader sense than is used in the legislation. I refer, for example, to a grandmother looking after her grandchildren.

Lord Higgins

My Lords, I do not myself interpret the word "family" as meaning only the parents and children. Clearly, a great many other relatives can be involved and it is my intention to include them.

Baroness Hollis of Heigham

My Lords, when DSS regulations talk about a "family" in relation to an assessment of an income-related benefit, they do not take into account the money of the grandma, aunt, uncle or stepbrother. They refer to the relationship of the two adult parents and possibly, in terms of housing benefit, to any contribution made by an adult child as an offset to the benefit that the parents would get otherwise. We have to assume the meaning of "family" within the understanding of DSS law.

Lord Higgins

My Lords, perhaps the amendment is rather loosely worded.

Lord Swinfen

My Lords, is the Inland Revenue's view of the "family" different from that of the Department of Social Security? If so, that may make a difference to the amendment.

Lord Goodhart

My Lords, the problem with Amendments Nos. 33 and 34 is the cost involved. The Institute for Fiscal Studies has estimated that if childcare were taken up by everybody, the cost would he of the order of £4 billion per year. This provision would not affect the whole of the £4 billion because not everybody would claim for childcare provided by a grandmother or family member. It would not, as I understand it, cover a mother looking after her own children. Even so, it will obviously be very expensive. Although we warmly welcome the generous level of benefits provided under the new arrangement, we have to look at the realities. Much as we would like to see something along the lines of the amendment, reality would not allow that at this stage. Therefore, I am unable to support the noble Lord's amendment.

11 p.m.

Baroness Hollis of Heigham

My Lords, I am slightly baffled as to the intent of the amendments. I had assumed that they were about a subject that we had previously discussed. That involved a situation where, if the mother was at home and not working, she would nevertheless still be entitled to, effectively, a wage as a mother by receiving the childcare tax credit—which is what is said in the amendment. The second issue, which it is perfectly proper to raise, is whether we are willing to finance informal as opposed to formal care. That is a totally different issue. Informal care could include care by a neighbour, a sister, a nanny, an au pair or whatever. If the noble Lord is concerned about that situation, I am very happy to explain why we are not doing that. I will scrap all my notes, which were addressed to what is said in the amendment.

If someone wishes to claim childcare tax credit for a child up to the age of eight, it may only be claimed where the person involved is a registered child minder; that is, a person who has been registered by the local authority as a fit and proper person and whose home is a fit and proper place by reasons of hygiene, safety, electrical appliances and all the other kinds of things that one would expect. The child minder is therefore registered as self-employed in a small business and handling accounts. That is the protection: the childcarer is of adequate quality, having been registered, and there can be no abuse in the sense of back-handed payments of money with no accounts kept. It is a proper business, run with proper accounts. If someone is to claim against it, the Inland Revenue will have access to that information should it need it.

Protection for the taxpayer and the child alike requires the Government to use registered child minders. We are considering whether we can provide greater help for disabled children in their own homes. We are not seeking to provide a general subsidy for au pairs, nannies or the next door neighbour. It is public money; we are accountable for the proper spending of public money; therefore it must pass through registered childminders. That is why we are funding formal care rather than informal care.

It may be helpful if I explain what we are doing in regard to children over the age of eight. I think that Amendment No. 33 attempts to state that an amount equivalent to the average charges made by persons in this category shall be taken into account where the childcare is provided by a member of the family. The persons in the new category will in the main work in out-of-school clubs, providing care for children aged eight and over. Clearly, it is inappropriate to read that back into what a partner might do. The rates the clubs charge will depend upon the service they provide. A breakfast club taking children before school will charge differently to an after-school club, which will charge differently to a holiday play scheme. The charge will depend on the length of care provided. A breakfast club may provide care for one hour each day; an after-school club for a few hours; holiday play schemes for a whole day. The charges will have a considerable range. It is not sensible to confine the help the amendment seeks to provide to an average charge when there is palpably no such thing in this sector.

I do not want to begin to contemplate the administrative burdens such a system would impose on childcare providers to collect information about the charges made, in order that the average can be worked out and then paid to somebody else. It would be an administrative nightmare.

In contrast to Amendment No. 33, Amendment No. 34 links the amount to be taken into account, to half the maximum amount available towards charges made by persons in the new category". Help for charges made by persons in the new category would be no different to the help given for other eligible childcare charges; that is, 70 per cent of those charges up to a maximum help of £70 per week for one child, £105 when two or more children are being looked after. Presumably the amendment is trying to state that the stay-at-home carer should receive £35 per week for one child or £52.50—that is, half of £105—for two or more children. I think that is what the amendment states, even if it is not what the noble Lord intended.

That brings me back to the argument about whether it is right to pay the childcare costs to a mother or a partner who stays at home. I do not believe that it is right to do that through the childcare tax credit. Of course, as part of the national childcare strategy, we will widen the opportunities of childcare for all children, whether or not one of their parents is at home looking after them.

I am happy to go on at length about the difference in cost between a couple where one partner stays at home and another family where both are at work. However, if that is not the purport of the noble Lord's amendment and his concern was about the difference between formal and informal, I shall not occupy the time of the House at this hour.

I am in the hands of the noble Lord as to whether I should close my remarks at this stage, having made clear why we are seeking to protect the position of formal as opposed to informal and the difference in treatment between the under-eights and the over-eights—as envisaged, the under eights through registered childcare certified by local authorities; and for the over-eights, the DfEE will certify accredited organisations which, in turn, will be able to register other groups as qualifying and providing care of a suitable kind. If the noble Lord is satisfied with that response, I shall close my remarks. I could go on for very much longer, but I do not want to trespass on the patience of the House this late at night.

Lord Higgins

My Lords, I must apologise for the ambiguity and the incorrectness of the form in which the amendment appeared. It was certainly my intention to raise the question of—I will not use the term "extended family" which has other implications—grannies, aunts and so on. I can understand how the noble Baroness and her officials took the amendment to mean individuals whom we had debated on different amendments at an earlier stage. It was not my intention to raise that again. The Minister's remarks have been helpful. I shall give thought to them between now and Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 34 not moved.]

Lord Higgins moved Amendment No. 35:

Page 8, line 42, after ("State") insert ("because the organisation provides child care for disabled children or")

The noble Lord said: My Lords, in moving this amendment, perhaps I may speak to Amendment No. 36 which is consequential on it. The amendment seeks merely to establish, in the framework which the Minister outlined a moment ago, precisely the scope of the various organisations which might provide care and, in particular, to clarify whether it includes the organisations which provide childcare for disabled children. At this stage I am merely seeking clarification of that scope in the light of the amendments previously moved in another place. I beg to move.

Baroness Hollis of Heigham

My Lords, the short answer to that is yes. The same arrangements will apply for disabled children as apply for non-disabled children. There is provision for the under-eights and there is provision for the over-eights. What is new here is the provision for over-eights. The framework will operate by setting up two tiers of voluntary regulation. In the top tier, organisations in the childcare field—for example, daycare trusts, kids' networks or whatever—which operate a quality assurance scheme would apply to the Secretary of State for accreditation which would then allow them to approve childcare providers as part of their quality assurance. In other words, the DfEE would license two, three, five or whatever major organisations of a national character to, in turn, license individual bodies which would meet the standards they had set down. We will be acting through voluntary organisations with the appropriate skills to establish the local voluntary network. The Secretary of State, when considering an application for accreditation, will look at the way the organisation would use its quality assurance scheme to approve individual providers which had achieved an appropriate quality standard agreed with the Secretary of State.

It is a novel scheme because it seeks to use the expertise that is currently developing among childcare organisations and to harness their work so as to encourage and ensure the provision of good quality out-of-school childcare. But it is important to emphasise that the scheme is not restrictive. Both the providers and the organisation which run the quality assurance schemes opt into the scheme. It is not like the regulatory framework set down by the Children Act where everyone caring for the under-eights must comply unless they are specifically exempted. That is why the legislation is enabling and not regulatory in the sense that is commonly used. It enables parents to afford good quality out-of-school care and it enables providers to offer their services to a wider range of parents than would otherwise be the case. Not only is it a novel measure but it enables issues such as the provision of care for disabled children to be readily accommodated within the process. Many groups to which we have spoken tell us that disabled children and their parents prefer disabled children to mix with and be cared for alongside other able-bodied children. This is what the framework seeks to achieve.

Among the criteria which the individual providers will need to fulfil is the need for a robust, equal opportunities policy for the children in their care. It is this aspect which seeks to ensure that the approved childcare in this sector is open to children with disabilities in the same way as for able-bodied children. Furthermore, specialist childcare for disabled children in the age range eight to 16 is not debarred from joining in the accredited organisations quality assurance scheme and becoming approved for the purposes of the childcare tax credit.

In conclusion, the current framework for the under-eights and a new framework aimed at eights and over, which is what Clause 15 is delivering, will accommodate those who provide childcare for disabled children and, most importantly, they would apply the same quality standards. There is no question of disabled children accepting or receiving a lower quality of care than would be expected for any other child.

The Government have gone further than this. As I say, as part of the package of measures to help those disabilities which my honourable friend the Paymaster General announced last Monday, there was a commitment to begin consultations with appropriate bodies about how to improve the necessary provision of care in a disabled child's home as eligible childcare for the childcare tax credit, which is not the case for the ordinary registered childminder. This is all good news. I would hope that in the light of this the noble Lord will see that his amendments are actually inappropriate, and indeed the insertion of the condition that the organisation provides childcare for disabled children is unhelpful and could actually be counter-productive. I hope that in the light of my efforts at explaining what we are doing and the good news I have been able to relay, the noble Lord will feel able to withdraw his amendment.

Lord Higgins

My Lords, I am most grateful to the noble Baroness, who has set the matters out very clearly so that it has helped to clarify the position. We will need to consider what she has said between now and Third Reading, but in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 36 not moved.]

Baroness Hollis of Heigham moved Amendment No. 37:

Page 9, line 7, after ("which") insert (", subject to subsection (5) below,")

The noble Baroness said: My Lords, this is something else that I am confident your Lordships will welcome tonight because the amendments of which Amendment No. 37 is the first implement one of the recommendations of the Select Committee on Delegated Powers and Deregulation. In response to an amendment moved in Committee, I said that I would reflect further on the issue and would return to this matter at Report stage.

As your Lordships can see, the Government have reflected on the issue. We recognise that an extension of childcare through this two-tier system of accredited organisations and local providers in Clause 15 is a major new development of government policy and one which has been widely welcomed. Given what I said in Committee, that I would reflect on whether as a result the Government should come forward with an amendment to the effect that the first set of regulations should be affirmatives, we have an opportunity, as a House, fully to discuss what I think is extremely good news in terms of extending the range of childcare for able-bodied and disabled children alike.

Consequently we have tabled this amendment to do what noble Lords asked me to do but set out in a form which we think would best fit the structure of the Bill and which would satisfy the necessary drafting conventions for such things. It would do no more and no less than the amendment tabled by the noble Lord, Lord Goodhart, and the noble Earl, Lord Russell, in Amendment No. 38, but it is framed in what we hope and believe is a more appropriate and certainly a more technically valid form. In the light of that, I have pleasure in moving Amendment No. 37.

Lord Goodhart

My Lords, my Amendment No. 38 is grouped with this amendment and of course it is now rendered unnecessary by Amendments Nos. 37 and 39. I would say just two things, as this is the last group of amendments at Report stage. I am very glad that we will be able to finish tonight while it is still the noble Baroness's birthday—

Baroness Hollis of Heigham

Indeed, my Lords, I bring "presence" to the House rather than receiving them.

Lord Goodhart

Always, my Lords, always. Secondly, I would like to say that of course I am very pleased to see that in this case the recommendation of the Delegated Powers and Deregulation Committee has been accepted. I am very glad that the Department for Education and Employment has taken what I would regard as a more reasonable and helpful view than that of the Inland Revenue. Therefore, I warmly welcome these particular government amendments.

Lord Higgins

My Lords, the intervention of the noble Baroness has taken my punch line. I believe that at the beginning of the Committee stage reference was made to Alice in Wonderland and the way in which words meant what somebody said they meant. We began by debating whether benefits should be known as tax credits. We end up with an equally good quotation from Alice in Wonderland, the exact words of which I am unable, unfortunately, to bring to mind. However, I recall that at some stage in the proceedings someone announces that everyone will have presents.

Lord McIntosh of Haringey

My Lords, perhaps the noble Lord has in mind the caucus race in which everyone shall win and have prizes.

Lord Higgins

My Lords, the noble Baroness got the previous amendment and we have this one, so we are all very happy. Once again, I wish the noble Baroness a happy birthday.

On Question, amendment agreed to.

[Amendment No. 38 not moved.]

Baroness Hollis of Heigham moved Amendment No. 39:

Page 9, line 9, at end insert— ("(5) A draft of the first regulations to be made under this section shall be laid before each House of Parliament and those regulations shall not be made unless the draft has been approved by a resolution of each House.")

On Question, amendment agreed to.

Clause 20 [Short title, commencement and extent]:

Baroness Hollis of Heigham moved Amendment No. 40:

Page 10, line 33, leave out ("and section 19(1)") and insert (", subsections (2) and (4) to (9) of section (Persons qualifying for disabled person's tax credit) (and subsection (1) of that section, except so far as relating to subsection (3)) and subsection (1) of section 19")

On Question, amendment agreed to.

House adjourned at sixteen minutes past eleven o'clock.