Sitting of 12 April 1999

Preamble
Reassembling after the Easter Recess, the House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Birmingham.

The Lord Chancellor: Leave of Absence
The Lord Chancellor (Lord Irvine of Lairg): My Lords, before business begins, I take the opportunity to inform the House that I am to deliver the RTE University College, Dublin, annual lecture on Wednesday, 14th April, when the House will sit. Accordingly, I trust the House will grant me leave of absence.

European Union: End of Life Vehicles Directive
Lord Brookman Lord Brookman asked Her Majesty's Government:
Whether they will submit amendments to the draft directive on end of life vehicles which would permit the continued production of leaded steel in the United Kingdom.
Lord McIntosh of Haringey: My Lords, the Government have worked hard in negotiations to ensure that this directive will permit the continued use of leaded steels in new vehicles. We are optimistic that a satisfactory outcome will be achieved when the directive is finalised.
Lord Brookman: My Lords, I welcome that Answer from the Minister. Does he agree with me that an unamended end of life vehicles directive would lead to substantial job reductions, particularly in South Yorkshire where it could be more than 1,000? Will he confirm also that the steel industry in the United Kingdom is keen to show its commitment to environmental issues and environmental programmes to such an extent that, for example, British Steel plc spends more than £100,000 every year on such matters? If there is no change to the directive, the effect could be extremely damaging to the industry.
Lord McIntosh of Haringey: My Lords, I agree that if the directive were not changed—our object is that there should be a list of exceptions which will cover the points raised by my noble friend—it would be extremely damaging. My noble friend is correct also in saying that it is important for the steel industry. I am informed that the leaded steel industry is worth around £200,000 million, and several hundred jobs would be at risk.
Lord Pearson of Rannoch: My Lords, can the Minister tell the House whether the Commission carried
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out what the Government regard as an adequate cost compliance assessment of the directive? If so, what does that assessment tell us?
Lord McIntosh of Haringey: My Lords, the Commission carried out detailed inquiries at the instigation of member states. The implementation of a directive of this sort is for member states themselves, and therefore the cost compliance factors would be different in different member states.
Lord Bruce of Donington: My Lords, will my noble friend inform the House from where this directive originated? If the Government did not like the draft directive, what steps did they take to anticipate the action which would be taken by the Commission to try to enforce it?
Lord McIntosh of Haringey: My Lords, the directive had its origins in the work of a priority waste-stream working group set up by the Commission in 1991. That looked at ways of reducing the amount of waste from end of life vehicles. It is in the interests of all of us in Europe to reduce waste, particularly hazardous waste, in end of life vehicles. From that point of view the Government support a draft directive on this subject.
Baroness Sharples: My Lords, can the Minister say whether or not a hearse is an end of life vehicle?
Lord Hardy of Wath: My Lords, will my noble friend make sure that no burden is imposed upon the British steel industry in regard to environmental protection until its competitors match its high standards in serving that cause in the United Kingdom? Also, will he take note of my noble friend's point in regard to the implications for South Yorkshire if the change is made by the United Kingdom and then not followed by its international competitors?
Lord McIntosh of Haringey: My Lords, the directive will apply to all countries in the European Union and it is intended that its application will be universal. The problem exists for the motor vehicle and steel industries in all other countries as well as this country. As I made clear in my first Answer, the objective of this Government, which we believe we shall achieve, is to ensure that the steel industry is not damaged by the directive.
Baroness Miller of Hendon: My Lords, following the question from my noble friend Lord Pearson regarding cost assessment, will the Minister help us by saying whether or not a risk assessment was made before the prohibitions in relation to lead in vehicles? And is there any danger involved in any of this? Further, will he tell the House that, as the Environment Council at Brussels on 11th and 12th March ducked the whole issue of exemptions from the regulations, what exemptions the Government will support and when they will decide?
Lord McIntosh of Haringey: My Lords, I do not fully understand the point of the noble Baroness in

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relation to risk assessment. The directive aims to reduce landfill of vehicles and to increase the proportion of vehicles which are recovered. Therefore, everything achieved by the directive in increasing the percentage of recovery from its present 75 per cent. to the objective of 95 per cent. by 2015 is pure benefit. I do not see that there are any risks involved, provided we take the point made by my noble friends about the need to protect the interests of the leaded steel industry.
In case there are any lingering environmental concerns, we are talking here about steel with a maximum percentage of 0.3 per cent. lead; about shredding, which recovers 96 per cent. of the leaded steel; and steel which is not recovered which has lead bound up in it and therefore does not carry any significant risk.
Lord Campbell of Alloway: My Lords, can the Minister say what an end of life vehicle is if it is not a hearse? For example, is it a Rolls-Royce Silver Ghost?
Lord McIntosh of Haringey: My Lords, I usually make it a rule not to try to cap the jokes of other noble Lords. Indeed, that is what I did by not responding to the noble Baroness, Lady Sharples. However, I can tell the noble Lord that an end of life vehicle is one which has come to the end of its life.
Lord Monkswell: My Lords, for those Members of your Lordships' House who are not engineers and not necessarily technically literate—
Noble Lords: Oh!
Lord Monkswell: Well, my Lords, some of us have an interest in this particular Question. Can my noble friend the Minister explain to the House the advantages of leaded steel for the users of steel?
Lord McIntosh of Haringey: Yes, my Lords. Lead in the manufacture of steel makes the steel easier to manufacture; it saves energy; and, indeed, there are no practical alternatives to leaded steel in, for example, the manufacture of aluminium and copper alloys, in the manufacture of batteries and in electrical circuits.
Baroness Miller of Hendon: My Lords, from the Minister's answer it seems rather difficult to know what the point of this directive is at all. However, having said that, if the noble Lord cannot answer the second part of my question today, can he perhaps write to me and let me know—and, indeed, the House—what exemptions to the regulations the Government would be prepared to support?
Lord McIntosh of Haringey: My Lords, as I said, it is our intention that there should be a list of exceptions to the regulations. We believe that such a list is in the process of formulation and that it will meet the concerns
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of the industry. At present, the latter is in the course of negotiations but when it becomes available I shall, of course, ensure that the noble Baroness is informed.

British Railways Land: Sales Policy
2.45 p.m.
Lord Cadman Lord Cadman asked Her Majesty's Government:
Why they have decided to end the moratorium on the sale of former railway land by the British Railways Board in advance of the publication of the review of such sales and consultation with the railway industry.
The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty): My Lords, the suspension of sales of land while the British Railways Board reviews its property portfolio remains in force. The board has submitted a report to the Government. We shall take into account the views of the new BR chairman before taking a decision. In the meantime, we have agreed that the BR board may proceed with sales of a limited number of sites where there are legal commitments which predate the suspension, where the land is to be used for transport purposes, or where there is some other reason for urgency.
Lord Cadman: My Lords, I thank the Minister for that reply. Is he aware that one of the last rail accessible facilities for the removal of asbestos from redundant railway equipment is to be lost to the industry because planning permission has been granted in respect of the site in Glasgow, which is owned by the British Railways Board, for a supermarket development? Does not that fact demonstrate the need for full and proper consultation before any disposals of former British Rail land are made by Rail Properties Ltd., which seems to care little for the long-term needs of the industry? Further, when will the Government realise that the needs of the rail industry should be put before the short-term aims of those who seek profit from such sales?
Lord Whitty: My Lords, the whole point of the suspension of sales, except where legally binding commitments apply, was to ensure that we had an adequate assessment of the implications of any potential sale. The Springburn Road, Glasgow, works, to which I believe the noble Lord is referring, was subject to an option agreement which gave the adjoining landowner the option to purchase the site. That option was exercised back in May 1998, at which point the board was legally bound to sell the site. Therefore, the sale process has been allowed to continue despite the general suspension of land sales.
Baroness Thomas of Walliswood: My Lords, can the Minister tell the House, first, whether he is satisfied that the land required for extending the capacity of Birmingham New Street Station is still safeguarded? Secondly, can the noble Lord tell us why he has not yet provided a list of sites which have been sold or where a

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sale is being discussed? These are all publicly-owned properties and the money from such sales will go into the public purse. Therefore, I see no reason why such information should not be made public.
Lord Whitty: My Lords, Birmingham New Street is of course Railtrack rather than British Rail land. I understand that negotiations are taking place between Railtrack and developers in that respect. However, that process is not subject to the suspension that applies to British Rail land. Nevertheless, we would expect Railtrack to strike a balance between its own commercial interests and its obligations as a licensed network operator to maximise the transport benefits. As regards the list of properties disposed of by British Rail, I can tell the House that I have today replied to a written Question tabled by my noble friend Lord Berkeley. My response updates the Written Answer I gave to him on 16th March. Accompanying that will be a full list of the sites involved, a copy of which will be placed in the Library of the House.
Lord Berkeley: My Lords, I await the Answer with keen anticipation; it will be very interesting. However, I remain slightly suspicious because the freeze announced last summer started thawing the very next day. Having read the list, and assuming that there are still some interesting sites left, can my noble friend the Minister explain whether the wider railway and freight industry—and I declare an interest here as chairman of the Rail Freight Group—will be consulted on future sales and whether the strategic rail authority will be able to purchase or take over from British Rail the sites which seem specifically important?
Lord Whitty: My Lords, the assessment by British Rail indicates that only about 10 per cent. of its sites would be appropriate for transport use. The intention is to list those sites and, it is recommended, offer them to transport operators and local authorities who might put them to transport use. The strategic rail authority, and indeed the new chair of British Rail, will need to take a view on the process. However, that is the position at present.

Sir Walter Raleigh's Statue
2.50 p.m.
Baroness Trumpington Baroness Trumpington asked Her Majesty's Government:
What progress has been made regarding the removal of the statue of Sir Walter Raleigh from Whitehall to a more appropriate site.
Lord McIntosh of Haringey: My Lords, a proposal by Madam Speaker to move the statue of Sir Walter Raleigh to St. Margaret's churchyard has been approved in principle by the Secretary of State for Culture, Media and Sport. In May 1997, and again in November 1998, Westminster City Council refused planning consent for
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the specific site proposed. The Dean and Chapter have appealed against the second refusal and a public local inquiry will be held on 6th May.
Baroness Trumpington: My Lords, I thank the noble Lord for that reply. With the amount of support there is for moving Sir Walter Raleigh's statue, does not the noble Lord think that Westminster City Council's planning committee has procrastinated long enough and if it does not like the site favoured by Madam Speaker and the Minister, why does it not suggest other sites? The point is to move the statue from its present site where it looks ridiculous.
Lord McIntosh of Haringey: My Lords, during previous Questions on this matter we all agreed in the House that Sir Walter Raleigh's statue is out of place on Raleigh Green outside the Ministry of Defence for no other reason than that is much smaller than the other three statues sited there. I believe that is a matter of common accord. Despite some temptation I am not sure that I wish to disagree with Westminster City Council's planning committee. It has gone through the proper procedures and the Dean and Chapter have appealed against its refusal. There will be a public inquiry on 6th May to which the noble Baroness can. of course, give evidence if she wishes.
Lord Strabolgi: My Lords, as Sir Walter Raleigh is a national figure of historic importance why is this matter left to Westminster City Council? Cannot the Government consider some sites away from the capital which are associated with Sir Walter Raleigh?
Lord McIntosh of Haringey: My Lords, the location of all statues will be in the area of some local authority. We cannot get away from that by going outside London. In London the role of the Secretary of State, and therefore of the Government, is restricted to giving approval for the erection of statues under the Public Statues (Metropolis) Act 1854. That prevents the Secretary of State from taking an active role in the development of proposals. However, I am sure that all local authorities and all of those responsible for statues will take account of what my noble friend says.
Lord Annan: My Lords, is it true that Westminster City Council's excuse as regards this matter is that it would create a precedent if the statue were placed where Madam Speaker wishes it to be placed? Would it not be possible for the council to say that it could be placed there but that that should not be taken as a precedent for other statues? If that is not satisfactory to Westminster City Council, will it consider the following sites: Poets' Corner, Millbank, near which Sir Walter lost his head, and Horse Guards Road, which I have suggested before to the noble Lord, in a place between the statue of Lord Mountbatten and the statue of Lord Clive, where it would be in competition with neither?
Lord McIntosh of Haringey: My Lords, I shall spare the House the full detail of the reasons for refusal given by the City of Westminster. It says that it is considered

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that the proposed siting is unacceptable in principle in that the location of the statue on the open space to the west of St. Margaret's is detrimental to the established character of the space. The uncluttered nature of this space is part of the familiar and cherished local scene. However, I have no doubt that Westminster City Council will be interested in the noble Lord's alternative proposals.
Lord Morris of Manchester: My Lords, if the statue of Sir Walter Raleigh is resited will it hasten the long overdue provision of a Whitehall site for an Anzac memorial? Meanwhile is my noble friend aware that this would be most warmly welcomed in Australia and New Zealand as well as by the all-party Anzac group of MPs and Peers, in which, as its president, I have the honour to declare an interest?
Lord McIntosh of Haringey: My Lords, I am grateful for my noble friend's comment. Of course he is right in saying that if and when Sir Walter Raleigh's statue is moved there will be a space for another statue. That sounds like a worthwhile suggestion. I wish to be slightly more helpful to the noble Lord, Lord Annan. The reason for choosing St. Margaret's churchyard is that Sir Walter Raleigh is buried there. That is considered more appropriate than Old Palace Yard—our car park—where he lost his head.
Lord Burnham: My Lords, it is suggested to me that this is a defence issue. The Minister stated that to place the statue outside St. Margaret's would be detrimental to the environment. Does he consider that it is more detrimental than the hot-dog stands that are there at present?
Lord McIntosh of Haringey: My Lords, I did not suggest that that was my idea. I read out what the City of Westminster expressed in ineffable local government language. The noble Lord may wish to make his observations about hot-dog stands direct to Westminster City Council.
Lord Davies of Coity: My Lords, in view of the outstanding performance yesterday I wonder whether the Minister would consider that when the statue of Sir Walter Raleigh is removed, we put in its place one of Neil Jenkins.
Lord McIntosh of Haringey: My Lords, I do not know what my noble friend is talking about.

Wave Energy
2.56 p.m.
Lord Campbell of Croy Lord Campbell of Croy asked Her Majesty's Government:
What assistance they are giving to schemes to develop power from waves to generate electricity.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, John Battle, the Minister for Energy and Industry, announced on 30th March that the Government were launching a new wave energy programme. More broadly, Mr. Battle also announced publication of a consultation document entitled New and Renewable Energy—Prospects for the 21st Century, reporting on the outcome of the Government's review of new and renewable energy policy, including wave energy, and seeking views on the proposals contained in the consultation document. Wave energy has also been boosted by its inclusion in the third order under the Scottish renewables obligation, where three projects have been awarded contracts.
Lord Campbell of Croy: My Lords, I am grateful to the noble Lord for his reply. Is government support being provided? I ask that because it is estimated that the cost of generating electricity from waves has decreased significantly, and because of the environmental advantages.
Lord Sainsbury of Turville: My Lords, wave energy research was stopped in 1994 because of cutbacks in the amount of money for renewable energy research. Since then further work has been done. Although wave energy generation is clearly for the long term, it is felt that it should be part of the research that we undertake. As regards costs, this method remains extremely expensive as compared with the alternatives.
The Earl of Lauderdale: My Lords, will the Government say when this report will be made public, and will it distinguish—as it should—between wave energy and tidal energy?
Lord Sainsbury of Turville: My Lords, we are talking here about wave energy rather than tidal energy. As regards the two reports, the consultation document has already been made available; that is, the one I have already mentioned, New and Renewable Energy—Prospects for the 21st Century. A report from the Foresight Marine Panel, entitled Energies from the Sea: Towards 2020, also makes the case for wave energy.
Baroness Miller of Hendon: My Lords, although I believe it is generally agreed that wave energy is an excellent source of renewable energy, as the Minister indicated, the cost of that is somewhat prohibitive at the present stage of technology. Will the Minister say why the Government continually set their face against gas-fired power stations which are both economical and environmentally friendly?
Lord Sainsbury of Turville: My Lords, what we are discussing here is a programme for renewable energy research which is looking at the future. Although, under the third Scottish renewables obligation, the cost was about 6p or 7p, this is felt to be a good investment for the future. I was asked about gas-fired stations, which we have discussed on a number of occasions. That is a separate question and relates to the right speed for going

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into that programme. It is still the case, as I have made clear to the House before, that currently the marginal cost of coal-fired stations is lower.
Viscount Addison: My Lords, can the noble Lord say whether there will be a greater use of tidal energy as opposed to wave energy? Many noble Lords live next to rivers and see a tremendous amount of water running past. It seems a shame that many of the old mills cannot be brought back into operation as they could generate enough electricity to supply villages around the country. I should like to see some support from the Government to that end.
Lord Sainsbury of Turville: My Lords, it is obviously a question of priorities but it is felt at this point that wave energy is the best option. There have been proposals on tidal energy but they involve huge capital costs which at this point preclude their consideration.
Lord Hughes of Woodside: My Lords, did I misread the newspapers last week when I thought I read that the Government had just approved a gas-fired power station in Wales? If that is the case, is it not about time that the Front Bench opposite also read the newspapers?
Lord Sainsbury of Turville: My Lords, far be it from me to comment on the reading matter of noble Lords on the other side of the House, which I am sure is a proper kind of reading and included that point.
Lord Ezra: My Lords, the Question relates specifically to wave energy but the efficient use of all forms of energy and the reduction of emissions from energy production are also relevant points. Will the noble Lord confirm that in the case of coal, for example, the Government still intend to proceed with ways in which coal can be used more efficiently while at the same time reducing emissions?
Lord Sainsbury of Turville: My Lords, I can confirm that. The noble Lord will have noticed that with the climate change levy there is a proposal for a fund of another £50 million which will provide more support not only for renewable energy, but also for projects involving greater energy efficiency.
Lord Skelmersdale: My Lords, the Minister mentioned three contracts that have been awarded under the SRO. Does he expect those to come to fruition? One of the great problems with both the non-fossil fuel obligation in England and Wales and the SRO in Scotland is that many projects do not come to fruition and therefore the contracts are abandoned.
Lord Sainsbury of Turville: My Lords, we expect those contracts to come to fruition, but such projects involve a speculative element. Before such a contract comes into being time is allowed to enable people to put the project together.
Lord Campbell of Croy: My Lords, are experiments or trials being planned or carried out at other marine
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sites besides the island of Islay, where the present experiment in wave energy is continuing, in view of the extra amount of money available from the renewables obligation in Scotland, to which the noble Lord referred, and the non-fossil fuel obligation which applies in England and Wales?
Lord Sainsbury of Turville: My Lords, we look at projects from other parts of the country. but the fact is that, in this as in many other matters, Scotland leads the way by having bigger and more waves. That makes it a very suitable place for this kind of project.
Lord Mackay of Ardbrecknish: My Lords, as I was canvassing last week for the Scottish parliamentary elections, I missed the announcement of the gas-fired power station in Wales. First, can the Minister say where it is in Wales? Secondly, if wave energy is such a good idea on Islay, why has the Secretary of State turned down a planning application for a wind farm in Kintyre?
Lord Sainsbury of Turville: My Lords, wind power is a completely different issue. Like all forms of energy, it has its fierce opponents. There is also the very important issue of visual pollution, which I am sure was given due regard.
Lord Mackay of Ardbrecknish: My Lords, will the noble Lord answer my first question?
Lord Sainsbury of Turville: My Lords, I thought that had been made clear by my colleague shouting out the answer.

Tax Credits Bill
3.4 p.m.
The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, I beg to move that this Bill be now read a second time.
Noble Lords will be aware of the proposed introduction of working families' tax credit and disabled persons tax credit. The Chancellor of the Exchequer made the announcement in another place on 17th March 1998 and noble Lords had an earlier opportunity to debate some of the broad policy principles during the passage of the Tax Credits (Initial Expenditure) Act 1998. That Act gave authority to the Inland Revenue and the Department of Social Security to spend money and begin work on the development of the tax credits to build on and replace two existing benefits, family credit and disability working allowance.
A joint project—with the Inland Revenue and the Benefits Agency—has been set up to implement the proposals and the Inland Revenue has held extensive consultations with representative groups to develop the details of the scheme. It has also been working closely with other government departments, such as the DSS and the Department for Education and Employment.

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Those two introductory paragraphs I had estimated might be coterminous with the departure of most of your Lordships from the House. I now turn to the substance of the Bill which provides for the introduction of tax credits, their administration by the Inland Revenue and for them to be paid through the pay packet. It may be helpful if I spend some time sketching in the background to their introduction.
First, perhaps I may say something about labour market trends. Since the objective of full employment was first set out in 1944 there have been major demographic and social changes affecting the labour market and the global economy and a rise in female and in part-time employment. Over the past 20 years in particular, structural unemployment has been on an upward trend, accompanied by the wide swings in the level of employment which go with the boom and bust economic cycle. The labour market participation rates of certain groups of individuals, including men aged over 50—particularly those with poor skills—lone parents and disabled people have all declined substantially, and the number of households where no one is in work has risen dramatically. The problem is particularly acute among families with children and is a major factor in child poverty.
The build up of long-term worklessness associated with previous recessions has proved immensely damaging for individuals, destroying their connections with the labour market, their skills and their employability. It has meant that, as the economy began to move into recovery, the upturn was cut off by labour market bottlenecks, by skill shortages and wage inflation while at the same time worklessness remained at unacceptable levels. So the challenge facing the Government is to promote employment opportunity for all in the very different labour market of today.
What are the obstacles to work? Lack of work is the most important pathway into poverty and work is the best way out. Most of those with low incomes are poor because no one in their household has paid work. But also, one in five low income households remains stuck on a low income even though all the working age adults in their household are in work. For those who are trying to move into work, or trying to move up the employment ladder, there are two major problems. I am sure your Lordships will be familiar with both. They are the unemployment trap and the poverty trap.
People are understandably reluctant to take work that does not pay, even though they remain strongly attached to the labour market. Too often, the gap between in-work and out-of-work income is too small to encourage people to move off benefits—the unemployment trap. And, once in work, many people on low income face an unacceptable poverty trap in which improvements in their pay are clawed back by the combined effects of the tax and benefit system. It means that they may be paying almost penal rates of deduction. Those distortions are frustrating the ambitions of people on low income and contributing to family poverty. They also contribute to high levels of structural unemployment and low levels of labour market participation. Measures to address tax and benefit
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distortions are therefore an important element of the Government's economic programme as well as a crucial element of the reform of the welfare state. We are determined to make work pay by tackling those obstacles—the unemployment trap and the poverty trap—to moving into work, staying in work and moving onwards.
Since 1979 the number of non-pensioner families—that is, families of working age—living in workless households has more than doubled as households have polarised between "work rich", where more than one person is in work, usually a husband and wife, and "work poor" households where no adult is in work. In 1995–96, eight out of 10 working age households with less than half average income—almost 8 million people—had no full-time worker, up from five in 10 (in 1979) to eight in 10. A third of children, as a result, now live in relative poverty. That is almost 3 million more poor children than in 1979. Over 80 per cent. of those children live in families where no one has a full-time job. Over 80 per cent. of workless households are dependent on benefit; that rises to over 90 per cent. of workless households where there is a couple with children. It has led not only to worklessness and relative poverty, but also to greater income inequality.
As I said earlier, the unemployment trap occurs where net income after taxes and in-work benefits is little or no better than income out of work. Such low returns from working reflect partly the low level of entry wages that some people are able to obtain: entry wages are on average only two-thirds of the median wage for the job. For someone falling out of work but then returning, it takes on average four years to recover the level of pay that that person received when he or she dropped out of work. Yet research shows that it is the entry wage, not the wage that people may receive four or six years on, that determines people's perception of the financial returns from entering work. A survey of the barriers to moving into work based on people on income support indicated that the biggest single reason why people were reluctant to move from income support into work was the low level of entry wages. Over a third of those questioned cited that as the reason—twice as many as cited the lack of affordable childcare, for example.
But for some, particularly those with large families, the financial gains from working can be small even at moderate earnings. The tax and benefits system plays a key role here. The severity of the unemployment trap depends primarily on a combination of two factors. The first is the generosity of out-of-work benefits, which reflect family size—unlike wages—and which erode the return from work, particularly for those in a large family. The other is the wages that can be obtained from working plus the generosity of in-work benefits, which will increase the return from work. The position of the unemployment trap is on the fulcrum between those two.
The poverty trap arises when people in work cannot improve their net income significantly by increasing their pay because that is largely offset by income tax and particularly withdrawal of in-work benefit. Whereas higher in-work benefits improve the unemployment trap—that is, they make it more attractive to work—

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they tend to make the poverty trap worse because they mean more families receiving those benefits and hence facing high withdrawal rates.
For those with sufficient income or hours to take them off JSA or IS, the return from further increases in earnings can be reduced by national insurance contributions, income tax, the progressive withdrawal of family credit, housing benefit and council tax benefit. The overall size of the marginal deduction rate facing a low earner depends on which benefits are being received, but it can rise to 97 per cent. for those who are also on family credit, housing benefit and council tax benefit, as well as paying NICs and tax. Because withdrawal of benefits is calculated on the basis of income after tax and other benefits, the overall rate cannot normally exceed 100 per cent., but at certain points it can go higher where both housing benefit and council tax benefit are being withdrawn. People are actually worse off for every extra pound they earn. Surely that must be perverse.
Marginal rates for low earners tend to be higher for those with children, because they may then be affected by the withdrawal of family credit, or those with high rents and/or council tax, because they may then be affected by the withdrawal of housing benefit or council tax benefit. About three-quarters of a million working families, about 5 per cent. of the total, have marginal rates of 70 per cent. or more currently. That is approximately twice the number that existed in the mid-1980s. That is in part a result of the previous administration's decision to move away from investing in social housing and instead to deregulate housing rents, which therefore went up. Housing benefit took the strain, thus increasing that dependency trap by thousands. Absurdly, nearly half of those on family credit, 45 per cent.—500,000 people—also pay income tax, even though their hourly rate may be below the minimum wage. So we pay in-work benefits to subsidise unacceptably low pay, and we then proceed to tax part of those in-work value benefits away. Can there be a better argument for the integration of tax and benefit structures? Under WFTC, 97 per cent. of those families, the 500,000 who are being taxed on their benefits, will be taken out of tax altogether.
I now turn to the working families' tax credit. Last year, the Chancellor of the Exchequer signalled a major step towards overcoming the twin obstacles of the poverty trap and the unemployment trap. He announced the introduction of the working families' tax credit to replace family credit to ensure that work is rewarded and not penalised. Its greater generosity helps to spring both the unemployment trap and the poverty trap. It makes it attractive to move into work and it allows people to keep more of their pay as they go up the earnings scale because the tapers are more shallow.
Combined with the national minimum wage and changes to NICs, the WFTC will provide a minimal level of weekly take-home pay. The WFTC, which will be introduced on 5th October 1999, will provide a guaranteed minimum income of £200 for families. with one member in full-time work earning the national minimum wage and reduce the tax burden on families so that those with earnings of less than £235 a week, or
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£12,000 a year, will no longer pay any net tax; it will reduce the number of people with marginal tax rates of over 70 per cent. by 500,000; it will provide the opportunity to develop greater support for the costs of childcare; and the disabled person's tax credit will also provide a guaranteed minimum income of at least £155 a week for a single disabled person who moves from benefit to full-time work earning the national minimum wage, and £230 for a couple with one earner and one child.
The Tax Credits Bill legislates to convert the existing benefits into the new, more generous tax credits. It sets out the framework within which the tax credits will operate. The Bill builds on the existing legislation for the benefits which are being replaced. It provides that the main features of family credit and disability working allowance will apply to WFTC and DPTC, and that the functions of the Secretary of State are transferred to either the Treasury or the Inland Revenue.
Much of the detail of the existing benefits is in secondary legislation. The Bill therefore includes a large number of existing regulation-making powers, where the details of the scheme will be set out. It adds few new regulatory powers. Rather it re-establishes the existing powers of family credit and transfers them to WFTC. The Bill also contains consequential provisions to establish the administration of the tax credits by the Inland Revenue.
Much of the detail of the scheme and that for payment through the pay packet has already appeared in the booklet, Working Families Tax Credit and Disabled Person's Tax Credit, published last December and in the draft regulations published for debate in the other place.
It may be helpful if at this point I explain how the tax credits will work. In October 1999 WFTC and DPTC will begin and will be administered by the Inland Revenue. Applications for the tax credits will be made to the Inland Revenue at the new tax credit unit. It will asses and pay the award.
WFTC will be available to families who have one or more children living with them, who work at least 16 hours a week, are resident in the United Kingdom and have savings of less than £8,000. The qualifications for DPTC are similar, except that applicants must have savings of less than £16,000, and they do not need to be looking after a child. To qualify for DWA they must have one of a number of qualifying disability benefits or have been receiving one up to 56 days prior to their application. But the Bill extends this period to six months. I shall return to that later.
The WFTC will include one adult credit per family—it is a household credit—while the rate of DPTC adult credit will depend on whether the applicant is single or a member of a couple. The distinction is that the credit is by definition of the disability as opposed to the family. Both WFTC and DPTC will also include child credits, depending on the number and age of the children, a 30-hour credit, as now with family credit, and a childcare tax credit. The DPTC will in addition include a disabled child's tax credit. The total amount of WFTC or DPTC for which a family qualifies is calculated by adding together the appropriate tax credits.

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The full amount of WFTC will be available to those whose income net of tax and NICs is below £90 per week. If net income is above £90, the maximum WFTC is reduced by 55p for each additional £1, not 70p as now under family credit. The full amount of DPTC is available to a single person whose income net of tax and NICs is below £70 per week and to a couple or lone parent whose net income is below £90 per week. Above those amounts the taper is reduced by 55p for every extra £1 of income.
Compared with family credit, the credits under WFTC and DPTC are more generous, the threshold is higher and the taper of withdrawal is more gentle. Once the weekly amount of tax credit payable has been awarded, it will normally be fixed for 26 weeks, as with family credit now. Couples applying for WFTC will be able to choose which partner applies for and receives the tax credit—a point worth emphasising. Awards will be paid to the applicant by automatic credit transfer into the applicant's bank account or, if the applicant chooses, by order books.
As I have mentioned, the tax credits also include a childcare tax credit. This will be more generous than the childcare disregard in family credit which it replaces and will assist the poorest families. Under family credit a family earning less than the threshold of £79 a week cannot, in practice, obtain help with childcare costs because it is already receiving maximum family credit and therefore the disregard of childcare costs cannot come into play. With working families' tax credit, the credit effectively reimburses 70 per cent. of what is paid out for assisted childcare, so the poorest stand to gain. The credit will play a key role in underpinning the national childcare strategy by ensuring that good quality childcare is affordable for low and middle-income families.
We have therefore decided to raise the age limits applicable under family credit so that parents will be able to claim for childcare for children up to the age of 14, ensuring that the credit is in line with the national childcare strategy. We all know that children of 12 and 13 need supervision as much as younger children. We shall also raise further the age limit in the case of children with a disability so that their parents will be able to claim childcare costs up to the age of 16 and extend the range of childcare costs which can qualify for the tax credit to cater better for good quality out-of-school provision needed for older age-group children, the 8 year-olds plus.
We have also proposed that in calculating income for WFTC purposes there will be full disregard for maintenance payments, something I am very pleased about. That will be a significant contribution towards tackling child poverty. At the moment a lone parent on family credit keeps only the first £15 of the maintenance and thereafter it is netted off the family credit. In future she—it is usually she—will keep every penny, on average, over £30 or £31. Children will see their fathers directly paying maintenance for their upkeep and the family and the children will be better off.
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Finally, we have also recognised that one of the problems with moving into work is the financial uncertainty between losing income support and the start of wage payments. To help ease the transition for lone parents, the Chancellor announced in his Budget that from October 1999 their out-of-work income support will be extended for two weeks—a fortnight's roll-over—when they move into employment. As IS and jobseekers' allowance are often paid up to two weeks in arrears, this will effectively allow up to four weeks' roll-over of IS or JSA alongside the existing four weeks' roll-over of housing benefit and CTB. This, too, will smooth the move into work. Many people have told us that it is the first month, before they receive wages and when they have lost benefit, that is the hardest to cope with.
The disabled person's tax credit will replace the DWA. It will be more generous than the benefit it replaces, with increases in the thresholds and a more gentle taper. There are many experts on disability in this House, some of whom I see here today. They will know what the flaws with disability working allowance have proved to be. It does little to help people who become disabled while working to stay in work, despite all the evidence showing that unless a disabled person stays with his or her existing employer it is most unlikely that another employer will employ him or her. Nor has it been as successful as anticipated—and we all hoped it would be successful—in encouraging people to move from out-of-work benefits into work. When it was first introduced we expected that around 50,000 disabled people would claim it. The figure has climbed very slowly to about 14,000, only a quarter of those whom we hoped would be eligible.
What are we going to do about DWA? To address the first point, the Government propose creating a fast-track gateway to the disabled person's tax credit. This will be for people who have been on statutory sick pay or equivalent benefits for 20 weeks and who are therefore effectively still employed by their employer, who can show that their condition will represent an obstacle to their participation in the labour market for the next six months and who face a drop in income from returning to work. In other words, we are effectively constructing a partial capacity benefit for those in work whose earnings will fall by virtue of their disability while they remain with the same employer. This seems to me an important move in allowing disabled people to remain in work, with more flexible working conditions. We shall bring forward any necessary new clauses at Committee stage.
To tackle the second problem with DWA and to get people who are out of work into work, as opposed to keeping them in work, we propose two new measures. The first is to use the qualifying benefit rule. At present, to be eligible for DWA a claimant must either be claiming disability living allowance or have claimed incapacity benefit within the past 56 days. However, 56 days may not be long enough for someone to find a job whose entitlement to incapacity benefit has been withdrawn because of improvements in his or her

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condition but who is still at a disadvantage in the labour market. We are therefore extending that period to six months.
Secondly, we are extending the housing benefit and council tax roll-over, which applies to income support but not to disability benefits, to disabled people. In addition, noble Lords will recall that last October the 12-month linking rule came into effect, which means that if a disabled person on a fairly high level of benefit—because it is long-term benefit—takes the risk of going into work, should that work break down, he or she can go hack on to the higher level benefits rather than go back down the snake and have to start all over again. This linking rule takes away some of the risk that disabled people perceive in leaving secure benefits and trying out work.
Putting those three measures together—the fast-track procedure, the roll-over, and the 12-month linking rule—we believe that we shall not only be able to help disabled people remain in work but also help them to move into work more speedily.
From April 2000 WFTC and DPTC will become payable to employees by their employer in their pay packet. Self-employed applicants will continue to be paid direct by the Revenue, as will couples who have opted for the tax credits to be paid to a partner who does not have an employer. As with the general scheme, draft regulations for the scheme for payment by employers have been published for debate. These proposals have been developed over several months in full consultation with representative bodies. We wish to pay tax credits through the pay packet to cement the link between work and the rewards of work.
After April 2000 all claims will still be made to the Inland Revenue, who will assess the award. If, however, the tax credit is to be paid through an employer, the Inland Revenue will notify the employer of the amount of tax credit to be paid, when to start payments and when to stop. The employer will add the amount of the tax credit to the employee's net pay for each pay period. I emphasise that the Inland Revenue will do all the work of calculation. The employer will need only to add the sum notified to the pay packet. That amount will be shown on the employee's payslip. This stage of tax credits will inevitably involve some changes for employers, including the need to ensure that their systems are able to make the payments and account for them to the Inland Revenue. In its consultations with employer and other business representatives the Revenue has been discussing the design of the scheme to ensure that any extra costs are kept to a minimum. A draft regulatory impact assessment has been published along with the draft regulations I mentioned.
Employers will pay tax credits out of the PAYE tax and NIC deducted from their workforce with additional funding from the Inland Revenue if necessary. However, some employers will not be asked to pay tax credits through the payroll where they do not currently deduct PAYE tax or NICs as they will not have any money with which to pay it. In those cases employers will not pay tax credits; their employees will receive it direct from the Inland Revenue.
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That is a broad summary of the tax credit scheme. There will be some specific additional powers. There is a provision to bring the tax credits under the care and management of the Board of Inland Revenue and include within them the duty of confidentiality. There are measures to ensure security to combat fraud. There is also protection of employees' rights to ensure that they do not suffer unfair dismissal as outlined in Schedule 3 at the hands of unscrupulous employers. The Bill also allows for any necessary exchange of information between the Inland Revenue and the DSS to carry on the business of tax credits and remaining social security benefits.
Appeals about tax credit claims will he heard by the new unified appeal tribunals set up under the Social Security Act which your Lordships debated last year. That is because these tribunals will have the experience, for example in assessing disability, to deal with the type of cases that come before them. In the longer term we intend to pass jurisdiction to the tax commissioners so that they hear all appeals on tax credits. WFTC and DPTC are to be excepted matters for Northern Ireland and outside the legislative competence of the Assembly because they are part of the Inland Revenue's UK-wide tax system.
These are the main provisions of the Bill. I hope that the House will forgive me for taking some time to explain this technical matter. The Bill when enacted will allow for the introduction of a system that provides much needed help to low income families and disabled people. It will give real financial encouragement for them to move into work by significantly boosting their earnings and providing extra help with childcare costs. It will unambiguously improve the rewards from work by providing a clear link with employment. It addresses the unemployment trap; in other words, one is better off working. It also addresses the poverty trap because one keeps more money as one's earnings increase. It combines making work pay with supporting families who re-enter work, and it will help to lift them and their children out of poverty. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Baroness Hollis of Heigham.)
3.33 p.m.
Lord Higgins: My Lords, as in previous debates relating to social security the House will be grateful for the very clear exposition by the noble Baroness of an extremely complex Bill and of the even more complex subject with which it seeks to deal. But whatever the Government's original intention—I believe we can all agree that the need to tackle the unemployment and poverty traps is of great importance—in very many respects this Bill is a bad and disappointing one. In some ways, it is a wasted opportunity. The reality is that this is not a tax credits Bill. If it were such a Bill, I should certainly be among those who welcomed it enthusiastically.
Over the years a vast number of attempts have been made to integrate the tax and benefits system to overcome the problems to which the noble Baroness

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referred. To go back into ancient history, as long ago as 1974 the then government announced that they intended to introduce a tax credits Bill to integrate the two sides. They recognised that they could not afford to do so immediately, but they said that they intended to legislate and to introduce such a Bill over four years. Alas, the general election of 1974 intervened. A committee was then set up comprising three people: the noble Baroness, Lady Castle, the noble Lord, Lord Barnett, and one other whose name for the moment eludes me. At all events, the opportunity was lost. I have never managed to discover why that government turned down that idea. Over time, everyone has wanted to see this idea achieved.
However, this Bill is not a tax credits Bill. I have tried to think of alternative titles. I forget whether the title of a Bill can be amended in your Lordships House. This measure is that most improbable animal—an Inland Revenue hand-out Bill. That gives one grave cause for concern. Even the title is wrong. Clauses 1 and 2 immediately give the game away. Under Clause 1 certain benefits are to be known as "tax credits". Spin-doctoring is all very well but to legislate to make one word mean what is normally regarded as something quite different is extraordinary. Clause 2 is concerned with the transfer of functions relating to tax credits. If it really were a tax credits Bill, there would be no need to transfer this matter to the Inland Revenue.
Very disappointingly, as the Government's ideas on this subject have changed, the Bill has itself changed very significantly. The idea was originally put forward by, among others, Mr. Martin Taylor who was looking at the issue. It was discovered that the Inland Revenue did not believe that it was possible to integrate this matter with the PAYE system. As a result, instead of going back to the very beginning, the Government have proceeded with this rather extraordinary proposal whereby the working family's tax credit and the associated credits will effectively be disbursed by the Inland Revenue. Although we are told that it is a flagship, in many respects it is a vessel that is sailing under false colours.
We shall do everything that we can to improve the Bill—and there are many respects in which the Bill can be improved, not least because interests as wide-ranging as the Institute of Directors and the CBI on the one hand and the TUC on the other have objected to some features of the Bill. Further, those groups which are most closely involved in this area, such as the Child Poverty Action Group and the National Association of Citizens Advice Bureaux, have also raised very considerable doubts. Perhaps I may quote the NACAB. Although it welcomes the increased expenditure, it is by no means certain that the problems intrinsic to
"a means tested wage subsidy"
help to solve the poverty and unemployment traps to which the noble Baroness referred. On the contrary, it is fearful that it will make some of those problems worse rather than better.
I list some of those matters that I believe are objectionable. For some noble Lords who take part in social security debates a number of these matters will
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appear almost traditional. First, the Treasury appears to be taking over more and more of the responsibilities of the Department of Social Security. Following the transfer of the Contributions Agency, we have the Bill that is now before us.
Secondly, in line with other moves by the Government, means-testing has been increased. This Bill brings into the dependency net many people who previously were not within it, although the avowed intention of the Prime Minister before the general election was that the Government would reduce the extent to which people became dependent on the social security system.
Next, there is the promise to reduce the expenditure of the Department of Social Security. In the Comprehensive Spending Review we see a massive increase in that expenditure. As far as concerns this Bill, the figure involved is about £1.5 billion. It may be even higher following the recent Budget Statement by the Chancellor. Therefore, we face a very real problem.
From the Government's presentational point of view, the picture is rather advantageous. On the one hand, this can be presented in some ways as a tax cut and, on the other hand, as a reduction in the expenditure of the Department of Social Security.
In addition, there are all of the usual problems relating to the matter being dealt with by regulation. Will we have before Committee stage drafts of all the regulations that the Minister envisages being introduced? With particular regard to the childcare tax credit, which was introduced only at the very last minute in the other place, will we have the guidelines that will tell us whether or not a particular arrangement for childcare will qualify for benefit?
The Bill raises a number of more specific problems, particularly that which is commonly called the "purse-to-wallet problem". Grave concerns have been expressed outside that instead of benefits being paid, generally, to the wife, there will be a choice. The couple will have to choose who should receive the benefit—and that may give rise to some dispute. The noble Baroness raises her eyebrows. I do not find that a remarkable suggestion. It would seem that instead of family credit being paid to the wife, under the Bill on some occasions it may not be. Is it common ground between us that it is better that family benefit should be paid to the wife rather than to the husband? Research by Rowntree and others suggests that when it is paid to the mother, it is more likely to be spent on the child. Perhaps the Minister will clarify whether or not that is common ground.
Outside bodies have also raised problems in respect of fraud. The Government have made a great thing about tackling fraud, despite in some cases apparently withdrawing the mechanism for dealing with it. I shall not dwell on the problems now. My noble friend Lord Astor of Hever will deal with them in some depth.
Problems surrounding confidentiality have also been stressed by outside groups. Also, there cannot be any dispute about the fact that there will be problems concerning the burden on business. They will have to be discussed at a later stage.

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All those problems will require a great deal of attention in Committee, on Report and at Third Reading. In addition, we have the Government's proposals for the childcare tax credit and the disabled person's tax credit—remarkably, an issue that there was no opportunity to discuss in Committee in another place. That is an extraordinary situation and it places an additional burden on your Lordships. The Minister indicates dissent, but it presents your Lordships with an additional set of problems, which must be discussed in considerable detail.
I have already stressed the problems surrounding means testing and marginal tax rates, to which the noble Baroness referred. One must, of course, take the withdrawal of benefits into account as well as whatever the tax rate may be. Am I right in thinking that although it is true that the Bill reduces the number of families paying a high marginal tax rate, it increases the number who will pay tax at 60 per cent.? Perhaps the Minister will clarify that point. She stressed strongly that was something she saw as a virtue of the Bill.
The cost to the Exchequer will be considerable—something like £1.5 billion, which is carefully disguised in the Treasury documents as accounting and other adjustments. Has the basis on which that was put in the Red Book been approved by the impartial bodies that normally do that? It has enabled the Government to present their public expenditure and tax plans in a more favourable light than reality would justify.
My next point arises, rather cogently, from the quotation that I used a moment ago from the NACAB, which called the Bill's proposals a means-tested wage subsidy. That is a rather unusual device, but it is the reality of what is proposed in the Bill. Is that in conformity with European Union law? If it is a subsidy of that kind, other countries might feel that it is unfair competition.
I turn to the centrepiece of the Bill. The Government's whole argument is that, as they were not able to do this through PAYE, the benefit must be paid through the payroll so that people understand that they get more from working than from being on benefits. I find it strange that the Government feel that people who go to work and suddenly find that they are receiving additional benefits will not realise that is the reason, but be that as it may. The choice as to how the credit is to be paid will apparently be available to couples but not lone parents who—whether they like it or not—will have the benefit paid through the payroll. Couples may decide whether to have it paid in that way or through the post office. The Government say that they cannot do that for lone parents because they would not realise that they are gaining from working.
The TUC seems to share my view that such an arrangement is most unfair on lone parents, who will be denied that choice. Of course the argument cuts both ways. If the Government give people the choice, our argument against the credit being paid through the payroll is somewhat diminished. Conversely, the Government's argument the other way is rather better. The National Council for One Parent Families also sees
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that as a problem. Perhaps the Minister will make clear exactly what the situation is and why lone parents should be deprived of that choice.
I referred to the wallet to "purse-to-wallet" argument, which I believe is likely to cause problems. No doubt we shall return to that point in Committee and at later stages. Much of the argument is that tax credits are much better than existing family benefit because there will be much less stigma attached. One would have thought that that was reflected, at least to some extent, in the degree to which a particular benefit is taken up. I believe it is common ground that 72 per cent. of family credit is taken up—or 85 per cent. if one calculates it on an expenditure basis—and that 91 per cent. is taken up as far as lone parents are concerned. It was suggested in another place that take-up reflected need rather than a feeling that there was some stigma attached. We know that the need may be equally great among some pensioners on income support, yet that has no way near the take-up rate of family credit. Does the Minister expect the take-up rate to be significantly higher under the new arrangement? If so, how much higher than 91 per cent. so far as lone parents are concerned?
There are real problems in respect of confidentiality. Despite the Government's denial in another place, one is receiving representations that there will be real problems if payments are made through the pay packet. The CAB points out that the employer paying the tax credit will know whether the employee has other jobs. If that is not true, no doubt we can exchange views and the Minister will be able to set our mind at rest. Groups at the forefront in helping people to deal with a highly complex social security and tax system are under the impression that the employer will know whether or not the employee has another job.
Baroness Knight of Collingtree: My Lords, before the noble Lord leaves that point, can he press the matter a little further? How can the employer pay out the money if the employee has other employers about whom he does not know? The second employer might consider that it was up to him to make the payment because he did not know that the employee had another employer or employers.
Baroness Hollis of Heigham: My Lords, the employer does not do the calculation; the Inland Revenue does. The sum of money that the employer attaches to the payslip may change because the employee has another job; is paid more or less for childcare; or his partner has acquired a new job, left her job, or moved away. Any circumstance could alter the amount that the Inland Revenue will ask him to attach to the pay packet. It will be virtually impossible for the employer to calculate the reason for changing the payment made.
Lord Higgins: My Lords, we shall be able to pursue these matters. I have sympathy with the view expressed by my noble friend. There are real problems. It is not clear, for example, how much each of the employers will pay. The revenue will say that one employer pays so much, and another employer pays so much. Perhaps

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the Minister will clarify the issue. Will it all be paid by one employer? I gather that it will. That will be a surprise to the other employer who will suddenly find that the individual he thought had children will not receive money for them. We need to go into the matter in Committee.
I turn to the burden on business. The Chartered Institute of Taxation has expressed views on the issue. It takes a different view from that expressed by the noble Baroness. However, perhaps the Minister can tell us the estimate she has made of the additional cost to business as regards the start-up situation and recurring costs. No doubt other Members will wish to raise other points on the issue.
On the cash flow, in her opening remarks the Minister said that the Inland Revenue will tell the employer how much to pay out and the employer will pay it out. Where is the money coming from in the meantime; and how is the employer—it may be a small company with serious cash-flow problems—to know how much his cash flow will be affected by the change?
I turn to the two issues which were not discussed in Committee in the House of Commons: the childcare tax credit and the disabled person's tax credit. As the Minister said, the proposal is that the benefit should be raised to cover children not only up to eight, but from eight to 14, or up to 16 as regards the disabled. The clause originally missing from the Bill has now appeared, I think, as Clause 15. It aims to create a category of good quality providers. The House of Commons was told that the draft regulations will be considered in this House. I am not clear whether they have yet arrived. They are among the regulations that we shall need to study very carefully indeed. We shall also need to study the guidelines which will decide whether an arrangement whereby family A looks after the children of family B, and family B the children of family A, will be eligible. When the Inland Revenue gave evidence to the Select Committee it was unable to express a view on the subject. We shall need to consider carefully those guidelines.
The estimates of cost vary. The Government's estimate is £200 million; the Institute of Fiscal Studies estimates £4 billion. That seems a rather large margin of error. We shall need to clarify the likely real cost. Perhaps the Minister will give us an up-to-date estimate when she winds up.
Finally, like the noble Baroness, I speak with great diffidence on the disabled person's tax credit because of the expertise which noble Lords have on the subject. We shall need to consider carefully the way the proposal is likely to operate in practice. We must all hope that the disabled person's tax credit works in the way the Government intend.
I have a specific question for the Minister. No answer was forthcoming in another place as to the position concerning some passported benefits—childcare tax credit, prescription charges and the provision of free school meals. Since by now the Government have surely made up their minds on the issue—it seems extraordinary that they did not do so during the Bill's
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passage through another place—we shall be grateful to have a clear answer from the noble Baroness to put minds at rest. Some are worried that as a result of the change in structure benefits they previously received will be no longer available to them.
I apologise for speaking at such length, but it is an important Bill. It was advertised (if that is the right expression) as the Government's flagship Bill in this area. We must see to what extent some of the problems can be dealt with during the Bill's passage through this House. I see no reason why change should not be made on a number of issues. It will then be a significantly better Bill.
3.57 p.m.
Lord Goodhart: My Lords, I am sorry that we are not providing from these Benches a speaker to wind up. My noble friend Lord Russell was due to do so but he is unwell today and we did not feel that it was fair to ask anyone else to deal at only a few hours' notice with complex issues with which he or she is not familiar.
The purpose of the Bill is to convert family credit into the working families' tax credit and the disability working allowance into the disabled person's tax credit. I intend to say nothing about the disabled person's tax credit because it will be taken up by very few people. I understand that only 16,000 people now receive it; and that number is expected to increase only by some 10 or 15 per cent. as a result of the changes which are now being introduced. However, the criticisms of the working families' tax credit which I shall develop later in my speech will apply in many cases also to the disabled person's tax credit.
My honourable friend, Professor Steven Webb, made a series of powerful criticisms of the Bill in another place. He spoke as an expert in the field. I am not an expert, but I shall try to follow him as far as I can. In doing so I have to warn your Lordships that my speech will be lengthy and somewhat heavy going; or, to be rather more blunt, long and boring.
Family credit has proved to be a useful mechanism for relieving poverty among low paid workers and families. It has a high take up rate. The noble Lord, Lord Higgins, gave the statistics. The take up in terms of the amount claimed is 82 per cent. of the theoretical maximum; which is 91 per cent. in the case of lone parents. That indicates that the majority of cases in which the benefit is not taken up are those in which the amount is small. The Government are now converting family credit into working families' tax credit. However, much of what they are doing could be done under existing rule-making powers.
Let us look at the main changes. First, we welcome the generous increase in child tax credit for children under the age of 11. Secondly, the small increase in the basic tax credit, but still well above inflation, is also welcome. Thirdly, the cost of childcare by registered childminders is converted from a disregard into a tax credit and the upper limit on the maximum costs of childcare is substantially increased. We welcome that, too. Fourthly, there is an increased threshold before the taper starts. We welcome that. Fifthly, the taper rate is

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reduced from 70 per cent. to 55 per cent. With reservations, we welcome that. All those changes could have been brought about by changes in the regulations without new legislation giving a new name to an old benefit.
So what does the Bill do? First, in Clause 1 it renames family credit as working families' tax credit. Secondly, in Clauses 2 to 5 it transfers the responsibility for the administration of working families' tax credit from the Department of Social Security to the Inland Revenue. That is also dealt with in a number of clauses dealing with consequential issues such as inspection powers and penalties. Thirdly, in Clauses 6 and 7 it provides for working families' tax credit to be paid through the pay packet instead of to the airing parent. Finally, in Clause 15 it provides for a new category of persons who can provide childcare qualifying for credit.
Perhaps I may begin by going back to the parts of the new system that are not dealt with in the Bill. As I said, we welcome the increases in child tax credit for under 11s and in the basic tax credit and the increase in the threshold. We also welcome the more generous treatment of childcare costs. The present figures are not generous enough to make it practicable for most single parents to work if they have to rely on paid childcare. There is a big improvement there.
The taper creates problems—tapers always do. If there is a steep taper, it creates a benefit trap because the increase in gross earnings gives very little extra money in the pocket. If there is a gentle taper, the cost to the taxpayer is higher; more people are brought into means-tested benefits; and money is given to people who really do not need it. The result of reducing the taper and of the improved childcare costs is that a family with five children and maximum childcare costs could receive working families' tax credit on a gross family income of up to £38,000. That is not a wholly unlikely situation. Quite a number of people have five children and if both parents are working they will certainly need childcare! The result will be a small but significant number of people paying the higher rate tax and receiving the working families' tax credit. That is an absurdity.
The scheme is potentially very expensive. As the noble Lord, Lord Higgins, said, the Institute for Fiscal Studies has estimated the extra cost of childcare credit to government at up to £4 billion. That is a maximum and assumes that all claimants switch from informal or parental care to registered childcare. Of course, that is unlikely to happen. Even so, it is likely that childcare will be very expensive. It is not clear that the scheme provides tight enough control on childcare tax credit. Is there anything in the present rules to prevent two mothers registering as childminders and looking after each other's children?
I believe that the working families' tax credit will have to be modified quite soon to make it less expensive. One possibility might be to retain a higher rate of taper on the childcare element in the working families' tax credit in order to avoid it becoming a subsidy to childcare for the middle-classes. But that is not a matter covered by the Bill.
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I now turn to the Bill. The Minister introduced it with her usual persuasiveness. However, I believe that almost everything in it is wrong. The name change is cosmetic. I agree with the noble Lord, Lord Higgins, that it is a benefit and not a genuine tax credit. It will be paid to some who pay no tax or national insurance. It will also exceed the tax and national insurance liability of the recipients. I understand from debates in Committee in the other place that the Government accept that the working families' tax credit will count as public expenditure and will not be treated as a reduction in taxation. I would welcome confirmation of that.
I turn to Clauses 2 to 5 relating to the transfer of responsibility from the DSS to the Treasury or the Inland Revenue. I believe that is wrong. A few weeks ago, we debated in this House the Social Security Contributions (Transfer of Functions, etc.) Bill. That transferred the responsibility for the collection of national insurance contributions from the DSS to the Inland Revenue. I firmly believed that that was correct and we warmly supported it. However, in my view, this transfer is wrong. The administration of the working families' tax credit should remain the responsibility of the DSS. The kind of issues involved in income support and working families' tax credit are often identical. For example, regulations under Section 136 of the Social Security Contributions and Benefits Act 1992 define how income and capital are to be calculated. They also provide for the income and capital of a claimant's family to be treated as the income of the claimant.
It is desirable, as far as possible, that the rules for different benefits should be similar so that not everything needs to be recalculated when claimants switch from one benefit to another. In future, the regulations for income support will be made by the DSS and the regulations for working families' tax credit will be made by the Treasury. Presumably officials from each department will have to meet and agree two sets of regulations in the same form. It seems to me more efficient to handle both sets of regulations in the same department. Decisions on the right to working families' tax credit, or the amount of credit payable, will be taken by officers of the Inland Revenue. Those decisions are entirely different from the decisions now taken by them, but they are exactly the same as the decisions taken by officers of the DSS. They should remain with officers of the DSS.
I understand that the family credit unit is to be transferred en bloc from the Benefits Agency to the Inland Revenue, but that simply means that they are being moved to the wrong place. Appeals will rightly remain with the DSS and go to the social security tribunals and not to the commissioners of income tax. I was sorry to hear the noble Baroness say that the Government intended in the longer run to transfer that jurisdiction to the income tax commissioners. The administration is going to the wrong bodies in order to try to give credence to the illusion that working families' tax credit is not a benefit.
I shall turn shortly to the "jewel in the crown" of the Bill; that is, the payment through employers. However, before doing so I wish to raise a couple of other points. The first was raised by the noble Lord, Lord Higgins:

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the passporting of welfare benefits such as exemption from prescription charges. Recipients of family credit were passported. Clearly, the Government cannot passport all recipients of working families' tax credit, some of whom will pay the higher rate tax. Where and how will they draw the line?
Secondly, have the Government considered integrating a housing element into the working families' tax credit? The present system has two drawbacks. Mortgage interest payments are met for those on income support but not on family credit and will not be met for those receiving working families' tax credit. That is therefore a disincentive for those on income support to take work. Furthermore, the withdrawal of housing benefit and council tax benefit may leave recipients of the working families' tax credit facing very high taper rates, even after the reduction in the taper of the working families' tax credit on its own. For people paying tax and national insurance contributions and receiving family tax credit, housing benefit and council tax benefit, the marginal rate resulting from the change to working families' tax credit will be reduced only from 96.9 per cent. to 95.3 per cent.
I turn now to what I call the jewel in the crown, the payment through employers. There are disadvantages for both employers and employees, and it confers no advantages that I can see on the Revenue. There will be extra costs of more communication with employers and certainly no cost saving for the Revenue. There will certainly be disadvantages for employers.
The costs were estimated in the draft impact assessment at just over £100 million per annum recurring, with start-up costs of approximately £40 million. The draft impact statement states that the aggregate cost for small employers in the category of those who employ between one and four employees will be £24 million. It then states that averaged over all employers in this category, of whom there are 670,000, it works out at £37 per employer, which does not seem very much. Mathematically, that is no doubt correct, but the impact statement also says that only 10 per cent. of employers in this category, that is those employing one to four employees, are likely to pay working families' tax credit through the payroll in any year.
As the compliance costs for those who do not do that are obviously nil, it means that the compliance costs for the 10 per cent. who pay will be not £37 but £370 each. The noble Baroness shakes her head, but this is something that causes me some puzzlement because that is the clear inference from the impact statement, and no doubt this is a matter that she can take up in reply.
There is no proposal here to refund administration costs to employers, as there is with statutory maternity pay, and that is the position despite a recommendation by the Social Security Select Committee that there should be reimbursement of these administration costs.
Perhaps even worse is the nuisance factor for small businesses. It may not matter for a business large enough to employ a book-keeper or accountant, but for a small employer, let us say the farmer employing two or three people, it means more time sitting at the kitchen
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table and filling in the paperwork in the evening. Small employers will not like it. This is particularly true where the amount of working families' tax credit exceeds the employer's liability for tax and national insurance contributions. That of course is a problem that is especially likely to affect small employers in industries such as agriculture or catering. Regulations will provide for advance payment to the employer, but this involves more bureaucracy.
Small employers will be reluctant to employ workers who are claiming working families' tax credit. The Government know that; why else have they felt the need to give employees specific rights under Schedule 3 to the Bill to complain to an employment tribunal that they have suffered a detriment because they are entitled to a tax credit?
If many employers are reluctant to take on employees on working families' tax credit, one likely consequence is that some employers will deliberately target them by exploiting their difficulty in other jobs and paying them the lowest wages they can get away with.
There is, I believe, an overwhelming case for giving small employers the right to opt out of payment of the working families' tax credit or, better still, exempting them.
What about the employees? Here, we get into the purse and wallet argument. The Government have moved some way to recognising this argument. The proposed arrangements mean that both parents must consent to the payment going to one parent or the other. That opens up the prospect of consent obtained by intimidation, which of course is not possible now. In addition, if the Inland Revenue receives an application form signed by only one partner it will have to conduct intrusive investigation to find out whether the absence of the other partner's signature is due to an oversight, as will probably be the situation in most cases, or to a dispute between the parties, which means that one partner refuses to sign.
What then is the position if this dispute is not resolved? The draft regulations simply state that the claim is to be made by whichever partner the couple agrees should claim. The Inland Revenue memorandum published in March says that if the dispute is not resolved, the Inland Revenue will consider accepting an application submitted by the caring parent without the signature of the working parent, even though "technically it would be defective". In other words, the solution to this problem lies in the Inland Revenue disregarding its own regulations. That, I believe, is simply unacceptable.
If the tax credit is paid through the employer to the husband with a non-working wife, there is a disincentive to the wife seeking work because that will cut the husband's wage packet.
I accept what the noble Baroness has said about privacy, that it will be very difficult for the employer to identify personal details from changes in the level of the working families' tax credit, but the CBI says that up to a third of the claimants now claim family credit without the employer's knowledge. That will now be impossible for lone parents or two-earner couples where the tax

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credit must be paid through the wage packet. The simplest solution would be for all employees to have the right to opt out. That certainly would not affect the take-up problem because it would be a joint decision to opt out.
If there are all those drawbacks, which I believe are serious, what is the advantage of the payment of the working families' tax credit through the wage packet? Surely what matters is the difference between the total net income out of work and in work? The incentive effects of the working families' tax credit will be due almost entirely to the increase in that difference, which we have welcomed. It makes no real practical difference that the money comes in two dollops rather than one. This is obviously so in the case of single parents. The research by the Institute for Fiscal Studies has shown that this is the group most likely to move into work as a result of the working families' tax credit. The only person who might be persuaded to take up jobs by payment through the wage packet, which they might not otherwise have done, appear to me to be the traditional male egoist who says "I am not going to take that job unless I get all the money and can dole out to my wife what I choose to give her." I do not believe that there are many such people left, but we should not do anything to encourage them.
It is sometimes argued that there is a stigma effect of getting family credit from the DSS which will be reduced if it comes through the wage packet from the working families' tax credit. I do not believe that, and the high take-up rate for family credit suggests that that stigma does not exist. If there is a stigma effect, people are likely to be much more worried about what their employers know about them than what the Inland Revenue knows about them. That worry will be increased by these proposals.
The noble Baroness will be glad to know that I have no objection to Clause 15.
The Bill is unnecessary and does more harm than good. It is not necessary to the Government's legitimate and broadly welcome proposals to make work more attractive by increasing the differential between in-work and out-of-work benefits. The Bill transfers the administration of the credits to the wrong department. It imposes more work and more costs on employers. It gives money to the wrong parent, and I believe it will do nothing to add to the incentive effect of higher benefits.
In the other place, my honourable friends voted against the Bill. I do not believe that it would be appropriate to do so in your Lordships' House. Moreover, we shall not support what we regard as wrecking amendments. But the Bill is capable of great improvement and we shall seek important improvements to it in the stages to come.
4.20 p.m.
Lord Freeman: My Lords, at the commencement of his speech, the noble Lord, Lord Goodhart, said that his contribution would be complicated and boring. Neither was true. The noble Lord was absolutely right in many of his comments and in particular on the central point he made. I am sure that he will find a good deal of support on this side of the House.
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This is an unnecessary Bill. The same purpose could have been achieved by using existing legislation and introducing new regulations. Nevertheless, it is a Bill before your Lordships' House and the normal conventions clearly will be followed. But in Committee I am sure that there will be lively debates and many amendments moved.
The noble Baroness, Lady Hollis, commanded a great deal of agreement on all sides of the House when she spoke at some length, and correctly, about the importance for the welfare state of improving the incentives for moving those who are unemployed into employment. Any measure which achieves that sensibly will command your Lordships' agreement. But I agree with my noble friend Lord Higgins that a great number of points will need to be dealt with in Committee. I look forward to that process. My noble friend has a great deal of experience not only as a former Treasury Minister but as chairman of the Select Committee on the Treasury and Civil Service in another place.
I speak as a chartered accountant but also, with greater relevance perhaps to this debate, as a former health Minister who had to deal with NHS benefits, the complexity of those benefits and ensuring that they reached the right people. Therefore, my question is whether the Bill will work. Will it work to encourage the move from unemployment, self-employment or low employment into full employment? I leave aside the other benefits of the Bill which the noble Baroness outlined on which I do not intend to comment; namely, the increase in the amount of funds devoted to claimants. My question is whether the Bill will work.
My interest is in the impact of this legislation through its complexity—the forms and administration—on the lowly paid and, in particular, those who are self-employed. In that regard, we are probably talking of no more than 10 per cent. of the population of claimants but by definition, that group is probably the one single group which will have difficulty in mastering the complexity of the working families' tax credit. Those people will badly need help not only from us as legislators in ensuring that the legislation is clear but help also from another direction to which I shall turn later.
There are three points which I wish to put to the Minister. I do not doubt her grasp of the briefing, nor do I doubt the excellence of the briefing she has received. It may be more convenient for the Minister to write to me on these issues before Committee. I shall quite understand if that is so because she will have many points with which to deal when winding up the debate. Therefore, I should be grateful to receive a response in due course.
The first point—and it is important—is that when one moves the administration of a benefit from the Benefits Agency and the Department of Social Security to the Inland Revenue, a change of culture will occur. It cannot be glossed over. There is to be a transfer of staff to deal with a 50 per cent. increase in the take-up of this credit in a different name. But despite the transfer of staff, a different culture will pervade. Perhaps the Minister will confirm that the policy of joined-up government—I use

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the expression in the White Paper presented before Easter in another place—and the policy of the departments will be to maximise the legitimate take-up of benefit. Only 70 per cent., by volume of cases, of family credit is taken up. That is not enough. The proportion needs to be increased.
I pay tribute to the Inland Revenue for the excellent task it performs. But a transfer to the Inland Revenue, whose principal task is to collect revenue and not to distribute benefit, raises a whole number of very important issues. Some test of whether there has been an unnecessary turn of the anti-fraud screw could include, for example, whether there is to be additional time taken in order to calculate the benefit and then pay it. The Inland Revenue operates using different principles from those used by the Benefits Agency. That agency works generally on the presumption of need, seeking to meet it and then checking subsequently whether or not it is legitimate to have paid the benefit.
The Inland Revenue works on a different principle; namely, whether it is right in the first place. Again, from my dealings with the Inland Revenue, not professionally now but certainly as a Member of Parliament, I recognise that there have been long delays between submissions for tax reclaims and the ultimate settlement. Therefore, is there to be a change of culture? Are we still underlining the importance of legitimate maximum take-up and will the Government ensure that the Inland Revenue does not take more time than the Benefits Agency to deal with claims?
I give your Lordships one simple example. I am sure that we shall deal in due course with the forms which support this legislation. If one looks at those forms, it can be seen that a declaration is required by the claimant which is wholly different from the declaration made in other and more welcome forms used by the Inland Revenue, particularly for self-assessment, because the claimant must declare that the information he supplies is correct and complete. That is as opposed to the normal declaration which is that the information is correct to the best of one's knowledge and belief.
Secondly, the Minister indicated that the plan is that from October this year the Inland Revenue will administer family credit in the form of the working families' tax credit and from April 2000, employers will be making the payment through the wage packet.
As regards the forms to be used by the Inland Revenue, working obviously with employers, to the best of my knowledge there is common consent—that is, it is the opinion of the Inland Revenue and those organisations which have commented, including the low income tax reform group of the Chartered Institute of Taxation—that a great deal of simplification can occur. But the argument put forward by the Inland Revenue is that there is no time to change the form before April 2000. That is 12 months from now. That is the right point at which to simplify the forms to encourage take-up. It is in keeping with the taxpayer's charter. It is reasonable to ask the Inland Revenue to do that if it is given the right resources. I suspect that the argument that the forms cannot be amended in time is to do with
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resources and not willingness. April 2000 is the right time to change the form, and I should appreciate the noble Baroness's comments on that.
There is a shock-horror aspect attached to this matter. Your Lordships may not yet have had an opportunity to study the legislation but I ask your Lordships to look at WFTC 501. That is for the self-employed—someone who may be earning a very modest amount of money. The form which must be completed involves an extremely comprehensive declaration of financial information which is far too copious and is unnecessary for those on very low incomes. I am afraid to say that the procedure on the Inland Revenue self-assessment form appears not to have been followed. As your Lordships will know, there is a threshold of £15,000 of turnover below which, when one makes a self-assessment of the tax one owes as someone in self-employment, one only has to state turnover, expenses and profit. Form 501 asks for copious information and I believe it to be unnecessary.
Finally, I make a plea for consideration of the proposal from the low income tax reform group, to which I referred earlier, for voluntary help to be encouraged and supported by the Government for lower paid claimants in completing their forms. In the 1960s, while in employment, I was involved with such a voluntary group in the United States, helping the very low paid from the minority communities to complete some of their tax and benefit forms. If voluntary help comes forth particularly from my own profession and allied professions to seek in a pro bono publico fashion to help the elderly and the low paid self-employed to complete their forms, I do not see why it should not be welcomed with open arms.
I welcome the Inland Revenue's helpline. I believe that it works well but that more should be done. Perhaps I may conclude by quoting a letter from the Chancellor, Gordon Brown. He was responding to the Select Committee on Social Security in another place on the point that help is needed in the calculations and to decide whether a claimant was better off in work. Mr. Brown said:
"And the Revenue will continue to provide 'better off calculations'".
The Inland Revenue does not at present provide "better off calculations". I suspect that it would be against the culture of the Inland Revenue to embark upon that on any great scale. More help is needed by amending this legislation to make it simpler and by encouraging others to help claimants raise the claimant rate.
4.32 p.m.
Lord Rix: My Lords, I begin by craving your Lordships' indulgence, and that of the Minister, in so far as if this Second Reading is somewhat protracted—the noble Lord, Lord Goodhart, indicated it may well be—I may not be in my place at the end of the debate. No disrespect is intended as I have a long-standing engagement—a 70 year-old engagement in fact—the three-score years and 10 which my wife is celebrating having achieved this evening.

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In the event of my absence and in the hope that your Lordships will accept my explanation, I stress that what I have to say is of great import to people with a learning disability. Should I be away, warming up to sing "Happy Birthday to you", I hope that the Minister will be able to respond to me in writing or, even better, perhaps at a meeting before Committee stage. That said, I now wish to focus my attention on the disabled person's tax credit, which the Government are introducing to replace the existing in-work benefit, the disability working allowance.
The disabled person's tax credit is in principle no different from the disability working allowance. Both act as means-tested benefits which top up low earnings for disabled people. But there is a definite shift in the Government's approach, one which will benefit many, but may also have significant drawbacks. In the first instance I should like, if I may, to say a few words about people with learning disabilities and the labour market.
As president of MENCAP I am, of course, concerned about the effectiveness of the tax credit in supporting people with learning disabilities who wish to work. Many of your Lordships may be surprised to hear that statement but I have to say that 7,000 people with a learning disability are already in full employment through the MENCAP pathway system. Research by MENCAP reveals that many people with learning disabilities might benefit from financial assistance in employment. Nevertheless even if the tax credit acted as an effective incentive to work, even to the extent of doubling the proportion of people with severe learning disabilities in work, 80 per cent. of that group will still not be able to work.
The Treasury's approach, as one would expect, has involved looking closely at the way in which work and benefit calculations operate. In particular, the Treasury has examined the way in which receipt of some kinds of support can actually contribute to financial difficulty or act as a disincentive to work. All too often we hear of benefit recipients who are no better off in paid work than on benefits, and in some cases benefits are withdrawn so quickly when earnings come in that individuals or families see relatively little increase in living standards. The Minister's department has clearly troubled itself to avoid such consequences, and as a result has calculated new rules for the disabled person's tax credit which should help to avoid some of the pitfalls and leave more disabled people better off.
The proposed tax credit is more generous because the level of earnings below which help is given is being raised, and the reduction of help on account of extra earnings will be less steep. This is most welcome, and will, I am sure, soften some of the harsher effects of the policy of means testing.
The Government's mantra on welfare to work seems to refer only to full-time paid work, and this is borne out in the rules for the new tax credit. But many people with learning disabilities will need a combination of welfare and work. The Government must recognise that severely disabled people who can work will also need adequate benefits to compensate for low earnings. One of MENCAP's central concerns is for people with
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learning disabilities who are able to do some work, but are not able to undertake full-time work. Part-time work can often be a source of extremely important training or experience, and can often develop the self-confidence of a person with a learning disability.
The Government's proposals mean that people working fewer than 16 hours per week will not be able to access the new tax credit and will not receive any extra money to top up low paid employment. MENCAP recommends a phased entry into the disabled person's tax credit to enable claimants to gain a foothold into the labour market by working fewer than 16 hours per week for, shall we say, a limited period.
Unfortunately no amount of fiddling with formulae of the means test has managed to overcome problems facing disabled people with housing costs, who face having their housing benefit withdrawn as soon as they move into work. Herein lies an acute example of the "Catch 22 situation" where people cannot afford to come off benefit and go to work for fear of losing all support with the cost of their home. The Government have recognised this problem in part, and have put in place new rules to allow disabled person's tax credit recipients (who have moved from income support) to retain housing benefit for the first month of employment. But this delays rather than solves the real problem, because thereafter disabled person's tax credit recipients with housing costs could lose up to 96p for every £1 earned. Making sure that demands for rent or mortgages coincide with the first wage packet is the Treasury solution but allowing claimants to keep housing benefit while on the tax credit would offer a more genuine way of helping to "make work pay".
The Treasury suggests that the purpose of the new tax credits is to put a small amount of extra money into the pockets of low-wage earners. However, I believe that the disabled person's tax credit has an additional purpose in providing some level of compensation for the employment-limiting effects of an individual's disability. A large proportion of people with learning disabilities work at the lower end of the earnings scale and never come close to boardroom salaries. Sometimes that can be as a result of discrimination, or lack of support, but in many cases can be attributed to the limitations of the individual's disability. Furthermore, many non-disabled people are forced to give up extremely senior positions later in life at the onset of physical disability and find that they are only able to work again in much lower paid positions. Under current proposals the gains to the individual from the disabled person's tax credit are countered by the fact that the whole family income is taken into account in the means test. I believe that that detracts from the important principle of compensating and supporting individual disabled workers who are, after all, the ones going out and working for low wages. It seems to me that low wages are low wages, regardless of the individual's family circumstances. If low pay is indexed to the limitations on the individual which arise as a result of disability, the individual should be entitled to support in his or her own right.

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To wrap up, I should like to say a few words in relation to the care of children with disabilities. As I am sure noble Lords are aware, this point was raised in another place and applies to the recipients of both the working families' tax credit and the disabled person's tax credit. Both credits contain an allowance to cover childcare costs. The Government have taken an important and welcome step in extending this allowance to disabled children up to the age of 16, but it will be available only where the childcare provided meets certain registration conditions.
The Government have broadened the registration conditions to extend the range of childcare available, but have not yet found a way of extending eligibility for children for care which needs to be undertaken in the home. Many children with learning disabilities require intensive support and care which can only be met in the child's home. MENCAP believes that the childcare tax credit should cater for children who need to be cared for in their own home, particularly those who are unable to access nursery buildings or who do not live near centres with specialist staff to look after children with physical or learning disabilities. The location in which childcare is provided should not govern entitlement to support for working parents.
Having journeyed this far into the realms of tax and benefits, Ministers deserve, if not credit, at least charity from those in your Lordships' House. In the main, the new policies will improve the situation for low-paid workers, but there is a danger of missed opportunity for those who do not conform to the standard norms of working and family life; in other words, people with a learning disability. The Tax Credits Bill must help them too, both morally and practically, into the working world.
4.42 p.m.
Baroness Carnegy of Lour: My Lords, your Lordships will remember that social security is not one of the powers devolved to the Scots Parliament. So this Bill and its effects will apply, and go on applying to Scotland as to the rest of the United Kingdom. In making a few general comments, therefore, I should like to point to one or two aspects of the Bill which I believe will cause concern in Scotland. The noble Lord, Lord Rix, with all his expertise, concentrated on the disabled person's tax credit; I shall confine myself to the working families' tax credit.
It was not clear from the Minister's long, interesting and detailed speech that the significance of this Bill goes far beyond the detailed social security changes which it proposes. In due course the social and financial effects of the changes will be widespread and far-reaching. I wonder if it is appreciated just how far-reaching. Many people, in Scotland at any rate, will be extremely surprised when they see the effects as they emerge across the country as a whole.
My noble friend Lord Higgins pointed out that the idea of bringing the tax and benefit systems together is in no way new. Indeed, it has long been discussed in this House. Many noble Lords will remember in
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particular that the late Lady Seear, speaking from the Liberal Democrat Front Bench—the very place from where the noble Lord, Lord Goodhart, made his fascinating and somewhat devastating speech—frequently and passionately advocated this approach. In fact, if I remember rightly, Lady Seear advocated a true tax credit system whereby a person paid less tax instead of receiving benefit. As my noble friend Lord Higgins said, the system that the Government are now proposing is one where a person simply receives benefit, separately itemised, along with his pay; it is not a tax credit at all.
But despite what has been said—we have had some expert speeches from people who know a great deal more about this than I do—I believe that the system the Government are now proposing, in principle, will probably appeal to those people receiving the money through the pay packet. They will like that. But there are some worrying aspects to the Bill. Some of the general aspects were discussed at some length in another place, but none is properly appreciated by the public.
The Government know that in Scotland people have a particularly strong sense of community. Public opinion of the Government in Scotland is very important to them. Scots have a strong desire for fairness to the less well off, and I wonder how the least well-off taxpayers will feel. For example, how will widows living alone, paying tax on a small private pension or on limited hard-earned savings, feel when they discover, as they soon will, that they are funding families with incomes of £38,000 who happen to have chosen to have five children? How will they feel when, as alas is bound to happen sometimes, connivance between employers and employees brings fraud or employers use the system to reduce wages because the employee can make up the difference through benefit? How will those least well-off taxpayers feel? What will that do for what the Government like to call "social cohesion"?
Across the United Kingdom, what will be the effect on the social attitudes of a large proportion of our younger people—1.5 million families according to the Bill's Explanatory Notes—becoming accustomed to state funding on this scale and making their family choices in response to the whim of the government of the day? It will be observed in Scotland that that is the whim of the Westminster government of the day. We should ask ourselves what will be the social and political effect of that? It is a matter for your Lordships' careful consideration.
I want to ask the Minister in particular what will happen to this scheme in a time of recession. She explained that the whole system is designed to encourage work—that is good—and to make work financially worthwhile—that too is good. But what happens when there are fewer jobs to go to so that people cannot qualify as working families and, in addition, there are no jobs for the new army of child carers and nannies which will be created under the Bill? The Government must have thought about that. Can the Minister indicate, when she replies, how the scheme will work in times of recession? It is crucial in many ways, not least for the sake of social cohesion in the United Kingdom. For example, the economic cycle in Scotland does not usually coincide precisely with that in the south

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of England. Will not the working families' tax credit exaggerate that divergence, one which will grow in any case between the economic cycle of Scotland and that for the rest of the United Kingdom? It would be interesting to know the Government's thinking in that respect. Indeed, it may well be something that we may wish to consider in Committee.
Linked to that, of course, is the effect about which others have spoken on employers and the extra cost that they will have to meet in applying the system for the Inland Revenue, at the risk of a penalty of £3,000 a time, it has to be noted, if they get it wrong. That is a lot of money for a small employer. They will also have to cope with the problems of the workplace when some employees do not want them or their wages clerk to know their personal family affairs. Scots are certainly not laid back about that kind of thing. I believe that quite serious problems may arise.
The Minister seemed surprised when my noble friend from the Front Bench pointed out the possibility that the man in the family will in fact get the money rather than the woman. I recollect that there was great delight in Scotland when the previous Government changed the position. It had become a big problem. Knowing the Scots, I can imagine the kind of family where the father might well just force the issue, accept the money and then spend it on whatever it is that is not the children. I believe that that may well happen. I should have thought that there would be some way around the problem. I do not know what it is, but I hope that we will also consider that issue in Committee.
Despite their claim to the contrary, the Government are planning to spend a lot more money on social security. They have told us that they will be spending £1.5 billion more on this scheme than they spent on the previous one. It is vital that it works to the benefit of those who need it. In principle it is a good idea to pay through the Revenue, although I appreciate the points that have been made about the culture of the Revenue as opposed to the culture of the Benefits Agency. I can also see problems arising in that respect.
However, the scheme must work for the benefit of those who need it. I believe that people in Scotland will be watching the early stages of the working of this Bill most carefully. The Government must think of the broad effects and the broad! political issues as well as the detailed provisions of the Bill. Nevertheless, I shall support this Second Reading.
4.52 p.m.
Baroness Lockwood: My Lords, I should like to look at some of the general principles behind the Bill and embodied in it. At the time of the 1997 general election, one in three children in this country lived at or below the poverty line. As my noble friend the Minister indicated, this is something that cannot continue. So the strategy of the Government since that election has been to attempt to eliminate this social stigma. Policies have been directed towards assisting families with children and helping people into employment. The tools of this have been increased children's allowances, the minimum wage, several New Deal training programmes
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and now the working families' tax credit, which is embodied in the Bill and forms an essential part of that strategy. Therefore, for those reasons I support the Bill as part of the drive to eliminate poverty. Unlike some noble Lords opposite who have already spoken, I think that it is a good Bill.
However, I support the Bill for another reason. It seems to me to be a nonsense, as the Institute of Fiscal Studies has observed, that,
"Why have a tax system that takes money away from the poor and a social security system that gives it back".
I believe it is a nonsense to have two separate systems. Like the noble Lord, Lord Higgins, I personally think that there is much to be said for an integrated tax and benefit system across the board. As has already been said, such a system has been considered over the years but it has never been policy for any government. In view of what the noble Lord, Lord Higgins, and the noble Baroness, Lady Carnegy, have said, one wonders why in the whole of the 18 years in which their party was in government we did not have the introduction of such a system.
The latest attempt is now, I believe, taking us some way forward. Here I disagree with the noble Lord, Lord Higgins. The task force that was set up by the Chancellor of the Exchequer under the chairmanship of Martin Taylor to review the tax and benefits system and to examine the capacity for increased integration did not, in the end, recommend full integration in its report of 1998. However, it did recommend the replacement of the current "family credit" with a tax credit. In doing so, it said that,
"the establishment of a tax credit system is likely to come in useful in future as a broader delivery mechanism eventually allowing a closer integration between the benefits system and conventional income tax".
So this could be regarded as an incremental measure leading to further integration in the future. Indeed, the Government have extended the Taylor principle by including the disabled in the Bill. I believe that that should be welcomed, while taking into consideration some of the caveats raised by the noble Lord, Lord Rix, about disabled people who are unable to work 16 hours a week. Therefore, the Bill before us today is meant to replace the family credit with the working families' tax credit and to replace the disability working allowance with the disabled person's tax credit.
In her comprehensive and lucid exposition of this very complicated subject, my noble friend the Minister outlined the benefits that will be available. I believe these to be very considerable. For example, low paid families receiving working families' tax credit will, on average, be £17 a week better off and some 1.3 million families with children will benefit in the first full tax year. There will also be a guaranteed income of £190 per week for families with one full-time worker earning the minimum wage—and this is a point which the noble Baroness, Lady Carnegy, did not take on board when she mentioned that there might be a drive to lower wages. Indeed, the minimum wage will secure a minimum level of wages.

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There is also to be an increase in the benefit level and a reduction in the tax taper disincentive. The tax burden on families will be reduced so that those earning less than £220 a week will pay no net tax. There will be similar help for the disabled and more generous help with childcare costs, together with an increase in the age at which childcare costs will continue to apply. As I say, these are very considerable benefits. They will go some way, although perhaps not the whole way—I do not think that there is a system which could do so—towards removing the work and the poverty trap disadvantages that make it so difficult for deprived and excluded families to get back into the world of work and betterment.
Like every social security Bill, this Bill is complicated, and perhaps it is made more complicated by being a Treasury as well as a social security Bill. Much of the detail is in the regulations—regulations which are already covered by previous legislation. Therefore we are not introducing a new principle by dealing with detail through regulation. I have been rather surprised at some of the criticism about the fact that we are having a new Bill instead of just regulations under old legislation, because the very fact that we have a new Bill means there is more opportunity to discuss and explore all the potential and the pitfalls of the legislation. It is useful to have a comprehensive Bill covering that. However, there are problems, as have already been indicated by some noble Lords who have spoken.
The first matter that I want to look at is the method of payment. I recognise that there is a real dilemma here for the Government because the principle behind the Bill is to attract people back into the labour market. By removing the disadvantages of going into work, the tax credit system is intended to boost the wage of the worker. In that sense I understand the principle that the Government are working on, but it contradicts the other principle that where there is a child or a family benefit it has become the custom for that to be paid to the woman. In general I support that principle and I want to see it embodied in the Bill as far as possible. We must look at the size of the problem with which we are now concerned.
In response to a Question in the other place the Treasury Minister there indicated that 50 per cent. of those who receive family credit, and who will receive the working families' tax credit are lone parents. They are largely women, although a male lone parent, like a woman lone parent, who is responsible for caring for the children will receive the benefit. In 50 per cent. of the cases we are already meeting the principle that it is the woman who should receive the benefit. The question was raised as to why lone parents should not have a choice whether or not to have a tax credit or a benefit. It seems to me that the important point is that the lone parent gets the benefit anyway and is thus able to assist her family.
The second point that was made in the other place in response to the Question was that in 23 per cent. of cases involving couples, the woman is the main or sole earner. Therefore, again, the tax credit will go to her.
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That means that as regards some 73 per cent. of those in work the tax credit will go to the woman. What of the 27 per cent. who remain? I might add that with regard to that 27 per cent., and indeed the whole group, something like a third of a million people have their family credit paid into a joint account. So, again, some of those will be covered in the 27 per cent.
The Chancellor has already indicated that there is to be a choice in this matter. I certainly welcome this. However, the question that one has to raise is: how real is the choice? Will it be made quite clear to women? For example, will women who already receive family credit receive a communication telling them that they will be able to sign the form claiming the tax credit? This choice must constitute a positive measure and must not be something that goes by default. If it does go by default, and if neither parent signs the form, will the woman be paid by default, as the Select Committee in another place recommended?
I understand that if there is a disagreement between husband and wife, the wife will receive the benefit. That is what I am led to understand. Perhaps the Minister can confirm that in her reply. We are dealing with a small group of people.
That leads me to ask about the form. I was going to ask the Minister if the form was available for discussion. I must confess that I have not seen it, but I was somewhat alarmed by what the noble Lord, Lord Freeman, said as I believe the form needs to be simple and straightforward. We cannot expect people to cope with a complicated form. I ask the Minister whether it can be made available for discussion and amendment?
Finally, I ask the Minister what general publicity will be given to the introduction of the family tax credit scheme, given that it is a completely new type of scheme and one that is designed to encourage people back into employment? If it is to be effective, there will have to be simple and straightforward publicity about it. I do not believe that the booklet that my noble friend mentioned is adequate. Perhaps she can tell us what will be done to make it clear to people that this benefit in the form of a tax credit is available.
A number of issues have already been raised across the Floor. Clearly there will be some detailed discussions in Committee to which I look forward. In the meantime I welcome the Bill and I welcome the principles behind it.
Baroness Carnegy of Lour: My Lords, before the noble Baroness sits down, I hope the House will forgive me if I take a moment to ask her the following question. In her opening remarks she told us how many families are below the poverty line. I think that was probably a quote from the Chancellor. Can she tell us the definition of the poverty line because it is a difficult matter to understand when it seems to be a movable line. What is the definition?
Baroness Lockwood: My Lords, this may not be the official definition, but my definition is those receiving half the average wage.
5.9 p.m.
The Earl of Buckinghamshire: My Lords, the noble Baroness the Minister has clearly outlined with her customary skill the details of the Bill and, of course, she has extolled the virtues of the Government's decision to replace family credit from October 1999 with the working families' tax credit and the disability working allowance with the disabled person's tax credit. I admired her ready reeling off of the initials of each of these items. I seem to recollect WFTC, DPTC, IS, DWA and NICs. My revenge will be that when we come to the Welfare Reform and Pensions Bill I will retaliate with PUPS, PILS and EPBs!
I shall confine my brief remarks on the Bill to the working families' tax credit. That is not because I regard the disabled person's tax credit as not being important but because I knew that the noble Lord, Lord Rix, would be speaking on that aspect. I was delighted to hear what he had to say and I am very supportive of it. It will be no surprise to the Minister to hear that I am more closely in tune with what was said by my noble friends Lord Higgins., Lord Freeman and Lady Carnegy of Lour. I listened with great interest to the exposition of the noble Lord, Lord Goodhart, and I am close to the views which he expressed to the House.
The working families' tax credit will initially be a tax credit administered by the Inland Revenue but from April 2000, for those employed it will be directly paid by employers through the pay packet while for the self-employed it will continue to be paid directly by the Inland Revenue. From a number of sources, including Treasury press releases, the family credit statistics quarterly review inquiry and noble Lords taking part in the debate, we have heard that family credit has been a success, with take-up on cases in excess of 70 per cent. and by expenditure in excess of 85 per cent. It has reached some 757,000 families at a cost to the Exchequer of £2.35 billion in 1997–98. The working families' tax credit is more generous than family credit. That is partially because of its higher income thresholds, with a gentler taper in its effect on incomes, and because of its more generous help with childcare costs. Consequently, the Treasury expects the numbers of families covered to increase from the 757,000 I have just mentioned to approximately 1.4 million at a cost of around £5 billion a year.
I should like to consider this tax credit against a number of criteria. For those in receipt of the credit for children, the threshold will range from £31,000 to between £37,000 and £38,000. Is that a sensible level at which to set it? My noble friend Lady Carnegy has already expressed concern on this point. Secondly, will the tax credit system work more efficiently than family credit? In other words., would it not have been better to build on to what was already there, even if that is anathema to the Benches opposite? Thirdly, will it be simpler to administer? Having listened carefully to the Minister, I have come to the conclusion that it will probably not he simpler to administer. I have already mentioned the fact that a good deal of money will be spent on the scheme. Will it be money well spent?
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If one of the objectives is to reduce welfare dependency, a threshold of between £31,000 and £37,000 or £38,000 (for a higher rate taxpayer), depending on whether one has, say, five children, seems at first sight to be somewhat generous. The noble Baroness, Lady Lockwood, asked why, as the Conservatives were in power for 18 years, they did not get round to integrating both systems. I should point out that the systems of collecting tax and giving benefits do not sit easily with each other. With the increases in basic credit and the under-11 child credit announced in the Budget, there will also be a danger of increasing welfare dependency, not reducing it. So I have some concerns about the level of the upper thresholds.
Will the new tax credit system work? Well here, I suppose, you need to revert back to the Government's task force report which claimed four major advantages over the now to be replaced family credit. They are: first, a tax credit will reduce the stigma associated with claiming in-work support; it will be more acceptable than social security benefits to most claimants; as it is paid through the wage packet it will emphasise the rewards of being in work rather than being on welfare; and it could help to lower marginal tax and benefit withdrawal rates. It remains to be seen whether those virtues of the new tax credit system will be achievable. Will it, as the Chancellor said in his Budget speech of March 1998, tackle the unemployment trap, ensuring that work will always,
"pay more than benefits [ensuring] that the more you earn, the more you take home".—[Official Report, Commons, 17/3/98; col. 1105.]
The omens are not good. The Institute of Fiscal Studies stated:
"There are … significant incentives for second earners to leave employment altogether".
That must be of some concern to us. The stigma associated with claiming support under the current system is not proven, as the Joseph Rowntree Foundation found in January 1998. Even Martin Taylor, who headed the Government's task force, admitted in his evidence to the Select Committee that,
"as far as stigma goes, the hard and fast evidence in all these non financial and psychological matters is difficult to come by".
Then, unfortunately, there is the question of fraud. The Select Committee on Social Security expressed concern that not enough attention had been paid to this issue. Furthermore, the US system—and the Canadian system—upon which much of the UK tax credit system is significantly based suffers from fraud and certainly an explosion of costs, with spending in the US on its system increasing from 1.7 billion US dollars to 18 billion between 1986 and 1996. I was particularly interested to hear the noble Lord, Lord Goodhart, say that he expected that at some stage the tax credit system would have to be cut back because of its expense.
There is also the impact on the family. Under the family credit system, payment is made most frequently to the mother. The new tax credit system, with payment through the pay packet, is, as the TUC pointed out in its 1999 Budget submission,
"likely to divert assistance away from the primary care giver in the family".

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The noble Baroness, Lady Lockwood, asked the Minister to clarify this area of concern. So despite the increased numbers of families that may be reached, there is the curious side effect that those who need the money most—the mother and child—may well receive less.
So far the best that I have been able to say is that more families are likely to be eligible for cover through the new tax credit system and that it is a more generous system than was in place under family credit. But, paradoxically, as I have already mentioned, less financial help may reach those most in need at a greater cost with a knock-on impact on increasing welfare dependency without increasing the motivation to work.
So what about administration? From April 2000 this will be passed largely from the Inland Revenue to employers for those in employment, despite the fact that the Inland Revenue will calculate it. This will raise cash-flow issues as the employer funds the tax credit. There are also significant administrative problems as the tax credit system is linked to a 26-week cycle whereas PAYE is on a 52-week cycle. As we heard from the noble Lord, Lord Goodhart, the Bill makes no provision to ease cash-flow problems for employers, particularly small employers; and there is no mention in the Bill of assisting with the administration costs, the size of which sounded significant.
It is reasonable to say that, although there is much merit in the Government's intentions of which we on these Benches would be very supportive, the additional costs incurred on a cost-benefit analysis possibly do not add up.
I might be more positive if I did not consider the Bill to be thinly drafted. The noble Baroness, Lady Lockwood, said that complaints about having a new Bill in this area are misplaced because we have the opportunity to debate this important subject yet again. Unfortunately, we are debating it in the face of a very thin Bill, to be followed by secondary legislation through regulations which are not subject to parliamentary scrutiny. It already needed an amendment on Report in another place to include childcare benefits. That is a somewhat surprising omission given the Minister's assertion on the "Today" programme on 26th July 1998 that
"the really important element for women is the presence of child care credits".
Noble Lords probably listen to the programme if they get up at six o'clock in the morning.
In addition, I fear that the Government, as with many other financial proposals, are playing a game of poker with us, the taxpayers. The tax credit is counted as a tax cut although in fact it represents an increase in social security spending, which this Government were committed to cut.
I conclude by hoping, perhaps somewhat perversely from these Benches, that this tax credit will help to lever families out of the unemployment and poverty traps. I am sure that we on these Benches will help to improve the Bill in order to assist the Government in achieving that objective.
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It has already been mentioned once during this debate that this is a flagship Bill. Rather like American aircraft carriers, which are flagships, there is always an Achilles heel, a weakness in the construction. In the case of US Fleet carriers, apparently the Chinese have found, through the bibulous activities of a lieutenant commander in the US Navy, that their weakness lies in the thinness of the hulls at the level of the keel. I suggest that the weakness of this Bill lies at the keel. Unfortunately, the Government think that in many areas there are easy solutions. In this area, which is extraordinarily complex and in which there are many intractable problems associated with the unemployment and poverty traps, I fear that they may well have under-estimated the difficulties that lie ahead.
5.22 p.m.
Lord McNair: My Lords, this is indeed a highly technical Bill. I hope that I am being brave rather than foolish in venturing to take part in this Second Reading debate. I listened with great interest to the speech by my noble friend Lord Goodhart. I agree with the noble Lord, Lord Freeman, that it was not a long and boring speech. In fact it took up less time than the two preceding speeches. It was carefully detailed.
As noble Lords are well aware, I am not an expert in either tax law or social security as they are presently understood. In fact, I feel myself to be rather an ugly duckling on a lake full of swans in terms of the academic background and experience of other contributors.
I did say, "as presently understood". My main reason for joining in this debate is precisely on account of the complexity of the proposals in the Bill—not only the complexity of the proposals but the inevitable complexity of the administration of the proposals once they become law.
There is a fundamental law of engineering that, whenever you insert any control mechanism into a flow system, you lose a minimum of one-third of the energy throughput. So if you have, let us say, £1 million to distribute the control mechanism will "cost" £330,000. In the case of this Bill money is made available on the basis of, in the last resort, the legal sanctions described in Clause 9. So if you have some kind of test of entitlement, you have the cost of administration; the leakage from the system from evasion, or in this case non-entitlement; the cost of enforcing the legal sanction; and the cost of enforcing the financial penalties provided for under the clause.
My locus, if I can claim one, for joining in this debate is that I am chairman of the UNITAX Association. UNITAX is the mechanism of the resource economics proposition. Copies of the literature on resource economics have been circulating among several departments, including the Treasury. It is possible that Treasury officials had some sight of these proposals before the Budget.
UNITAX is a once-only tax on primary energy resources, which makes possible the huge simplification of the tax and benefits situation, which is the proposition's great advantage. If it was indeed studied

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by Treasury officials prior to the Budget, then perhaps I should own up to some responsibility for today's traffic jams.
It is of course widely accepted that a little knowledge is a dangerous thing, and I most sincerely hope that the Treasury, the Department of Social Security and all other relevant departments, will study the material and consider its possibilities and implications carefully so that, in time, by implementing the full package, they earn the gratitude as well as the brickbats of the people.
I realise that the Government are wedded to this further complexification of the tax and benefits system for the best of motives. I support and applaud those motives. But implementing the basic income provision of the resource economics proposition would cut through the Gordian knot which the Government are bent on tying even tighter in their laudable efforts to make life easier for those on low incomes, whether parents or the disabled.
I understand the Government are attempting to reward contribution rather than non-contribution, and in a sense that is how it should he. Resource economics offers a basic income for every citizen of £117 per week, derived from a resource tax, as I mentioned earlier. This Bill attempts the impossible. Resource economics and UNITAX achieve the otherwise impossible.
By giving every citizen of this country such a basic income as of right, non-selectively and without means test, and at the same time ending all direct taxation—yes, the figures work and the system does provide such a possibility—we should remove from the equation any possibility of discrimination between legally married and cohabiting couples with children. It would also end the awful cohabitation rule by treating each person over 16 as an individual in his or her own right. I call the cohabitation rule "awful" because its effect is to force couples who fear detection or wish to obey the rules but who, on very little money, are worse off as a couple to live apart. The basic income made possible by UNITAX has the opposite effect; it positively rewards cohabitation or marriage if that is the choice made by the couple concerned.
Finally, I ask the Minister to consider one of the points made by CARE, the Christian Action, Research and Education organisation. This point was raised by my honourable friend, Steve Webb, in another place. Like the DPTC, the WFTC aggregates a couple's income and savings to restrict the amount of credit. But unlike the DPTC, the WFTC does not give a larger credit to a couple. As a result of this "heads the Exchequer wins, tails the couples lose" approach, families headed by couples will lose out. That will result in some better-off families receiving more help than poorer families. The different treatment of two adult families under the WFTC and DPTC was raised during the Third Reading debate in another place, but the Minister did not provide an answer. I hope that the noble Baroness will do so at this stage.
Baroness Knight of Collingtree: My Lords, until I read the Bill, I had no intention of speaking in today's debate. However, several aspects of what is proposed
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worry me. In the interests of brevity, I propose to speak on only three, each of which touches upon what is for me a fundamental belief.
The first is that it is wrong and foolish to arrange for people to claim state benefits when they could manage without them. It is wrong for the individual and wrong for the state. The more that people find they can obtain money without working for it, the less they are inclined to bother to work at all, and the tax burden grows heavier on those who do work. Governments have no money of their own; all they have is what they take in tax from the workers and savers among us. I sometimes think that that should be said more often. It is not widely understood outside this place.
I believe that state benefit should always go, and only go, to those who are in need. There should always be help for the sick, the disabled, those who are unwillingly unemployed and all who cannot, for one reason or another, help themselves. But any country making handouts available to those who can perfectly well stand on their own feet must sooner or later face economic ruin.
During the first part of the Minister's speech, I thought that she and I were on exactly the same rails. "Hooray", I thought, "there is agreement across the Floor on this". But, in spite of what she said about encouraging people to go back to work, and so on, this Bill puts more people than ever into the state benefit net.
The Institute for Fiscal Studies, analysing the Bill, says:
"There are … significant incentives for [some] to leave employment altogether".
It goes on to say:
"Almost [a million] men and women in two earner couples see their financial returns to employment fall as a result of WFTC".
It also says:
"The increased generosity of in-work support may be used to allow the second earner to give up working".
I continue to be worried about that point.
Secondly, I believe most profoundly in the importance of marriage, and I thought that the Government did, too. Silly me! But perhaps I can be forgiven because they did say in a recent Green Paper:
"Marriage is still the surest foundation for raising children … We want to strengthen the institution of marriage; to help more marriages succeed".
I believed that that was what they meant. If it is what they meant, why pass a law such as this which discriminates so clearly against married-couple families? In the Bill married couples stand to receive less credit than unmarried couples. How does that strengthen the institution of marriage? Perhaps it should be obvious, but I do not understand. Does enabling single parents to receive more than married couples in similar circumstances really "help more marriages succeed"?
Why do the Government not recognise that it is a good thing for the country and the family if a mother of very young children chooses to stay at home and look after them, taking responsibility for them until they are a little older? The Government should recognise that and

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take account of the costs of it, which are not insubstantial. The way that the Bill totally disregards the cost to the mother of very young children of staying at home to look after them is wrong. Instead of making money available to the mother, it is to be made available for the mother to give to someone else. As the noble Lord, Lord Goodhart, so rightly said, to pay for two women with children to look after each other's children rather than to stay at home to look after their own children is absolutely absurd. Some would say that the Government actually bribe the mother to leave her children in the care of someone else. There are thousands of women who would like to stay at home and look after their small children but they cannot afford to do so. The Government are now dangling money in front of them to go out and get a job and pay a sitter for the children. It would be far better to help the mother to look after the children.
I said at the outset that I had three fundamental objections to the Bill. My third relates to my respect and concern for businesses. I believe that no country can prosper if businesses are collapsing all around. We depend more than we ever admit on businesses succeeding. It is my belief that governments should not take actions or impose burdens which make it more difficult for those who run businesses. If we constantly hamper business and industry, the country suffers. We live in a highly competitive world and business people today have quite enough problems in keeping going at all. They already carry out far too many tasks, unpaid, for the Government and many of them struggle to survive. This Bill gives them yet another duty; it imposes yet another burden; it inflicts a yet greater workload. They will have to administer working families' tax credit. Until I heard what the noble Lord, Lord Goodhart, said today—and he has looked at the costs of this—I was not aware that such a careful study had been made. Any calculation that I made was much shallower than the noble Lord's. I was very worried when I considered what the cost to business would be. And what about the cost to the Inland Revenue? It will surely be enormously complicated for it. I believe that that has not been addressed as an extra cost of the Bill.
However, I think it will be worst of all for small businesses. They cannot allocate work-hours from one of their clerical staff if they only have one clerical member of staff, as many do. The overwhelming majority of businesses are small businesses, and they work very much hand to mouth. The CBI has expressed its concern about this matter and the employers' associations which have seen the proposals—and not all have—describe them as a logistical nightmare. The Social Security Select Committee in another place was told in evidence from the Citizens Income Trust that there were "enormous problems involved" in the Bill.
From next April employers will not only have to oversee who receives the money but will have to find the money themselves, out of their own cashflow initially. All the Government have said in response to complaints is that, if there is any difficulty, employers can apply in time to the Inland Revenue. Heaven knows what "in time" means. Is it before they are bankrupted?
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I do not know. How much time after they have complained about having to find the money will the Inland Revenue take to pay them the money? If the firm in question has a dispute going on with the Inland Revenue—and many do—I can envisage the Inland Revenue not paying the money back at all until the dispute is settled. With great respect to the Minister, to decide who gets the benefit will not be nearly as easy as she believes. This matter has dogged Bills of this kind in another place for many years. I always had a feeling of déjà vu. At an earlier point in this debate the noble Baroness shook her head very decisively and believed that there would be no difficulty at all. I tell her now that there will be difficulty because who should receive the benefit is a big bone of contention between many thousands of men and their wives. We came down very strongly on the side of the mother receiving the benefit because all the information and experience at our disposal indicated that men would not spend the money on the children but mothers would.
I do not believe that the Government have begun to understand how serious a burden this will be on the employer. I can envisage an angry mother having a real row with the employer if she does not agree that her husband should be paid the money. I am absolutely certain that there will be rows of that kind. I do not believe that the majority of men and women who run small businesses know what will hit them. Having come down Park Lane this morning, I pale at the thought of what hauliers will say when this is added to their present problems.
Once again the Government have demonstrated their penchant for saying one thing and doing the opposite. They trumpet their support of marriage and businesses, the reduction of social security and tackling fraud, but their actions utterly belie their words. I was very interested in the observations on fraud of my noble friend Lord Buckinghamshire. As I understand it, Canada, which adopted a Bill that followed exactly these lines, had to jettison it because it was an open invitation to fraud. Frank Field, whom all of us respect because he speaks from great knowledge of this area of politics, said:
"The whole of the family tax credit venture is fraught with great dangers. It offers huge bonuses for dishonesty. It strengthens the employers' hold over working people—'These are the conditions: cheat and both of us will be better off'. It thereby pulls employers into a spider's web of dishonesty and corruption".
If that had come from anyone but Frank Field I would have looked at it much more critically, but he is a spokesman who knows what he is talking about. For these and other reasons I have the greatest concerns about the wisdom of this Bill.
5.43 p.m.
Lord Skelmersdale: My Lords, I am grateful to the noble Baroness the Minister for the extensive rationale which she gave for this Bill, including what she described as her two throw-away introductory paragraphs. I only half-heard them, so I shall have to read what she said to find out whether they add to or subtract from the argument that she mounted. I say straightaway that I believe that it is a proper role for the

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state to support low-income families either in or out of work. Today we are discussing the former and what the Government believe is a better way.
However, rather like my noble friend Lady Knight, I am confused. It was only a few short weeks ago that I sat bolt upright in my place when I heard a noble Lord use a mixed and anatomically incorrect metaphor. He spoke of a tiger changing its spots. It may have been an error—I do not know—but I believe that it is applicable to the Minister today. She will remember—patience, patience—the then government's policy to extend family credit to families without children in 1995—
Baroness Hollis of Heigham: Yes, my Lords. However, I also made very clear—I am sure that the noble Lord would, with his usual integrity, have gone on to say it—that that was because it failed to be underpinned by a minimum wage and therefore it was a charter for an employer to continue to sweat cheap labour.
Lord Skelmersdale: My Lords, I shall remind the noble Baroness of exactly what she did say when my noble friend Lord Mackay announced it:
"I ask the Minister to be aware of the perverse consequences of such a policy. It is an encouragement to employers everywhere to press wage bills and wages down to whatever level they can get away with, knowing that the Government will subsidise the wage bill for them in the name of family credit, if those people have children, and 'non-family credit' if they do not.
It is very odd indeed that, on the one hand, we see a series of national insurance measures—statutory sick pay, no doubt maternity pay and the like—which should properly be funded by the taxpayer pushed on to the employer, whereas the one area of responsibility that one might reasonably expect the employer to provide, a decent living wage, is increasingly being sustained by the taxpayer. It is a rather odd and perverse swapping of functions which in our view is folly".—[Official Report, 27/2/95; cols. 1346 and 1347.]
The Minister then went on to talk about something else.
If family credit is folly, why is family tax credit not folly? If the noble Baroness was right in what she said at that time—and she was right then—why has this tiger in social security matters—all credit to her for that—changed her spots today? I believe that this Bill is folly—or, rather, if the Minister was right then, it is folly compounded. It still rewards employers who pay low wages, but it is the effect on the family that worries me.
Under family credit the payment usually goes to the mother. We have heard a lot about that this afternoon. However, under the new system it is not difficult to imagine frequent rows between parents as to who will get the benefit. Paragraph 14 of the Explanatory Notes makes clear that from April 2000 the tax credits will be received through the wage packet. I assume that this means that the earner will have to claim. It certainly means that the wage earner will get the money unless the female failsafe scheme (if I may so describe it) of the noble Baroness, Lady Lockwood, operates. Often, although I accept not invariably, that will mean that the male still gets the money. Is it not at least tempting for him to use it on beer, cigarettes, gambling or whatever? That point was made by my noble friend Lord Higgins and others.
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The Minister waxed positively lyrical over the choice available where there were two wage earners in the family, but in my book that makes the situation worse. The Government do not appear to have learnt anything from overseas. America and Canada had similar systems to this and discovered that the deals between employers and employees not only could, but did, result in fraud of the system. We have heard that Canada has now dropped it. Can the States be far behind? What makes this particular version of the tax credit scheme better than, say, the American or Canadian model? I am sure that the noble Baroness will have an opportunity to answer these points at some length a little later.
This scheme is also intrusive. Even if, as the Minister claims, it does not require employers to inquire into their employees' domestic arrangements in order for the credit to be paid, the employers will immediately know that individual employees' circumstances differ. It is also an admitted added cost on business to administer it as is made quite clear in the Explanatory Notes. If the Government are so dead set on a proven dangerous scheme, why at least can it not be administered through the tax code? We know that it will not be. However, I have not discovered any reason why that is so. Surely, that would minimise some of the problems. These tax credits are generous—much more so than family credit. I am not surprised that my noble friend Lord Buckinghamshire commented on this matter. They go much further up the income scale than family credit. I am told that families who earn as much as £37,000 a year can receive some help. In extreme cases, they can even draw higher rate taxpayers into the benefit net. Is this really what the Government, still less taxpayers generally, want?
No doubt the Minister will argue that by definition a tax credit is not a benefit. My answer to that is that anything which is means-tested, as working families' and disabled person's tax credits are, must be a benefit—and not only that. Here we have a benefit that is a distortion of the tax system. Is it logical that on the one hand the Chancellor is doing away with MIRAS— and here I agree again with my noble friend Lady Knight of Collingtree—and the married couples tax allowance and with the other introducing a new allowance that, on the face of it, appears to be anomalous because it penalises two-parent single-earner families as opposed to single-parent families, as the cost of bringing up children at home is ignored?
My noble friend talked about next-door neighbours looking after each other's children and described that as "absurd". I accept that money has to change hands and that both have to be approved childminders under Clause 15 but, with great respect to my noble friend, "absurd" is too weak a word. My father would have called it an absolute nonsense. My advice to the Government is to drop that innovation like a hot cake. Like the noble Lord, Lord Goodhart, I want the Government to make family credit work better, but they will not.
At least the Bill has a few ameliorating features. The noble Lord, Lord Rix, pointed out that disabled people will have 182 days instead of 56 to find a job after other benefits have been withdrawn, which is a distinct bonus.

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So too is Clause 7 and its Northern Ireland back-up in Clause 16. Unfair dismissal or other detriment is outlawed so far as concerns obligations on employers to be responsible for making tax credit payments. That is certainly helpful in ensuring that employees not only get the money due to them, but that they cannot be penalised for asking the employer for it. However, I cannot see that it does much to counter fraud.
As to Clause 16, I readily understand that tax and social security matters are not the prerogative of the Northern Ireland Assembly—nor, correctly, will working families' and disabled person's tax credits. However, the Bill amends the Employment Rights (Northern Ireland) Order 1996 by inserting at paragraph 4 of Schedule 3 a new regulation to deal with the right of an employee not to be dismissed unfairly—an arrangement that I have just lauded. The Minister might save time in Committee if she could explain what happens to those unfair dismissal rights if the Assembly decides to appeal the whole order. As I read the Explanatory Notes, the Assembly could do that if
"repeal affects employment rights generally".
That seems odd to me but there must be an explanation and no doubt the Minister will explain either today or by letter in due course.
The last time that the Minister and I crossed swords over a Bill—it was the Social Security and Contributions (Transfer of Functions, etc.) Bill—I gave it half a cheer. My noble friend Lord Higgins was somewhat more generous on that occasion. I seem to remember that he gave it two cheers. I doubt that he, and certainly not I, could go that far today.
5.52 p.m.
Baroness Turner of Camden: My Lords, I welcome the Bill and I am grateful to my noble friend the Minister for the clear way that she explained its complexities. The principles upon which it is founded are good. The Government are right to target benefits at children. It is clear from recent surveys that far too many children are being brought up in poverty, which is not in our country's long-term interests. Children in poverty who are raised on a poor diet perform less well in school and are likely to remain uneducated, unskilled and a largely unsatisfied underclass. The Government are determined that that should not happen and we should support them.
I am indebted to the Child Poverty Action Group for its briefing, which states:
"Because we believe that the WFTC brings welcome resources to families, the CPAG concern is that the system should work as well as possible and be taken up as widely as possible".
That is my standpoint.
I have one or two questions, mainly about the way that the new system will work. The WFTC is to be paid via the wage packet of the highest earner of a couple. Even now that is likely to be the male partner. I understand why the Government want that done. It was explained this afternoon that the intention is to provide an incentive for people to work. However, such research as has been done shows that money paid direct
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to the mother is more likely to be spent to the benefit of the children. The Minister said that there would be a choice as to who would receive the payment. The CPAG asks whether notification of the award could be sent to both partners and whether there should be provision for settling disputes between partners as to who receives the payment, with the aim of ensuring that the tax credit benefits the children.
The new system replaces the passporting of benefits under family credit, whose claimants are currently entitled to a whole range of passported benefits such as dental treatment, sight tests, prescriptions and so on. Children whose parents are in receipt of income support and income-based jobseeker's allowance are entitled to free school meals. Will those benefits be available to recipients of FWTC? Can one be sure that the Inland Revenue, which will have responsibility for payments rather than the Benefits Agency, will have in place mechanisms to ensure prompt payment—particularly where there is a change of job, the employer cannot or does not make a payment, and so on? I gather that in the latter cases the Inland Revenue will take over and make direct payments. The noble Lord, Lord Freeman, raised that issue in connection with the switch from the Benefits Agency to the Inland Revenue and the change of culture involved. Will there be staffing implications?
Allied to that is the situation of self-employed people. Many people now in self-employment as a result of the massive redundancies of the past decade are certainly not well off. I understand that they will be able to apply for WFTC. Many such people, employed on what the construction industry used to call the "lump", are technically self-employed on short-term contracts because that is the only work that they can get. Employers like the system because it enables them to avoid all the usual costs of conventional employment. Presumably systems will be evolved to take care of such people—who are really employees but are often more exploited than those who are technically regarded as employees.
The Bill has provisions for enforcement if employers do not co-operate. I welcome the provision in Schedule 3 which is headed:
"Rights of Employees not to suffer unfair dismissal or other detriment".
It is clearly the Government's intention to ensure that employers cannot escape their obligation by making threats to employees who insist on their rights which could result in their dismissal or conversion from employee status to that of a self-employed person on a short-term contract. In such a situation, the employee will have the right to take the case to an employment tribunal—which will presumably deal with it under the Employment Rights Act 1996. Those provisions are certainly most welcome and one hopes that they will be made widely known to employees so that they will know how to proceed if they have difficulties enforcing their rights.
I am glad to note from the Confederation of British Industry's briefing that it supports the introduction of WFTC and the increase in the value of the credit announced in the Budget. However, the briefing raises issues of concern in relation to which the CBI seeks

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amendments. The first relates to an exemption for small firms; but I cannot support that demand. There are far too many small firms employing far too many people for such an exemption to be realistic. Moreover, I understand that the Inland Revenue is prepared to assist small firms to cope Also, employers and noble Lords who raise that point should appreciate that the WFTC supports small firms, as they are the very employers who complain that they cannot afford high wages. They should welcome the WFTC as a subsidy from the taxpayer.
The CBI's second point might have a little more validity but only in one respect. The confederation suggests that all employees be given the choice of receiving the credit directly from the Inland Revenue. That might import an element of complexity that the Government would not welcome. The only employees to whom that facility might be extended are lone parents. Many single parents might want a direct payment, believing that that is more likely to preserve confidentiality. I welcome the views of the Minister.
The CBI also suggests that employers should act only as agent for the Inland Revenue and should not be expected to become involved in assessment of entitlement. I gather from the Minister that that is to be the position. Employers will simply be agents. To some extent that deals with the point raised by the noble Lord, Lord Higgins, when he asked about the situation should there be more than one employer. I understand that the Inland Revenue will do the calculations and will be responsible entirely for assessment, and will do so in relation to the one employer via whom the tax credit is to be paid. I do not see that there is a great deal of difficulty about that.
The Bill also deals with the disabled person's tax credit. I believe that there are Members in this House far better able than I am to deal with issues affecting the disabled, notably my noble friend Lord Rix. Suffice it to say that it appears to me to be an improvement on the present situation. However, I wish to raise one point. The DPTC takes the place of the disability working allowance. I supported that when it was introduced by the former government. But there was always a problem. I believe that it had the lowest take-up of any benefit. I should not like that to happen with the new arrangements. What procedures are in hand to ensure that there will be a better take-up this time round? I understand from the Minister that there is to be a fast-track procedure. Is that intended to deal with the problem of low take-up? It is to be hoped that it will do so.
Finally, perhaps I may say how pleased I am that lone parents applying for the WFTC or DPTC will not be required to co-operate with the Child Support Agency in seeking maintenance from the absent parent. There will be no penalty for non-cooperation. That will allow child support to be used for the benefit of the children, which is what was originally intended.
Altogether it is a Bill to be supported. It has to be taken in conjunction with the introduction of the minimum wage, other measures announced in the Budget and the drive by the Government to increase
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the number of families with sufficient income to meet a low cost but acceptable budget. There will still be families below that level and that is regrettable. It means that there is still much more to do. But the Bill is a worthy step in the right direction and should be supported.
6.2 p.m.
Lord Swinfen: My Lords, I welcome the Government's efforts to make people feel that it is better to earn through work, even if there is a top-up on their earnings, rather than to survive on benefit. I welcome the reduction in the tax burden on families which will result from the introduction of the working families' tax credit and the disabled person's tax credit, and the attempts being made to deal with child poverty. However, I believe that the proposals as they stand have a number of major weaknesses.
The WFTC does not treat all families even-handedly, as has been mentioned. Married couples will be disadvantaged. They will receive less credit than other families. There is positive discrimination against marriage. That, together with the loss of the married couples allowance, calls into question the Government's claim that they support marriage.
The working families' tax credit helps families who need and can afford paid childcare but gives no additional help to families who pay for childcare by sacrificing income so that they can care for their children themselves.
The noble Lord, Lord McNair, raised the difference between the DPTC and the WFTC in the aggregation of a couple's income and savings to restrict the amount of credit. He pointed out that that point had been raised in the Commons but had not been answered. Will the Minister answer it this evening? Statistics from the Department of Social Security suggest that typically a family of four (two parents and two young children) will be poorer than a family of three (a lone parent and two young children). A fair system should take account of the second adult both for fixing the basic credit as well as for calculating family income. The DPTC also introduced in the Bill contains an enhanced credit when there is a second adult in the family. That is also the case with the income related benefits. Since the second adult has the same expenses in both cases there is a compelling case for bringing the WFTC into line with the DPTC.
My noble friend Lady Knight raised the question of marriage. I welcome the additional help being given to lone parent families, but I am concerned that once again married couple families have been discriminated against. That is in sharp contrast to the policy expressed in the Green Paper Supporting Families.
The working families' tax credit proposals are also defective in that they give more credit to families who pay for childcare than to those who do not. Some parents will wish to work and attach great importance to the availability and affordability of professional childcare. Other parents attach equal importance to caring for their children at home. Giving both groups of

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parents a genuine choice is important. As the consultation paper Meeting the Child Care Challenge states,
"It is up to parents to decide what sort of child care they want for their children. This is not a matter for Government. But it is Government's responsibility to ensure that parents have access to services to enable them to make a genuine choice. This means good quality, affordable child care for parents who wish to work outside the home, and support for parents … who look after children".
The skewing of the working families' tax credit in favour of one group of parents does not enable parents to make genuine choices, in particular those on low incomes. There is a built-in incentive not to care for children at home. The WFTC must deal with both groups fairly and needs to recognise the position of parents who are in effect paying for their childcare by not working, as well as those who are using professional childcare facilities. It would also be interesting to know how the behaviour of those children changes when they are looked after by their own parents at home in, I should have thought, a more loving sense of care than those for whom there is always paid help.
There is also a good case for bringing into line the treatment of disabled children under both working families' tax credit and disabled person's tax credit. Under the DPTC a disabled person who has a disabled child receives an additional credit. There is no similar credit under the WFTC. The needs of a disabled child should surely receive the same recognition whether or not the parent is also disabled. It is the child who is disabled in this instance and not the parent.
The noble Lord, Lord Rix, said that childcare which is eligible for assistance through the tax credit includes types of care that can be registered. Childcare that is not registered includes services for children over the age of eight and care in a child's own home. That has meant that disabled children who are more likely to need services in their own homes, and higher up the age range, have not been able to get registered services and so would not be eligible for the childcare credit. Care in their own home may be the only practical option for disabled children, in particular those who are severely disabled, if their homes have already been specially adapted to meet their special needs. A recent report by the House of Commons Social Security Select Committee recommended that eligible childcare should be extended to disabled children where childcare could be verified. The Government's recent amendment to the Bill at Report stage in the Commons allows for childcare to be eligible for the credit where provided by an accredited organisation. That is referred to in the House of Commons Hansard of 17th March at col. 1140. That will help parents of children over the age of eight to qualify for childcare tax credit. It is unclear whether it could help parents of disabled children who may be paying for childcare in the child's own home. Can the Minister clarify that point?
Passporting was mentioned by my noble friend Lord Higgins and the noble Baroness, Lady Turner. Currently, people who receive family credit or disability working allowance can also be eligible for other assessments. They include national insurance credit;
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social fund maternity and funeral payments; help with home repairs and energy efficiency; free legal advice and assistance; assisted prison visits; weekly payments of child benefit; fares to hospital; free prescriptions; and help with the cost of dental treatment and glasses. Will the Minister when replying to the debate confirm that those passported benefits will still be available to the recipients of the new credits under the Bill?
The national insurance credit is likely to become increasingly important for disabled workers on low earnings. I understand that the lower earnings limit for employee national insurance contributions is £66 a week. Can the Minister confirm that people earning below that level will also receive a disabled person's tax credit and requalify for incapacity benefit should they need to do so? Changes to the national insurance contribution conditions for incapacity benefit proposed in the Welfare Reform and Pensions Bill will mean that only people with a recent record of actually having paid two years' contributions will be able to qualify for incapacity benefit. While there is a two-year linking rule for people claiming the credit, the question remains for people who may need to reclaim benefit after more than two years on credit.
My final point was raised by my noble friend Lord Skelmersdale. Why cannot the tax credit be paid through the PAYE tax coding? It would make far less work for employers and would mean that other people working in the same firm would not know that a particular employee was in receipt of a tax credit.
6.12 p.m.
Baroness Fookes: My Lords, the noble Lord, Lord McNair, who is no longer in his place, referred to himself as an ugly duckling in a lake of swans because he did not pretend to have great expertise. I have a fellow feeling and in this case must also class myself as an ugly duckling because I do not pretend to be an expert in tax law or social security.
However, during my long years in another place I had considerable experience in dealing with the problems of constituents; some of the people who would be covered by social security. My noble friend Lady Knight will agree that such people are often perplexed by what appears to be a jungle of regulations. They are even more concerned when the regulations change. Therefore, I am very wary of changes unless they can be proved to be substantially better than that which they are replacing.
On that test, the Tax Credits Bill fails. We already have a reasonable system which has bedded in very well. If the Government were minded to make it more generous, they would have been better to have done so and not changed the system. However, it seems that the Government are obsessed with modernisation, with change and with tinkering with systems. Nothing, but nothing, must be allowed to remain the same. I see many drawbacks in the system brought before us in the Bill. Other noble Lords have described them in detail, so I shall deal only with those which I consider to be of importance and about which I feel strongly.

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I deal first with the issues surrounding the woman, the wife, the mother. The great merit of the present system is that the benefit goes to the mother without argument. As other noble Lords have indicated, once a choice is introduced problems arise. There are severe cases in which women are knocked about by their husbands but remain with them or, if they move into a refuge, return to them. What kind of true choice will they have? I would lay money on the man being allocated to receive the money and that it will not go to the children in the way that it does now. I have great fears about that and feel very strongly that the move is wrong.
It is also a matter which perplexes me, given that the Government have set great store on the role of women. They have instituted a Minister for Women in this House and in the other place. I had understood that one of their tasks was to put through a sieve all impending government legislation in order to ensure that it did not disadvantage women. The sieve must be very wide meshed because there is no doubt that in this case women will suffer as a result of the change. My noble friend Lady Knight dealt with the issue of marriage so I shall not dwell on it, but I utterly concur with her remarks.
I, too, am concerned about the burden on employers, in particular small employers. I come from the West Country where virtually every organisation is small, as the Minister will be aware. I can see real problems for small businesses because this is not the only burden that will be laid upon them. In addition to their current burdens will be the directive limiting hours and the minimum wage legislation. Whether they are right or wrong, they are additional concerns for small and large businesses to bear. I believe that these provisions will be too much and are unnecessary when it would be possible to introduce another system which did not impinge on employers in the same way.
As the noble Baroness, Lady Turner, observed, the CBI has asked for an exemption. She considered it to be impractical because of the number of small firms. I should like the Government to examine this matter. I think that it can be clone, but if it is impractical it reinforces my view that we should not be going down this road. I shall be interested to hear the Minister's comments on that when replying to the debate.
Finally, I suggest that we take very closely to heart the words of Frank Field. I believe that my noble friend Lady Knight was in error in describing him as a spokesman. I believe that he has been blotted out of the government book of life. Nonetheless, he has more experience than most in examining these issues, and when he says that the new system contains serious errors and faults I take it very seriously and I hope that the Government will do so too.
6.18 p.m.
Lord Craigmyle: My Lords, yet another ugly duckling quacks up!
I welcome the attempt to lift us out of the iniquitous morass into which our tax and benefits system has sunk. It was only when I heard the Minister laying out her
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stall so well this afternoon that I was struck by how complex the Bill is. The noble Baroness spoke of incentives and "penal rates of deduction". She said that people are reluctant to take work which does not pay.
The WFTC carries its own incentives and disincentives. It will induce couples away from stable relationships into casual ones—something which I do not think the Government are hoping for. I will spell out some of the characteristics of this credit.
Married people will become more disadvantaged. There has been a shaking of heads on the Front Bench when this issue has arisen before, but it is a genuine concern. Their incomes will be added together. That is not something new to the Bill, but it is compounded by it. It is absurd. Two people eat more than one person, even without children to feed. They already pay more council tax and suffer from the loss of tax bands if they lose an income; and now this, on top of all that.
The Minister echoed the words of the Paymaster General that,
"no family with children will pay net income until their earnings exceed £235 per week".
If the couple has savings of £4,000 each they miss the credit entirely, no matter how low their income. It appears that they are being told that if they split up, dissipate their savings and dump their children in childcare, they will be a better family. I disagree. If they do, the mother can then claim maintenance, which is disregarded for the purposes of the credit. The Minister is right to be proud of that because it is very sound. But reconciliation between the couple will effectively be taxed, as their incomes will be assessed together once more. Working families' tax credit puts another brick in the wall which I call marriage tax.
I make a simple prediction: the effect of working families' tax credit will be to drive more families apart and to dissuade other couples from formalising their relationships. This will be sad for the couples: nobody aspires to raise children within casual or unstable: relationships. For the children this is a disaster. The best they can hope for is that their parents have the wit to defraud the system by pretending to be separated, which is another advantage of not being married.
A number of changes could be made to the proposals. A useful change would be to give a second credit to the second adult. This would bring them in line with the DPTC, and the Bill would then be more consistent. It would treat families more even-handedly. I am not advocating any kind of assistance to the two-parent family, although that might be a good idea; I am just asking that they should not be penalised any more than they already are. Working families' tax credit gives us more nails with which to hammer down the lid on the coffin of marriage. I fully expect it to be drastically amended before the Bill passes.
6.25 p.m.
Lord Astor of Hever: My Lords, this debate has shown, with noble Lords' characteristic expertise and insight, why the Bill is so fatally flawed.

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I am sorry that the noble Earl, Lord Russell, has not preceded me in winding up tonight. From these Benches, we wish him a speedy recovery. Having read the speech of the honourable Member for Northavon, Steven Webb, at Second Reading in the other place, when he described the Bill as a fraudster's charter, I was expecting some fireworks from the noble Earl.
I much enjoyed the speech of the noble Lord, Lord Rix, who fights so hard for the disabled. His wife, who gives him so much support, deserves a very happy birthday party tonight.
There are ranged against the Bill many independent experts, large and small businesses, and other informed organisations which are urging the Government to think again. As my noble friends Lord Higgins and Lady Carnegy said, the working families' tax credit is not really a tax credit at all, but a transfer payment made through the wage packet. One third of the current recipients of family credit, against whom we must benchmark, do not pay any tax whatsoever, and of the remaining two-thirds, only 9 per cent. of their family credit could be offset against a tax liability.
All that the Bill seeks to do is alter the means of transfer, while clouding it in the grandiose rhetoric of welfare reform. The only real winner will be the Chancellor of the Exchequer who, it would appear, is looking to bring all welfare spending under the auspices of the Treasury.
The Government seem determined to ignore the evidence from other comparable schemes that have been introduced in Canada and the United States. This point was touched upon by the noble Earl, Lord Buckinghamshire, and the noble Lord, Lord Skelmersdale. The scheme in Canada, the working income supplement, which Martin Taylor, the architect of these proposals, admitted he had not even looked at, has been replaced by a benefits-based system because of wholesale abuse.
The American evidence is equally damning. There, the earned income tax credit (EITC) has been shown by the IRS to encourage taxpayers to claim over 4.4 billion dollars more than they were entitled to, while federal spending on the EITC ballooned from 1.7 billion dollars to 18 billion dollars from 1986 to 1996; and all this at a time of unprecedented growth throughout the United States economy.
The potential for fraud under the working families' tax credit has already been mentioned by my noble friends Lord Buckinghamshire, Lady Knight and the noble Lord, Lord Craigmyle. If a system is set up that can be milked, like this one, someone will milk it.
My noble friend Lady Knight told us that the Government's leading welfare reform thinker, the right honourable Member for Birkenhead, Frank Field, said that,
"the whole of the family tax credit venture is fraught with great dangers … it offers huge bonuses for dishonesty, strengthens employers' hands over working people and encourages low-paid jobs".
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Moreover, he said:
"It takes pressure off improving productivity and increasing the scope of real wages".
All that from a man whom the Government charged with thinking the unthinkable over welfare reform. In fact, what he thought was so unthinkable that the Prime Minster decided that both he and his boss were unemployable.
The Select Committee on Social Security also expressed concern at the potential for fraud if priority was placed on prompt payment at the expense of rigorous checking of eligibility.
I turn now to the "purse-to-wallet" argument which has been voiced by many leading commentators. The working families' tax credit penalises two-parent, single-earner families as they do not qualify for the childcare tax credit. It fails to take into account the costs of bringing up a child at home and only takes account of another adult in the family purely as a means of reducing the credit. The comparable experience of the American EITC was that it encouraged couples to keep their relationships formally unrecognised. So much for the new party of family values.
My noble friends Lady Knight and Lord Swinfen enlightened us on the Government's contempt for the institution of marriage, having promised so much. Our major concern is that there is a strong possibility that by paying the WFTC through the pay packet, the money will not reach the mother and, therefore, the family. My noble friend Lord Buckinghamshire made the point that a side effect of the Bill is that those who need the money most—the mother and child—may well receive less. The noble Baroness, Lady Turner, also emphasised that point.
The payment method is a serious issue where couples are involved and one result will be to set husband against wife, as my noble friend Lord Skelmersdale said. Figures show that within family credit, 308,000 families have the man as the principal wage earner. Within that group, 93.5 per cent. of women had no earnings.
Under these proposals, the £900 million in WFTC could go directly to the man, since the wage earner is the default recipient. As Frank Field said, women will have to negotiate with their partners to get back the £900 million that they currently receive. Despite the Government's assurances that the Inland Revenue will step in to investigate, the Low Pay Unit and the TUC have both voiced clear criticisms of that approach.
In addition, research by the Joseph Rowntree Foundation found strong opposition among women to payment through the pay packet since they regard the current system as being clear, direct and guaranteed for their weekly budgeting. Many women suffer an unequal position within a relationship. Indeed, violence in families is a huge problem, as my noble friend Lady Fookes, with her great experience, pointed out. The same research showed also that men within the same couples were also opposed, on the grounds of the invasion of privacy by employers administering the arrangements.

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In Committee, we shall wish to consider how WFTC should be made available. As matters stand at present, lone parents will not have the option of choosing how they receive WFTC but we feel that they should be allowed to choose. If they prefer not to have it in the pay packet, they should have the option to collect it from a post office. Being paid through the wage packet inevitably requires the employer to intrude into the employee's private affairs which causes people, quite rightly, to be concerned.
The required close monitoring of employees' and their spouses' benefits could lead to an adverse adjustment of salaries. My noble friend Lady Carnegy made the point that unscrupulous employers could use access to information about their employees' and their spouses' benefits to take advantage of the more vulnerable people. On the other hand, family credit does not cause such problems as, according to the DSS's own figures, only about one-third of employers know that their employees are in receipt of the benefit.
The issue of stigma has been mentioned by my noble friend Lord Buckinghamshire. The Government claim that as the WFTC is no longer seen as a benefit, that will reduce the stigma attached to family credit. That is contradicted flatly by the Institute of Fiscal Studies and the CBI. The Institute of Directors states that it will be quite likely that an employee who receives, and of whom it is known that he receives, benefit in the workplace will be stigmatised. Employees do gossip.
The notion that it will reduce the stigma of family credit and encourage people to take lower-paid jobs is disputed even by the TUC which said, in its 1999 Budget submission:
"Family credit has … enhanced job security for many people in low paid jobs by delivering financial assistance in a direct and timely fashion".
After all, levels of take-up are 70 per cent. by case load and 82 per cent. by expenditure. The CBI and the Joseph Rowntree Foundation have both stated that the stigma argument against family credit is weak.
Perhaps the final comment on this matter should go to Martin Taylor, in his evidence to the Select Committee. As my noble friend Lord Buckinghamshire said, he admitted that there was no evidence to criticise family credit on the basis of stigma, saying that
"hard and fast evidence … is difficult to come by".
Lastly, I turn to one of the most powerful arguments against the Bill—that is the financial and administrative burden that it places on business. That point was made eloquently by my noble friends Lady Knight and Lady Fookes. The draft regulatory impact assessment estimates that the WFTC will cost employers £103 million per annum to operate, with at least an additional £43 million in non-recurrent set-up costs.
It is the impact on small businesses—and many small businesses are very much on the breadline—that is of particular concern. Over the past 15 years, small businesses have created 2 million new jobs and they currently employ 50 per cent. of the private sector workforce in the United Kingdom, with the vast
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majority employing nine employees or fewer. In a small firm, the owner-manager often does the calculations on the kitchen table.
The CBI, the Institute of Directors and the Federation of Small Businesses have all criticised strongly the impact of the WFTC on business. That additional huge amount of hassle could well mean that benefit claimants are either not taken on or laid off as the Government continue to choke business through more and more regulation. It may make some employers prefer employees who are not claimants, rather than employing claimants who may be an administrative burden. The more that business people are dealing with government work, the less they are dealing with their own and creating new employment opportunities and profits. Moreover, concerns as regards privacy and innocent mistakes in calculation or receipt, resulting in benefits going to the wrong people or not being paid on time, may well sour industrial relations in that vital economic sector.
I have also received a number of representations from the National Farmers Union which is extremely concerned about the impact of the Bill on its members, many of whom have already suffered hugely under this Government. They question seriously the disproportionate burden of costs and administration on farmers who employ comparatively few people but are heavily reliant on casual and seasonal labour.
The cash-flow position of many employers will be worsened as they will effectively be lending the Crown the money to pay the benefits, with each loan outstanding for between two and six weeks, depending on the pattern of wage payments. The Institute of Directors has described the cash-flow problem as "massive" and the Chartered Institute of Taxation is extremely concerned about the impact on the solvency of businesses.
On that point, the Select Committee on Social Security recommended advance payments to ease the cash-flow problems of small businesses and the reimbursement of administration costs for those with only a few employees. Therefore, I ask the Minister whether she will consider those two points.
The Government increasingly seem to view an employer's payroll as their own unpaid executive agency whose role is to distribute and collect state transfer payments. In addition to the potential burden of the WFTC, there are proposals to use employers for student loan repayments and stakeholder pension contributions. Those have been reviewed and criticised at length by the British chambers of commerce.
Where will it all end? Will the Government make a commitment, for the benefit for the business community, that no more social security payments will be transferred to the payroll during the lifetime of this Parliament?
The draft RIA suggests that it will take an employer half an hour to read a book on the WFTC and understand it. For this purpose, the employer's time is valued at only £10. People who are not good at payroll to start with—the majority of small employers—are not going to learn the system in half an hour.

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What is the point of businesses even trying to be successful and competitive when the Government are imposing ever more burdens on them and diverting their valuable time and resources? However well intentioned the WFTC might be, it is merely adding to the pressures that make employers administrators and not businessmen.
I believe that we should see the WFTC in a wider context for the business community. This Government pledged in their manifesto,
"to promote dynamic and competitive business and industry at home and abroad".
Instead, we have a Government who are ignoring the pleas of both large and small businesses to end the burdens being forced upon them.
The Bill does nothing to serve the people that it most purports to help. It is ill thought-out and ill planned. This is not just the view of the Opposition; a formidable array of specific and general criticisms of the working families' tax credit is coming from many organisations which, unlike the Government, understand the practical implications of the Bill and the harm it has the potential to do.
We, on this side, are committed to encouraging people to work and to ensuring that work pays, but in our view the Government's Tax Credits Bill will not achieve that. Like the party of the noble Lord, Lord Goodhart, we shall seek important improvements in Committee.
6.41 p.m.
Baroness Hollis of Heigham: My Lords, we have had a wide ranging and detailed debate. If I were to seek to do justice to all the points raised, I would keep your Lordships here long past the dinner hour, but I am sure that that would not be to the advantage of the House. If your Lordships will allow, rather than take up the time of the House now, I will follow up, as I was invited to do, points of detail about Northern Ireland, the forms, regulations—yes, they will be published before we go into Committee—agriculture, and methods of payment for casual workers, by correspondence which can be circulated, otherwise the time of the House will be taken up inappropriately.
Listening to your Lordships, the issues we have heard seem to cluster into three main blocks of concerns. First, there were issues which related to the recipients of working families' tax credit, such as dependency, means testing, purse-to-wallet, the attack on marriage and the disabled persons' tax credit. I shall seek to address that bundle of issues, as to the effects on the employee, in roughly that order.
Secondly, there was a set of issues which concerned employers. I refer to the burden on business, in particular, which became a shorthand for issues such as cashflow, payroll costs, the question of whether there should be an exemption for small firms, and issues of privacy. That second bundle of issues concerns the employers' position.
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Finally, there seemed to be a set of issues concerned with the position of Government. One of these was a straightforward question which I was asked by the noble Lord, Lord Higgins, about accountancy methods. The noble Earl, Lord Buckinghamshire, raised issues of comparison with America and the Canadian experience. The noble Lord, Lord Astor, raised issues of comparison with other countries in terms of burdens on business.
If your Lordships will allow, I shall seek to answer the queries in those three forms: the questions affecting employees and families; the questions affecting employers, and finally the wider remarks on the Government's position.
The noble Lord, Lord Higgins, opened the attack by saying that this is not a working families' Tax Credit Bill but an Inland Revenue "handout" Bill. I cannot put it better than in the following quotation:
"One advantage that we wish to establish in proposing that family credit should be paid with wages is a link between the credit and work. Sometimes, it is too easy for someone considering taking a job, perhaps at relatively low wages, to consider simply the wages and the deductions from pay for tax and contributions.
"Another advantage is that payment with wages represents a step towards a closer alignment of the tax and benefit systems, a step which I am urged constantly to take".—[Official Report, Commons, 19/5/86; col. 148.]
I think that puts the Government's case pretty well. Those comments were made by the then Mr. Fowler on 19th May 1986 at Third Reading of the Social Security Bill in the Commons introducing family credit, seeking to have it paid through the wage packet to integrate tax and benefit and urging that people should recognise that the point of entry wage would determine people's movement into work rather than the so-called stigma of what was then the family income supplement system. I know that the noble Lord, Lord Higgins, wishes to intervene.
Lord Higgins: My Lords, I am grateful to the noble Baroness for giving way. That does not, in any way, make this a genuine Tax Credits Bill. It is quite beside the point. If I understand her correctly, she is quoting from the experience at that time. There may be joy in Heaven about one sinner who repented, but what actually happened in the event?
Baroness Hollis of Heigham: My Lords, in the event, with considerable reluctance, the Government decided to pay family credit through the woman. However, in taking the issue through the House of Lords, the noble Baroness, Lady Trumpington, said:
"The case for closer alignment of the tax and benefit systems has been strongly advanced …"—[Official Report, 23/6/86; col. 41.]
She went on to say that the Government would continue to consider it and that they would wish to return to it as soon as possible. Unfortunately, the Government of the day did not do so and we are now taking that mission forward.
Lord Higgins: My Lords, the moral of this story is clear: when there is sufficient opposition on these issues, it is a good idea to take account of them. Therefore, if

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the noble Baroness is now saying she is doing that, she surely ought to take account of the considerable opposition being expressed about her Bill in this form.
Baroness Hollis of Heigham: My Lords, the opposition was coming primarily from business which, as ever, resisted the minimum wage and fairness at work procedures. It is resisting the WFTC and resisting taking responsibility for statutory sick pay and statutory maternity pay. It is resisting anything that can be regarded as the proper responsibility of business. It was to that lobby, in particular, that the Government of the day deferred though acknowledging that the arguments were for exactly what we are suggesting; that is, a tax credit system integrated through the tax system in order to encourage people to work.
The Government of the day responded to the fears of business, as it always does, to avoid taking proper responsibility for their employees. They failed at the time to support a minimum wage and the like. We are in no such position. We believe there is a proper role for Government which is to regulate the playing field. We believe there is a proper role for employers and employees and that we will get that balance correct. It was not done under the previous Government. We believe that we are now in a proper partnership of regulation and co-operation in which the rights of employees, as well as the responsibilities of employers, are properly protected. I hope that the Government will get the support they should, in that case, from the Opposition parties.
The noble Lord, Lord Higgins, made much of the point about increasing dependency. On that he was supported by the noble Lord, Lord Goodhart. My noble friend Lady Lockwood responded to many of these points. The problem seems to me to be real but not a party one. During the 1980s there was an increase in dependency on means-tested benefit for two reasons: first, the huge increase in housing benefit because the previous Government chose to deregulate rents; secondly—and this we fully supported—the increase in means-tested disability benefit. The problem then comes that if benefits are tapered because they are means tested, there is continuously the dilemma that the noble Lord, Lord Goodhart, spelled out to your Lordships' House. If there is a shallow taper, people are kept on benefits longer. If there is a steeper withdrawal rate, a steeper taper, there are very high deduction rates, beyond 90 per cent. or even 100 per cent. There is no right answer. Any government, any administration, are balancing the shallowness of the taper and therefore increased dependency on those benefits and a very high withdrawal rate and therefore strong disincentives to increase the earnings at work.
The distinction we made at the time, which is why we were unhappy, particularly with the extension of family credit—the earnings top-up quoted by the noble Lord, Lord Skelrnersdale—is that we support and continue to support a top-up to low earnings where the person earning is at some relative disadvantage in the labour market. For instance, they may have a large number of children, may be disabled or as a lone parent may have high childcare costs. Any one of those factors might
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keep that individual out of the labour market. The labour market does not reflect the at-home domestic costs; the wage is paid irrespective of whether the man has three children, one or none. Therefore, in our view it was perfectly right—we supported it throughout—to introduce family credit or in-work benefits provided they were underpinned by a minimum wage. We objected then and continue to object to using a wage subsidy, to subsidise not the employee who is at a disadvantage in the labour market, but the employer who is paying a sweated wage.
It is still the case today that the median wage of a lone parent—the average wage of a lone parent—is below the new minimum wage of £3.43. Indeed, the statistics show that over a three-month period, of 24,000 lone parents going from IS to family credit, around two-thirds were being paid below the new minimum wage. Therefore family credit was effectively acting as a subsidy to poorly paying employers and sweated employers rather than, as we believe it should, helping those who are more marginal to the labour market to enjoy the same opportunities for work as the rest of us expect to enjoy.
Of course, by definition, given that we are producing a support for those on low pay who have added labour market costs, we will inevitably have the problem that those who come down from the higher rates of MDRs, or withdrawal rates, will "bunch" the 60 per cent. rate; that is true. Nonetheless, under WFTC, lone parents and low earning couples will all be better off than by being on family credit. So even though there will still be high withdrawal rates—I agree that 60 or 70 per cent. is high—it is infinitely better than the current withdrawal rates of 80 or 90 per cent. and higher. At the moment 115,000 have withdrawal rates of over 90 per cent. under family credit. Under WFTC that will come down to 15,000 so we will be significantly improving the position.
The second bundle of arguments raised concerned the issue for employees of "purse-to-wallet". The noble Lord, Lord Higgins, seemed to think that we should nut be allowing the couples to whom it is to be paid to have a choice, because it will cause a dispute and that would be unfortunate. But that was the argument by which Gladstone, many years ago, would not give married women the vote. It was said that if she disagreed with her husband there would be a dispute and therefore it was not given to married women. That seemed to privilege single women, but as single women included people like prostitutes, lone parents and so forth, they could not be given the vote either. As a result, women failed to get the vote for the next 40 years on exactly the same argument as that being applied by the noble Lord, Lord Higgins. I do not know if he wishes to support that position.
But I have greater faith in marriage. Some of the same commentators today—for example, the noble Baroness, Lady Knight—on the one hand were saying that we should be supporting marriage, but on the other hand were so worried about the misappropriation of money within marriage, the violence within marriage, the unreasonable behaviour of men within marriage that

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I was sometimes a little baffled to understand why they should want to support marriage at all. It was an extraordinary and disproportionate set of arguments.
We are saying that lone parents in work will receive the benefit through their wage packet. Where couples are both earners, it will be paid through the wage packet to the higher earner. If there is a couple in which one person is at home and one is not, they will have a choice as to whom it is paid. We hope, for the most part, it will go to the man, because the crucial point for our purposes is the entry wage at which he goes into work. If they choose for the woman to be paid, that will be their choice. If there is any dispute between them, the presumption will be in favour of the parent who cares for the child. That is the protection for those situations where a woman and her children might otherwise be at risk.
Lord Goodhart: My Lords, I am grateful to the noble Baroness for allowing me to intervene. Can she assure me that if there is a dispute that provision in relation to the fall-back default will be included in regulations? It does not appear to be in draft regulations at present. Will she confirm that it will not be dealt with, as appears to be proposed in the Inland Revenue memorandum, by the Inland Revenue simply disregarding its own regulations?
Baroness Hollis of Heigham: My Lords, as I understand it, it will be dealt with under the general responsibilities of the Board of Inland Revenue's responsibility for the care and management of this procedure. It has already been described to that effect by my honourable friend the Paymaster General in the other place, and therefore the words in Hansard are to be taken to convey the same weight.
Lord Goodhart: My Lords, as it says in the memorandum that it will accept the application even though technically it would not be effective, it will be disregarding its own rules.
Baroness Hollis of Heigham: My Lords, it will accept the application within the broader framework of its overriding responsibility for care and management. That is the position of the Inland Revenue. That is the position which validates its overriding responsibility.
To put this in context, just over 1 per cent. of family credit forms are returned now because they are not completed with both signatures, and in almost all cases that is an oversight as to the two people not signing. The number of disputes from the experience of family credit where the same rights apply is absolutely minimal; indeed, the officials could barely remember a case. I doubt therefore that this will be the problem that people perceive it to be.
Nonetheless, I was pressed as to whether lone parents should have a choice as to whether the working families' tax credit should, as with family credit, be paid at home or whether it should be paid through the wage packet. We are unapologetic that this is meant to be a support for wages in the same
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way as outlined by Sir Norman Fowler. We accept that. We know that on average people's wage on going into work is only two-thirds of the median wage for that job that they will require four, five or six years down the line.
The research in the 1996 report by Shaw—Moving Off Income Support: Barriers and Bridges—indicates that the problem is not childcare, loss of individual benefits, the hassle of moving into work or the insecurity of work; it is the low level of entry wages. Just to remind ourselves, the average hourly wage for a man is almost £7, but his entry wage is only just over £4.50. The same applies to women. A woman's average hourly wage is at or about the minimum wage level of around £3.50 or £3.60. It is that point-of-entry wage which determines people's calculations of the "better off by". That is why the benefit needs to be brigaded with the wage so that it is seen as a work support benefit and not an income support benefit, which is what it will continue to be perceived to be if it is paid at home.
I was asked questions about childcare costs and why we went for the figure of £200 million rather than the £4 billion that the IFS calculated. As your Lordships recognise, the IFS figure was calculated on everybody having maximum childcare and all of it going through to registered childcare. At the moment around only 5 per cent. of families on family credit take advantage of the childcare disregard, and the total comes to between £30 million and £40 million. We felt that by multiplying that figure six-fold it would probably be broadly right. All our research shows that the majority of people going into work still prefer informal arrangements with relatives, family and friends. We expect that to continue. But we also expect there to be an increase not only in the demand for and supply of registered childminders for younger children, but for support for children over the age of eight. We believe that figure to be about right; if it is not, we shall obviously need to come back and adjust it. That seemed to be a more realistic view of the world than some of the assumptions lying behind the IFS.
I was pressed by the noble Lord, Lord Skelmersdale, and others, about the disincentive for the two-parent family—the second partner would drop out of work because it is a means-tested benefit. One has to recognise that that is a problem with any household-based means-tested benefit such as family credit. But then we had complaints from the other side also that the single adult working family who was not eligible for the childcare tax credit was equally being penalised. On the one hand the noble Lord, Lord Skelmersdale, complains that the two-earner couple will be penalised and the woman will drop out of work; and on the other that the single-earner couple will be penalised. The Opposition cannot have it both ways, though they may try.
Lord Skelmersdale: My Lords, cannot the noble Baroness understand that it is quite possible that both will happen and that both are wrong?
Baroness Hollis of Heigham: My Lords, I do not see how that can be entirely consistent. The point about the

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childcare credit seems to me to be very straightforward. We are saying that WFTC supports low earners. If to earn that low pay a person needs the assistance of childcare benefit, we need to help subsidise it, otherwise, the lone parent will stay on income support. Alternatively, if, for example, there is a couple in work, the woman may not otherwise be able to afford to work because she would have to care for her children.
Is the party opposite asking, for example, that a mother caring for her child should receive payment for it through the WFTC? Are we really talking about wages for housework; in other words, wages for child home care? Alternatively, are noble Lords opposite saying that lone parents who cannot afford to work because of their childcare costs should not receive it because they will, somehow, be relatively more privileged than a couple where the mother stays at home and does not work? I give way to the noble Baroness.
Baroness Knight of Collingtree: My Lords, I am grateful to the Minister for giving way. However, she seems to be in some doubt about what is in our minds. Other countries, notably France, recognise the advantage to the country of having the mother staying at home looking after the child and take account of the cost to the mother of doing so. What we are doing in this Bill is failing to take any account of the cost to the mother; we are simply paying her to tell someone else to look after the child.
Baroness Hollis of Heigham: My Lords, it is perfectly proper to ask that there be decent and adequate support for children. That is done in this country through child benefit which is a benefit that can be received and can be taken by someone into work. We are going up to £15 for the first child and £10 for the second child as of next April. That is the appropriate benefit. The WFTC seeks to do something rather different: while supporting families, it will also produce an incentive for work. To pay benefit to a woman staying at home looking after her children is not a work incentive. The WFTC is concerned not only with supporting families; it is also a work incentive. If childcare costs are so high that there can be no work incentive, as may be the position for a lone parent, it is reasonable that those costs should be met in part. That is the philosophy behind it.
We are not in any sense saying that a parent who chooses to stay at home and look after her children is doing an inferior or a second-rate job. That is not the case at all. However, that is done through other methods in the tax and benefit systems and not through the WFTC. 1 do not think it reasonable to ask the WFTC to carry the whole burden of social security. It is complementary to other areas of social policy and social support, but it is doing a separate job which is to ensure work incentives while supporting families at the same time. Indeed, projects like the Sure Start programme and the increases in child benefit will give the kind of support to children that, like the noble Baroness, I would like to see happen.
A third set of questions associated with employees were those relative to DPTC which were raised by the noble Lord, Lord Rix. We do expect disabled people's
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take-up of this benefit to double compared with the take-up of DWA. I am glad of its welcome. We accept many of the difficulties identified by the noble Lord. He raised, first, the question of whether the 16-hours' rule was a reasonable one for disabled people who might be capable only of very limited work. This is an issue which concerns us. It has been suggested by RADAR and its director, Bert Massie, that we should perhaps consider whether we should be piloting some possibilities in that respect. However, at the end of the day the DPTC, like the WFTC, is about a work-support benefit. It is probably not unreasonable to think that 16 hours is the point at which one is talking about a commitment to work. However, when talking about fewer than 16 hours, a disabled person would be able to keep the first £15 of what he or she earned or, indeed, might be eligible for some £58 on therapeutic earnings. We could perhaps look into the matter, but if one slid below that, I believe that the line of what counts as being in work supported by benefits, as opposed to being on benefit supported by some modest earnings, becomes very blurred.
The noble Lord raised points about the position of a disabled child. In a family claiming DPTC, a disabled child will of course qualify for two children's tax credits—one of the standard type and the second for his or her disability. We are also ensuring that a disabled child will be eligible for childcare up to the age of 16.
The noble Lord, Lord Swinfen, asked about the two years' contributions in terms of incapacity benefit. If someone in work is getting tax credit, he is therefore also acquiring his right to continue to claim IB. Moreover, the linking rules continue to apply. So I do not think that the problem envisaged by the noble Lord should occur. However, if the noble Lord has any further difficulties in that respect, perhaps he could write to me and I would then seek to explain the position further. The double combination of being in work and continuing to build up your credits for IB purposes and contributory credits together with the linking rules should protect against the situation that worries the noble Lord.
The second bundle of issues raised related to burdens on business. I believe that the noble Lords, Lord Higgins and Lord Astor, together with others, complained, first, about the duty of confidentiality and stressed the worries about privacy that employees might: face as regards an employer. I hoped that I had addressed that issue. One has only to look at the family credit details, which I just happen to have in front of me. Such information shows that the amount of work involved and the amount of detail that the employer has to have about the employee is already quite considerable. I am not trying to suggest that some of that work will not continue with WFTC. However, a person's tax credit will vary not just because he may be holding a second job but also because of what his partner may be doing. For example, she may be in work; she may be changing jobs; she may leave him; they may have an additional child; or, indeed, they may have additional childcare expenses. All of those considerations can affect the amount being paid through the working families' tax credit. I believe that it would

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be virtually impossible for any employer to be able to read across from the amount being paid to the particular circumstances of the employee. The capacity, so to speak, to de-construct that would be most difficult.
The issue of the additional costs to business was raised. The noble Lord, Lord Goodhart, pressed me about the real cost involved and as, to whether it was £37 multiplied by 10. No, the compliance costs are borne not only by employers in the case of WFTC but also by those who do not contribute. As the noble Lord recognised, the £37 is a weighted average across those small employers of different types which have one or more WFTC employees and those which in a particular year may have none, although they may have during the following year. I give way to the noble Lord.
Lord Goodhart: My Lords, I am grateful to the Minister for giving way. Can she explain to us how it is that the compliance costs are borne by those firms which do not in any year pay anyone through WFTC? I simply do not see how that can be possible. It seems to me that it is all set out in paragraph 56 of the draft impact assessment. I believe that we need to take a closer look at what that really means.
Baroness Hollis of Heigham: Yes, my Lords. However, the point is that the employers who do not have a WFTC employee will, none the less, have to educate themselves on WFTC and ensure that their payroll systems are capable of paying tax credit if required. As the noble Lord said, that detail is indeed set out in the regulatory impact assessment—
Lord Goodhart: My Lords, I am sorry to interrupt the Minister again, but does that not refer to the implementation cost and not to the recurrent cost?
Baroness Hollis of Heigham: My Lords, we are talking about two sets of figures. We estimate that the non-recurrent cost/the implementation cost will be about £40 million, and that the recurrent compliance costs will be around £100 million. We expect that to be the annual cost.
Other noble Lords pressed for the exemption of small businesses. I believe that my noble friend Lady Turner dealt with that aspect very effectively. Perhaps we should consider just what that might mean. If we were to allow an opt-out for small employers having, say, up to four, five or 10 employees, that would mean that WFTC would not operate in virtually the whole of the rural countryside because most rural businesses are small ones. It would also mean that there would be an incentive for larger companies to disaggregate.
We have already been told by one major high-street distributor and retailer that if smaller firms with fewer than 10 employees were allowed to opt-out, it would break all its shops down into separate units in order to come below the employee threshold. Therefore, to avoid a proper employer's responsibility, we would then get the thin end of the wedge for disabled people. We have similar arguments about the 20 or the
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15 employees as regards disabled people. It would mean that, each time, small employers would demand special exemption from student loans, the minimum wage, the Disability Discrimination Act or WFTC. Every larger company in the country that could would disaggregate down to slough off responsibilities that are part and parcel of being a good employer. I do not believe that that is a path which we should encourage; indeed, it is not a path that the Government propose to follow.
There are other practical problems about the flow of numbers. For example, does it mean that one extra employee who takes a firm over that ceiling might then bring everyone or just himself into the WFTC code? The problem of fluctuating numbers which we dealt with when we discussed the Disability Discrimination Act remains a real one. It would be quite hard for the Inland Revenue to keep constant tags on the make-up of all full-time and part-time employees within a company in this regard, and whether there was a sufficient density of people, if you like, in regard to a WFTC claim.
We believe it is right and proper that WFTC, like the minimum wage, is a proper responsibility of the employer. However, it is important that we ensure that small businesses can cope with those responsibilities. Therefore there is the small business service, the helpline, and the help with payroll systems that we shall offer. Our approach is to help small businesses overcome any difficulties they may face in implementing the measure rather than to allow them to dodge those responsibilities altogether.
The noble Lord, Lord Skelmersdale, asked about PAYE coding. That is an obvious and deceptively attractive point. However, after discussions with the relevant employers' bodies it was agreed that this would not deliver the necessary accuracy and reliability and that it was better to include it as an itemised entry on a wage slip. There have been questions about employers' cash flow problems. I am mindful of the time. As that involves a technical point with regard to the payment of NICs and PAYE I shall write to the noble Baroness about that, if she will allow me. I shall also write with regard to the problems of the self-employed. Finally, I turn to some implications for government.
Lord Higgins: My Lords, I am most grateful to the noble Baroness for giving way, but this is a little more than a technical point. As I understand it, companies will be out of pocket for a considerable period of time. They will bear a substantial cost in terms of cash flow. I think this is a little more than a technical point.
Baroness Hollis of Heigham: My Lords, I am happy to take up the time of the House to explain the matter, if your Lordships wish. Employers will be able to set tax credit payments against their PAYE tax and NICs liability. If they do not have enough PAYE tax and NICs to fund tax credits they can apply in advance for funding from the Revenue. Many small employers will gain a cash flow advantage from the measure in this year's Budget which increases the number of employers who can settle their tax and NICs liability to the Revenue quarterly rather than monthly. As I say, I am happy to continue this discussion through correspondence.

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I was asked about the American and the Canadian experiences. I think it is inappropriate to bring those experiences to bear. The American earned income tax credit is paid not as you go, but yearly and retrospectively—so it cannot operate as a work incentive—and most money is paid to higher earners. Therefore those on lower earnings receive least and those on higher earnings receive most. As I said, it is paid yearly and retrospectively. It tends to be a lump sum that is most often used to pay for a holiday or for white goods. As I say, it is paid with increasing generosity the more you earn. There is absolutely no comparison, except as regards the words "tax" and "credit", between what the American system does and what our system proposes. As for the Canadian system which was also described, it was not integrated into the tax system. It was not paid through the pay packet but into bank accounts rather like family credit. It has been scrapped and replaced by a child based universal benefit which is akin, of course, to our own child benefit. Again there is nothing for us to learn in this regard from either the American or the Canadian experiences.
Finally, I was asked about accountancy. There are absolutely no tricks or anything underhand about this; it is all entirely transparent. I confirm that the national accounts will show the tax credits as government expenditure, as required by the new European accounting convention which was introduced from 1998. They will be treated in the same way as MIRAS, no more and no less. The Government's presentation, where different, will be capable of being tracked in so far as the convention changes the conversion of the national accounts basis. Again I am happy to explain this point further if your Lordships wish. The tax credits will be treated as government expenditure in the same way as MIRAS. The change over from 1998–99 will be perfectly clear and one will be able to track that in a transparent way in government accounts. We are, of course, in that respect conforming to international accountancy standards.
As I say, this has been an interesting debate. Your Lordships must forgive me if I have not answered all the points that have been raised. We know that there is a problem with regard to the interface between tax, benefits and wages. We know that what deters people from entering work are the relatively low wages paid when they first start work; the insecurity of those wages compared with the security of benefits; and especially if they are lone parents, the cost of providing alternative quality care for children. One way forward for any government is to reduce the value of benefits, another is to make more shallow the benefit tapers, but that extends dependency. Or you can increase universal benefits, but that is expensive. Instead what the Government are doing—which I believe is right—is to protect benefit levels for those who are unable to work. We are strengthening those benefits that can be carried into work, such as child benefit and child maintenance. Through a combination of the minimum wage, reduced income tax, reduced National Insurance and WFTC we shall make sure that work pays.
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Since the 1998 Budget, 1.8 million people have seen their income tax bills halved and a further 900,000 people have been removed from tax altogether by national insurance changes. WFTC will help two groups in particular: lone parents, and married couples with children where only one partner is in work. WFTC will encourage lone parents to come off income support and move up the income ladder into work while it will keep married couples already in low paid work from descending into benefit systems when their jobs become more precarious or their hours or wages are cut. In other words, it is a help to lone parents and it is a hand to stop couples descending. We believe that WFTC will support families and will address their poverty. As my noble friends Lady Turner and Lady Lockwood emphasised, it will particularly address the problem of child poverty. WFTC will lift 700,000 children out of poverty. That will be no small achievement. I hope that your Lordships will give this Bill a Second Reading.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Local Government Bill
7.16 p.m.
Lord Whitty: My Lords, I beg to move that the Bill be now read a second time.
This Bill is part of the Government's determination to deliver on their manifesto promises for renewal of our democracy and modernising delivery of services. Local government is central to both of these objectives. Hence we have embarked on an ambitious programme—nothing short of fundamental reform and modernisation of the local government system in England and Wales. This cannot happen overnight. Nor can it happen simply by tampering with bits of existing legislation. To bring that about we need a new framework; a new partnership between national and local government; and a new partnership between local government and its own communities. That requires a series of legislative initiatives—of which this is part—to improve local democracy; to promote the well-being of communities; to put in place new political structures; to establish a new ethical framework for the conduct of local government; to improve delivery of services on the basis of best value; and to improve financial accountability of local government.
All this will take time. It is these last two items—best value and local financial accountability—that are the essence of this present Bill which sets out a framework for achieving them. In that sense it is a framework Bill. Secondary legislation will play an important role in implementing both best value and local financial accountability. There are good reasons for this approach, and I make no apologies for it. This Government do not see themselves as the sole source of wisdom on the delivery of public services; we intend to continue to work constructively in partnership with local government itself, to the benefit of local people, and to ensure that the Bill is drawn flexibly enough to accommodate the lessons which are learnt.

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The Local Government Bill is about improving both local communities and the lives of local people. Good local services at reasonable cost are vital to people's quality of life. This Government want councils to deliver services that match local people's needs, with high standards of both quality and efficiency. People deserve a bigger say in the services their councils provide, with more transparency in the way decisions are made. This Bill, together with the draft Bill on political management structures and a new ethical framework which we have just published for consultation, are the first steps on the road to modernised, rejuvenated local government.
History has shown that councils succeed when they put people first. Successful councils work with partners to develop and achieve a vision for their locality. They strive for continuous improvement in the delivery of local services. They involve and respond to local people and local interests, building effective relationships with businesses and other local organisations.
We are also aware that many local authorities already deliver high quality services—services of which we can all be proud. But it is also true that in most local authorities there are some areas of service that are delivered to lower standards or at higher costs than others. And there are a few local authorities whose total administrative system of delivery is sadly lacking in terms of quality and of efficiency. The loser in those cases is not the council but local people.
Today the Audit Commission has published two reports on the performance of local authorities for 1997–98. One is a compendium of data across a wide range of services; the other is on services for people with special needs. While it is true and desirable that performance has generally gone up over the past few years, there are still too many authorities delivering services which do not come up to scratch. Authorities should be congratulated on their often considerable successes. But, from the Audit Commission report, there is clearly substantial room for improvement. Local people deserve more. The best value concept will help authorities to meet this challenge.
The Government believe strongly in local government. We believe that local people deserve better. That is why we are introducing this Bill now. It provides the foundation to take forward the modernisation process. Nothing less than a fundamental change in culture is needed. It is councils themselves which need to achieve this, pursuing modernisation at the local level in a way which suits the needs of local people. Central government's responsibility is to establish the framework, and we will work with local government and others to bring about the necessary changes.
The Bill does not relate to Scotland. The modernisation of local government in Scotland will be a matter entirely for the new Scottish Parliament and Scottish Executive. It will, however, apply to Wales. This is a particularly important Bill for Wales. It is the first piece of primary legislation, following the Government of Wales Act itself, to reflect the role of the National Assembly for Wales. The assembly will
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take over the responsibilities that the Secretary of State currently exercises for local government in Wales. The assembly will have responsibility for administering best value in the Principality and for exercising the new reserve powers to regulate council tax should that prove necessary.
Perhaps I may turn to the details of the Bill. Part I deals with best value. Best value is about improving local services. It is about local government providing high quality local services at reasonable cost that match local people's needs. In doing so it must bear comparison with the best that is on offer from both the public and private sectors. To achieve that, best value authorities will have to show continuous improvements in both quality and cost-effectiveness of the services they deliver to their local people. It is a duty that the authorities will owe to their electorate and to the communities that they serve. No longer will they be able to provide minimal services at minimum cost in a way that may suit them as providers rather than the people who use the services in question. Best value rings a death knell for that approach.
Local people deserve services delivered to clear and explicit standards. That is a novel concept for some people; but for modern authorities it is already a part of their everyday thinking. They recognise that people come first and that the council's role is to lead its community in achieving a delivery culture; where improvement and change are possible, and where continuous improvements can be made by building relationships and working in partnership with local businesses, the voluntary sector and the local community at large.
Best value provides a framework for local authorities to deliver these improvements. It will apply to all local authorities that have tax-raising or precepting powers. That will include the Greater London Authority, subject to the passage of the legislation to establish that body, and fire and police authorities. They will all have to account for their performance by making it clear to the communities they serve what targets they have set for themselves and what they intend to do to meet them.
The Government will add rigour by creating arrangements for independent scrutiny to ensure that all local authorities comply with the duty of best value and improve their performance. Where authorities fail to do so, the Government intend to take reserve powers to safeguard the interests of the local people and to ensure that appropriate action is taken to put matters right. Normally, that action will be for the authorities themselves to take. But the Government will not shrink from acting to counter serious failure.
It may be helpful if I elaborate briefly on some of these points. As I have said, best value authorities will owe the duty of best value to their local community. The general duty, set out in Clause 3, requires them to put in place arrangements to secure continuous improvements in the delivery of their services with regard to a combination of economy, efficiency and effectiveness. In doing so, they will have to challenge whether a service is necessary, consult with local people to establish what standards local people expect, compare

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their performance with others providing similar services, and, where appropriate, use competition to achieve value for money. The benefits in this approach are twofold: driving up standards will benefit not only the local community, but also the authorities in question, by delivering savings which will help pay for far better services in the long run.
For local people to be able to judge how their local council is performing, a robust audit and inspection regime also needs to be put in place. The Bill provides for that. There will be a rigorous external audit check of local authorities' local performance plans and their management systems. Clauses 7 to 9 provide for that. This will, I believe, go a long way to establishing high standards of probity in local government and to delivering genuine local accountability.
It is, however, unrealistic to expect audit alone to provide the in-depth scrutiny of performance that best value requires. Therefore, a framework for best value inspections will also be put in place to back up the audit of performance plans. That is set out in Clauses 10 to 13. The Bill provides power for the Audit Commission to carry out best value inspections. In doing so, it will complement the valuable work carried out by existing inspectorates such as the Social Services Inspectorate, Ofsted and HMIC. The Government made clear in the Local Government White Papers for England and Wales that they intend to establish an inspectorate forum to bring together and co-ordinate the actions of these different inspectorate bodies. These new scrutiny arrangements will have the capacity to respond to the needs of joined-up government.
If these inspections, or indeed any other source of information, alert central government that things are going drastically wrong then we need to have some opportunity to redress the situation. While we envisage that intervention will be triggered by a report in most cases, in some cases other evidence may be critical and might provide the basis for intervention. I cite, for example, evidence of serious public harm or risks to vulnerable groups—in children's homes or other domiciliary care. That may emerge not from reports but from public complaints or possibly media exposure. In these cases it may not be desirable for the Secretary of State to wait for an inspection report to be produced before any action can be taken.
The Bill therefore provides, in Clause 14, for the power of intervention by the Secretary of State in England or the National Assembly in Wales. That intervention power will be used as a last resort when all other measures have failed. Wherever possible, best value authorities will be given the opportunity to remedy their own shortcomings. Intervention in an authority's affairs will be appropriate and proportionate to the nature of the failure. In the vast majority of cases authorities will have been given the opportunity to make representations about that failure.
These measures are necessary to safeguard and protect the public; in other words, those who will be most affected by the failures of such local authorities. Such powers are by no means unique. The School Standards and Framework Act 1998 provides powers
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similar to those contained in Clause 14(2) for the Secretary of State for Education and Employment to intervene in the case of failing local education authorities. There is also a precedent for the powers contained in subsection (5) of Clause 14: the Secretary of State may take over a function from an authority under Section 164 of the Housing Act 1985.
The Government have put the onus of the duty of best value onto the local authorities. It is for them to devise how they go about achieving that to the satisfaction of their local communities. Local aspirations and local focus will be a major feature of the reviews and performance plans that a local authority draws up. In doing so, we think it right that a certain element of national focus relating to performance indicators should be required from them too. Otherwise the whole process would be meaningless.
Clause 4 of the Bill therefore provides for national performance indicators against which the performance of a council will be evaluated. We are not primarily concerned with inputs but with the outcomes. This gives a local authority the freedom to deliver its services using traditional or innovative methods or any other combination that it chooses. It is going to be a learning process; lessons will be learnt from both mistakes and successes. The best value pilots are already showing the way. We will disseminate the lessons learnt from the pilot schemes and issue guidance to hell) local authorities to achieve best value.
This Government believe that people matter; that local government matters; that a modernised local government in tune with the needs and aspirations of local communities matters. We aim to deliver a truly responsive system of local government, taking the lead in driving forward the changes that local communities have indicated that they want.
In addition, the Bill will definitively abolish compulsory competitive tendering. It will remove the regime of CCT, with its conflicts; its bureaucratic and procedural rigidities; its counter-productive disruptive effect; its detrimental effect on employment and environmental standards; and its uneven effect on delivery of services. The Bill will return to local authorities the right to take their own decisions on the means of delivery in house; in partnership; or contracted out. But it will do so within an entirely modern framework of best value.
Partnerships and innovative methods of delivery of services will all help to give effect to these changes. They will allow local people and local government to take ownership and ensure that local people get the services they want. Local government will once again have the opportunity and freedom to think innovatively about how it can deliver improvements in providing services and reassess its priorities.
The Bill will help to create a climate where modern local authorities can build progressive relationships and secure better ways of working; a better environment where all sections of the community feel that they are stakeholders in their own future and where the diversity which goes toward building a thriving community is recognised but balanced with the need to achieve consistent excellence in results.

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Part II of the Bill, the other side of the modernisation agenda, deals with council tax regulation. It is about improving local financial accountability. Strong local financial accountability means that local people can have an impact on their council's spending and taxation decisions.
As the Government promised in our manifesto, we have ended crude and universal capping. There was no pre-announcement of capping limits for 1999–2000 because the Government want local authorities to take full responsibility for their own decisions on spending and taxation, taking into account the views of local people instead of the government cap defining their budget.
However, we do need in the last resort to be able to protect local taxpayers from irresponsible increases. Therefore, as we also promised in our manifesto, we intend to retain reserve powers—the reserve powers set out in Clause 29 and Schedule 1 to the Bill. Of course, we hope and expect that all local authorities will be responsible and prudent, providing their taxpayers with good services at a price they are prepared to pay. However, the Government cannot shirk their responsibilities. We need to be able to take action against those councils that persistently act irresponsibly. The new reserve powers will enable us to do that.
These reserve powers are significantly more discriminating and fairer than the existing capping powers. They are capable of looking at a council's budget increases over a number of years, starting from 1998–99. That will allow Ministers, for example, to exempt councils which had small increases in earlier years or to limit councils' budgets which had cumulatively, rather than in a particular year, increased by more than a prudent amount. And it will be possible to have different principles for councils meeting certain criteria—such as beacon authorities, or those which can clearly demonstrate that they have the support of local people for the increases, or those whose council tax is only a small proportion of the council tax bill.
The new powers are also more flexible than the existing capping legislation. They will allow us to take alternative approaches towards those authorities which we consider to have set excessive budgets, as well as still being able to designate authorities in-year as is currently the case.
These powers can be used to allow councils whose increases are limited to reduce their budgets in a following year or over a series of years rather than always requiring them to make the full adjustment in one year. That would mean that authorities could save the costs of re-billing and take a planned approach to making future savings rather than having to make immediate crude cuts in their budgets. Where, instead of designating a council, a notional amount is set, again the local authority will avoid the costs of re-billing and will be given time to re-plan its spending for future years.
Hence the new reserve powers will allow us to adapt to changes and take into account the differing circumstances of different authorities—to the benefit of
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both the authorities and their tax payers. But I should emphasise to noble Lords that they are reserve powers: to be held in reserve and used only if absolutely necessary.
As background to these measures, the Government have also provided greater stability in council funding to help local authorities plan their expenditure over a longer time period. We have announced the aggregate grant provision for councils for the next three years and stabilised the formula for distributing grant. That will help authorities to manage their budgets better. And over the next three years we shall be carrying out a review of the way in which we distribute grant to find a fairer way of doing it.
We do, in all of this, need to safeguard the national interest and the interest of national taxpayers. The third part of the package of measures is therefore aimed at this. The council tax benefit subsidy limitation scheme protects the national taxpayer from the council tax benefit costs arising from local decisions to increase council tax to an irresponsible degree. This scheme is already in place for the current financial year using existing secondary legislation under the Local Government Finance Acts of 1988 and 1992. The relevant provision of this Bill is a relatively technical provision ensuring that precepting authorities which exceed the guideline can pay their contribution to benefit costs to the billing authorities.
We believe that councils which make large increases in council taxes should be able to rely on the national taxpayer to pick up the bill for the resulting additional council tax benefit. We have therefore set a guideline for council tax increases which will be eligible for council tax benefit subsidy but above which any increase will be partly ineligible.
Councils setting council taxes up to the guideline levels will continue to receive subsidy as now. However, if a council increases its council tax by more than the guideline, some or all of the costs will be borne locally. Local council taxpayers will, therefore, collectively meet more of the costs of council tax benefit resulting from excessive council budgeting decisions.
We recognise that the amount of council tax revenue met by benefit is higher in some local authorities than in others. We are protecting those poorer areas by ensuring that they are treated as if they had the average proportion of council tax revenue met by benefit. And the benefit entitlement of individuals is not affected by this scheme: council tax payers on benefit will not be penalised.
The Government acknowledge that modernising local government will take time and will be demanding. The local government White Papers have mapped out the way forward for 10 years or more. We are legislating on these issues now because we are ready to do so, because local government as a whole wants us to do so and because local people everywhere will benefit.
Through this Bill we are honouring our commitments to end crude, universal council tax capping and compulsory competitive tendering. In their place we shall strengthen local financial accountability and provide new protections for the council tax payer; and

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we shall introduce a new duty of best value to raise the standards of public service and modernise public procurement.
The Bill has been broadly welcomed by the public and private sectors, by employers and employees, by local government across the parties and by the trades unions. The Bill has come to us from another place, where I am happy to say that it has already been improved. Members of the lower House have taken the opportunity to refine, clarify and fine-tune some of the provisions, and the Government have made some more far-reaching changes to strengthen the Bill. I consider it now to be a strong, robust and rigorous Bill. I nevertheless welcome your Lordships' further scrutiny of this legislation and look forward, as always, to some thoughtful, well-informed and lively debates from the many noble Lords who have a strong interest in and long experience of local government.
This Government's modernising programme for local government is about the way councils work and how they can be more in touch with the people they serve. The Local Government Bill places local people at the heart of local government reform. It will improve the effectiveness of all local authority services throughout England and Wales and thereby give a better deal to local people. I commend the Bill to the House.
Moved, That the Bill be now read a second time.— (Lord Whitty.)
1.41 p.m.
Lord Dixon-Smith: My Lords, I am sure that the whole House will join me in thanking the Minister for his detailed and careful presentation of this Local Government Bill. The House should be in no doubt of the significance of the Bill. It sets out to influence the way in which those involved in local government administer the moneys that they have at their disposal. Local government is responsible in one way or another for around 20 per cent, of all government expenditure, and it is that which makes the Bill so important; it is that which indicates the care and attention that we must give to this subject.
Despite what the Minister said, the Bill comes to us in such a form that we cannot be certain whether it will improve the environment in which local government works or whether it will do harm. During the course of our debates we must do what we can to remove the chance of there being any ill effects, even though that will not be a straightforward matter. I say that not just because I am an Opposition spokesman, whom you would expect to be sceptical about the Government's motives, but because the Government's presentation of their actions is now recognised as too often being different from what is actually happening. One only has to look at the last Budget to see that. It was received with almost rave reviews on the day, rapture which rapidly changed as people had time to study the real effects rather than the presentation.
I can think of no better way to illustrate this than to relate what I found last week when I calculated the wages of my employees on my farm. There are only two of them. It is not that much of a job but I find that it
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keeps me in touch with what is going on. It was the first week of the new financial year and fresh tax codes had been handed down by the local Inland Revenue office. As a result, my farm workers' PAYE is nearly £1 a week higher than previously. What a difference between presentation and practice.
The long march from the establishment more than a century ago of local authorities whose function was to bring together the various rating authorities for specific purposes which had previously existed and to integrate them in the interests of the communities that they served, through to the position today where local government is required to be a major provider of national services with a high proportion of funds coming from national government, has had a dreadful inevitability about it. At the same time, there has been a commensurate diminution in the independence of local government, matched by an increase in central domination. That was not the act of a single government. When Tony Crosland said, about 30 years ago, "The party is over", central domination became a fact. What has happened since has simply made that fact explicit.
The question we have to ask is whether this Bill will herald a new and more generous approach to local government from the centre than we have seen in preceding years. The philosophy of "best value" authorities is not new. Good local authorities— colleagues from local government who are here in this Chamber tonight will recognise this—have operated along "best value" lines for many years. Indeed., it was the actions of individual local authorities putting services out to tender, and the success that they achieved, which was the inspiration behind the legislation for compulsory competitive tendering. My old authority, Essex, invariably had some aspect or another of its services under review with a view to restructuring and improvement.
Why, then, am I hesitant? Are the members of a local authority its masters or is someone else? What do we find in Clause 5 of the Bill? It states:
"The Secretary of State may by order specify a period within which an authority is to review all its functions".
Subsection (4) then states:
"The Secretary of State may by order specify matters which an authority must include in a review of a function under this section".
That is unprecedented power to intervene at the local level without apparent reason. It is idle to deny that some circumstance could be conceived of which might justify such action, such as a complete failure by a local authority to carry out its responsibilities; but that is not what the Bill says. The circumstances under which this power might be used should be clear on the face of the Bill, and this is one change that we shall certainly seek to bring about. It seems to me that, unless we do so, the Bill will be in conflict with the Labour Party's manifesto statement:
"Local decision-making should be less constrained by central government, and … more accountable to local people".
It is all very well to protest that these might be just reserve powers, but the power to cap the council tax was just a reserve power when it was introduced.

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It must be remembered that local government has been accustomed for a long time to using comparative performance statistics to measure relative performance. The Chartered Institute of Public Finance and Accountancy (CIPFA) produces an annual statistical analysis of each local authority and compiles an annual report that is compulsory reading for any student of local authority life. No chairman of a finance or resources committee would dare be unfamiliar with his authority's standing in those reports; and no chairman of a service committee would neglect to avail himself of what is often a useful tool in the annual negotiations over his authority's budget.
The same can be said of Audit Commission reports. The Audit Commission, which is to have a central role in auditing "best value" under the Bill, produces reports that are often more useful than cold statistical comparisons as they set out comparisons between authorities that are generally similar in character. It already seeks to provide useful management information to its clients and its enhanced role is generally welcomed by local government. As an aside, one might have more confidence in this process if central government itself sought to become a "best value" authority.
It is interesting to note that the underlying philosophy behind "best value" as enunciated in the Bill is that it can be a continuous process that has no end. In the philosophical sense that is correct, but care will be needed if theory and practice are not to come into conflict. Anyone who is familiar with the problems of managing a large organisation will know that there must be some stability for people to work well. People need to know with certainty how they are to do their job. With local government, most of those involved have service to the public in one way or another as their main remit. Unless care is taken to keep a proper perspective and balance there is a danger that they may be distracted by the task of fulfilling the annual best value plan which may become more important to them than actual service provision. Local authorities, with only a few notable exceptions, are good at what they are required to do; and they are better at it when they are not distracted by having the rules changed or the size of the pitch altered. We shall seek to remove the possible rough edges that exist in this part of the Bill in its present form and to create greater certainty for local authorities generally.
A different aspect of Part I of the Bill also causes me and my colleagues some concern. Clause 1 lists all the categories of authority that are to be "best value" authorities. Consideration of that list and the functions of local authorities reveals with absolute clarity that local government works closely with a number of government departments. The Department of the Environment, Transport and the Regions, as the main channel for funding, is clearly the promoting department, but the Home Office is involved with police and fire services; the Department of Social Security and the Department of Health are committed where the elderly, handicapped or disadvantaged are involved, and libraries bring in the Department for Culture, Media and Sport. Other departments are also involved.
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The Bill says nothing about how the ring is to be held between those departments in matters of "best value" or "capping" where the Secretary of State can determine performance indicators and standards. Perhaps in his reply the Minister can say something about how that particular aspect which is implicit in the Bill is to be dealt with. It may not be within the responsibilities of local authorities, or within the remit of this Bill, but it is certainly of interest to them. In any event such matters are very much the proper concern of this House. Anything that the Minister can say to explain how that co-ordination is to work will be most welcome.
The Labour Party manifesto states that
"although crude and universal council tax capping should go we will retain reserve powers to control excessive council tax rises".
Part II of the Bill and Schedule 1 give effect to that pledge. Once again we see an interesting contrast between the intention in the manifesto and the wording of the Bill or reality. In Schedule 1 we find that according to the provisions of what will be new Section 52B of the Local Government Finance Act 1992,
"If in the Secretary of State's opinion the amount calculated by an authority as its budget requirement for a financial year … is excessive, he may exercise his power to designate or nominate the authority under section 52D below".
New Section 52D provides:
"This section applies if in the Secretary of State's opinion (reached after applying section 52B above) the amount calculated by an authority as its budget requirement for the year under consideration is excessive".
That is as well rounded a circular argument as I have heard for a very long time. What local government is being asked to accept is the replacement of a system that is unsatisfactory but certain with a system that may be satisfactory but is uncertain. The House will not be surprised if I find that situation rather less promising than the noble Lord the Minister. We shall seek to remove the random possibilities that the present Bill permits and produce a more defined situation as the Bill progresses through the House so that it is clearer what the phrase "reserve powers" means.
This Bill has received a cautious welcome from members of all political parties in local government. We can be certain that the motivation for that will be different from political party to political party and from local authority to local authority. Some of the motives may even make an old campaigner like myself suspicious. Be that as it may, there is the possibility that the Bill could mark a new start for relations between local and central government. Whether that happens will depend in part on what we do to the Bill during its passage through this House. Certainly it is by no means perfect at present. I look forward to many interesting contributions to this Second Reading debate and to the prospect of some fascinating discussion as the Bill passes through its further stages. It is to be hoped—for we must do it—that we can improve the Bill so that the expectation of local councillors, of those who serve in local government, and of local communities, are not disappointed.
7.57 p.m.
Baroness Hamwee: My Lords, we too thank the Minister for his introduction to the Bill. I should perhaps offer an apology for the mirth from these Benches at his comments about looking forward to Committee stage. We too look forward to Committee stage. Judging by the speakers in today's debate, it will be an extremely well informed Committee stage. I shall resist with some difficulty responding to many of the comments of the noble Lord, Lord Dixon-Smith. I shall try to confine my remarks to the Bill rather than history.
To use a sporting analogy, this is a Bill of two halves. The first half sees local government clearly in the lead, although it is a shame that not quite as many goals are scored as might be. But with council tax benefit limitation and capping in the second half, I believe that central government scores to the disbenefit of local government. Perhaps this means that the Bill does not produce what has become known as a result. It is interesting to deal with two possible contradictory provisions in conjunction. Best value is or should be about achieving what is best locally, which should permit maximum local autonomy. Capping, whether crude and universal or sophisticated and partial—I leave noble Lords to read what they will into that phrase— involves central direction and restricts local decision-taking. The great unknown perhaps is how the Government's assessment of each best value authority may influence capping.
The Bill has been criticised for the best value provisions also being centralised. Indeed, the long Title states that the Bill makes,
"provision imposing on local and certain other authorities requirements relating to economy, efficiency and effectiveness".
I stress "imposing" and "requirements". If requirements are to be imposed, those who are intended to benefit should do the imposing. However, we welcome the end of CCT—not the end of competitive tendering but of compulsion—and that end cannot come soon enough. No doubt the Committee will explore the end date and transitional arrangements. I understand that a number of authorities, particularly some of the new unitaries, have contracts that will need to be re-let before 2nd January 2000. Some of them are having to re-let on 1st January. I hope that that little wrinkle can be ironed out.
Perhaps the hardest part of competitive tendering is writing the specification—articulating the criteria—and that will still apply. I hope that the new regime, as well as looking ahead, will encourage reporting back on problems and on failures as well as success. There is a danger that innovation will be stifled by fear of failure. Best value should encourage innovation, which necessarily implies a degree of risk.
It would be helpful to know what is coming from the best-value pilots. It is probably too early to apply any experience, which emphasises how unusual it is to establish pilots, then lay the legislation and assess the pilots. The noble Lord, Lord Dixon-Smith, referred to the relationship with central government bodies. Other bodies are involved in the exercise and need to be part
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of the relationship, such as hospital trusts and health authorities. We look forward to exploring how those relationships can work.
The best-value authorities are to secure "continuous improvement" in the exercise of their functions. That duty is of a high order and I wonder whether it is practicable. I am aware of the views that it is not possible to cover all best-value authority functions in five years—certainly if local communities are not to be engaged. That raises the question of whether authorities should be looking first at their functions or primarily at the needs of their communities.
The criteria to which authorities are to have regard have an oddly 1980s flavour. We are all familiar with economy, efficiency and effectiveness. We would like to become more familiar with the wider responsibilities of local authorities—sustainability in its widest sense. The proposal that authorities should be able to and will have the duty to do what is in the social, economic and environmental interests of their areas seems to be: on the back burner, save in the case of the new London authority. That power and duty come close to the Liberal Democrat aim of a power of general competence. I hope that by referring to the two together I am not further damaging the prospects of that proposal becoming law. We would welcome that extended duty being pursued.
Of course there will be guidance, but I would like to see the overarching power and duty to which I have referred in place; if they are not, I would like to see the criteria covering matters of sustainability, including social concerns as well as environmental and economic concerns. I include matters of equity. Sustainability offers the opportunity to authorities to undertake the difficult but necessary task of balancing competing and sometimes contradictory concerns.
The Minister said that the Bill in part is not a lot more than a framework, but I fear that it is too easily read as a framework for more central regulation, not one to be fleshed out by local government. Be that as it may, the framework itself seems quite prescriptive.
Clause 3 concerns consultation talks about the representatives of various groups but not council officers and staff—which prompts me to ask, "What about the workers?" I hope that that is not a recipe for a big focus group. Flexibility is needed to enable the most productive local involvement, and the methods for consultation and extracting from local people what it is they want but have probably not articulated are likely to vary greatly between authorities. A lot of useful work is being done on how the leadership role can successfully involve the community. Research indicates problems in a local authority inviting chosen persons to join in. Traditional structures often reinforce divisions between die joiners and non-joiners. Those who are identified as joiners often become uncomfortable at being seen as representative. Effective consultation is a fragile and elusive exercise and goal. It is not just a box on a flow chart.
If our country's culture were more one of local autonomy, much of the Bill would be unnecessary. The Secretary of State obviously feels the need to keep his finger on the pulse of every best-value authority, but it

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is difficult to operate while one's pulse is being taken. No doubt the House will spend a good deal of time on the Henry VIII provisions. They are said to be benign and aimed at helping local authorities. When I last spoke about a benign Secretary of State, my noble friend Lord Russell said that, by definition, there was no such thing.
We on these Benches have no problems with enabling local authorities to have freedom from obstruction in achieving best value or with conferring any powers necessary to achieve that. Perhaps that is the Henry VII power, because he was keen on good administration. It will not have escaped the House that if best value to local authorities were not reliant on specific legislation for each function and its exercise there would not be the need for such a provision.
We are concerned about the possibly limited extent of a provision confined to,
"different provisions for different cases".
I hope that that is not a hint of inappropriate lollipops for beacon authorities. Until Parliament can amend secondary legislation, the provisions for affirmative resolutions are of limited value.
Having said that and despite my criticisms, there is much to welcome in Part I of the Bill. We would welcome it, if Mr. Secretary Henry Tudor cares to use his power to scrap capping altogether—and it is arguable that capping is a huge constraint on achieving best value. However, I do not seriously expect that to happen. Capping powers go against community leadership. The arguments against capping are well rehearsed. Democracy and governance are better served by the ballot box than central control, but the worst of all worlds is central control without clear criteria.
This is the first year since the early 1990s that government have not set out in advance what will be the capping criteria. Another way of expressing that is, this is where capping started. In the past, capping criteria were based on increases in budget and spending in relation to the standard spending assessment. That emphasis seems to have shifted to controlling tax increases, and the Government have quietly amended their definition of the SSA so that instead of being an estimate of the need to spend, it is now the amount of spending for which the Government will provide grant funding.
Best value places great emphasis on consultation and community involvement. If the cause of democratic renewal is truly to be served, central government must release their power to cap. I appreciate that there are two entirely opposite points of view. We may see the glass as being half full while the Government see it as being half empty. I accept that the provisions in this part of the Bill reflect the Government's manifesto.
We have no more enthusiasm for council tax benefit limitation. A Written Answer by the Minister in another place revealed a list of 119 local authorities, plus the Local Government Association, the Association of London Government and others which were opposed to it; and those were merely the authorities and organisations which had expressed their opinion.
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My greatest philosophical objection is because the scheme further confuses the public understanding of who is responsible for what when it comes to fixing levels of services and council tax. My greatest practical objections are that the scheme will hit poorest areas hardest. I do not believe that that is administratively efficient, quite apart from not being equitable. What is its effectiveness—to use another of the three Es? To shift the Government's responsibility to meet the cost of welfare benefits is the clear answer. We have a straightforward disagreement with the Government. We believe that benefits are a central matter, not a matter for each local authority to bear. That is not an argument that local government should avoid its proper responsibilities. It is an argument that we should all bear welfare costs. They should not be borne by those who happen to be the neighbours of the beneficiaries.
I recognise that the Government are set on these measures. There is much to be done to make local taxation more easily understood, to provide for a direct link between electors and taxpayers and the taxing authorities. However, I do not believe that these measures are one of those steps. I fear that they will not achieve Improving local financial accountability— the title of the Green Paper.
We support part of the Bill. We wish that we could support the whole of it. But to use the words in the preamble to the European Charter of Local Self-Government we are,
"convinced that the existence of local authorities with real responsibilities can provide an administration which is both effective and close to the citizen".
We should like to move further towards that ideal than the Bill enables us to do.
8.11 p.m.
Lord Hunt of Tanworth: My Lords, it is a great pleasure to follow the noble Baroness, Lady Hamwee, because we worked together on the Select Committee on relations between central government and local government which reported in 1996. I believe that all of us felt that the state of those relations was unsatisfactory and change was needed. Since then—I must declare an interest—I have become honorary president of the Local Government Association, although I am probably one of the few people in the Chamber tonight who has not had direct experience in local government.
I welcome the objectives of the Bill which, together with the draft Local Government (Organisation and Standards) Bill, aim to establish a more effective and at the same time more accountable local democracy. In particular, I welcome the replacement of compulsory competitive tendering with a best value regime and the substitution of reserve powers to cap budgets in place of crude and universal capping.
However, I believe that some important points remain to be clarified. That is because, as the Minister acknowledged, in many respects it is a framework Bill only, with the details remaining to be filled in— and as we all know, only too often the devil is in the detail. I give three examples of what I mean, but there are others.

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First, on best value, Clause 3 succinctly lays down a general duty of combining economy, efficiency and effectiveness, and no one could quarrel with that. But it also says that local authorities must heed any guidance issued by the Secretary of State. I understand that already in draft is interim guidance which will deal with practical matters which local authorities will need to put in place prior to April next year, such as performance indicators, minimum performance standards, fundamental performance reviews and the content of local performance plans. But, as has already been said, there will also be a need for guidance on other matters which local authorities would be expected to take into account in the exercise of their general duty of achieving best value. 1 refer to such matters as equity, sustainable development and consultation with staff, which I understand during debate in another place the Minister said would not appear on the face of the Bill but would feature in guidance. I hope very much that we may see that draft guidance before we reach Committee stage because that would help the House a great deal. I hope also that it will not be too prescriptive.
The hope that the guidance will not be too prescriptive is not just because local authorities naturally want the maximum freedom to act and to innovate in fields that are properly theirs. It is also because the best value pilot schemes already in place show that there needs to be scope for local variation and innovation according to local circumstances. And authorities do differ. Getting the right balance in the guidance between central prescription and local discretion will be crucial to making best value a success. I hope very much that that guidance will be available in draft before we get too far in our consideration of the Bill.
My second example of missing detail relates to Clause 14, which is equally unspecific about the basis on which the Secretary of State would use his powers of intervention where an authority fails to comply with the requirements of best value, in particular his powers to intervene in urgent cases without hearing representations from the authority concerned. I understand that a draft protocol on the use of those intervention powers has been and is under discussion between the DETR and the LGA and that it was touched on at Committee stage in another place. But I know that the LGA still has some continuing concerns about the protocol and the nature of these intervention powers. Again I hope that we may be better informed about the matter either when the: Minister winds up tonight or at a later stage.
My third and last example relates to capping. In many ways the Bill is not inconsistent with the recommendation made by my Select Committee in 1996 that capping should,
"be discontinued as a standard procedure, although there should remain a reserve power to cap where an authority has set a clearly unreasonable budget".
The emphasis in Clause 30 and Schedule 1 to the Bill is on the mechanics for the use of reserve powers and says simply that whether a budget is excessive will be determined by the Secretary of State by reference to a set of principles which he will establish which must contain a comparison with an earlier year.
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That may all be very reasonable, but I should have thought that before this House passes the Bill we would wish to know more about the key principles governing the use of reserve powers of intervention. It is arguable that those should be spelt out on the face of the Bill, although I understand that amendments proposing that were not accepted by the Government in another place. I cannot understand why putting the key principles into the Bill, even if they had to be supplemented on some aspects by annual guidance, would fetter in any way the necessary reserve powers of the Secretary of State. It would, however, let local authorities know where they stood and would remove any suspicion that those reserve powers were going to be widely used or might be akin to crude capping by another name. I do not believe that that is the intention, but until one has some understanding of the basis on which the reserve powers of intervention will be used, it is difficult to be sure.
I have concentrated on parts of the Bill where I suggest fuller information about how the proposed changes would work would make it more comprehensible, fairer and more acceptable. Even then, many people would not think it perfect. I agree with the LGA in wanting eventually to see the complete abolition of capping. Nevertheless, it is an important Bill which ought to make significant changes to the relationship between central and local government and contribute significantly to making local government both more responsible and more accountable. So while having the reservation that there are missing parts which we; ought to see and discuss before the Bill completes its stages, I welcome its introduction today.
8.20 p.m.
Lord Bassam of Brighton: My Lords, like many noble Lords, noble Baronesses and local government worthies, I, too, welcome the introduction of the Local Government Bill covering best value and the reform of capping. I welcome it as a leader of a major local authority, as a local government association vice-president and as a local government enthusiast.
For me, the Bill achieves six objectives. First, it frees councils from the bureaucratic nonsense of CCT. Secondly, it fosters a positive attitude to public/private partnership in the provision of public services. Thirdly, it places a rigorous duty on councils to achieve a balance between service quality and the efficient and effective use of public funds to that end. Fourthly, it provides for the inherent potential of local government to adopt an imaginative approach to the provision of local services. Fifthly, it encourages local authorities to work together to secure local services and to share facilities, joint purchasing options, best practice and better value for money though collaboration rather than competition. Finally, it enables local government realistically to begin creating a mixed economy of provision in public services based on locally defined needs rather man a centrally dictated formula driven by the government of the day.
As regards capping, I also welcome the Bill. It moves responsibility for the setting of local taxes back towards local authorities and places on councillors a duty of trust to do so responsibly. Some in local government have

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argued for the complete return of local discretion, together with business rates. Desirable though that might be in the longer term, in the short term, given the complexity of the gearing effects of council tax increases, or potential increases, it is unrealistic.
The Secretary of State's reserve powers to tackle those few authorities which exercise their new-found freedom unreasonably is not unjustified, given the shortcomings of the current system and the difficulties which exist in developing an equitable root-and-branch reform of the local government finance system, which has defeated people for decades. We must protect the public from excessive tax rises. If we did not, we would be failing as a responsible government and that would not be in the public interest. We must have the power to act centrally to ensure that, locally, people do not exceed the remit of their local discretion.
I see the council tax changes not as a financial statement on local government financial reform, but as a kind of government down-payment, or first step, towards providing greater financial freedom for councils. How councils measure up to its challenges will, I suspect, determine how far and how fast the extension of further financial freedoms flow towards local government.
One argument which has been put forward for the end of capping and the return of the business rate is that these will bring about an increased interest in local democracy. Thus, the argument runs, it is the lack of local discretion which prevents local participation in local elections. I do not subscribe to that view. As a councillor in the early 1980s when we had the freedom to raise rates and business taxes, I did not see any noticeably greater interest in local elections. The turnout was little different from today.
Improving turnout figures for local government elections is a far more complex issue than returning to councils the responsibility of raising revenues for services. It is desirable and it is welcome, but it is not of itself the answer to low levels of electoral participation. However, I do believe that other parts of the Government's modernisation and reform package for local government will raise public participation and levels of interest in local governance. In this context, "best value" and the improvements that it offers may have a significant role to play.
Already, councils, my own included as a best value pilot authority, have begun to review performance. They are doing so not as in the past with a top-down management approach, but with the objective of securing services which local residents generally want. Thus, service providers, from either the public or private sector, work with managers, elected members and the service-using public to determine the level, quality and cost they believe appropriate to the delivery of the service they want to achieve.
That offers local people real choices, involves stakeholders in the design and organisation of a service, whether it be a council's public relations function, the housing repairs system, meals in the community, the maintenance of public open spaces or swimming pools.
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Testing public opinion to secure best value has in the past 18 months become something of an art form. We now have review groups, citizens' panels, citizens' juries, focus groups, telephone and newspaper polls and even referendums—and that is just in one authority.
I said earlier that best value would enable councils to use greater imagination in developing services. Already, there is ample evidence of that. Councils are busy forming "clubs" to deliver services locally, gaining the benefit of cost savings through collaboration. In this respect, the purchasing and procurement of services and facilities has enormous potential. I suspect that in 10 years' time joint purchasing arrangements will exist in most authorities for a range of functions such as air quality monitoring; consumer protection testing services; taxation revenues and benefits services; building control; local searches and inquiries, tourist information, travel information; food law enforcement; and regulation more generally. The work of the CWOIL group of authorities—Cambridge, Welwyn, Oxford, Ipswich and Lincoln—and the joint revenues and benefit project comprising Tandridge, Lewes, Wealden and Brighton and Hove will in that context be seen as groundbreaking.
So, how will we be able to judge whether best value works? What is its performance indicator? I suggest that it is already working. The 40-odd pilot authorities have begun to demonstrate that service quality can be raised and costs reduced through best value. Government expect that £2 billion-worth of public money can be freed up through the best value regime. If Brighton and Hove, for example, can save almost 2 per cent. through its first-year best value reviews, and strike a balance in partnership working to secure such gains, I suspect that other councils can and are already doing so.
The real proof of the progress of best value will become clear when those principles begin to apply to other parts of the public service. Already, there is some evidence of that in the health service and it is having an impact. I can see that, perhaps through joint working between health services and local authorities, the capacity and opportunity for that to extend is infinite. I can see many applications opening up, to the public's benefit, from its widespread absorption into the public service elsewhere.
This Local Government Bill is the first that as a local government leader I have felt able wholeheartedly to welcome in the 12 years I have had the privilege to serve in that capacity. As such, it represents an important first step towards the rebuilding of local trust in local government, the returning of local choices to local councillors and the regeneration and restoration of meaningful local democracy. In that spirit, I look forward to other noble Lords welcoming the Bill and giving it a Second Reading.
8.28 p.m.
Lord Bowness: My Lords, the Minister explained the Bill most fully and recited the powers of the Secretary of State relating to inspection, intervention and guidance which back up the concept of best value. With a straight face—on which I congratulate him—he then told the

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House that the abolition of compulsory competitive tendering is a restoration of the freedoms of local government. Many in local government felt that compulsory competitive tendering prevented them from organising services as they wished. I do not think they were wholly justified in that belief since, as alluded to by the noble Baroness, Lady Hamwee, specification was the key to contracts. To that extent, authorities were always able to set their own standards and they had no need to seek contracts for minimum standards.
Nevertheless, while CCT may now be rejected, we should remember the circumstances which prevailed at the time of its introduction. I do not want to go back too far in history, but at that time many members of the public wondered for whom direct labour organisations ran services. I will not speculate for whose convenience they were run, but it did not appear to many residents that their wishes and the wishes of businesses were obviously at the top of the list. Compulsory competitive tendering swept that away and without doubt has saved the country billions of pounds.
The public suddenly found that complaints had an effect. Council officers, who previously found the idea that an in-house operation could deliver anything other than a perfect service, espoused the contract monitoring role with huge enthusiasm, especially as in well-managed authorities penalties were provided for in the contracts and their own departmental budgets could be advantageously affected by the application of those penalties. For their part, the contractors responded because they wanted to be in the frame for the next contracting round.
Now CCT is to be consigned to history and the new free dawn is breaking. I pose the question: is it? My noble friend Lord Dixon-Smith referred to the powers of the Secretary of State, and we have read the many sections relating to performance indicators and standards, guidance en the nature of consultations, best value reviews and best value performance plans.
The opponents of CCT often accused it of creating a huge bureaucratic process, but is best value going to be very different? Already the advertisements for staff are appearing in that language of management-speak which so often leads to reports and little action. Local authorities are recruiting for best value:
"We need a creative thinker to join an enthusiastic team supporting BestValue right across the organisation. The role will involve taking part in service reviews, opinion surveys and community consultation exercises, gathering intelligence and disseminating information".
And of course it will be the subject of the inspection review outlined by the Minister. I have only quoted from an advertisement at local authority level. The Audit Commission is looking for a director of inspection, based in London:
"Substantial package including performance bonus and car … Draft legislation will substantially expand the Commission's inspectoral responsibilities, particularly in support of Best Value in local government. You will engage a wide range of stakeholders in consultation, with a view to developing and continually improving a credible and effective methodology for inspection".
It is all to be paid for by the taxpayer and the council tax payer, and between them all these people will not put one paper back upon a library shelf, empty one bin
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or sweep a yard of highway. We are entitled to ask the Government during the passage of the Bill how much they estimate all this recruitment will cost across the nation.
I do not seek to rubbish surveys and consultations, but so often they become an end in themselves. How often does consultation produce an answer unexpected by those who put the problem out to consultation? How much are all the surveys, consultations and reports going to cost? It will not be good enough to tell us that the cost will be covered by cost savings. We need to know what efficiencies and savings will have to be made to meet the potential cost. In parenthesis, since local authorities include parish councils and community councils, what difficulties will the preparation of these plans and the subsequent costs present to those small authorities?
In the explanatory notes to the Bill the Government acknowledge that there will be compliance costs which will fall on authorities and that they will involve new costs. Have the Government estimated those costs? There is an expectation that they will be contained within existing budgets, except for those relating to audit and inspection. All this is happening against a background of rising council tax bills and in many areas falling services.
Has the Minister not heard from his right honourable colleague the Secretary of State for Culture, Media and Sport about threatened library services, to take but one example, or reduced support for the voluntary sector in other parts of the country? What about the audit and inspection costs to be met by the Government through the revenue support grant? As the explanatory notes state, explicit provision is to be made. How much are we going to pay for the substantially expanding responsibilities? Do the Government know? Will this provision in the revenue support grant represent a complete indemnity to local authorities?
I fear that in the name of removing one piece of perceived bureaucracy, another, even more formidable, is being put in its place. We need to be sure that the benefits of best value are at least equal to those of CCT, where every authority knew what it had saved. But does it now know what it will spend?
I presume that best value is to be defined as in Clause 3 of the Bill, but it remains, as stated by the Minister, a concept. I suggest that we need more realities and not so many conceptual notions. I am not encouraged to read in the Municipal Journal that two-thirds of senior personnel staff are unclear about best value or how to deliver it.
Turning to the new freedoms under this best value regime, the reference in the White Paper states:
"to help authorities establish authority-wide objectives and performance measures the Government will help authorities introduce a new framework of performance indicators, standards and targets".
This suggests a culture of a government who know best rather than one who believe in local freedom. To back all of this up there are the inspections and powers of intervention that have been mentioned by the noble Lord, Lord Hunt of Tanworth. I suggest that the

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principles set out in that draft protocol between central and local government should at the very least be upon the face of the Bill.
Paragraph 7.27 of the White Paper states:
"The key strategic choice for authorities is whether to provide services directly themselves or through other means …
The guidance (to be issued) will emphasise that retaining work in-house without subjecting it to real competitive pressure can rarely be justified".
It then lists six options which one way or another involve outside providers and the private sector, presumably so that the old-style council empires do not come back under cover of this legislation. If the market place is so important, and it is referred to in all the options, why are the Government trying to give the impression that the need to go to the market place is being removed? Who are they trying to convince? Whose fears are they trying to allay?
I refer to Clause 15. If the Secretary of State's powers need to include the power to amend enactments in this way, and if the Government are so uncertain as to the changes needed to other legislation to ensure that the Bill works properly, then the Bill should not have been brought forward at this time. It would be helpful if the Minister could indicate, in the light of the pilot schemes that have been run, where he anticipates problems arising and where it may be necessary to use those sweeping powers to amend existing legislation to ensure that this piece of legislation works.
I turn briefly to the capping proposals contained in the Bill which are alleged to spell the end of crude and universal capping. As the White Paper goes on to say:
"In particular. the Government will not in advance tell every single council in the country how much it may spend".
The powers appear to relate to all local authorities, so to that extent they remain universal, and the Secretary of State will decide after the budgets have been set whether or not the budget requirement is excessive. It seems to me that that is very close to the Secretary of State deciding on the acceptable level of the budget for all authorities. Since in deciding whether or not the budget is "excessive", the Secretary of State must have regard to the principles set out and in accordance with the provisions of the 14 pages of the first schedule, I hope we are not playing with words about whether those powers continue to be universal or reserve. In winding up, perhaps the Minister will explain to the House the principles which are involved, how they work, why they are not universal, and why they are only reserve.
8.40 p.m.
Baroness Maddock: My Lords, I shall not be quite as generous as my noble friend Lady Hamwee in welcoming this Bill or, indeed, in forgetting history. I find that a little difficult.
It seems to me that the Labour Government are rather confused about how they see the role of local government. On the one hand, they have talked about revitalising local government, renewing local democracy, giving local government back to communities and encouraging local people to become
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involved in setting standards for their local services. But on the other hand, they appear to undermine completely many of those laudable aims by pretending—we have heard this from several noble Lords this evening—that they are doing away with capping and showing what many of us believe is a rather unhealthy tendency towards legislation which is centralising and which gives Whitehall far too much say in the running of local councils throughout the country.
Reading through the debates on this Bill in another place, it seems clear to me also that the Conservatives are also rather confused about the role of local government in our democracy. It may be that their interests in and conversion as regards the importance of local government in our democratic hierarchy is perhaps due to having found out the hard way. For 18 years, they denigrated local government, partly because they tended to judge all local councils by the standards of the worst, and they heaped on local government restriction after restriction which took away from local councils many local decision-making powers.
The poll tax set local residents against their local councils. I still remember setting the first poll tax and people jumping down from the gallery and barricading themselves in the council chamber.
As a result many of their own Conservative councillors became extremely dispirited and the Conservatives lost more and more of their elected local councillors. But it appears that, lo and behold, some of them have seen the light. I wonder for quite how long. In fact, so changed are the views of both Labour and the Conservatives on local government, that I sometimes wonder whether I did not dream my years in local government, years when Labour railed against central control and capping and when the Conservatives equally strongly proposed such measures. I hope that your Lordships will forgive my long introduction, but I find it rather difficult to forget history. I certainly have not changed my views and vision of the importance of local democracy in ensuring that we have a healthy national democracy.
I still believe that local government must serve local people; that local people have a right to be consulted and involved in the decisions made for them by their local authorities; and that decisions should be taken as closely as possible to the people whom they affect. I believe that national involvement should take place only when it is necessary; for example, in enabling a fairer distribution of resources. My noble friend Lady Hamwee referred to that. Indeed, in his opening remarks, the Minister attempted to refer to that and, as my noble friend Lady Hamwee said, we have something of a disagreement with him on that issue.
I turn now to two issues which are covered specifically by the Bill: first, best value and how it relates to the provision of housing services; and, secondly, capping. Best value is intended to increase the efficiency of public services by giving service users the opportunity to be involved in the planning, delivery and monitoring of the services concerned. In housing, the service users will be tenants, leaseholders and users of housing advice. They are the people who should be

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involved centrally in the quality programme. Unless they are, there will be no true test of whether best value is being achieved by our housing authorities.
For many of us, the worry is that the Government will be rather too prescriptive in the regulations and guidelines which they issue. I believe that, if they are, innovation in the way that local authorities procure services will be seriously limited. In his introduction, the Minister claimed that the legislation provides a framework. It is important that the legislation provides an enabling framework because that will allow experience on the ground by pilot authorities and others to shape the detailed good practice and information which can then be disseminated around the country, particularly from the Department of the Environment, Transport and the Regions.
But the terms of the legislation convey to me, and possibly to others, that cracking down on councils which fail is rather more important than rewarding good practice. If one is too condemnatory, councils may feel inhibited, for example, about reporting failures and difficulties as well as successes. That is important. I hope that the Government will take note of that in their regulations and guidance.
The Bill provides a description of best value. It emphasises economy, efficiency and effectiveness. However, it does not mention some of the other responsibilities which local authorities have, in particular under other legislation. My colleagues on these Benches and I are concerned in particular about environmental issues. I am concerned especially about other responsibilities which local authorities have under legislation, for example, under the Home Energy Conservation Act in relation to energy efficiency in homes. That affects housing and is an important part of what councils should be looking at when they are looking at providing good services for their tenants.
I know that this Bill is aimed primarily at local government but I want to raise one important issue on which I hope that the Minister can help me in relation to housing associations. As has been said by other noble Lords, many authorities have for many years been looking at ways of providing good housing services and involving their tenants in that choice.
One such authority is Mendip. It happens to be a Liberal Democrat-controlled council. It consulted its tenants as to whether they wanted to opt for a stock transfer. The tenants voted against that but they were happy for the management to be run by a housing association. That was carried out through a tendering process. I declare an interest in that regard because the housing association in question is Western Challenge, of which I am a board member.
It seems very sensible for housing associations to be partners with local authorities in providing best value. However, I understand that the consultation document from the Housing Corporation, which was published recently, which concerns what are the core activities of housing associations does not seem to include housing management as one of those core activities. I hope that the Minister will throw some light on that because it
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seems to me that housing associations are essential partners in providing best value and in helping local authorities to provide good housing services.
I turn now to capping. This Local Government Bill contains clauses which deal with matters which may arise between billing and charging authorities as a result of new capping legislation. To my mind, the Government have been less than honest on that issue. They loudly trumpeted the fact that they promised to get rid of capping but in this legislation we find in its place a system which seems to be very like that which the Conservatives brought in when they were considering giving back to local authorities the resources that they had spent on housing benefit. It is a system which will cap local authority spending because the Government have said that they will not cover the full cost of the council tax benefit that local authorities pay out—we do not know what the level is—if they believe that the council tax levels are higher than they think reasonable. As other noble Lords have said, they do not spell that out clearly.
Local council tax payers will probably end up subsidising national benefits. We believe that that is not acceptable. It is just the same as happens with regard to housing benefit where council tenants subsidise poorer council tenants. Once again, it seems to me that we are seeing the Government do the very same things that they bitterly opposed when in opposition. Why is it that the Government cannot trust the electorate? By all means help local authorities to deliver good value, to show electors that they are getting good value, and to find better ways of involving local people in those decisions, but, at the end of the day, I believe (as I think we all do on these Benches) that it is the people who decide whether that is right, through the ballot box with a fair voting system.
I regret to say that I feel that this Bill is a missed opportunity. I believe that the Government are a little muddled in some of their objectives and particularly deceptive in the way they talk to us about removing universal capping.
I feel once again—and not just with this Government—that governments are putting their trust more in central government than in local people and local councils. Once again, I regret that we have a government who appear to legislate by always judging the worst councils and not the best. I hope that we can improve the Bill as it passes through the House and that we can build not on what is worst in local councils but on what is best, and go forth and celebrate local government in this country. When I look back or when I visit the northern part of the country and see some of the wonderful municipal buildings, I remember that once we were a country which was proud of its local government. I hope that we can reach that stage again one day.
8.52 p.m.
Lord Hanningfield: My Lords, I begin by declaring an interest which has considerable bearing on my views on the Bill. I am the leader of Essex County Council, the largest county council in the country. I am also

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Conservative leader at the LGA. I support my noble friend Lord Dixon-Smith in giving a cautious welcome to the Bill.
I should also like to agree with much of what was said by the noble Baroness, Lady Maddock, particularly in her closing remarks. I cannot agree with many of her earlier comments about the Conservative Party. She obviously has not been listening to my right honourable friend the Leader of the Opposition recently when he said that the Conservative Party spent too much time reorganising local government rather than supporting it. He has gone down on record as saying that at the LGA conference and in many other places.
As I have said, I have been in local government for a long time, over 25 years. In that time I have not seen a local government Bill quite like this. It is so much a Bill which is concerned with new powers for central government that I was surprised to find the words "local government" even in the title.
The Bill is really about local government rather than for local government. As a council leader I can see that clearly. One of the key themes of the Bill is an increase in the centralisation of power. My honourable friend in another place, Bernard Jenkin, drew attention to 27 new powers which will be conferred upon the Secretary of State. I believe that is outdoing even any Conservative Secretary of State. I am concerned about the enormous increase in central government control over local authorities. It is an increase in control which almost borders on the constitutional simply because the Bill would allow the Government so much control over local authorities' activities.
I hope that during the passage of the Bill through this House many of these questions will be answered. Certainly, some of the introductory remarks made by the Minister concerned me. I hope that they will be explained and clarified later.
The Conservative Party has realised that centralisation is not the right path to tread. We made mistakes in the level of control which we introduced and we are now changing our policies in accordance with this new position. Our country is made up of a wealth of diverse local communities, and the local authorities which serve these areas need freedom to reflect the needs of those diverse communities.
I read those parts of the Labour Party manifesto which were concerned with local government. On the face of it, it appeared as though the Labour Party, if elected, would bring forth legislation which would empower, enable and revitalise local authorities, giving them new freedoms and powers. The reality, as set out in the Bill, is that nothing could be further from the truth. The newly created RDAs, which are supposed to be devolutionary, are a joke. They are, as a government spokesman has admitted,
"Government bodies, accountable to ministers".
I can assure noble Lords that I fought against centralisation by my government and I am going to fight doubly hard against the Labour Government's proposals which could take central control of our country to an unprecedented level.
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Clause after clause in the Bill takes decision-making away from local government and puts it in the hands of central government and Ministers. That is simply not acceptable. Why should a Minister in London, hundreds of miles from some part of the country he knows nothing about, take decisions which affect a particular road, house or field? We are a country which is relatively small but we have a high population and, in the interest of our democratic society, we should be trying to ensure increased local freedoms and not an increasing level of central control.
I welcome the fact that the Government are changing the name of the way in which services will be delivered by local authorities. "Best value" sounds like a much more friendly term than "compulsory competitive tendering". Although I support the name change, there are many other parts of the Bill about which I am concerned. I acknowledge that CCT was not welcomed by all parts of local government, but it made a wholesale change to the culture of local government and to the way in which services were delivered. The enabling type of local government which we have now is devolved from CCT.
The change was a measurable one. Local authorities could measure the improvements that they were making, and on average CCT delivered savings of around 7 per cent. across the range of services to which it applied. I am not convinced that best value will deliver that sort of measurable improvement.
The proposals in the Bill will set in place an inspection system, outlined very well by the noble Lord, Lord Bowness, which are more draconian than anything previously conceived of by any government. I have been looking at the cost of inspections. I gather that they might treble over the next three years. I believe that local authorities should be striving hard to achieve the very highest standards, but the growth of inspection which is proposed could be harmful. We are already spending tens of millions of pounds on inspection regimes. Social services inspectorate costs alone are nearly £50 million per year. We are seeing rising costs for the Audit Commission, OFSTED and so on. I am concerned about such costs. Soon, we shall be spending more on monitoring our services than on providing them. Is that what the Bill proposes?
I am also concerned that the Government will be able to intervene at the drop of a hat. I draw noble Lords' attention to the new Improvement and Development Agency, set up by the Local Government Association. I believe that if a local authority has a failing service, it should have an opportunity to rectify the problem itself or with assistance from another local government community rather than face a heavy-handed intervention by central government. That is exactly what the Improvement Development Agency will do. I hope that the Minister will comment on that.
I turn to the financial issues in the second half of the Bill. Labour's spin doctors were trumpeting the end of the capping regime. As most of my noble friends and colleagues have said here today, it is yet to be seen whether capping will end with this Bill. However, once

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the detail appeared and the smoke cleared, it was found that the "removal" of capping had been merely qualified.
I do not support, and have never supported, capping and 1 bring to the attention of this House the positive moves which my party has been making over the past months. We are looking closely at the financing of local authorities and endeavouring to find a solution which allows local authorities far greater financial freedom, as opposed to what the Government are seeking to do, which is to introduce a regime which will be more subjective and controlling than anything we have seen before.
As I said, I have never supported capping, but under the existing system we knew at least that the system was clear and straightforward. The new capping system will be shrouded in secrecy. The Bill threatens to introduce a system in which the Secretary of State will be able to cap any authorities he feels he wants to and on whatever grounds take his fancy at that particular time. What the Minister said at the beginning of this debate rather confirmed my fears on that and I should like more explanation as the debate continues.
I am also amazed at the suggestion in the Bill that the Government could cap authorities which spend below the standard spending assessment. As noble Lords know, the standard spending assessment is the Government's idea of what local authorities should spend. Therefore, to suggest capping authorities which spend below that is quite extraordinary.
As can be seen, I have considerable reservations about the Bill which I shall air over the coming weeks. Tip O'Neill, one-time Speaker of the House of Representatives, once said "all politics is local". When we read the Bill, we get rather a different impression.
9.1 p.m.
Lord Harris of Haringey: My Lords, I too should declare an interest. I am a London borough councillor and have been for more than 20 years. For more than half that time I have been leader of my local authority, a post that I shall be relinquishing next month.
I have seen some considerable changes in that period. There has been an erosion of local autonomy and in many ways a diminution of local democracy. For example, the previous government used the grant system not as a means of equalising the resource base and compensating for need, but as an increasingly punitive means of constraining expenditure and of rewarding political friends.
As many noble Lords will know, there is a system of standard spending assessments—indeed, the noble Lord, Lord Hanningfield, referred to it. That was supposed to be an objective and fair way of calculating the distribution of resources. In practice, the system was and at least for the time being remains extremely complicated. The formula had to take on board the many differences in local areas and of course the multiplicity of local services. It was and is broken down into a huge number of different elements, each with its own separate calculation.
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To illustrate this I want to give one example and show how this worked with the figures used in the 1997 settlement—the last made by the previous administration. Most of the grant funding is population related, thus the main district services SSA calculates standard spending on the basis of the needs-related cost of services per head of population. Of course, we cannot simply use the number of people in an area; it has to be adjusted.
For my own borough of Haringey the calculation in 1997 was as follows. We started with the resident population of 213,344. We then subtracted one quarter of the net daytime outflow—5,300. We then added half the number of visitor nights—2,574—and one-sixth of the number of day-trippers—1,243. That left us with an adjusted population of 211,861. So for grant purposes Haringey lost 1,483 residents.
If we take another local authority—for the sake of comparison I will choose the one in which we reside at the moment, Westminster—the calculation followed the same pattern only somehow the figures ended up rather different. It started with 195,251 residents. It gained 103,700 from daytime inflow (your Lordships among others) plus 31,568 visitor nights and 20,996 day-trippers, which equalled a grand total of 351,515— a gain of 156,264 residents, or roughly the population of the borough of Kensington and Chelsea. For every 100 residents Haringey was deemed for grant purposes to have only 99, while Westminster was deemed to have 180.
But it did not end there. Obviously, the need to spend relates to other factors. Some of your Lordships might have thought that this would be where needy Haringey would have gained. Quite properly the SSA takes into account social and economic factors to decide how much per person (as adjusted) should be included in the grant calculation. The relative prevalence of each of those is assessed for each local authority and a cash value per head is then assigned to them. This of course is a neutral process and nothing could be fairer.
By the SSA formula, Westminster residents were assumed to be twice as needy as Haringey residents, and of course the number of Westminster residents was almost doubled by the calculation that I described. So your Lordships counted as much needier residents than the people who live in the area in which I have lived for a number of years.
It is therefore of enormous relief that the Government have removed some of the worst of those anomalies and announced a root and branch review of the whole system over the next couple of years or so. That review is critical for achieving fairness, not only within a conurbation such as London, but also across the country as a whole. In that review it will be essential that the old myth about the capital's streets being paved with gold is not given a modern incarnation. Let us not forget that 13 of the 20 most deprived local authority areas are in our capital city; that London's unemployment is almost exactly the same as Scotland and Wales combined; and that there are 26 London constituencies with levels of unemployment higher than any constituency in Scotland. Let us not forget that more

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than half the country's refugees and asylum seekers are in London being provided for by London local authorities; and that there are boroughs like my own where more than one-third of the children in our schools speak a language other than English at home.
It was also the previous government which introduced capping, first for rates in 1985 and subsequently of the poll tax and the council tax. Such arrangements weakened local democracy. By 1997 key elements of council budgets were being set by the then Department of the Environment and not by local decision and that demonstrates the myth that this Bill is about central control; it is about releasing local democracy.
And if local democracy means anything, it is about local people electing local representatives to determine local levels of service provision and local levels of taxation. That is the mechanism for local accountability and capping came between the local councillors and the people they represented.
This Bill proposes the repeal of existing capping powers, replaced by more discriminating reserve capping powers which will regulate increases in council tax from 1st April of next year. This is of course progress and I strongly welcome it. The new reserve powers will focus, as now, on increases in budget requirements.
The Bill is intended to give new powers for the Secretary of State to look at changes in budgets over a number of years; require reductions in budgets over a number of years; require reductions below those of the previous years; and allow exemption of certain categories of authorities. These arrangements provide the Secretary of State with considerable discretion and flexibility. I believe that it is important that, if reserve powers are to be retained, the key principles which are to govern their use should be spelled out as clearly as possible. Moreover, these new powers should be used as sparingly as possible. That is clearly what my noble friend the Minister indicated will be the case.
The Government also propose that local authorities are to become responsible for meeting part of the cost of council tax benefit subsidy from 1st April 1999. The regulations implementing the main scheme have already been passed, but some consequential new primary legislation is included in Clause 30 of the Bill. The clause is necessary to the scheme to provide for the transfer of payments between precepting authorities and billing authorities.
Local authorities remain opposed to the localisation of council tax benefit costs for the following reasons: first, the scheme will hit the poorest areas hardest; secondly, it should be the Government's responsibility to meet the cost of welfare benefits; thirdly, the public's understanding of council tax increases will be further diminished rather than enhanced; and, finally, the guideline increases could be seen by some as a direct substitute for crude and universal capping. It is my view that experience will demonstrate that this scheme is not satisfactory. I hope that the Government will review its first year of operation in some detail and in close consultation with the local authority associations.
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The provisions I have just commented on are, of course, taken from the second part of the Bill. The first part deals with the new duty of "best value", which replaces compulsory competitive tendering with a new obligation to secure the continuous improvement in services. There will not be many people in local government, with the possible exception of a few noble Lords who have spoken today, who will mourn the passing of CCT. It was an inflexible instrument which, while it may have driven costs down—usually at the expense of the wages of those providing the service concerned—did nothing to improve the quality of that service; indeed, the quality was often diminished as a result.
The new duty is in many ways a much more testing and rigorous requirement. It requires that authorities consult local people—the users of the service concerned—and other relevant interests. It will be necessary for councils to challenge the way in which they currently deliver services: no one model should automatically be favoured. It will be expected that local authorities compare the performance and cost of their services with similar authorities and demonstrate that they can compete effectively with alternatives.
As a result there will be a sort of "never ending journey" to seek continual improvements in the quality and efficiency of services. This has to be right for the users of the services and indeed for all those who have to pay for them.
The general duty of best value will require that authorities seek "efficiency, effectiveness and economy". This will be on the face of the Bill. Ministers in another place have promised that guidance will require authorities to link the implementation of best value with wider issues such as environmental sustainability and equity. I am disappointed that these do not appear on the face of the Bill, too. We already have the three Es of efficiency, effectiveness and economy, would it really be asking too much to make it five Es by adding environment and equity?
In particular, the fifth E, equity, acquires particular significance given the Macpherson report which your Lordships will be debating later this week and the importance of tackling institutional racism wherever it potentially occurs in the public sector.
I want to conclude by saying that this is an important Bill which demonstrates the priority given by this administration to reinvigorating local government. The objectives were set out clearly in the White Paper published last summer. However, this Bill is only part of the package set out in that White Paper. Another part is contained in the draft Local Government (Organisation and Standards) Bill published last month. That, too, is welcome. I am only disappointed that it was not possible for us to have all of the elements in one Bill in this Session, including the proposed new duty on local authorities to promote the economic, social and environmental well-being of their area. I look forward to the remaining parts of the White Paper prescription arriving before too long. In the meantime, I have much pleasure in supporting the thrust of the Bill today.
9.12 p.m.
Baroness Miller of Chilthorne Domer: My Lords, I, too, must declare an interest as a councillor both of a district council and of a county council. Like many noble Lords who have spoken this evening, I had quite high hopes of the Government delivering some exciting things when they published their Modern Local Government: In Touch with the People paper. That contained some good general principles. It talked about strengthening local government and about better services. It also gave us hope that the Government would move on to encourage innovative local government, that we would be able to be much more attuned to local needs and wishes and that the electorate would feel very in touch with its council.
I remember more than once sharing a platform with the noble Lord, Lord Bassam, and having debates with him about how we would improve electoral turnout. I heard him say this evening that he does not think that tying local finance closely to local government is necessarily important. In fact, he said that it was not really important in improving electoral turnout. However, I believe that we thought it was at that time and that it is a crucial part of the process that people should actually feel that there is a point in turning out and voting for their local council.
I feel in many ways that the vision that was laid out in Modernising Local Government has metamorphosed into something—as my noble friend Lady Maddock said—that is rather more centralising and controlling, and that where at one time we read, "according to the wishes of local electors", we are now starting to read, "in accordance with the orders of the Secretary of State". This Bill could have gone a long way down the road of Modernising Local Government principles if we had had the word "guidance" frequently used instead of "order". That represents a great lack of trust still in local government.
Where has the general duty gone to promote economic, social and environmental well-being? I am pleased that the noble Lord, Lord Harris, did not fall into the temptation of being too easy on the Government over this. He mentioned that matter and his disappointment with regard to the matters of equality and sustainability. There are many examples of this Government mentioning the importance of sustainability. The Department of the Environment, Transport and the Regions has emphasised time and again the importance of sustainability. It is extraordinary that it can be left out of something as crucial as best value. I do not think we can achieve best value in cross-cutting services if we ignore sustainability as the absolute baseline for many of them. The noble Baroness, Lady Maddock, gave the example of home energy conservation. We could think of many other examples.
Best value really must be a matter of continuous improvement which needs to encourage innovation. This evening both my noble friends mentioned that authorities may be quite nervous of embarking on innovative measures against a background of constant measurement and inspection. That is absolutely true.
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The noble Baroness, Lady Hamwee, said that those who receive the services should do the imposing in this regard. We need to bear that in mind as we go through this Bill. What we have here is a tool for controlling local authorities' performance. Is there a threat here for the worst authorities? I quite agree that the worst authorities need substantial renovation. There is some incentive here for the best authorities, but the vast majority of authorities fall somewhere in the middle. I am not sure that this Bill as it is drafted at present does a great deal for the middle tranche of authorities.
I am sad, too, that parish and town councils have not been included in the consultation, because if best value is to apply to them we shall need a definition of those which fall into the de minimis category. But if the larger ones are to be included, they certainly should have been consulted over the best value proposals. As we go through the Bill we shall need to define those which will fall within and those which will fall without the definition of best value. I have experienced the agony of parish councils with regard to the audit system they now have to undergo. Although I understand that the bigger authorities will be hit by best value, it will certainly be a vastly different regime for them, much more so than for other authorities.
I believe this Bill has been written primarily with unitary authorities in mind. I noted the example given by the noble Lord, Lord Bassam—I am aware of others—of authorities that are working in partnership. However, I do not believe that this Bill as it is drafted at present, or the new draft Bill on political structures, give sufficient thought to all the two-tier areas of the country that still exist. It is far more difficult for a county working in partnership with a district to measure itself against performance indicators. I shall give an example of this to illustrate what I am talking about.
If we take the example of development control, for which the district council is responsible, it is a common indicator that 80 per cent. of decisions should he made in eight weeks. If one adds the matter of quality in areas of the country with villages with conservation areas where quality is of crucial importance, and those that are to receive large new tranches of housing, one begins to see that a district council by itself will have quite a task to work out where best value falls. Is it making decisions quickly? Is it the quality of design? If we were to include the sustainable development criteria, where would they arise? What about keeping costs down? Add to that the fact that one needs to work with the county council in the provision of services such as education and highways, and one starts to see that this is an equation that I do not think the Secretary of State can develop performance indicators for. I think this will be very much a case where local people will have to decide if their local authorities are working well in partnership together. I do not think the Bill adequately recognises those issues.
There is also the matter of the so-called hit squad, should it be necessary to call it in. From my reading of the Bill, it will not be subject to best value. I find that extraordinary. I do not understand how that can be the case. Indeed, one noble Lord mentioned that central government are not to be subject to best value either.

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I do not intend to refer at length to the comments of the noble Lord, Lord Bowness, on CCT. My noble friend Lady Maddock described CCT as a dream but I think that most of us remember it as a nightmare. I think that my noble friend was just being polite. The "cheapest is the best" philosophy ignored the waste of business time in preparing extremely complicated bids. To pretend that it was a great time for business is to ignore what was the reality. Furthermore, much time was spent by council staff in preparing watertight specifications because they were not able to consider anything other than the cheapest. That time was not particularly well spent. Preparing best value criteria will be time better spent. To that extent I feel positive about the Bill.
Clause 15 should be an enabling clause. It would be disappointing if we did not move further towards a power of general competence. I hope that beacon councils will be able to move closer to that. Beacon councils, which will be in the top group of well performing councils, will be in a win-win situation. They will probably get more money and they will have greater powers. But I am nervous that those authorities which are doing quite well but are still struggling against the odds will lose out.
I hope that this is not an overcentralising Bill. I am nervous abut the cost of inspections and how the inspections will be tied together to form a coherent whole. I have not seen an adequate explanation of how the various inspecting bodies, together with the performance indicators, will work.
The Bill is a small step on the road to greater local accountability and financial freedom but I do not think that the electorate will see it as anything more than that. In fact I think that it will almost pass them by unless we move much further along that road. Public opinion panels and focus groups do no more than take a snap-shot for the local population. Local people know when services are improving and they know when things are happening more according to their wishes. The quality of service is important. But that is a very subjective matter for many people and it is inappropriate in many circumstances for the Secretary of State to lay down what it should be. The national guidelines should only be guidelines. People are concerned with the price of services. If local councils are not seen to be in control of their finances the electorate will not be excited about the fact of having more power when it comes to electing their local councils. They will see it as electing the functionaries of central government.
The Bill is a small but welcome step, but there are many aspects of it which need to be better defined. I refer in particular to the criteria that are so frequently mentioned but are not specified.
9.23 p.m.
Baroness Seccombe: My Lords, with the exception of the noble Lord, Lord Hunt, I think that all noble Lords who have spoken in the debate have had experience as elected councillors. I was elected for one term, after which the electorate decided that I should
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disappear. But before I could fight the seat again, the authority had disappeared—I was on the West Midlands County Council. My experience during that four-year stint gave me great respect for local government and I always pay tribute to the councillors who spend many hours each week on behalf of their constituents. Many of them undertake to serve the community. Sometimes that is difficult, but they do it with such goodwill.
We have had a well-informed and detailed debate. It is important to remind ourselves of the salient facts that have run through all that has been said and to recall the diversity of the subject under discussion. The main items under discussion have been best value and capping.
First, all local authorities are different, as the noble Lord, Lord Hunt, said, and they have different needs. There are a number of categories of local authority, each category with a different group of functions. Within each category, each authority is different as a result of its own particular history and geography. Demography can have a dramatic effect on the character of a particular authority and the way in which it works. A seaside town may become a haven for retired people; a former coal or steel town may have lost its industry. Some will be fortunate and have diversified economies; some will benefit from their situation in relation to major communications infrastructure. Some may find that a fortunate location actually imposes specific problems that can become almost insurmountable in scale, such as the problems that might arise as a result of a sudden influx of illegal immigrants in a particular area. Any legislation that seeks to influence, improve and regulate the management of local government must of necessity be either very simple or very flexible, and preferably both.
The second point that must be borne in mind at all times is that the business of local government is to serve the public. If that task is to be carried out well and effectively, as well as economically, those involved need to be certain of the conditions under which they are working so that they can do their jobs without having to worry that they might be required to change the way in which they work too often.
Similarly, local authorities themselves need to know that they are operating under a consistent set of rules that also will not be changed too often. They need to have confidence so that they can plan ahead and know that the resources will be there when required. As the Bill is drafted, too much is left to chance. We must seek to provide clarity and certainty before it leaves this House. We know enough to realise that the declared intentions of the Government and the exact effects of what they are saying and doing can too easily be very different.
Implicit in the concept of best value authorities and best value planning as it is revealed in the Bill is the idea that everything that is done can be done better, and for less cost, and that the process of improvement is continuous. But anyone with experience of managing complex organisations knows that life is not like that. Improvements usually come in steps, and the steps rarely come at regular intervals. It is true that if the

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organisation is sufficiently large and complex, many small step improvements that take place across the organisation can create the impression of a steady process. However, while that might be said to apply to local government as a whole, at the individual authority level it is likely that the ride will be a bumpy one. It will be necessary for us to do what we can as the Bill progresses through this House to ensure that its effects, which will be felt at local authority level, do not cause too many bumps. As the noble Baroness, Lady Hamwee, said, best value should mean what is best locally.
Local government finance has been a strong source of contention for a very long time. Now, with around 80 per cent. of local authority funds coming from central government, it really is not surprising that the subject causes great concern to Parliament. The Government have said that they will do away with capping but will reserve powers. Let us not forget that reserve powers often become standard practice.
According to the Bill, it all depends on an opinion—the opinion of the Secretary of State. He will have enormous powers, as my noble friends Lord Dixon-Smith and Lord Hanningfield, pointed out so clearly. He may designate or nominate an authority according to a set of principles that he will decide, the only limit apparently being that the same principles will apply to all authorities in the same category. Designation gives the Secretary of State power to state the amount which he proposes should be the maximum for the authority's budget for the ensuing year. Nomination applies a rather less immediate sanction that limits future budget increases. Whatever the good intentions of the Secretary of State, the existence of this power will almost certainly put irresistible temptation in his way if the economy should slow down and council tax starts to rise rapidly as a result of the gearing effect that is the consequence of the dominating position of central funds in a local authority's budget.
Because demography and local circumstances change over time, and because the economy is dynamic and industry and commerce can move about depending on the economic pressures that they face, so the circumstances of individual local authorities can change. This in turn means that the distribution of funds from national government to local government must be adjusted regularly to take into account those changes and maintain a reasonable balance. Put the pressures imposed by those changes on top of restrictions on national funding because of a slowing national economy, consider electorates agitating because they can see their council tax rising at a rate well in excess of inflation as a result, and then ask what will happen. It is no answer to reply that we now have a government which are so in control of events that these circumstances will riot arise. Look at Germany, supposedly the strongest economy in the European Community, and then try to suggest that we shall be immune from future problems. Unless some limits are put on the discretion which the Bill permits the Secretary of State, the fire will become very uncomfortable for all concerned.
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I cannot finish without endorsing the point so forcefully made by my noble friend Lord Bowness and asking the Minister whether he can tell us whether funds will be available through the rate support grant to fund all the increased costs that will fall on local authorities as a result of establishing best value systems.
This is an important Bill affecting millions of citizens. Good local services are vital for an acceptable quality of life. All noble Lords are anxious to achieve high standards. We on these Benches believe that financing of these services must be fair, accountable and transparent. In the later stages of the Bill we shall keep those simple principles before us. I am sure that we shall not disappoint the Minister. We shall be robust in our attempts to improve the Bill during the Committee and further stages.
9.33 p.m.
Lord Whitty: My Lords, I am glad to hear the noble Baroness's final remarks. It looks as though we shall have an extremely interesting Committee stage. I felt somewhat humbled by the experience of noble Lords who participated in the debate since my local government experience is even less than that of the noble Baroness. I did, however, spend a large number of years representing the much reviled council workers in a local government trade union, which gives me a slightly different perspective. Nevertheless, the points made in this debate have been well judged and are an important assessment of the impact of this Bill. Obviously I shall take into account all of them. No doubt we shall return to many of them at Committee stage.
There is one central point about the Bill that I must tackle head on. We are all agreed that we need a modernised local government system and a balance between local and central government. The fairly firm view was advanced by many noble Lords, particularly those on the Liberal Democrat Benches, but also elsewhere, that this was a centralising measure. It is not. The Bill is intended to give local government more scope to make its own decisions. It provides greater scope than the existing provisions and an incentive and pressure on local government to engage in innovation in the delivery of services. I accept that it also provides powers to central government. After all, as the noble Baroness has just said, 80 per cent. of local government expenditure is provided by the national taxpayer. The question is not whether national government retain those powers but what kinds of powers they retain and how they are to be exerted.
We are replacing powers introduced by several past governments, as the noble Lord, Lord Dixon-Smith, said. I believe that one particular past government have serious responsibility for most of this. Some of those powers might well have been sensible but some were far too restricted in both general finance and areas like CCT where algebraic formulae were applied with great rigidity. We are replacing that with the broader concept of best value. That concept requires local authorities to make their own decisions about the method of delivery and gives flexibility and scope for change.

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It is partly for those reasons that some of the matters which noble Lords wish to place on the face of the Bill cannot seriously be dealt with in that way. We wish to respond to experience and what happens on the ground. We shall address some of these issues in guidance, as the noble Lord, Lord Hunt of Tanworth, indicated. We do not wish to give the impression that we are producing a piece of legislation which results in greater rigidity than exists now. We wish to move dramatically in the opposite direction.
The noble Baroness, Lady Miller of Chilthorne Domer, indicated that she was not very excited about the Bill. I apologise for that. I believe that this Bill is quite an exciting concept and that many in local government realise that. Best value will put pressure on local authorities to change their methods of delivery and to innovate. It will enhance local accountability by requiring local authorities to engage in new forms of consultation with local people which will not simply be glorified focus groups, as the noble Baroness, Lady Hamwee, indicated. They will have a closer, ongoing relationship with their own communities in establishing the best way to deliver services.
There are therefore tremendous opportunities here for local authorities. They will be required to review fundamentally everything that they do and the manner in which they do it. As my noble friend Lord Bassam indicated, this has already begun not only in the pilot schemes but in other initiatives among local authorities, in particular by way of co-operation among them. The more innovative the means of delivery and greater involvement of the local community, the greater the interest that will develop in local government. I believe therefore that there may be a connection between the full delivery of a best value regime and, for example, turnout in local elections and general interest in the community in what local government is doing.
There is some concern that this is too much a framework Bill. However, it must be largely a framework Bill in order to accommodate the ability to move forward the process of change within local government. It needs to be able to accommodate the experiences not only of the pilot schemes but of future best practice and the way in which local authorities co-operate within their communities and among themselves. It also needs to be a framework in the sense that it must not inhibit these developments. That means some of the areas suggested for inclusion in the Bill are best dealt with in guidance. I include sustainable development—a matter raised by the noble Baroness, Lady Hamwee, my noble friend Lord Harris of Haringey and others—equity and social objectives. Much of that will be covered by guidance.
The noble Lord, Lord Hunt of Tanworth, asked whether the guidance will be available before Committee. We will do our best to indicate before Committee and in Committee the contents of the guidance on best value, but we will not be able to finalise that guidance because we will want to take full account of the on-going pilot schemes. The department issued interim guidance on preparing for best value on
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Friday. That is very much an interim circular to local authorities, but I will ensure that copies are made available to your Lordships.
Baroness Hamwee: My Lords, I welcome the Government's intention to take account of the experience of the pilots when framing guidance, but will the pilots, when completed, provide enough experience by the time the Bill takes effect? The CCT regime comes to an end soon, which we welcome. Should we not see something close to the guidance that will start authorities off on the course of best value, which could be amended in light of experience as months and years pass?
Lord Whitty: My Lords, that is in reality the way that we intend to proceed. We will produce initial guidance which may need to be revised and modified in light of experience of the longer running pilot schemes and when the full regime is in operation. We want for that reason to see some flexibility.
A number of noble Lords mentioned the costs of the system, particularly of inspection. My colleagues in another place made it clear, as does the background memorandum, that the costs of audit and inspection will be around £50 million a year once the system is fully running. That is hardly disproportionate. We are talking about £75 billion a year being expended by local authorities. We believe that we can achieve efficiencies over time and put a figure in the current CSR of a 2 per cent. per annum efficiency target.
The noble Baroness, Lady Seccombe, made the point that in reality this is not a continuous process—service by service, delivery by delivery, authority by authority—but is over time the kind of target that we will be looking to achieve. That vastly outranks the likely cost for the central inspection or for those engaged in it by local authorities. We made it clear also, so far as local authorities are concerned, that their additional costs of auditing and inspection will be covered partly through the RSG, to cover the additional fees, and partly through the grant to the Audit Commission in respect of its own inspections.
Queries were raised in relation to the possible imposition on parish councils—particularly by the noble Baroness, Lady Miller.
Lord Bowness: My Lords, before the Minister leaves cost, can he explain to what the figure of £50 million refers? Is that the cost that will fall on local authorities to comply with the legislation, which they will be expected to find within their existing budgets, or does it refer to audit and inspection? There are two lots of costs. The first amount must be found by local authorities, however big or small. The second will, according to the explanatory notes, be provided through revenue support grant.
Lord Whitty: My Lords, the noble Lord is clearly correct. There are two sorts of costs. The reference to £50 million relates to the additional total cost to public expenditure. I cannot immediately find the division. I shall write to him. It is intended to cover both costs but

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it would be paid in different ways: one to the Audit Commission and other inspectorates and the other via the R SG to local authorities.
I was referring to the cost to parish councils. The number of parish and town councils which would be best value for authorities would be limited. We are talking of a cut-off point of £500,000 expenditure per year. As of now only 50 parish or town councils would exceed that level out of a total of 8,000 councils at that level.
There has been a central concern about the level of intervention by the Secretary of State provided in the legislation. The noble Lord, Lord Dixon-Smith, raised the question of the Secretary of State interfering with local discretion on conducting reviews. Clause 5 strikes a balance. It challenges the authorities to ask themselves fundamental questions about their services, but it allows them flexibility in choosing the priority areas for review and in drawing their own conclusions about necessary changes. In other words, it confers responsibility without removing local discretion.
More generally in terms of the powers in the Bill, the noble Baroness, Lady Hamwee, and others expressed serious concern about the additional powers being given to the Secretary of State. It is true that we are taking new powers. Inevitably much of our discussion has focused on that. However, the Government are providing in total 42 new powers under the Local Government Bill on both the financial control side and on best value, but we are repealing 59 powers under the existing regime. On a crude count, we are replacing them with 17 fewer powers than now exist if one takes all aspects of the Bill together.
I must also stress again that the intervention powers will be used as a last resort. I acknowledge the reported remarks by the unfortunately absent noble Earl, Lord Russell, that there is no such thing as a benign Secretary of State. Nevertheless, there is such a thing as a restrained Secretary of State. This legislation will restrain him or her not only in his or her present incarnation but for the future. Clause 14 is designed to provide the teeth that we need to ensure that best value delivers, even when there is some opposition at local level. That requires the Secretary of State to have these powers. However, they are not powers that can be undertaken lightly. The reality is that those powers would be used only after a long period of advice and discussion with local authorities, with the exception that I shall come to in a moment of the fast-track procedure.
In this context, as the noble Lord, Lord Hanningfield, and others will know, we have worked closely with the Local Government Association in drawing up a protocol which sets out the general principles that would underpin the exercise of the Secretary of State's intervention powers and the broad procedures which would be followed. At present it is still a draft, but a fairly advanced draft. It cannot be finalised until Royal Assent to the Bill, but copies of the draft have been placed in the Library as an annex to the memorandum submitted to the Delegated Powers and Deregulation Committee.
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As regards the fast-track powers—the noble Lord, Lord Hunt of Tanworth, was concerned about them—urgent intervention will occur only in exceptional circumstances where there is clear evidence of serious failure which needs to be immediately addressed or of persistent failure. These provisions are needed to ensure that the Secretary of State is able to act swiftly where vulnerable people are at risk.
Children's homes were mentioned and there are situations where immediate action is needed. In our view, the Secretary of State must have the power to act. For example, the local authority may be unwilling or unable to provide an approved social worker service in the assessment of mentally ill people who may require compulsory hospital admission. In that case, not only the safety of an extremely vulnerable section of the population but the safety of others may be at risk. It is therefore important that as a reserve power the Secretary of State has the ability to intervene.
There has also been considerable and understandable debate about the Secretary of State's powers to intervene in the sense of being able to amend primary legislation in order to achieve the purposes of best value. In that context, we sought to strike the right balance between primary and secondary legislation. We built in a high degree of flexibility because we want to facilitate innovation in service provision and we need to get away from an approach which is based on rules for everything. There is no need for us to specify everything on the face of the Bill. We need flexible legislation which can evolve as good practice emerges and as we extend the boundaries of how public services can best be modernised.
In relation to particular examples of where Clause 15 might be used to amend existing legislation, my colleagues in another place suggested three areas in which we are considering the early use of the powers of Clause 15. The first is to enable local authorities which at present have an individual unilateral responsibility to pool their assets and resources in particular projects, to second staff and so on in order to achieve closer working with other public bodies and authorities in order to deliver services. The second is to enable authorities to form companies to deliver service with others, particularly in the private and voluntary sectors. The third is to extend the power of local authorities to provide goods and services to others working with local government in order to deliver key public services. The Government have already produced a full note on these points and we have started to embark on consultation with local authorities.
Our approach to parliamentary scrutiny on this front is also important. We have indicated that the affirmative resolution procedure would be adopted were we to go down that road. We would hope that by the time we came to Parliament with the provisions they would be based on a consensus with local authorities. Any orders the Secretary of State would wish to make would therefore have to be approved by both Houses.
There has been general support for the concept of best value; the concern is primarily about the powers of the Secretary of State. I hope that I have said enough to

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indicate that those powers will be used sparingly and in circumstances where other means of persuading local authorities to operate in the best interests of their electorate have failed.
The noble Baroness, Lady Maddock, raised a particular point about best value in relation to housing. That area is slightly complicated and it might be better if I write to her. However, it is the case that my department and the Housing Corporation are working closely together to ensure that there is a maximum read across in the best value arrangements which apply to other registered social landlords. We expect housing associations and other registered social landlords broadly to follow the same features as we require of local authorities both in terms of the process and the outcome.
I turn to CCT, which has drawn a slight division of opinion within the House. The noble Baroness, Lady Hamwee, and my noble friends Lord Bassam and Lord Hams of Haringey welcomed the abandonment of CCT. However, the noble Lords, Lord Bowness and Lord Hanningfield, spoke at least in part in defence of the CCT system. Clearly, there were certain cost benefits from the CCT regime, particularly in its early stages, but they were not necessarily cost effectiveness benefits. In many cases, there was a serious decline in services to some detriment to the communities and those most at risk. The point about CCT was that it excluded in many circumstances an effective in-house solution. We want to test the market in these circumstances and to give local authorities the ability to find the best means of delivery, whether in the public or private sector, or by some combined approach, but we do not want to prescribe it in the detailed, fossilised approach to procurement that CCT came to represent. We put the emphasis on partnership and dialogue.
The noble Baroness, Lady Hamwee, asked particularly about the transition from CCT to best value in relation to the unitary authorities. Transition is always difficult to manage and there has to be a clear break. We have given the abolition date of 2nd January 2000. That means that local authorities, in so far as they have systems that come up for review prior to that, have to operate under the current law; they cannot prematurely abandon the CCT tendering exercise. It is difficult to have a tapered approach, and therefore we have given a date. It allows the new unitary authorities to put in place competitive arrangements. It allows them some time to do so and it means they are being treated in the same way as other authorities up to that date and, under the new regime, beyond that date.
The final area is council tax regulation, about which there was not total unanimity. Best value should promote considerable efficiency gains, but the Government are not prepared to abrogate the role of central government in providing local financial accountability. I regret that the Liberal Democrat Benches have stated their categorical opposition to the second part of the Bill, which has been reflected to some extent in the contributions from the Conservative Benches. We need to protect national tax payers. That is the intention behind the Bill.
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My noble friend Lord Harris indicated that the pre-existing capping regime distorted the relationship between local authorities and their own ratepayers, taxpayers and electorates. It may be that in the long term a national government will not need these powers. For the moment, we continue to need them as a fall-back, kept in reserve. That is why we are taking these new reserve powers. They are far more flexible and enable a decision to be made over a period, not related to a particular council tax hike in a particular year. We hope that we will not have to use the powers, but they are there so that we can protect local taxpayers from irresponsible increases by irresponsible councils and the national taxpayers from the consequences.
The noble Lord, Lord Hunt, asked why the principles governing the use of the reserve powers are not on the face of the Bill. That is a question of flexibility. We have set out in our White Paper the types of factor that will be taken into account when using reserve powers, but it is important that they should be used in response to changing circumstances. If we put the principles on the face of the Bill in too great detail, they might prove to be a serious limitation in the future. That is why the guidance is vital if we are to make clear in what circumstances the powers might be used and upon what principles.
I welcome the intervention of my noble friend Lord Harris in relation to his views on the reform of the SSA and grant distribution. We intend to conduct a fairly lengthy discussion to prepare a fairer, simpler and more robust system. He graphically demonstrated the deficiencies of the past system. It is not easy to get a system which is right and on which there will be complete consensus. Some adjustments have been made in our approach this year, but we have now given greater stability to local authorities over the next three years. A review will take place over that period. At this point, I should not wish to say how either Haringey or, indeed, the City of Westminster will emerge from that review. But equity and fairness are intended to be the hallmarks.
Part of the new council tax regime is the council tax benefit subsidy limitations. I understand the concern of noble Lords about that. However, it is important that we remember the underlying principle of the scheme; namely, that the national taxpayer should not bear the council tax benefit costs resulting from local decisions to make large increases. It is right to protect the national taxpayer.
At the same time, it is the case also that local authorities, which are disproportionately dependent on council tax benefit subsidy, are protected because they tend to be the poorer councils for obvious reasons. They are treated as though they would have received the average proportion of council tax and in our view, that will strike the right balance between them being disproportionately hit and there being some sanction if local authorities go over the limit to a substantial degree.
I have dealt with most of the points raised in the debate. I hope that noble Lords will recognise that the intention of the Bill is to give back to local authorities powers to make their own decisions within a new and modernising framework. Above all, it is aimed at

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delivering to the populations covered by local authorities quality of service at a price which is appropriate. At the end of the day, local authorities will be judged by their own electorates. We need to take some reserve powers to ensure that they behave in a way which recognises the needs of their electorates and to protect the position of the national taxpayer.
I repeat that this is not a centralisation measure. It restores not only new scope for decision-making within local authorities and a new system of management for them, but it provides also new opportunities for local
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authorities to make their own decisions and to deliver services which meet the needs of their own electorates. In that sense, it is a framework Bill. It will no doubt be filled out in Committee and by guidance which we shall issue under the Bill. At the end of the day, it will be for the local authorities themselves to deliver for their own people the objectives of the Bill. I commend it to the House.
On Question, Bill read a second time and committed to a Committee of the Whole House.
House adjourned at one minute past 10 o'clock.

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