§ 7.59 p.m.
§ Baroness Hollis of Heigham rose to move, That the draft regulations laid before the House on 28th November be approved [3rd Report from the Joint Committee].
§ The noble Baroness said: My Lords, I shall also speak to the Tax Credits (Appeals) (No. 2) Regulations 2002.
§ It may help to put these regulations into context if I remind the House of their background. The child tax credit and working tax credit will be introduced in April next year. Your Lordships may recall that provision was made during passage of the Tax Credits Act 2002 for appeals against most decisions made by the Inland Revenue on tax credits to be heard on a temporary basis by appeal tribunals within the Appeals Service. That provision was warmly welcomed in the House, particularly from the Liberal Democrat Benches. There will be an onward right of appeal to the social security commissioners. These arrangements will remain in place until the tax appeal system has been reformed. Appeals made by employers will not be subject to the same temporary arrangements as they will be heard by the tax commissioners. We discussed that issue at length during our consideration of the legislation.
§ The first of the draft statutory instruments before the House today makes regulations for procedures at the appeal tribunal—for Great Britain, not Northern Ireland. The second of the draft statutory instruments made by my noble and learned friend the Lord Chancellor provides for procedures at the social security commissioners. The two sets of regulations are made under powers in the Social Security Act 1998, as applied and modified by the Tax Credits (Appeals) Regulations 2002, made on 26th November. The Tax Credits (Appeals) Regulations 2002 are made under the powers in Section 63(8) of the Tax Credits Act 2002 and their purpose is to provide the same appeal route as that which applies for social security benefits. Briefly, Section 63 of the Act provides the legal framework for conferring on appeal tribunals the functions which will ultimately go to the general commissioners or special commissioners.
§ The appeal tribunals and the social security commissioners are already familiar with existing tax credits. However, your Lordships may wish to note that the Tax Credits Act 2002 provides for enquiry powers which are more like those generally used by the 191 Inland Revenue. Consequently, two new types of case will be heard by appeal tribunals and commissioners. First, under Section 19 of that Act, the Inland Revenue may enquire into the entitlement of a person to a tax credit for a tax year and into the amount of tax credit due. The person who is under enquiry can apply in writing to the Board of Inland Revenue for the tribunal to direct the Inland Revenue to finalise the enquiry and to issue their decision of the proper award. Applications will be subject to similar processes and procedures as for tax credit appeals. The appeal tribunal will be obliged to give the direction applied for unless it is satisfied that the board has reasonable grounds for continuing with the enquiry.
§ The second new power concerns penalty proceedings. There are two types of penalty proceedings which carry rights of appeal and which will be heard and determined by appeal tribunals. In the first type of case, the Inland Revenue may impose a penalty on a person for providing an incorrect statement or information. Penalties imposed by the board carry appeal rights under Section 38 of the 2002 Act. In hearing an appeal against a penalty imposed by the board, an appeal tribunal may set aside, confirm, reduce or increase the penalty up to the maximum of £3,000 allowed under the 2002 Act. There is a further right of appeal from the tribunal's decision to the social security commissioners.
§ In the second type of penalty proceedings, it will be for an appeal tribunal to decide whether or not a penalty should be imposed on a person who does not comply with a notice from the Inland Revenue to provide information. While the Inland Revenue may apply to an appeal tribunal to determine a penalty, the tribunal cannot impose a penalty if the failure has been remedied beforehand. Penalty proceedings are started by the Inland Revenue laying information in writing before the appeal tribunal about the failure. The tribunal summonses the defendant to appear at a hearing and answer the information and, if the failure is still continuing, the tribunal may declare the failure and impose a penalty of up to £300. There is then a right of appeal against the tribunal decision to the social security commissioners.
§ I turn first to the Tax Credits (Appeals) (No. 2) Regulations, which make provision for administering and deciding tax credits appeals, applications for a direction to close down and enquiry and penalty proceedings. Your Lordships will be pleased to note that I do not intend to discuss each individual regulation. I should, however, like to draw your attention to the broad areas they cover and regulations of particular interest.
§ Draft Regulation 2 covers the service of notices or documents. Regulations 3 to 5 deal with persons with a right of appeal and time limits. Regulations 6 and 7 set out how an application for an extension of time in which to appeal and an application for a direction to close down a tax credit enquiry are to be made. Regulation 8 prescribes those persons who may proceed with an appeal or with an application for a direction where a party to the proceedings has died. Regulation 9 sets out the composition of an appeal 192 tribunal hearing different types of tax credits cases, a matter on which I can enlarge. Regulations 10 to 27 deal with procedures and broadly mirror the provisions of the Social Security and Child Support (Decisions and Appeals) Regulations 1999.
§ I turn now to the second set of regulations, the Social Security Commissioners (Procedure) (Tax Credits Appeals) Regulations 2002. Again, I shall be brief. These regulations, like the preceding ones, largely mirror the existing Social Security Commissioners (Procedure) Regulations 1999, which detail the procedure. Changes are made where necessary to reflect the new tax credits system under the Tax Credits Act 2002.
§ Noble Lords may wish to know two things about these regulations. First, certain provisions in the 1999 regulations which are not applicable to tax credits have been omitted from these regulations, such as those provisions under the Forfeiture Act.
§ Secondly, noble Lords may wish to know that both types of penalty proceedings which I have already described as coming before the appeal tribunal are appealable to the social security commissioners. They attract an automatic right of appeal to the commissioners on matters of both fact and law, where the penalty is initially determined by the board. Where the penalty is initially determined by the appeal tribunal, they attract an automatic right of appeal by all parties on a question of law and, by the defendant, on the amount of the penalty. This is in contrast to all other matters appealable to the social security commissioners, which are purely on points of law and appealable only with leave. The special situation applies because it is a sanction.
§ I am satisfied that these regulations are compatible with the European Convention on Human Rights. I commend the draft regulations to the House. I beg to move.
§ Moved, That the draft regulations laid before the House on 28th November be approved [3rd Report from the Joint Committee].— (Baroness Hollis of Heighant.)
§ Lord Higgins
My Lords, the House will be grateful to the Minister for that explanation. Although it is helpful to take the two sets of regulations together, I am not entirely clear about the relationship between the two. The Explanatory Memorandum for the Social Security Commissioners (Procedure) (Tax Credits Appeals) Regulations 2002 states:The Regulations have been drafted as a freestanding set. It is felt that this will make the regulations more user-friendly and avoid the need for cross-reference with the Social Security Commissioners (Procedure) Regulations 1999".I understand that. However, would it not also have been sensible to bring the two sets of regulations together? I assume that that has not been done because the vires of the two are not the same. Nevertheless, the two have been presented together. Given that the arrangements are transitional and may eventually be overtaken by events, I think it particularly important that people should be able to read and consider them together.
193 When we were discussing the Tax Credits Bill, I had reason to complain—I might almost say bitterly—about the failure of another place to scrutinise affairs as well as they should have done because of the way in which the procedures there had been programmed or "modernised". However, I cannot say that about the procedures in another place yesterday. My honourable friend Mr Mark Prisk, the Member for Hertford and Stortford, raised a number of issues relevant to these orders to which the Minister largely replied. I do not propose to go over that same ground again as the noble Baroness, the noble Earl, Lord Russell, and myself went over it in the course of discussing the primary legislation and I do not think that we need to go over every single aspect of it.
However, there is a basic difference between these Benches and the Benches opposite as regards the right approach for the appeals we are discussing. We continue to maintain that tax credits to a large extent constitute public expenditure and that only a small element—perhaps only 10 per cent of the total—can reasonably be regarded as having something to do with tax in the sense that a deduction is made from the tax that has been payable as opposed to benefit simply being paid out. The argument about the tax treatment in public expenditure terms of tax credits has a parallel in the debate about which tribunal should consider appeals against decisions—and whether it should be the usual social security tribunal or the Inland Revenue in the form of the tax commissioners.
I note that the President of the Office of the Appeals Service and Chief Social Security and Child Support Commissioner, Judge Michael Harris, states:The removal of Tax Credits from the Appeals Service is simply a barmy idea. Tribunals have Tax Credit experience and there is no reason why they cannot continue to cope with them. The Appeals Service will probably be asked to deal with Tax Credits for a short period of time initially, however if it is then transferred to the Inland Revenue this is a waste of public money. It is a political issue. Whatever their title Tax Credits are benefits not taxThat coincides very much with the views that we on this side of the House have expressed.
At all events it appears that appeals will continue to be overseen by the social security appeals process until such time as the noble and learned Lord the Lord Chancellor sorts out the reform—I suppose that that is what it should be called—of the appeals procedure more generally. Can the Minister give us any indication of when that change is likely to take place? I say that without prejudice to the fact that we still think that it is more appropriate for such matters to be subjected to what one might consider the less inquisitorial approach adopted by the social security tribunal as opposed to that typically adopted by the Inland Revenue when people appeal against its decisions.
In the course of debating the Tax Credits Bill on 23rd May 2002—that appears at col. 157 of Hansard—I was not clear whether we were referring to general or specialist tax commissioners. The noble Baroness kindly said that she would write to me on that matter. 194 I do not doubt that she did but, alas, given the cupboard that serves as my office here, I cannot remember what the answer was. If she can think of it off the top of her head, or if her officials in the Box can scribble it out frantically, as they appear to be doing, I may receive clarification on that point.
Incidentally, as regards appeals and whether people are entitled to tax credits, I heard in passing this morning a statement—I believe that it was on the "Today" programme or on one of the other news programmes—revealing the amount that is now not claimed by people entitled to social security benefits. That is certainly a large amount for, as the NAO pointed out in a recent report, about 20 per cent of pensioners do not claim all the benefits to which they are entitled. However, it was also asserted that the total sum claimed by people who receive benefits to which they are not entitled constitutes an even higher figure. That would be a large amount indeed.
I have one final point to make. The tax credits explanatory notes run to some 44 pages plus a form at the back. I have complained previously that the form has been shortened at the expense of lengthening the explanatory notes. It would therefore be slightly inappropriate for me to suggest that the explanatory notes should be lengthened even more. I refer to the TC600 notes on tax credits.
However, so far as I can see, despite all the information that is given in the notes, which run, as I say, to some 44 pages, there does not seem to be anything that might be helpful to claimants both with regard to what the appeals procedure is—however, that information would be rather complicated given that the procedure is in a transitional phase of unknown length—or what the penalties are for wrongly claiming in either of the two respects to which the Minister referred in her opening remarks. I should have thought that for the sake of half a page or a page extra on top of the other 44 or 45, there might be a case for covering those two points when the explanatory notes are reprinted.
There continues to be a difference between the two sides of the House. We still believe that it would be better to leave arrangements with the social security side rather than the Inland Revenue. Despite those important issues, as long as the situation does not change we remain content. However, I hope that the Minister will give us some idea when the transitional period is likely to end.
§ 8.15 p.m.
§ Earl Russell
My Lords, I hope that the noble Lord, Lord Higgins, will forgive me for saying that although we share this side of the House, we do not always share all the opinions expressed on it. Hearing the noble Lord on the question of whether tax credits constitute public expenditure takes me back to many memories of committees upstairs. It also reminds me of an incident in 1649 and the Bill that made England a republic and restored the country to its ancient state of a commonwealth. One Member asked how England could be restored to its ancient state of a republic when 195 it had never been one. Henry Marten, who was probably the nearest thing the Long Parliament knew to an atheist, replied that he was deeply troubled in his conscience by the interpretation of a text of scripture which said that a man who had been blind from birth had had his sight restored.
The question of whether a reduction in taxation amounts to public expenditure is in the same sort of theological realm as Henry Marten's question. It makes a good story, but it does not lead to any particularly easy resolutions. However, I shall not pursue that point further.
The regulations, as the Minister made clear, are transitional. We on these Benches are generally satisfied with the transitional regulations, although we retain some of the anxieties expressed on 24th January by my honourable friend Professor Webb in the other place in respect of the final form when the transfer to the Inland Revenue is complete. There is a question of change in this regard about which thoughts must be had and to which I am sure that we will return in due course.
I have a few specific points arising from the regulations. In Regulation 19 of the Tax Credits (Appeals) (No. 2) Regulations 2002, the Minister has found a most elegant way in which to deal with the conflict between the desire to reduce the size of the tribunal and the need for expert advice. I only wish that, between us, we had thought of that in 1998 when we spent ages arguing around a question to which that seems to be the answer.
On the other hand, there is a potential conflict between Regulation 19(3) and Regulation 14(1), and I should be glad to know how it could be resolved. Regulation 14(1) deals with cases in which medical advice may need to be withheld from the person who is the subject of it for fear that it may cause distress. It says,Where … there is medical advice or medical evidence relating to a person which has not been disclosed to him and in the opinion of a legally qualified panel member, the disclosure to that person of that advice or evidence would be harmful to his health, such advice or evidence shall not be required to be disclosed to that person".This is presumably a mental health provision, which I understand perfectly well, but I would be glad to know how it is reconciled with Regulation 19(3), which says,A copy of any written report received from an expert in accordance with paragraph (2) shall be supplied to every party to the proceedings".There is at least the appearance of a conflict, and if there is a resolution I should be glad to hear it.
The Minister will not be surprised to hear that I am also concerned about Regulation(2)(b), which relates to postal times. The Minister knows that that is a longstanding concern of mine in which I should declare an interest that I have not previously had to declare. Last week, I received a penalty notice of £60 for parking my car without displaying my residents' parking permit. The records show that the permit had been issued three days before the date of the alleged offence. I received it four clays afterwards and I could not have displayed 196 what I did not then possess because it was still in the post. I considered appealing but was given a 50 per cent discount on the fine if I paid within 14 days. However, I could not appeal until those 14 days had elapsed so I had to pay the full penalty. The Government's assumptions about the regularity of the post are grossly out of date and need rethinking.
There is in Regulation 2 of the Tax Credits (Appeals) (No. 2) Regulations a lack of a level playing field. It states that any notice that is,required to be given or sent to the clerk … or to the Board … shall be treated as having been so given or sent on the day that it is received".However, a document that is sent to anyone else should be taken as being received on the day on which it is sent. That appears to involve the lack of a level playing field. That point should be added to the unreliability of the post. We cannot continue combining the commercial enterprise with the universal service obligation. If we put one thing on top of another we shall have a situation that will produce much resentment and about which I fear we may hear rather more.
Subject to those few points, and with the further addition that I should like to hear the Minister's comments on the few but interesting criticisms made by the Child Poverty Action Group, with which I shall not detain the House now, I welcome the regulations.
§ Baroness Hollis of Heigham
My Lords, I am again glad that noble Lords have welcomed the regulations. I am grateful to the noble Earl, Lord Russell, for giving me advance notice of the discrepancy between Regulations 14 and 19. I hope that I shall be able to give him a satisfactory answer.
I turn first to the queries raised by the noble Lord, Lord Higgins. He asked about the two sets of regulations; his surmise that different vires were involved was correct. He will not be surprised if I duck commenting on the comments of Judge Harris, for whom I have the highest regard although I do not agree with his views on every issue.
The noble Lord pressed me on the timetable. We expect the arrangements to last for some time—perhaps a year or more—but appeals in the longer term will go to a reformed tax appeals system. We hope to announce our propositions for the way forward in the next few months. I cannot be more precise than that; that is the timetable to which we are working.
The noble Lord asked about tax commissioners general and special. Neither of us has a bad memory but the precise detail of that also escaped me. I am assured in a note from the Box that we wrote to say—this is clearly in the folk memory—that appeals can go to either special or general commissioners, and an appellant has a right to elect to have his appeal heard by either general or special commissioners under Section 39(3) of the Tax Credits Act, which established this system. It is a matter of election.
The noble Lord asked about the memorandum and said that it was not particularly helpful. That may be right, but it should be added that that is not the first 197 and last word on the subject. Full information on appeals and other processes and penalties will be made available to claimants. The substance of the point is that that must be in plain English and helpful and constructive; that must be achieved. We will discuss the necessary process with the appeals service and work with interested groups, such as CPAG, to ensure that claimants and tribunals get the facts that they need for hearings. The key facts involve issues such as the greater success rate that a company's oral hearings have over paper hearings. I shall ensure so far as I am able that the literature that goes to prospective appellants is of the sort that noble Lords and I would wish. I believe that that covers the questions raised by the noble Lord, Lord Higgins.
The noble Earl, Lord Russell, asked about the inconsistency between Regulations 14 and 19. Regulation 14, as he surmised, is about mental health issues. It involves the sort of evidence that would come from a person's GP or medical consultant. It might involve, for example, the information that someone has a terminal illness about which they may not know. It involves that and similar distressing circumstances. That would be assessed by someone on the appeal tribunal.
But Regulation 19 prescribes the manner in which expert assistance is to be provided to an appeal tribunal. Such expert assistance can be given only by a panel member. Therefore, on the one hand, outside information, which may be highly sensitive, is coming in, and, on the other, information is given by the panel member which must be shared with the appellant. To the best of my understanding, that appears to reconcile the concerns expressed by the noble Earl.
The final point raised by the noble Earl—a point raised also by the CPAG—concerned the apparent discrepancy between literature coming in and literature going out. I am sure that, from his own experience, the noble Earl will agree that a problem arises in relation to the department and the appeal service keeping track of dates. What we are doing—and our reason for doing it—is to ensure that the department and the appeal service know when a document is sent or received. They cannot ascertain when a claimant receives a document that they have sent; nor are they able accurately to ascertain when a document has been sent by a claimant. Those in the department can be clear when a document has arrived at the department and when it is sent out. As the noble Earl said, anything else is dependent on the vagaries of the post or on whether someone is away on holiday or away for a weekend and so on. Therefore, in this case, we must work with information which is solid and robust and which can stand up to further inspection.
§ Earl Russell
My Lords, I thought that that would be the Minister's answer. Will she square the circle between us by making the presumption rebuttable?
§ Baroness Hollis of Heigham
My Lords, I shall have to take advice on that and write to the noble Earl. However, we have discussed the matter with the Child 198 Poverty Action Group. I am certainly willing to consider what the noble Earl said and I shall write to him to see whether there is any way that we can meet his queries. But, having for many years chaired a local authority housing committee where, before we had a formalised appeal system, a number of appeals related to housing benefit, ultimately I had to say that we had to go by the date of arrival and by the date when forms were sent out by the department simply because of the unexpected vagaries of people's existences. In order to be fair to claimants, we could not handle the system in any other way.
The important point is to ensure that the appeal times, and so on, are of a decent period and that late appeals can be accepted with good cause. As the noble Earl will understand, both those issues are embedded in the system. Therefore, I hope that the matter of posting dates, and so on, will not come between us. However, I shall write to the noble Earl on the issue of rebuttal.
I have done my best to answer the questions raised and I hope that, as a result, noble Lords will feel able to accept the regulations.
§ On Question, Motion agreed to.