Tax Credits Bill

Public Bill Committee, 15 January 2002.

Standing Committee A

Tax Credits Bill

Jimmy Hood (Labour, Clydesdale)

It is a little warm in the Room so if members of the Committee feel uncomfortable, they have my permission to remove their jackets.

Dawn Primarolo (Labour, Bristol South)

I beg to move,

That—

(1) during proceedings on the Tax Credits Bill the Standing Committee do meet on Tuesdays at half-past Ten o'clock and at half-past Four o'clock and on Thursdays at half-past Nine o'clock and at half-past Two o'clock;

(2) the proceedings shall be taken in the following order, namely Clauses 1 to 26, Schedule 1, Clauses 27 to 32, Schedule 2, Clauses 33 to 43, Schedule 3, Clause 44, New Clauses and New Schedules relating to Part 1, Clauses 45 to 47, Schedule 4, Clauses 48 to 53, New Clauses and New Schedules relating to Part 2, Clauses 54 and 55, Schedule 5, Clause 56, Schedule 6, Clauses 57 to 65 and remaining New Clauses and New Schedules;

(3) the proceedings on Clauses 1 to 22 (so far as not previously concluded) shall be brought to a conclusion at 5 pm on Thursday 17th January 2002;

(4) the proceedings on Clauses 23 to 26, Schedule 1, Clauses 27 to 32, Schedule 2, Clauses 33 to 43, Schedule 3, Clause 44 and New Clauses and New Schedules relating to Part 1 (so far as not previously concluded) shall be brought to a conclusion at 11.25 am on Thursday 24th January 2002;

(5) the remaining proceedings on the Bill (so far as not previously concluded) shall be brought to a conclusion at 5 pm on Thursday 24th January 2002.

Good morning, Mr. Hood, and welcome to the Committee. I am pleased that you will chair our deliberations and that you will get our consideration off to a good and businesslike start. I am sure that our debates will be constructive and sensible. The programme resolution was agreed yesterday by the Programming Sub-Committee. The end date of our discussions has been agreed as 24 January, as set by the programme motion passed by the House of Commons on 10 December.

The Bill is in three parts. Part 1 introduces the child tax credit and the working tax credit in place of existing systems of support. Part 2 transfers responsibility for administering child benefit to the Inland Revenue, as announced by the Prime Minister in June 2001. It also makes some minor technical changes to the law on child benefit to facilitate smoother integration. Part 3 makes supplementary provisions.

The programme resolution would allow the Committee to spend the bulk of its time considering part 1, which is the longest part of the Bill. It deals with the most significant reforms that the Government are undertaking and will be of interest to members of the Committee.

I am aware of suggestions that the official Opposition want to frustrate the progress of Bills that are being discussed in Committee, but I am

confident that the hon. Member for Arundel and South Downs (Mr. Flight)—whom I welcome to the Committee—will, with the support of his hon. Friends and the hon. Member for Northavon (Mr. Webb), want to ensure that the Bill is scrutinised properly. I hope that members of the Committee will agree that our proposals are sensible. I ask them to support the motion.

Howard Flight (Conservative, Arundel and South Downs)

Welcome to the Chair, Mr. Hood. I am sure that our debates will be effective. I assure the Paymaster General that we have no intention to filibuster, but we feel quite genuinely that eight sittings will be wholly inadequate for such a major Bill. I question the Government's wisdom in introducing it at a stage at which obviously they have not made up their mind about expenditure and what they want.

The Minister may know that the Institute of Fiscal Studies considers that the consultation process was a scandal; some original papers that contained illustrative figures have since disappeared, and the consultation document did not cover all the issues. We are about to discuss a framework Bill in which the Government may make regulations in respect of many key areas—a phrase that we have come not to love. Such a process is not democratic, given the changes that will be made under the Bill.

The Minister may be aware that a Select Committee considered tax credits under the Heath Government and issued an important minority report. When the Labour party won the 1974 election, Chancellor Healey said that the Government believed that there were serious drawbacks to the tax credit scheme described in the minority report. The drawbacks highlighted were that there was insufficient flexibility, particularly for those most in need, and that the majority of the expenditure would benefit those who were not in poverty. Costs were too great when measured against benefits, particularly for those most in need, and there was concern, even then, about the increasing scope for fraud. It was suggested that the Select Committee should stop ill-considered and ill-worked-out solutions of tax reform before the then Government were rushed on to the legislative conveyor belt.

Today, we are to be rushed on to an inadequate legislative conveyor belt even though many major issues are still unresolved, particularly that of what expenditure and benefits are intended. We oppose the programming motion because it does not allow us to do a proper job of critiquing the Bill. We shall do our best to ensure that the most important clauses are dealt with, particularly those late in the Bill that deal with fraud.

Perhaps the most important issue, which was raised by the right hon. Member for Birkenhead (Mr. Field), is that the Bill threatens to open up enormous new scope for fraud just after the Government have set in motion measures to reduce social security fraud. Those measures are being torn up under the Bill. We shall endeavour to discuss those passages, although that may mean sacrificing others. It is a great pity not to allow sufficient time to discuss important new measures, particularly as the consultation process has

been inadequate, as evinced by the comments of many charities, other bodies, lawyers and specialists.

Steve Webb (Liberal Democrat, Northavon)

Thank you, Mr. Hood, and welcome to the Chair. This is the first time that I have had the privilege of serving under your chairmanship, and I hope it is the first of many.

On the programming resolution, two weeks is clearly an inadequate time in which to discuss the Bill. When I queried the two-week time allocation, I was told that the Bill was not contentious and that no one had voted against it on Second Reading. However, that does not mean that it is not a complicated Bill, and that proper scrutiny would not benefit the people who will receive the tax credits. That is regrettable.

When the House passed the programming resolution, which indicated that debate would finish on Thursday next week, it did not mention when debate would start. If hon. Members had realised that it would not start until two weeks before that date, they might have voted differently. However, those are the circumstances, and I shall not take up the Committee's time by saying that we do not have enough time. We should get on with it.

My only query about the programme motion is that the second cut-off point mentioned in paragraph (4) is 11.25 am on Thursday next week. We have told the Government that we are concerned that that gives us more time than we might need on the last clauses of the Bill, which, although worth while, are uncontentious, and less time on earlier, more contentious passages. I hope that we can keep that under review.

Dawn Primarolo (Labour, Bristol South)

The hon. Member for Arundel and South Downs made a point about the consultation. Responses to the consultation show that the Government, when developing their proposals, worked closely with outside organisations that were particularly interested in the subject. That can be seen in the summary of the responses, which, for those who are interested, can be found in the Library. Although the Institute for Fiscal Studies had something to say about the cost, and although groups are, of course, interested in the rates and tapers—they will be announced by my right hon. Friend the Chancellor of the Exchequer in the Budget—there has been extensive consultation on the framework.

The hon. Gentleman's second point was about a Select Committee in 1974. I will not guess the hon. Gentleman's age in 1974, but, I was considerably younger than I am now, and the world has moved on. [Interruption.] I am grateful to the hon. Member for Mid-Worcestershire (Mr. Luff) who continues to give me such sterling support from the Opposition Benches. The hon. Gentleman will help my general well-being in the Committee, if not my votes.

Points were made about the flexibility and certainty of the structure, about fraud and about transparency and accessibility. Those matters are the substance of the Bill. I hesitate to tell the hon. Member for Arundel and South Downs once again that the world has moved on since 1974. We all know much more and we may find solutions to problems that could not be solved at that time.

The hon. Member for Northavon made a point that he has made previously about the programme motion. He asked how much time would be permitted to consider the end of the Bill, which he believes to be less contentious. We should see how we progress. If the Committee decides that it wants to shorten consideration of the end of the Bill to allow more time to consider other parts, we can reconvene the Programming Sub-Committee. If the Opposition agree that they wish to do that, I am relaxed about that. I am concerned about finishing our consideration by 24 January, and I want to aid the Committee as much as possible before that date to allow us to concentrate on the parts of the Bill that the Opposition particularly want to discuss.

With that indication of how our future business could be adjusted if we make progress, we should turn to the Bill. I hope that the Committee will agree to the programme motion.

Question put:—

The Committee divided: Ayes 8, Noes 7.

Clause 1 - Introductory

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 63, in, page 1, line 7, at end insert—

'(1A) The child tax credit shall be a family benefit for the purposes of Council Regulation (EEC) No. 1408/71.'.

I hope that the brief amendment will not detain the Committee long. We must consider the status of the tax credits in the Bill under existing domestic law and European law. European law makes provision for a category of benefits known as family benefits to be treated in a particular way for people who work in one country and have children in another.

The critical element is the European Community regulation 1408/71, as I am sure the Committee will know. The two issues are whether the person comes within its scope, and whether the benefit comes within its scope. A person is covered by the regulation if he is liable to pay social insurance in one or more member states of the European Union and has exercised free movement. We are, therefore, discussing people who move to obtain work in the EU. They may be covered by the provisions if the regulation classifies the benefit as a family benefit. Clearly, the family credit used to be treated in such a way, as did the working families tax credit, which was a renaming of the family credit. That has now been split into an adult part and a child part, and the amendment is designed to make it clear whether the child part, at least, will be categorised as a

family benefit. We believe, and consistency demands, that it should. I hope that the Minister will accept the amendment.

Howard Flight (Conservative, Arundel and South Downs)

The Conservatives have raised the same issue in subsequent amendments that relate to the EU. Clarity is needed both in regard to EU nationals and, possibly, Commonwealth nationals who may be resident here, on which clause 51 touches. What is the Government's policy?

Dawn Primarolo (Labour, Bristol South)

This is a very specific amendment, which I shall treat as a probing amendment. I can answer the hon. Gentleman's question, but it is not necessary for the Bill to be amended, because the provision exists anyway. The amendment is not appropriate, and if the hon. Member for Northavon were to press it to a Division, I would have to ask the Committee to oppose it.

Such provisions do not need to be included in a Bill. The European regulation to which the hon. Member for Northavon refers is, rightly, directly applicable, and it is not necessary to transpose the provisions in that regulation into domestic law. It would be much better, and it would make for a better Bill, if the hon. Member for Northavon were to withdraw his amendment.

The hon. Member for Northavon asks for clarification about how European social security law within the regulation will treat the new tax credits. A small caveat is necessary. The field is complex and evolving, and the precise treatment of the tax credits under European law may depend on some of the detailed aspects in the final design, which we are considering carefully. Our provisional view is that, as the hon. Member for Northavon said, family credit, and working families tax credit, was, like child benefit, considered to be a family benefit under the regulations. We therefore believe that the child tax credit will fall within the family benefit.

We believe that the working tax credit will fall outside the scope of the main co-ordinating instrument to which the hon. Member for Northavon referred in European law. As we conclude the Bill, we shall be able to take a view on that. However, that is our provisional view, and that will happen automatically. That implies treatments under European law, which I shall not discuss now, as later amendments relate to those issues.

I hope that my explanation has been clear and that the hon. Member for Northavon will agree that the amendment is unnecessary. It is clear and on the record which credits, under the regulations to which he refers, will be designated a family benefit and why the working tax credit would not.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister for the constructive way in which she has begun, which I am sure will continue, and for placing on record the Government's provisional view that the child tax credit element will be regarded as a family benefit, subject to the fine print and details. Having received

that assurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 1, in page 1, line 15, leave out paragraph (d).

Jimmy Hood (Labour, Clydesdale)

With this it will be convenient to take amendment No. 2, in page 1, line 20, leave out paragraph (e).

Howard Flight (Conservative, Arundel and South Downs)

Clause 1 brings to an end three benefits that are not work related. It is our understanding that the working tax credits are intended to focus on work circumstances and people in work, thereby, in the main, leaving the Department for Work and Pensions to administer benefits for those not in work. In principle, it is not sensible that certain benefits that are not related to work should be administered by the Inland Revenue, rather than by the DWP, which will be administering other benefits for those not in work.

This is a probing amendment. We wish the Government to explain why this policy is being pursued. We are concerned because the working tax credits are to be delivered through bank accounts, and that will depend on the universal bank being fully operative by April 2003, which looks a little doubtful. People who are not in work are most in need of benefits, and therefore it is important that there should not be any problems with the delivery of these benefits.

In some regards, amendment No. 49, which has been tabled by the Liberal Democrats, addresses the same issue as I am raising. I want the Minister to explain what will replace these benefits, and to state whether it is Government policy to end them.

The amendment pertains to that point because the benefits covered by clause 1(3)(e) are the extra non-means-tested benefits for children that accompany incapacity benefit, invalid care allowance, severe disablement allowance and widowed mothers and parents allowance, and which amount, at present, to £11.35 per week. The clause does not make it clear whether the new arrangements are going to replace those benefits, and if that is to be the case, whether they will do so in whole or in part. Can the Government confirm that nobody will be worse off? There are 630,000 recipients of those benefits, and I have received information from the Library that suggests that about 150,000 of them will lose their £11.35 per week. If that is the case, the Government's consultation document might have stated more openly that this was their policy and intent.

I wish the Minister to confirm that I have correctly understood that, and to explain what—if anything—will replace those extra non-means-tested benefits. I understand that, technically, people will not be able to claim child dependency increases if the Bill is enacted. It will not have a financial impact on someone whose income is sufficiently low to qualify for means-tested benefits, but 150,000 people whose income is not sufficiently low will lose out.

Steve Webb (Liberal Democrat, Northavon)

When I first read amendment No. 1, I could not see the point of it. The Bill is intended to sweep away existing systems of support for children and to roll them into an integrated system—which is

why we did not oppose it on Second Reading. Therefore, clause 1(3)(d) is essential; it is designed to get rid of the separate systems, and to roll them into one.

I do not support amendment No. 1 for that reason, but I agree with the hon. Gentleman's suggestion that it should be viewed as a probing amendment to explore what the Government have in mind with regard to the transition.

At present, someone who receives a contributory benefit that is in excess of the adult rates of income support but less than the combined adult and children rate would receive income support to bring them up to the poverty line. Once the adult and children elements are separated, someone whose contributory benefit is in excess of the adult element will not receive any income support, but they will receive some payment of child tax credit.

The Committee will want to know how procedures such as passporting will operate under that sort of arrangement. Income support is a passport to 100 per cent. housing benefit. If someone has a contributory benefit that takes them out of income support under the split system, will they still receive 100 per cent. housing benefit? If that will be the case, how will that operate? That is not clear. Similar questions arise with, for example, passports to free school meals. Therefore, as the hon. Member for Arundel and South Downs has suggested, amendment No. 1 should be viewed as a probing amendment that gives the Committee a chance to raise such questions.

Amendment No. 2 should be viewed differently from that. It addresses the transition for people who are currently receiving the benefits that are referred to in subsection (3)(e). There is also an issue surrounding whether new claimants should receive those benefits. A typical case might be someone on incapacity benefit, who is receiving contributory benefit above basic adult means-tested benefit rates, and therefore would not move over to integrated benefits in full, but would get a partial, or, potentially, a nil rate of child credit. The total amount of support going to those families would therefore fall, or would be lower than it would have been without this element of the Bill. Given the Government's proper objective of halving then abolishing child poverty, people on relatively modest incomes will lose out from clause 1(3)(e). People on incapacity benefit, sick people, widowed mothers and others will be made worse off by the provision. That seems to go against the Government's stated aim of reducing child poverty. Those people will not necessarily be fully compensated through integrated benefits, which is why the Conservative party and the TUC—strange bedfellows—were concerned about the measure.

Dawn Primarolo (Labour, Bristol South)

The amendments touch on several complex points, which have been addressed in the debate. First, a point was made about entitlement to dependency increases. Secondly, the issue of floating off income support was raised. Thirdly, the question of passporting—whereby income support triggers an automatic transfer to other benefits—was raised.

On the first point, the amendments would prevent the abolition of child and family premiums within income support and income-based jobseeker's allowance, as well as child dependency increases. That is contrary to the principle that the Government are rightly pursuing, and which the hon. Member for Northavon identified, of developing the child tax credit, which provides a continued stream of support to families with children, regardless of whether the parents are in or out of work. We intend the child tax credit to replace the child and family premiums within income support and jobseeker's allowance, as well as increases for some children in some other benefits. We are trying to streamline the system to make it more transparent. Individuals and couples who are out of work will continue to receive the adult element. We are therefore leaving in place the adult elements, which are determined by being in or out of work, but putting all of the child premiums into the child tax credit.

For example, if someone is unemployed and in receipt of jobseeker's allowance, his or her jobseeker's allowance would comprise the adult elements only of jobseeker's allowance for that household, but they would be transferred to the maximum child tax credit. As hon. Members will recognise, we have raised income support levels of child premiums significantly—by 70 per cent.—over a period of time.

Mark Hoban (Conservative, Fareham)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

When I have finished this point, I shall give way to the hon. Gentleman.

In a household that is in receipt of income support or jobseeker's allowance, income for adults would be from income support or jobseeker's allowance. For the children, the child tax credit would be provided, regardless of whether the parents are in or out of work, thereby removing the stigma and recognising the Government's objective to tackle child poverty. We have therefore moved the relevant allowances. It would be bizarre to remove the stigma in relation to being in and out of work, but to return to the system whereby all child premiums are within income support or JSA.

Mark Hoban (Conservative, Fareham)

The Minister referred to two streams of income in relation to people who are unemployed—the adult element of jobseeker's allowance and child tax credits. Will people who are unemployed receive two separate payments or just one, and with what frequency will the payments be made?

Mr. Flight rose—

Dawn Primarolo (Labour, Bristol South)

I shall give way to the hon. Gentleman before I answer that point because that is the procedure.

Howard Flight (Conservative, Arundel and South Downs)

Further to that point, will claimants need to go to two separate portals: the Inland Revenue for the child part, and the Department for Work and Pensions for the adult part?

Dawn Primarolo (Labour, Bristol South)

The intention is that individuals will apply directly through the Jobcentre Plus offices. They would make one application at that point, which

would trigger income support or JSA payments to adults and, if they have children, it would also trigger child tax credit payments. Those individuals would receive two separate payments because child tax credit is paid directly to the main carer, as is child benefit. In the case of income support or JSA, it is conceivable that that payment would not go to the main carer. When we debate later clauses, we will see the crucial importance of paying to the main carer as part of the Government's anti-poverty strategy. We reject the amendment because it would leave in place the current system for those out of work, which undermines the principle of the children's tax credit.

I would like to comment on dependency increases, and then move on to the question of those who may float off income support. I am sure that the hon. Members do not intend the actual outcome of their amendments, which would leave the current system in place for those unemployed. The introduction of the new credit will rationalise the Government's financed income streams for children. Families' needs have changed over the years, particularly since the child dependency increase was introduced. I remind Conservative Members that the Social Security Administration Act 1992 provided for the withering on the vine of child dependency increases, which reduce in line with increases in child benefit. I know that the previous Government did not like child benefit, and did not increase it much, but our Government do not agree. We perceive child benefit as being important and increased it by 26 per cent. in the previous Parliament.

Because families' needs have changed, we must make the new system easier to understand. If we make the system more transparent by integrating provisions for families in and out of work, it would seem odd to perpetuate the distinction between families receiving contributory benefits and those who are not. That would simply cut the same problem a different way. The value of child dependency increases has diminished and existing social security legislation allows for them to reduce, although payments are still made. Rather than allowing dependency increases to run out of the system as child benefits increase, we have considered families' real needs and supported them in a more strategic way. Most families who receive child dependency increases will benefit financially from the new tax credits, particularly those on low incomes. I know that Conservative Members will say that we cannot settle that precisely until the thresholds and tapers are determined. That is true for the whole population. However, that group will be financially better off. Approximately half the families with child dependency increases cannot receive income support or jobseeker's allowance, as they have other income but are not in work. Their extra income will be generated when the child tax credit is introduced.

We recognise that such families are used to the current system. Changes to benefits can be disruptive to family budgeting. We therefore want to make the transition from the CDIs to the child tax credit as

smooth as possible. That is why we propose to preserve the entitlement for existing recipients. It is always an issue when one benefit replaces another. When the transition is complete, those who already have the entitlement will be in a better position.

Hugo Swire (Conservative, East Devon)

Does the Minister have any idea how long the transition will take?

Dawn Primarolo (Labour, Bristol South)

I know the answer to that question. It will come to me in a moment of inspiration, and I will return to it. Before the hon. Gentleman intervened, I was discussing the position of those who may float off income support, but he should prompt me if I do not give an answer.

The issues are complex. The Government seek to assist people who receive benefits. The child tax credit will ensure that there is no loss. There will be considerable benefit for some, and we are consulting on how we manage that transition. It is important that all those who will be affected know what the changes are, are kept informed as the changes are gradually made, and are fully aware of their position vis-a-vis their benefit entitlement. I have learned as a Minister that when people are used to budgeting in a particular way, they still have to make the transition even though what they are moving to may be better. We are attempting to address that issue by introducing the child tax credit.

James Clappison (Conservative, Hertsmere)

The Minister has not yet answered the question, which several hon. Members have asked her, about those who become entitled to a child dependency increase, for example by becoming entitled to incapacity or other benefits. Will some people who would have received the child dependency increase if the present system had continued, not be entitled to the child tax credit?

Dawn Primarolo (Labour, Bristol South)

I will first answer the question from the hon. Member for East Devon (Mr. Swire). The answer is obvious and I wish that I had realised that. Because it tapers away, the transition lasts for as long as it takes the increase in child benefit to reduce and cancel the child dependency income. One cannot say that the transition will last for five, six or seven years, as it depends on the interaction with the provisions that were introduced in 1992 by the Conservative Government. As child benefit increases, the child dependency allowance goes down.

With regard to the intervention made by the hon. Member for Hertsmere (Mr. Clappison), some people who receive child dependency increases are not entitled to income support, but will receive more from the child tax credit. Such people are not entitled to income support because they may have other forms of income.

When we discuss other clauses it will become clear that, because of the way that child tax credit is structured, it lasts longer. That would be true even if the tapers were the same as those of working families tax credit, because those tapers are lower. Obviously, all those who currently receive such benefit would continue to do so. Provision for industrial injuries and war pensions are dealt with under separate legislation that we do not consider it appropriate to remove at this time. Those are different types of payment. They are more about compensation than social security and

would therefore be treated separately. I agree with the child dependence increases, and hope that I have made what is a complex area as clear as possible.

There is also the issue of people who will float off income support. When child tax credit creates an income for the family—either in its own right or with other income—it could possibly take a person beyond income support levels. The hon. Member for Hertsmere will understand that I do not want to go down that route at the moment, because the issue will depend on thresholds and tapers.

That leads to passporting. Because the working families tax credit was far more generous, we were unable to use the credit payment as the flag for passporting. We worked out a value that protected all those who were in receipt of passporting at that time. We are discussing how to make passporting work in the simplest way within the new tax credit system—it is complicated because there are many issues, whether it is milk or more straightforward matters such as prescriptions—given that the new tax credit will support families further up the income scale when automatic passporting would not be appropriate. We want to protect the position of those on income support. Passporting issues have more to do with those who are higher up the income scale and we have to decide on an appropriate figure at which to put the flag. That is a matter that, as I said, we are discussing with several Departments.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister for giving way. She said the Government intend to preserve passporting for those on income support. Will that include people who floated off income support? Given the way that such matters are split, under the present system, income support would remain subject to passporting. Is that what the Government is trying achieve? Would a person who is entitled to income support under the present system still receive 100 per cent. housing benefit and the passports, regardless of the mechanism by which they receive money under the new system?

Dawn Primarolo (Labour, Bristol South)

I do not wish to mislead the Committee, but nor do I want to put doubt in the minds of hon. Gentlemen about our intention. We want to ensure that the appropriate packages of support are provided for those families in greatest need and for families that are eligible for them. To achieve that, we have to discuss the issues with other Government Departments. For example, the Department for Education and Skills has proposed an amendment to the Education Bill to allow an entitlement for free school meals to be attached to appropriate criteria within the new tax credit. That is under discussion. It is a highly complex matter and we shall have the opportunity to return to it in Committee and during later stages of the Bill. At present, the Government expect to be able to give a clear explanation before we finish our proceedings in Committee, as hon. Members discussing the Bill on the Floor of the House and those the other place will need to know such details.

I have tried to deal with these complex issues in as straightforward a manner as I can. If amendments Nos. 1 and 2 are not withdrawn, I shall ask the Committee to oppose them. Amendment No. 1 would undermine the principle of there being a continuous stream to the family. I hope that I have clarified how that will work and that I have demonstrated that there will be a suitable transition, particularly for the child dependency increases.

Passporting is being addressed. Obviously the Committee will return to the matter, and I hope to be in the position to give some answers. However, I cannot make any promises at the moment. People think that Treasury Ministers are all-powerful, but we have to discuss and negotiate with other Departments. It would be improper for me to say something now without having made it clear that my colleagues in other Departments support my views. I have explained the position as delicately as I can. I hope that the Committee considers that I have been as helpful as possible so far and that the hon. Gentleman will withdraw the amendment.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister for the clarification that she was able to give. She said that the precedent in respect of passporting when a benefit system changes was the use of a cash sum to replace a passport to benefit. I hope that the Government are not about to replace benefits with cash sums, whenever possible. For example, I hope that a cash sum will not be given instead of free school meals. I wish to place on record my concern if the Government were to go down that route.

Amendment No. 1 has enabled the Committee to probe into the matter, so I shall not pursue it. The background to amendment No. 2 still worries me, however, because the Minister has not said that there will not be families who will worse off as a result of the abolition of child dependency increases. I accept her point about transition, but because of the abolition of increases under subsection (3)(e), new claimants will not receive additions to their capacity benefit nor full recompense. They will be worse off and will set back the Government's goal of reducing child poverty. I still consider that amendment No. 2 raises some important issues.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for her response to amendment No. 1, with which we are satisfied. We are pleased to note the Government's conversion to our argument to pay benefits to the carer.

I am not satisfied with hon. Lady's response to amendment No. 2. I refer first to a legal point. The Government said in the regulatory impact assessment to the Bill that they would continue the benefits under clause 1(3)(e) to those who receive them at present. However, those benefits are to be abolished by the Bill, so how can people legally continue to receive benefits that have been abolished?

Secondly—I echo the comments of my hon. Friend the Member for Hertsmere—the Minister said that, unless the incomes of new claimants are low enough to qualify for means-tested benefits, those just above that level will be £11.35 lighter. If not, will the Minister

make it clear that the Government intend that people will not be worse off under the complex new arrangements?

On passporting, I confess that I was not fully clear about what the Paymaster General was saying. However, it seemed that the same point obtained—for those who are on income support, there would be no change in passported benefits, but if their income was not low enough, they might be worse off. Whether or not we press amendment No. 2 to a vote depends on a clear understanding as to whether people will be worse off under the new arrangements in relation to CDIs and passporting.

Dawn Primarolo (Labour, Bristol South)

In response to the hon. Member for Northavon, I was not referring to replacing benefit with cash. As working families tax credit is more generous, I was commenting on the fact that, instead of just flagging up that those in receipt of it will be passported on to other benefits, we set a cash point—£12,000, I think, although I cannot remember the precise figure. That ensured that everybody who was passported remained passported if they had had an extra gain, but not if their income level was such that that would be inappropriate.

On the points made by the hon. Member for Arundel and South Downs, I explained that, in relation to those who are already in receipt of benefit, with the exception of the two benefits that I identified, the process that has been going on since 1992 will continue: provision will reduce as child benefit increases. On new claims from 2003—this is subject to decisions on rates—we would expect most families who were previously eligible for CDI to receive a more substantial tax credit award, with the exception of families who are already enjoying relatively high incomes, or those who are living overseas. That caveat is working its way through the system.

On replacement of CDIs, the child tax credit will become available to many families who do not fulfil the qualification conditions for income support or JSA, or, currently, for working families tax credit. That is a further boost. The general extension will therefore benefit many families who are currently receiving non-means-tested benefits. Tax credit rates will be determined by the Budget process, and, within those constraints, I am trying to give the Committee the strongest steer that I can.

The final point made by the hon. Member for Arundel and South Downs was on the transitional arrangement. I understand the legal point about whether it will work, but the regulations will spell out the way in which it will operate. I am advised confidently that that is correct, and that we can continue with the provisions. I therefore ask the Committee to oppose the amendments if they are pressed to the vote.

Howard Flight (Conservative, Arundel and South Downs)

I repeat that we are satisfied regarding amendment No. 1. On amendment No. 2, I am sure that the Minister said that although many people will be better off, some will lose out and some will lose

altogether. If that is the case, the amendment should be pressed.

I forget the technicalities of the procedure. May we vote on amendment No. 2 but not amendment No. 1?

Jimmy Hood (Labour, Clydesdale)

The hon. Gentleman may forget the technicalities, but the Chairman cannot. May I guide the Committee? If the hon. Gentleman wishes to withdraw amendment No. 1 and press amendment No. 2, I will allow a vote on amendment No. 2. However, he must withdraw amendment No. 1.

Howard Flight (Conservative, Arundel and South Downs)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 2, in page 1, line 20, leave out paragraph (e).—[Mr. Flight.]

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 8.

Clause 2 - Functions of board

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 3, in page 2, line 9, leave out subsection (2).

As the Committee is aware, the clause brings the management of the new tax credits under the Inland Revenue and confers the same management discretion that the Inland Revenue has on other matters. Does that mean that the Inland Revenue will have greater discretion generally than the Department for Work and Pensions with respect to social security benefits?

The real point addressed by amendment No. 3 is that the primary objective of the arrangement is to cook the nation's accounting books. In the back of the Bill's explanatory notes, it is pointed out that a further £4 billion of the existing child-related expenditure and jobseeker's allowance expenditure of the Department for Work and Pensions will be transferred to be booked as a reduction in tax revenue rather than expenditure. If benefit levels are as anticipated to ensure that nobody is worse off, there will be a further £2.8 billion of expenditure. That will bring the total welfare expenditure that is netted of tax revenues rather than booked as expenditure to £15 billion. That is a substantial distortion of national accounting.

Will the national accounts—the Red Book—show that expenditure clearly, or will it appear as only netted of tax revenue? How did the Government satisfy themselves that the arrangements are not in

breach of section 95 of the European standards of accounting?

The Minister responded to an amendment tabled by the Liberal Democrats to say that one particular benefit definitely will be cast as a family benefit. If the Government argue that we are discussing tax measures rather than welfare measures, how can they have their cake and eat it on the European Union requirements?

Steve Webb (Liberal Democrat, Northavon)

I was startled by the hon. Gentleman's brevity.

With regard to amendment No. 3, and the issue of whether these tax credits should be regarded as negative tax revenues rather than as social security benefits, it is clear that a part of them offsets a tax liability. Therefore, regardless of whether they are listed as a reduced payment of income tax—on a pay slip, for instance—or as two separate entries, there is a meaningful sense in which they are tax credits, as they reduce someone's net tax liability.

However, some part of the expenditure that is being dealt with in this part of the Bill does not do that. If a family's tax liability is smaller than its combined tax credits entitlement, it is hard to see how the part of its tax credit entitlement that does not merely offset its tax liability but goes below zero—thereby exceeding its tax liability—can be regarded as a negative income tax yield rather than a social security payment.

I want the Minister to inform the Committee, either now or in writing—or in another way—about the breakdown of the total expenditure on tax credit, so that we can draw a comparison between the part that offsets people's income tax liabilities, and the part that takes them beyond zero and, therefore, is really only a social security benefit payment. I have no feel for whether that comparison will reveal a figure such as a quarter, a half—or whatever—and it would be helpful if the Minister could inform us. If most of the tax credit money is offsetting tax liabilities, it makes a certain amount of sense to regard it as negative income tax, but if only a small part of it is doing that, and most of it is taking people well beyond zero, it should be regarded as benefit.

Dawn Primarolo (Labour, Bristol South)

As the hon. Gentlemen who have spoken to it have said, the amendment seeks to explore the Government's thinking behind the funding for and accounting of the new tax credits.

Unfortunately, the amendment removes the provision for allowing tax credits to be funded from tax receipts, but does not provide for alternative funding. Therefore, it deletes all the credits, which—I am sure the hon. Gentlemen will be unsurprised to hear—I would not welcome. I mention that because it is a probing amendment, and I am sure that it will not be pressed to a Division, but if it were, I would ask my hon. Friends to oppose it.

The key issues are the interaction between the Red Book and national accounts, and transparency.

I am unsure whether I can immediately answer the question that has been asked by the hon. Member for Northavon, but I undertake to investigate the matter,

and to write to him. However, in my remarks, I will bear his question in mind, and try to address it.

With regard to the question about the accounting, the Government's position is clear and consistent. The tax credits are part of the tax system and, as such, they are administered by the Inland Revenue. They are designed to balance the contribution that families make through tax and national insurance with their financial needs. That is what the Inland Revenue is doing.

The tax credits provide a way for the tax system to take account of the circumstances and responsibilities of a family or a household during a tax year. Therefore, it is proper that the new tax credits should be funded from tax receipts: the working families tax credit and the disabled person's tax credit were funded in that way, as was the children's tax credit, which is essentially a relief.

Funding tax credits from tax receipts accurately reflects what actually happens. For the Government, the cost of the tax credits interacts directly with the Chancellor's other tax proposals, and it affects the net taxed receipts that are available to fund our programme.

The way in which the employers deal with tax credits precisely follows the treatment provided in clause 2(2). Through PAYE, employers withhold tax and national insurance contributions from their employees' wages. From that pool of money, they pay their employees' tax credits, with the caveat that if the figure that they pay out is larger than that which they receive, they can apply for a direct grant in advance to help them with their cash flow.

Mark Hoban (Conservative, Fareham)

The Minister's logic works, although I wholly disagree with it. As an accountant, I advise many clients against netting off, and that is what we are doing under this system. I do not agree with her argument.

Someone who is unemployed may receive the child tax credit, and because he or she qualifies for the jobseeker's allowance, or income support, he or she does not pay any tax. The Minister uses an argument based on the way in which employers administer their payrolls and applies it to the tax benefits paid to someone who is not in work. That would be a benefit, not a tax credit.

Dawn Primarolo (Labour, Bristol South)

I got the hon. Gentleman's point. My explanation was logical when applied to the working tax credit, but not when applied to the child tax credit, which is paid straight to the carer. It would be nonsense for the child tax credit to be paid differently simply because it did not go through the employer. That would take us away from the principle towards which we are moving. The system makes sense and there are precedents for it. I was interested to hear that the hon. Gentleman was an accountant. I am sure that he is not against the way in which value added tax operates—it nets off. That principle applies within the system.

We have moved away from how DWP treats its expenditure, and how Inland Revenue will account for that expenditure.

Howard Flight (Conservative, Arundel and South Downs)

I wish to respond to the point made by my hon. Friend the Member for Fareham, and to get to the heart of the issue. The overlap between those receiving benefits and those paying tax is not a good one. That is why reducing the tax paid is a problem. The Minister will find that the overlap is, at most, 40 per cent. in aggregate. The intellectual argument can be made that 40 per cent. is a refund of tax, but 60 per cent. is not.

Dawn Primarolo (Labour, Bristol South)

Perhaps I could move on to how the Inland Revenue will account for its expenditure, and how it differs from DWP. That may well assist us in our discussions.

Subsection (5) requires Inland Revenue to set forth accounts for the tax credits and to distinguish between the amounts of each tax credit. That is a more rigorous procedure than that taken in respect of voted ones, as the estimates—they are only estimates—are put forward for the vote by DWP or other Departments. At the end of the year, reconciliation for social security benefits is done on a sample basis to ensure that nothing has gone wrong overall. That does not match Inland Revenue's accounting system, which is necessarily more thorough, given the range of issues that it deals with, as it needs to track payments.

The Government have made it clear that Inland Revenue will account for all tax credit payments in the same way. At the time that a payment is made, the exact tax liability for that year will not be known. That can be determined only at the end of the year. It would not be possible to break down the payments into different parts and fund each part separately. Expenditure must be shown, and that now relates to how much was paid out in the tax credit. The Inland Revenue's care and management responsibilities and the way in which the Department operates make it necessary to identify expenditure on tax credits.

I envisage lots of questions, either now or over the coming months and years, about breakdowns of those figures, and I shall have to pay careful attention to that and be as helpful as possible to hon. Members. However, they will be able to see more clearly what is spent on tax credits, because they will see at the end of the year the actual amounts involved and how they fit into the overall budgets. However, the amount will also be dealt with as negative tax and will be deducted from tax receipts. I believe that that will give better and more transparent access to the exact expenditure on the tax credits. Although the hon. Member for Arundel and South Downs does not necessarily agree with how we account for that in the Red Book, I hope that he will appreciate that it is clearly shown.

The amendment is fundamentally flawed. I know how difficult it is to draft amendments, so I do not criticise the hon. Member for Arundel and South Downs for that, but I ask him to withdraw it on that basis. If he feels unable to do so, I shall have to ask my colleagues to oppose it.

Howard Flight (Conservative, Arundel and South Downs)

We have made our point, and we would not want an amendment to cut off necessary welfare funding. We are, therefore, in principle willing to withdraw the amendment. However, the Minister has not answered the question about part 95 of the

European standards of accounting and whether it is legal to account for the money in this way, given that the Minister has confirmed that it will be agreed that the payments constitute welfare benefits.

Dawn Primarolo (Labour, Bristol South)

I apologise for having left out that point. My understanding is that the proposal is in line, but I shall double-check, and if I have misled the Committee, I shall write to the hon. Gentleman and other Committee members describing exactly the interaction involved. However, my excellent officials inform me that we are correct.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for her comments. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 ordered to stand part of the Bill.

Clause 3 - Claims

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 58, in page 2, line 37, after 'Kingdom', insert

'and/or in the European Union'.

Jimmy Hood (Labour, Clydesdale)

With this it will be convenient to take the following amendments: No. 59, in page 2, line 38, after 'Kingdom', insert

'and/or in the European Union'.

No. 60, in page 2, line 40, at end insert—

'(2A) No person shall be entitled to a tax credit who is physically absent from the United Kingdom for more than 4 weeks in any one year.'.

No. 5, in page 3, line 4, at end insert

'and/or in the European Union'.

Howard Flight (Conservative, Arundel and South Downs)

Amendments Nos. 58 and 59 are probing amendments that relate to the issue raised by the first Liberal Democrat amendment, on which the Minister undertook to respond in full at this stage of the Bill's consideration.

We should like clarification of the relationship between the new tax credit regime and the European Union, the position of EU citizens, and whether the Government intend essentially to limit the payment of credits to those who are physically present in the UK. My first question is whether EU nationals resident in the UK—who may pay lower rates of UK income tax than British nationals—will qualify for the tax credits in full. The second question, which is related, is what is the Government's proposed policy on other nationals, especially Commonwealth nationals, who reside and work in the UK. Is an obligation involved? I understand that that is the position under EU law. Are those obligations avoidable? About 725,000 individuals, who are not British nationals, working in the UK will qualify under one or other count for the tax credits. What is the position on reciprocity for any analogous benefits in other EU countries? Given the EU directives on benefits and EU accounting standards, how does the issue interrelate with that of whether we are dealing with a benefit or a tax item? Are the rules different depending on how tax credits are regarded or on whether they are correctly categorised?

I note that clause 38 grants the Government power to regulate in relation to immigration. We are, therefore, potentially covering some of the issues related to that. Amendment No. 60 is related, but different. The Minister will be aware that under the existing benefits regime there are problems with people returning to their families in the Indian sub-continent, for example, for substantial periods of time. In those cases, the amendment would restrict absences abroad on holiday to what any reader of The Sun—or even the Daily Mail—would regard generous: a four week maximum. That amendment is principled but would also probe to discover the Government's proposed policy.

Steve Webb (Liberal Democrat, Northavon)

I understand the example that the hon. Member for Arundel and South Downs gave, but I am thinking of a different one. If a British citizen arrived back in the country in the middle of May, having missed six weeks of the tax year, he could be subject to destitution under amendment No. 60 because he would not receive any tax credits. That may be an unintended side effect.

Howard Flight (Conservative, Arundel and South Downs)

Later amendments would address that by abandoning the principle of the tax year, but the point is readily taken.

Steve Webb (Liberal Democrat, Northavon)

I am grateful for the hon. Gentleman's gracious response. Rather than risk those later amendments not being debated in Committee, I am disinclined to support the current one.

Dawn Primarolo (Labour, Bristol South)

I shall explain the function of the provisions at which the amendments are directed. This is the second debate we have had in this sitting about interaction with European law. Clause 3 provides that a person must be in the United Kingdom to make a claim for tax credits: that is a reasonable requirement. The purpose of tax credits is to support people who live in the UK. Equivalent rules operate for the working families tax credit, the disabled person's tax credit, the children's tax credit, income support and the jobseeker's allowance. Without such rules, anyone living anywhere in the world could claim tax credits, providing that they met the qualifying criteria. That might put a strain on the Exchequer, not to mention the pockets of UK taxpayers: we must have a reasonable limitation. Therefore, a person's entitlement to tax credits will cease from the point at which they leave the UK.

I hope that you will permit me to look slightly ahead, Mr. Hood, because clause 5(3) states that a person's entitlement to tax credits ends if they leave the UK. It makes it clear that an award ends at any time when the person who made the claim can no longer make a claim under clause 3(2). As the hon. Member for Arundel and South Downs pointed out, the two provisions interrelate, because only a person in the UK can make a claim under clause 3, and it follows that the award ends when they leave the country. That is perfectly sensible. The new tax credits will be responsive: awards will change with people's circumstances.

However, it is not the Government's intention that a person's award should end because they go abroad

for a few days or weeks on holiday or because of family illness, whether to a European Union country or elsewhere. As the hon. Member for Northavon suggested, someone may have to return to another country for a period due to family illness but they are to all intents and purposes still resident in the UK, and their family remains here.

The clause allows regulations to be made that set out the circumstances in which a person may be treated as being in the UK. We intend those regulations to allow scope for people to retain their entitlement if they have to go abroad for a short period. An obvious scenario is that of someone who has to return to Pakistan or India because of a parent's illness and who might be out of the country for a slightly longer period. I am sure that hon. Members can think of other examples. The regulations will be designed to make the situation reasonable. To be eligible for tax credits, a person must be resident in the UK, but the regulations will be reasonable and sensible about circumstances in which for some reason in the course of a tax year, they may not be in the UK.

The amendments would enable people anywhere in the EU to claim a tax credit irrespective of whether they lived in the UK. However, only those who were physically present in the UK for all but four weeks of the year would be entitled to any tax credit for that year. With respect to the hon. Member for Arundel and South Downs, the Bill as drafted works in a much clearer, more sensible and straightforward fashion. I accept that he is seeking to probe the limits of the provisions.

I have said that we intend to make regulations to retain entitlement for those who go abroad temporarily. They will also mean that a person is not prevented from making a claim for a tax credit simply because they are temporarily out of the country. I think that that is the reverse of the point made by the hon. Member for Northavon in an intervention.

Richard Younger-Ross (Liberal Democrat, Teignbridge)

Will the Minister expand the point slightly further and say whether someone who wanted to work abroad for a short period would lose their entitlement? We should consider labour mobility, and my part of the country has many seasonal workers, who benefit from moving abroad for short periods.

Dawn Primarolo (Labour, Bristol South)

The issue is already addressed in the social security and tax systems. When is a person deemed no longer to be in the UK for the purposes of paying tax and national insurance? Some circumstances have been touched on, although I cannot see how they could come within the provision. For instance, there is a question about people who work on a North sea oil rig, but I think that they are paid rather generously. I do not want to be drawn into the question of tapers and rates, but I cannot see how such people would get into even the range that we are thinking about. I am trying to think of a relevant circumstance, but I honestly cannot think of one. Someone who works for an employer and is required to work for a certain number of months somewhere else in the world is still subject to United Kingdom tax and national insurance. Their place of

employment and their family are, to all intents and purposes, still in the United Kingdom, and the temporary location of their work does not change their employer or their status as present in the United Kingdom. The regulations seek to address those issues. They do not seek to remove entitlement from those who are genuinely entitled to it, but will ensure that those who to all intents and purposes are not present in the United Kingdom will not find that they can qualify.

European nationals who are resident in the United Kingdom will qualify for the tax credits provided that they meet the residence test for being in the United Kingdom, in the same way that everyone will have to provide information that they genuinely live here. That is what we do for WFTC and DPTC. Our approach is sensible, tried and tested.

James Clappison (Conservative, Hertsmere)

Will the hon. Lady give way?

Dawn Primarolo (Labour, Bristol South)

I will just address the next point. The hon. Member for Arundel and South Downs raised a question that related specifically to Commonwealth countries. Anyone who has ever looked at the E111 form will know that we have a vast array of varying degrees of reciprocal arrangements with countries throughout the world. I am not aware of any country where there could be a reciprocal arrangement on tax credits, but that is the basis on which they are negotiated. Other countries are interested in developing a reciprocal arrangement on tax credits.

James Clappison (Conservative, Hertsmere)

I ask the Paymaster General to clarify one point. She has told us that EU citizens who are working in this country will be eligible for the tax credits, and that the provisions extend working credits in particular to those without children. Does it follow that EU citizens without children who work in this country will now be entitled to that credit? Will she indicate the numbers of people who might be new claimants?

Dawn Primarolo (Labour, Bristol South)

They would have to be covered by the reciprocal arrangements in the regulation and would have to satisfy the criteria for eligibility. I understand that we have those arrangements with the European Union. If the hon. Gentleman were taken ill in Germany or France, he would have access to the national health services in those countries. That relates to the arrangements that are guided by the regulations and any additional reciprocal arrangements that we have with individual countries. We have sought through the regulations to remain within our international obligations but to ensure that the intent is that the person is resident in the UK. The requirements vary according to whether the provision is designated as a family benefit. When that debate is finally settled, we will be able to give an absolute answer. The principle is that it is supposed to benefit people who live and work in the United Kingdom, bearing in mind that in some circumstances, people may find themselves temporarily outside the United Kingdom.

There are a number of other points to make in respect of the amendments. However, I will not detain the Committee if the hon. Member for Arundel and South Downs is simply seeking to probe the reciprocal arrangements. I will conclude my remarks later, and return to the more detailed points of why the amendment should be opposed only if the hon. Gentleman is attached to them. However, he may wish to withdraw them.

Howard Flight (Conservative, Arundel and South Downs)

The Minister's diagnosis is correct, as I have said. On several occasions, she referred to temporary absence. Will she say what that means in terms of potential period of time? Amendment No. 60, in particular, is designed to probe the length of that piece of string. The hon. Lady is aware that it is an area where there have been many problems in respect of social security benefits and prolonged temporary absences overseas. Therefore, members of the Committee need to know what the intended specific policy is, with regard to qualification of periods of time for temporary absence.

Dawn Primarolo (Labour, Bristol South)

The question of temporary absence is one of exception. As I am sure the hon. Gentleman will agree, we are considering circumstances when it would be an exception that a person would be absent. Let us suppose that a person returned to their parents' home because one parent was terminally ill. It would be difficult to say to that person that, if his parent died within four weeks, he could return to his own home within the qualifying period, but if his parent did not die within four weeks, he would not get back in time. That person would lose his entitlement, even though his wife and family whom he normally lives with remained at their usual residence. Such a person might also have taken leave, and have a job to return to.

I want to be able to consider what actually happens in genuine cases and to create sufficient room for manoeuvre. For example, child benefit allows eight weeks. I am not saying that we would definitely allow the same period. That is a matter for further consultation. We need to ensure that we do not introduce something that would be cruel, simply for the sake of having a cut-off point, when families find themselves in tragic circumstances. However, we have to protect the Exchequer and ensure that there is no abuse. I am happy to keep the hon. Member for Arundel and South Downs informed of how our thinking develops on the matter. If he is asking for a period of time, and if he promises not to take my response as the absolute answer, I would say that, as child benefit works well at eight weeks, that that would be a starting point for our consideration.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for her comments. She has answered the key points that the amendments are designed to raise. It is appropriate to note that EU citizens who come to work in the UK already enjoy—as far as I am aware—a preferential tax regime over native citizens, depending on how long they are working here. Admittedly, that may be relevant only to higher earners. However, a tab needs to be kept on the extent to which we might, unthinkingly, be creating a substantial tax incentive for people from the EU to

come and work here. There is nothing wrong with that in principle, but it should have a justification of benefit to the country. The other issue is about the numbers of people potentially involved.

The Minister has set out the legal position clearly. I thank her for her comments about what ''temporarily absent'' may mean, and I repeat the point that in the past the Department of Social Security has wasted a lot of time because of greyness of definition and, on occasions, attempts to milk the system by absences that are not due, for example, to a dying parent. It will save administrative time and costs if it can be as closely defined as reasonably possible. We do not want to pursue the amendments on their words, but to raise the issues. On the basis of the answers that I received, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 4, in page 2, line 42, leave out from 'are' to end of line 45 and insert

'not separated under a court order'.

Jimmy Hood (Labour, Clydesdale)

With this, it will be convenient to take amendment No. 81, in page 2, line 42, leave out from 'are' to end of line 45 and insert

'members of the same household'.

Howard Flight (Conservative, Arundel and South Downs)

The paragraph to which the amendments refer follows an income tax definition that may work satisfactorily for the collection of tax but is unnecessarily woolly for the paying out of taxpayer's money to others in tax credits. What does the phrase ''likely to be permanent'' mean in relation to separation, and how will it be quantified? The definition as it stands provokes argument and debate. More specifically, how does the paragraph interrelate with the rest of clause 3(3), relating to couples? My point is that cohabitation fraud is endemic in any system that pays more to couples. It has been a nightmare to police in the past, and it would be more sensible to have a much clearer definition of when two people are a couple and when they are not. The amendment sticks with the clear legal definition that separation is only separation under a court order.

The Liberal Democrat amendment No. 81 gets at the same point and tries to address it with a more specific definition than the current one, by using the phrase

''members of the same household''.

The current definition will be an encouragement to fraud and an almighty nightmare for the unfortunate staff in the Inland Revenue who have to administrate it and judge whether people's separations are permanent. It will lead to a relative worsening of the problems and a potential shambles.

Steve Webb (Liberal Democrat, Northavon)

I will address amendment No. 81 and the consistency of the definition of marriage in the tax and social security system. The amendment uses the definition of marriage that appears in the State Pension Credit Bill and other parts of the social security system. Are the Government deliberately using a different definition of marriage for this Bill, and could problems arise if they continue to do so? For example, someone who is aged 64 and counts as

married on one definition may find that, on applying for a pension credit on their 65th birthday—or whatever the relevant age—they are married one day and not the next, or vice versa. We want consistency. The Government say that they are attempting to streamline the provisions, so it will be interesting to find out why the two Bills adopt different definitions.

A related aspect is that some people receiving tax credits will also receive social security benefits. Typically, an unemployed family will receive income support for the adults and child credit for the children. A social security based definition of marriage will apply to the income support element and a tax credits definition will apply to the tax element. If there is any difficulty between the two, where do we go? Under the social security arrangement, people can go to a social security appeal tribunal; under the tax credit arrangement, they go to the tax commissioners. So some people will appeal against the tax definition and go the tax commissioners; others will appeal against the social security definition and go to a social security appeal tribunal. What happens if there are inconsistencies? Why are different definitions employed, particularly as people make a transition from one tax credit to another as they hit a certain age? If the definition changes, strange things could happen to a couple's marital status overnight.

Dawn Primarolo (Labour, Bristol South)

Amendments Nos. 4 and 81 deal with what constitutes a married couple for the purposes of tax credits. Clause 3 defines a married couple as a man and woman who are married and neither

''separated under a court order, nor separated in circumstances in which the separation is likely to be permanent.''

That is a well-established definition, long used in the tax system. The same definition is used for the purposes of the children's tax credit and was previously used in establishing entitlement to the married couple's allowance—and hence to the additional personal allowance.

What we mean by

''separated in circumstances in which the separation is likely to become permanent''

is precisely that. It means what it says: the words carry their natural meaning, which is customary in the tax system. The test is long established and has been interpreted effectively over several years. As I said, the definition has general application in the tax system. It is also used in the calculation of capital gains and in the taxation of jointly held property.

To establish separation in the social security system, a legal document is necessary. A bizarre position could arise when a couple live at opposite ends of the country, but do not possess the requisite document. We need to assess whether that might cause difficulties.

Both amendments are designed to introduce a different definition for the purposes of tax credits. Each takes a rather different approach to the same question, which makes my case. We already have a definition that has worked well for years and the Revenue is able to apply it, whereas hon. Gentlemen have come up with two different ways of defining the same phenomenon that do not work as well.

I hope that the hon. Member for Arundel and South Downs will forgive me if I say that I find amendment No. 4 rather odd. It would require a married couple to be treated as a couple for tax credit purposes, even after they had separated permanently. An estranged couple who led entirely separate lives, possibly at opposite ends of the country, would be obliged to make a joint claim to tax credits and their award would be based on their combined income until they had obtained a court order confirming separation. I see no need to drive couples to court when the facts demonstrate what has occurred: that has operated perfectly well in the tax system in the past.

I am sure that the hon. Member for Arundel and South Downs will explain how scallywags try and manipulate the tax system, but I remind him that we cannot make legislation assuming that everyone is a scallywag or a cheat. Perhaps that is a reflection of our different political starting points: we believe that people are good, honest and entitled to their rights. We must ensure that the system has enough safeguards.

Howard Flight (Conservative, Arundel and South Downs)

Of those children's tax credits sampled by the Inland Revenue, about 30 per cent. were wrong. A lack of legal clarity opens the door to problems. Co-habitation has been an area of notorious problems, and there is a case for a more specific legal definition.

Dawn Primarolo (Labour, Bristol South)

I do not agree with the hon. Gentleman. Given the household structure for millions of people in this country, I would be intrigued to see him table a Finance Bill amendment to entitle people to be legally treated only if they have a legal document of separation. If he asked me whether I could guarantee that people will not try to cheat the system, I would reply that in nearly 5 years as a tax Minister—seven if I include my years as a shadow Minister—I have discovered that some people behave outrageously. We do our best to check them.

The current definition works perfectly well. I understand the intention behind the hon. Gentleman's amendment, but people's personal and legal arrangements would be tax-driven. That is not appropriate if we can rely on the facts. Tax credits direct support to people according to their circumstances and responsibilities. The amendment would prevent that, requiring instead that awards be based on the legal status of a relationship, which is wholly inappropriate for many people. We will debate other safeguards and the methods of checking the system. Those who are determined to cheat the system will do so wherever they can.

Hugo Swire (Conservative, East Devon)

Is it the case that the Revenue intends to investigate 1.5 per cent of applications for tax credit? If that is the case, how is that figure arrived at?

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman is again dealing with a later clause. One of the problems in developing an anti-fraud strategy is that if one announces it in a Committee in the House of Commons, it is not much good. We will have a more

detailed debate about how the Inland Revenue will undertake its risk assessment and monitor procedures, penalties and any criminal offences for which investigators would recommend prosecution. He touches on the important question of how we monitor and what the risk assessments are to ensure that we keep downward pressure on the points where the scallywags may try to exploit the system. I would be more than happy to return to that debate at that time.

Amendment No. 81 is an entirely different kettle of fish. It seeks to recast the definition of married couple to replicate the definition in section 137(1) of the Social Security Contributions and Benefits Act 1992, which looks at whether a married couple are members of the same household. It is obviously a thoughtful amendment that seeks to ensure the same use across the entire system. I understand why the hon. Member for Northavon has tabled it. I considered carefully what was the most sensible way forward. On balance, I believe that it would not be appropriate to adopt the approach proposed in the amendment. The question of when a married couple should be treated as a couple arises in the tax and the tax credits system, as well as the social security system. In both we are concerned to establish whether a married couple really do arrange their lives as a couple, rather than continuing to treat them as a couple even though they have separated.

The technical definitions used differ slightly. I revisited this when I saw the hon. Gentleman's amendment, and I am sure that the effect is the same in terms of how households are treated. In setting a definition for the purposes of the new tax credit there is a choice between following the social security approach and the tax approach. I do not share his view that we should follow the social security system. The definition used in the Bill is the same as the definition in the tax system and it operates in particular for income tax reliefs. It is widely understood, straightforward and has been in use of many years. I am not convinced that we should use a definition from somewhere else and give up a system that is working very well. There is no overwhelming case to move the definition.

Steve Webb (Liberal Democrat, Northavon)

I suppose the distinction is that quite a few people who get the tax credits, unusually relative to a lot of taxpayers, are also benefit recipients. For example, every family with children on income support will receive social security benefit with one definition of marriage, and a tax credit with a different definition of marriage. I can understand that for the rich, consistency with the benefit system is much less of an issue, but many people go through two different systems with two different definitions simultaneously. When there is a conflict between the two there is a question of where they appeal.

Dawn Primarolo (Labour, Bristol South)

It comes back to our debate on passporting. I was asked then whether someone on income support would have to apply in lots of different places. I said that they would not; even though it was administered by different organisations, there would be one point of contact. Someone who was in receipt of income support or jobseeker's

allowance would automatically move to a maximum child tax credit. There is not a double application.

The hon. Gentleman asked why the State Pension Credit Bill is different. There is a fine judgment about which definition to use. I approached the issue on the basis of, ''If it's not broken, why fix it?'' I do not think that that is the right why to say it, but hon. Members know what I mean. The definition has worked well in relation to children's tax credit and everyone understands it, so there is no reason to change it. For both Bills, we considered whether a married couple really live together as a couple. For unmarried couples, both Bills take the same approach and consider whether the couple live together as husband and wife.

The Tax Credits Bill replaces the minimum income guarantee, but remains in the social security system. The premise of the State Pension Credit Bill was presumably the same: the definition already worked and there was no reason to change it. As I understand it, the hon. Gentleman's point concerned the overlap and whether someone could find themselves qualifying for one and not the other. We discussed that quite a lot, and we could think of no scenarios because of the way in which the two systems operate. Apart from the theoretical example, I cannot think of a real-life experience where that might occur. For all those reasons, in the end I played safe and stuck with the definition that works.

As the hon. Members for Northavon and for Arundel and South Downs and other hon. Members regularly point out, the Bill makes several changes, but we should not make a change and risk something where that is unnecessary. That is why we went for the definition. We believe that it works most effectively. We do not believe that there will be any difficulties, and cannot find any. However, if there were any such difficulties, that would be a matter for regulation. I have tried to explain fully every point raised this morning, and I hope that the hon. Member for Arundel and South Downs will agree to withdraw his amendment. If he cannot, I will ask my hon. Friends to vote against it.

Steve Webb (Liberal Democrat, Northavon)

I do not want to go over the same ground, and you would not allow me to do so, Mr. Hood. However, the Minister said, ''If it's not broken, why fix it?'' I do not mean it pejoratively when I say that the Government are breaking it by splitting a single payment made through the social security system into a social security benefit and a tax credit with different definitions. It was not broken before. One payment was made under the social security legislation; one payment of income support for children was one social security payment. We are going down two separate avenues at the same time.

Dawn Primarolo (Labour, Bristol South)

We are prepared to make a change where we believe that it will improve the system. I do not intend to go back over earlier discussions in relation to clauses 1 and 2, but the Government's clear objective on tax credits is part of the anti-poverty strategy. That is the most effective way to deal with the in-work, out-of-work divide and to get support to children. We did not make the change for the sake of it. When I used the phrase, ''If

it's not broken, why fix it?'' I was trying to say that, in my experience, what worked was making additions and improvements, which the Bill does.

Steve Webb (Liberal Democrat, Northavon)

I did not doubt that the Minister hoped to improve the system by making the change. It would have been reassuring if she had said that she stressed to her colleagues at the Department for Work and Pensions the advantage of moving to her definition for consistency and for the transition to retirement.

My only point that the Minister did not address was the issue of appeals. People will be under two separate systems; they may appeal to social security or to the tax commissioners. Perhaps the issue will arise again.

Dawn Primarolo (Labour, Bristol South)

I apologise for not dealing with the question of appeals. The hon. Gentleman is right in saying that those who sit on the appeals tribunals must have the expertise to adjudicate the matter. The issue arises with working families tax credit.

I will confirm this in writing, but I believe that the point at which the appeal will be heard will be the same, because of the commonality of some of the points. I will double check, as the arrangements are transitional. However, we must ensure that the appeals tribunal has the skills necessary to deal with the issues.

Steve Webb (Liberal Democrat, Northavon)

I am grateful for the Minister's response. She made an important point about a unified appeal system. A tax credits decision about marriage, for example, might have implications for social security entitlement. I would be grateful if the Minister would come back to us on that question.

Howard Flight (Conservative, Arundel and South Downs)

The Minister has persuaded me of her case, but I am sure that it is on the basis that she will support some of our subsequent amendments, which tighten up the legislation. I asked how the clause interrelates with the next one, in which the cohabitation problem is more complicated when dealing with unmarried couples. Defining when an unmarried couple cease to be a couple is also a difficult issue. Making the separation legal does not particularly help, although it provides some clarification. On the basis of the Minister's response, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 7, in page 3, line 4, at end insert—

'(5A) Entitlement to a tax credit is dependent upon being lawfully in the United Kingdom; the Board shall have access to any information held in any form by any other Government Department for the purpose of satisfying itself whether a tax credit is properly payable under the provisions of this subsection.'.

The amendment is one of several that we drew up to help the authorities in their investigations. It would provide for the exchange of information among Government Departments for the purposes of checking eligibility. The Bill defines eligibility in detail, but the process of checking it will not be easy. Access to other Departments' records would be of use to the Inland Revenue for making checks or for sampling for accuracy. The amendment is designed to add clarification and to probe the Government's intentions.

Dawn Primarolo (Labour, Bristol South)

The amendment proposes that entitlement to tax credit should be conditional on the claimant being lawfully in the United Kingdom. The Committee will be reassured to hear that the Government do not intend to make tax credits available to people who are here unlawfully. However, it is not necessary to amend the Bill to achieve that result.

The Bill already allows regulations to be made excluding persons subject to immigration control from entitlement to both the working tax credit and the child tax credit. This is a complicated area. It depends on the status of the person subject to immigration control. The hon. Member for Arundel and South Downs is no doubt aware that a person requiring leave to enter or remain in the United Kingdom but who does not have it—that is, a person here unlawfully—falls within the category of persons subject to immigration control. That is made clear in section 115(9) of the Immigration and Asylum Act 1999, to which clause 38 refers.

The first limb of the proposed new section is not necessary. It has been covered. It is cross-referenced in immigration law and there is provision for regulations to specify. The second limb would give the board access to information held for any purpose by other Government Departments to enable it to establish whether a person should be excluded from entitlement on the grounds of being in the United Kingdom unlawfully. I hazard a guess that I would not get an amendment that would give the Inland Revenue such wide powers to access information in any Government Department in the interests of deciding entitlement through the House of Commons let alone the House of Lords. The hon. Gentleman is familiar with the important balance that we strike in the tax system on taxpayer confidentiality, the existence of information gateways and their tight control. It was the subject of discussion on a recent Bill, which completed its passage just before Christmas. The issue of where the Revenue should have powers was hotly contested.

I assure the hon. Gentleman that the Government share his concern that the Revenue should have the information it requires to make correct decisions about a claimant's entitlement. I am not convinced that we need such vast powers to do so. It is not the Inland Revenue's role to police the immigration laws. Its role is to ensure that the rules for entitlement to tax credits are met. As I mentioned, those rules will include rules on entitlement for those subject to immigration control. The provision is in clause 38.

For the new tax credits, the procedure will be the same as for the working families tax credit, where the Revenue determines entitlement without direct access to the information held by the Home Office. I have decided that a regulatory power is necessary here because discussions are taking place at the Home Office about immigration and asylum and methods for ensuring that someone is here legally and therefore receives their legal entitlement. It is not a sensible approach to include provisions that may change and may necessitate a return to primary legislation. The regulations will replicate the interaction that occurs now on the working families tax credit.

I am grateful to Opposition Members for tabling the amendment, which raises an important point. I am sure, however, that the hon. Member for Arundel and South Downs will agree that it is not the Committee's role to make the Inland Revenue responsible for all Government policy, including immigration controls. We need to follow the immigration policy laid down in legislation. The information gateways proposed by the hon. Gentleman are much wider than we need and would concern all citizens in this country. Nevertheless, he raises an important point to which I am sure that he will return: ensuring that only those who are eligible will receive the tax credits. I hope that he accepts that the cross-reference to the immigration laws and status give us the necessary powers.

Howard Flight (Conservative, Arundel and South Downs)

In simple terms, under the powers proposed in the regulations, can the Inland Revenue check with the immigration department if it suspects that a claim is from someone who is not lawfully resident in the UK?

Dawn Primarolo (Labour, Bristol South)

One issue that might be considered, along with immigration controls, is whether an individual who has entered the country has applied for and been allocated a national insurance number.

I think that we would not ask the Home Office directly, but the tax department can use its information to cross-check whether a person exists and other checks may be made elsewhere in the tax system to reinforce that. We are prohibited from disclosing taxpayers' information to the Home Office, but there are ways of cross-referencing. The Inland Revenue has the same problem as other Departments: someone who is here illegally will not be in the system and the Home Office will not know about them either. Information gateways to the Home Office will therefore not resolve the illegality issue. The only question is whether such people were subject to immigration controls; there are other ways of checking an individual's documentation.

On that basis, we can deal with the matters raised by the hon. Gentleman without extending the Inland Revenue's powers, which would probably frighten the living daylights out of honest taxpayers, who would worry about whether we were disclosing information. On reflection, he may wish to ask leave to withdraw the amendment, as it is unnecessary.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for her response. I would not wish to extend powers more than is justified and therefore to reduce privacy. The Minister has answered the probing question underlying my proposal. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 ordered to stand part of the Bill.

Clause 4 - Claims: supplementary

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 8, in clause 4, page 3, line 10, after 'manner', insert

'before an official of the Board who is satisfied that all facts necessary to establish the claim have been made out'.

Jimmy Hood (Labour, Clydesdale)

With this we may take amendment No. 13, in clause 4, page 3, line 23, at end insert

'provided that such person has appeared before an official of the Board, who is satisfied as to the identity of such person and of the claimant and that the such person acts genuinely for the claimant.'.

Howard Flight (Conservative, Arundel and South Downs)

The amendment, which would require a claimant or someone acting for him to meet an official to provide information to establish the claim, is a helpful, anti-fraud measure, as the rules and complexity even of child tax credits are considerable. It is unrealistic to believe that many people will easily be able to understand the forms, no matter how well they are devised. The Government cannot be wholly happy with the take-up even of the existing child tax credit. The amendment would help people to find out what they are entitled to claim and assist those who need it. In the context of some pretty tortuous arrangements for claims based on this year's or last year's income and whether hours worked relate to this year or last year, the amendments would also afford an opportunity upfront to iron out a lot of issues. People could be helped and advised about what they are entitled to and the Revenue would have an opportunity to ask questions. Obviously, it might discover from an interview that a claim is not justified.

I appreciate that there would be an administrative-time cost. Interviews would have to be conducted locally, which would presumably involve Revenue staff and so on. However, the interview model that the Government introduced in a number of areas has been quite successful, and the model of people going to the DWP to find out what they are entitled to is well established. Therefore, there is logic behind these two parallel amendments, which would make the system work better, help individuals and provide a mechanism to reduce fraud.

Dawn Primarolo (Labour, Bristol South)

Amendments Nos. 8 and 13 concern the consideration of claims by the Inland Revenue. Amendment No. 8 would introduce the requirement that a claim be made

''before an official of the Board who is satisfied that all facts necessary to establish the claim have been made out''.

Amendment No. 13 would have two effects. First, it would require any person acting for another in making a claim for a tax credit to appear in person before an official of the board. Secondly, it would require that official to satisfy himself as to the identity of that person and the claimant and to be sure that the person was acting genuinely for the claimant.

I shall deal first with the requirement for the Inland Revenue to give proper consideration to the claims that it receives and to satisfy itself that they are valid. It is unnecessary to amend the Bill in that regard. Clause 14 makes it clear that, on a claim for a tax credit, the board—in practice, a Revenue staff member—is required to take a decision about whether to make an award. It is therefore incumbent on the Revenue to consider each claim that is made. I assure the Committee that the Revenue will need to satisfy itself before paying a credit as to the identity of the claimant and any person acting on their behalf and that the relationship between the two is genuine. The

Bill does not need to be amended to ensure that that occurs.

More generally, the board's statutory responsibility for the proper administration of tax credits is covered in clause 2. Clause 4(1)(a) enables regulations to require that claims be made in a prescribed manner. I assure the Committee that the prescribed manner will be such that the facts necessary to establish a claim must be provided. If they are not, the claim will not be valid and no award will be made. Nothing more is needed in the Bill.

The amendments can be read as requiring claimants and appointees to attend personal interviews with an official of the board. I am sure that the proposal is well intentioned, but it is also, if hon. Members will forgive me for saying so, slightly misguided. Such a requirement would be completely impractical; we are talking about 6 million applications. We do not require everyone who wants to claim a tax relief to appear in person before a staff member so that they can ascertain whether they are entitled to it. Why do we need different treatments within a system that already works perfectly well? It would be completely impractical, and not just for Inland Revenue. Think of the problems involved for the people trying to make a claim. When we are supposed to be moving to e-commerce and interaction to ensure easy access, the official Opposition want everybody to trudge into a tax office in person to ascertain the right to access.

Hugo Swire (Conservative, East Devon)

The Minister asks why we should reorder a system that works ''perfectly well'', but does ''perfectly well'' mean the swindling of about £350 million a year from the tax credit system? Does she regard that as working well?

Dawn Primarolo (Labour, Bristol South)

With respect, I would need to look at the exact figures that the hon. Gentleman is quoting, as I do not recognise them. It is true that people try to swindle the tax system. It is a very interesting issue at the moment, although I will not digress. Self-assessments are being sent in at the moment, and they give an interesting perspective on people's attitudes. Unfortunately fraud is a fact of life. The amendments are to determine whether we have proper procedures in place and whether they will improve. Somehow, the official Opposition seem to take the view that if people are at the tax office in person, they are less likely to commit an offence. I do not believe that. It is not necessary for them to do that.

We have heard about the costs, and suggestions that the proposal is totally unnecessary, utterly disproportionate and far from clear. There would be a lot of sweeping requirements and we would need to employ more staff. The staff we use to track down fraud would be too busy interviewing people about their application forms.

The hon. Member for Arundel and South Downs made another point, which we can return to during the appropriate clauses, about people being aware of their rights and proper communication. He raised questions about the form and how we ensure that the take-up is at the correct level. I will not go any further down that route, because I do not want to try hon. Members'

patience, and I will be able to return to the issue anyway.

If the hon. Gentleman compares the take-up in the first year of family tax credit with the take-up in the first year of working families tax credit, he is not on thin ice: he is actually in the water and out of order in criticising the take-up of WFTC. On the question of applying all appointees—

James Clappison (Conservative, Hertsmere)

In order for the Minister to sustain the proposition she has just made, perhaps she could tell us how many people are eligible for working families tax credit.

Dawn Primarolo (Labour, Bristol South)

Oh dear. I thought the hon. Gentleman might actually make a good point. The take-up of working families tax credit in its first year was 76 per cent. which is close to the 81 per cent. take-up of family credit in its final year and much higher than the figure for its first year, which was only around 60 per cent. We should stop flogging a dead horse and move on. Given that working families tax credit is widely celebrated and greatly appreciated by those who receive it, and it has helped endless numbers of families, perhaps we can move on.

I return to the requirement that all appointees attend an interview with a member of Inland Revenue staff. A blanket requirement of that sort would be disproportionate and ineffective. The acceptance of claims made by an appointee on behalf of other claimants is nothing new. It happens now with working families tax credit and a range of social security benefits. Our intention is to allow those arrangements to continue when the new tax credits are introduced. Clearly, they are buttressed by arrangements that are already in force. We will discuss the penalty and investigation powers later.

The most effective way of tackling fraud is not to impose indiscriminate requirements for people to attend interviews, but to use systematic risk assessment techniques to identify the cases that carry the greatest risk. We must ensure that how we pay people their entitlements is open to minimal fraud, misuse and direction to other individuals. That is covered in the Bill.

I ask the hon. Member for Arundel and South Downs to withdraw the amendment, but if he wants to vote on placing such a huge burden on the Inland Revenue, I will ask my colleagues to oppose it. I look forward to seeing his estimate of how much it would cost if Opposition Members were foolish enough to think that they could achieve what is suggested in the amendment.

James Clappison (Conservative, Hertsmere)

Before my hon. Friend the Member for Arundel and South Downs responds to the Minister's comments, I will take issue with some of her points. Her response was in many ways understandable and not unexpected, but I am not sure that she did justice to the principle that lies behind the amendment. I do not accept the view, which seemed implicit in her response, that a personal interview does not do any good in tackling fraud. That is not in keeping with other Government policy,

in which they postulate the benefits of interviews. For example, the Government require applicants to have job-focused interviews, although that is in a different context and not necessarily to deal with fraud. There are benefits in seeing someone in person, and in that context, Mr. Wray—

Jimmy Hood (Labour, Clydesdale)

Order. To be helpful to the hon. Gentleman, the Chairman's name is Mr. Hood.

James Clappison (Conservative, Hertsmere)

I have got off to a bad start. I beg your pardon, Mr. Hood. I will need a personal interview for that.

There would be benefits in having an interview in this context. The prospect of one may deter someone who is minded to commit fraud from setting out on that course. It may result in the person who carries out the interview having the feeling that something is not right and forming a suspicion that they would not have formed from just looking at the papers.

Dawn Primarolo (Labour, Bristol South)

Scientific analysis.

James Clappison (Conservative, Hertsmere)

We will come to that in a minute.

The other benefits would be for the honest applicant. We are putting in place a system that many people believe will be more complicated on changes of income. Applicants will be required to do a great deal, including monitoring their income and changes in circumstance, and many may find it helpful to have a personal interview.

Hugo Swire (Conservative, East Devon)

Does my hon. Friend remember that, according to a report in The Economist last year on the working families tax credit, only one in 10 tax inspectors could fill in the application form correctly?

James Clappison (Conservative, Hertsmere)

That is an important point, and we are now moving to a system that the Institute for Fiscal Studies has said will place more requirements on the applicants. They will have to monitor their income and changes during the year, which might be a substantial burden for many people.

The Minister spoke about clause 14 and the requirement that the board must examine and be satisfied with claims. Will she tell us whether that clause makes it possible for the board to require people to come in for personal interviews? If so, how many cases will there be and under what criteria will that apply?

Dawn Primarolo (Labour, Bristol South)

I am not saying that personal interviews are not in order if risk assessment indicates that they are necessary for more rigorous consideration. I was rejecting the idea that we should have 5 million. We do not call in every taxpayer to claim their relief, so why should we have interviews in this context?

James Clappison (Conservative, Hertsmere)

Will the Minister, perhaps after receiving some advice, estimate in how many cases and in what circumstances such interviews will apply? There are benefits in seeing somebody in person. Our justice system operates on the basis of people having to give evidence in person rather than just making a written statement. We hope that the Minister will be careful about fraud. Although her response is not entirely unexpected, I hope that she understands that

we are concerned that every possible way of combating fraud be adopted in the Bill.

Howard Flight (Conservative, Arundel and South Downs)

The Minister will know that the institution of interviews was introduced in the fast-track winding up of people's estates, which has been a successful experience.

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

Standing Committee A

Clause 4 - Claims: supplementary

Edward O'Hara (Labour, Knowsley South)

I remind the Committee that with this we are taking amendment No. 13, in page 3, line 23, at end insert

'provided that such person has appeared before an official of the Board, who is satisfied as to the identity of such person and of the claimant and that the such person acts genuinely for the claimant.'.

Howard Flight (Conservative, Arundel and South Downs)

I warmly welcome you to the Chair, Mr. O'Hara.

I made the point this morning that the system of requiring interviews for those taking the fast track in winding up estates—a considerable number of people—has worked well in helping those involved and in helping the Inland Revenue to keep an eye on matters. The Minister's main objection to our amendments, which would require a meeting with the relevant Revenue officer, was that too many people would be involved for it to be practicable. That may be a fair point, but both the working families and children's tax credits are complex. It is not easy to work out what people qualify for or the average number of hours worked. I anticipate that the majority of people will want interviews to help with their forms. In many ways our amendments are more important for that reason than for the avoidance of fraud.

Just before lunch, I received, as other hon. Members may have done, a note from the citizens advice bureaux expressing concern that it would be difficult to advise, for example, a lone parent wanting to move off benefit and into work. It is difficult to forecast income over a year. The tax credit inquiry centres run by the Inland Revenue to advise people on their applications may be inadequate.

Compulsion may be over the top, but if the Bill is to help people, particularly people entering work for the first time, with a sophisticated and complicated matter and prevent a high level of wrong claims—some 75 per cent. of claims for the children's tax credit were found to be wrong—substantial resources will be necessary so that Revenue officers can meet people to go through their circumstances and advise them. The matter is not simple and it is mistaken to think that inquiries through the internet and modern communications in such complicated territory will work satisfactorily. I hope that the Government accept that.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 9, in page 3, line 11, at end insert

'provided that no claim shall be made for any period more than 4 weeks after the date upon which the same is payable.'.

Edward O'Hara (Labour, Knowsley South)

With this it will be convenient to take the following amendments: No. 10, in page 3, line 13, leave out 'earlier or'.

No. 11, in page 3, line 19, at end insert

'provided that the prescribed time shall not be more than 4 weeks later than the date upon which the award becomes payable.'

Howard Flight (Conservative, Arundel and South Downs)

These are partly probing amendments. Amendment No. 9 would limit the backdating of claims to four weeks. There is no apparent limit in the Bill, but there is major scope for errors, fraud, sloppy administration by the Inland Revenue, and waste of time and money in legal costs to recover money. Four weeks may be too short and a longer period may be reasonable, but a time limit is needed to avoid inefficiency, fraud and waste.

Amendment No. 10 is slightly different. As matters stand, the Revenue can treat claims as if they were made earlier than they were actually made. As drafted, the clause gives scope for bad management, and almost encourages the incompetent handling of claims. The amendment is designed to put pressure on those who administer tax credits, and on those who make claims, to do so in good time.

Steve Webb (Liberal Democrat, Northavon)

I, too, welcome you to the Committee, Mr. O'Hara. You were in the Chair the first time I served in Standing Committee, some four years ago, and I shall leave you to judge whether I—or the rest of the Committee, for that matter—have progressed at all since then.

I have some misgivings about the amendments, in that there appears to be some misunderstanding about what the powers are intended to allow the board to achieve. People may claim late, after the point at which they became entitled, for perfectly good reasons that have nothing to do with fraud or poor management. Provisions in the social security system variously allow backdating of one month, three months or, in some cases, 12 months. Because of the complexity of the tax credit scheme, an entitlement to claim may not be instantly apparent to the person concerned.

A face-to-face appointment with an adviser, or with a representative of a citizens advice bureau, may be booked some weeks after the event that triggers entitlement. Therefore, for someone to lose money because the process was not completed within four weeks seems unduly restrictive. A delay between making a claim and becoming entitled could occur through no fault of the claimant, and the more complicated the system, the more excusable such a delay should be. Amendment No. 10 would appear to rule out any backdating at all, and in my view that is too restrictive. We should concentrate on helping to ensure that entitled non-recipients get their money—even if they get it a bit late—rather than on taking money off them and penalising them for the complexity of the system. For those reasons, I am disinclined to support the amendments.

Paul Boateng (Labour, Brent South)

I join other members of the Committee in welcoming you to the Chair, Mr. O'Hara. It is always a pleasure—in this case, an unexpected one—to serve under you, and I am delighted to make my first appearance in Committee under your chairmanship.

The hon. Member for Arundel and South Downs (Mr. Flight) kindly made it clear that the amendments, which deal with the mechanics of making claims, are probing amendments. That is extremely helpful and I am happy to respond accordingly. Amendment No. 9—I appreciate that it is imperfectly drafted because it is a probing amendment—would restrict the time allowed for claims to a maximum of four weeks. I hope that the difference between the Government and the Opposition on this point is one of degree, rather than substance.

We want to stress that the essential point about tax credits is that they are designed to target support at the time that people need it. We want to encourage people to take up their entitlement in good time, so that they can get the support that they need when they need it. Having said that, we need to allow claimants reasonable time to identify that they are entitled to claim, and to claim. As the hon. Member for Northavon (Mr. Webb) suggested, it is important that the claims process be flexible and recognise the practicalities of people's lives. We must recognise that the times when one first qualifies for a working tax credit or a child tax credit—when one starts a job, or one has a new arrival in the household—are often particularly busy and stressful. We will therefore allow a period of three months in which claims can be made, rather than the four weeks proposed in the amendment.

There is a balance to be struck, and we must offer flexibility and recognise the everyday practicalities of real life. A time limit of three months will enable the rules governing child tax credit claims to be aligned with those governing child benefit claims on the birth of a child. That will allow new parents to claim the child tax credit and child benefit in tandem—a further part of the integration process. However, because the time limit is set out in regulations, we can keep it under review in the light of experience. I hope that that clarifies matters for the hon. Member for Arundel and South Downs, and that he finds that acceptable.

On amendment No. 10, even with a time limit of three months, there will inevitably be cases where a timely claim proves invalid for one technical reason or another. We do not want the entitlement of claimants who have done their best to comply with the rules to be curtailed through no fault of their own. To avoid such claimants losing out on a technicality, it would be appropriate to treat a claim as if it had been made earlier than it actually was. It is for such circumstances that the phrase ''earlier or'', in subsection (1)(b), is intended to cater. To avoid claimants losing out unfairly, it is right to allow some flexibility in respect of the effective date of claim. The current rules for working families tax credit and disabled person's tax credit allow some room for manoeuvre, and we intend to take a similar approach in the regulations dealing with claims for the new tax credits.

Amendment No. 11 would restrict the power, conferred in clause 4(1)(d), to make regulations. The power allows regulations to provide that an award of tax credits be subject to the condition that requirements for entitlement be satisfied at a prescribed time. If the amendment were accepted, the prescribed time would be within four weeks of the date on which the award becomes payable. I reassure Opposition Members on this point. The Government do not intend that tax credits be awarded to those who do not in any sense meet the qualifying conditions.

We will consider the main clauses dealing with entitlement—clauses 8 to 12—in due course, but the basic principle is that the qualifying conditions for eligibility for tax credits must be met. People cannot qualify for tax credits until they meet those conditions, and they will cease to qualify once they no longer meet them. Clause 4 (1)(d) is not intended to undermine that principle, and it is certainly not intended to allow the Inland Revenue to make payments—not even those limited to four weeks—to people who do not meet the qualifying conditions. It is simply a machinery provision. We are concerned with the mechanics of making claims, not the rules of entitlement.

Paragraphs (b) and (c) of clause 4 (1) allow that, in certain circumstances, claims may be made in advance of a person's becoming entitled to tax credits. We are still considering the circumstances in which that provision may apply. A possible example is the person who knows that they are about to start a new job. In such a circumstance, it may be right that the regulation allow them to submit a claim for a working tax credit shortly before they commence work, so that the Inland Revenue can ensure that the credit is available as soon as they qualify for it. As I have said, we must ensure that we deliver the payment when it can do most good and when it is most obviously needed.

However, it will be necessary to make it clear, as we shall in regulations, that a person who submits an advance claim is entitled to receive working tax credit only if they actually take up the job. The award needs to be made conditional on the requirements for entitlement being met at the date on which the award is set to begin. If the requirements are not met on that date, the reward will never become payable. Paragraph (d) is designed to enable us to impose that conditionality whenever an advance award is made. The requirements for entitlement will need to be met on the date on which the award is due to begin, not four weeks later, or even two weeks later. I hope that with that clarification the hon. Member for Arundel and South Downs will feel able to withdraw the amendment.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for his response and in particular for clarifying, at least for me, that the Government initially intend there to be a three-month time limit. That addresses the main issue that we were raising. What everyone wants to avoid is the development of a lucrative trade for clever lawyers specialising in back-claiming for long periods, long after that support was needed for the people concerned, who have survived notwithstanding.

Making claims in advance arises later in the Bill, especially under clause 7, and will need a fair degree of probing. However, I thank the Minister for his explanation of what ''earlier'' is intended to mean in the context of clause 4(1)(b). On the basis that, essentially, three months' backdating will be the limit, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 12, in page 3, line 20, leave out paragraph (e).

This is also in the main a probing amendment to ask why there is a provision for a claim to be made after a person has died. That is not the same issue as where children have died, which is addressed in clause 51. Some child tax credit claims will continue or potentially increase if one spouse has died. Would it not be better to hasten the process of the claim being made by the surviving spouse or partner? The intent may be to refer to claims that people are not entitled to and qualified for because they are dead, but that are still being paid after death for administrative reasons. There is a principle that money should be spent on the living in need rather than on what amounts to an administrative issue. The real question is: why is that provision included?

Paul Boateng (Labour, Brent South)

Were we to leave out clause 4(1)(e) we would leave out a provision that allows a claim to be made or proceeded with in the name of a person who has died. We want to include that measure. It is important in our view to allow up to three months for a claim to be made. Couples will be required to make joint claims. If a couple did not claim the tax credits to which they were entitled immediately, they would normally be able to make a claim within the following three months and have the award backdated to the point at which they started to qualify.

Clause 3(2) requires that such a claim be made jointly but, clearly, it could not be if in the interim one party of the couple died. If a claim were made while both partners were living, that should not disqualify the other partner from the benefit that would otherwise have accrued. Without the Bill's provision, the surviving partner would find themselves denied tax credits for which they would otherwise be eligible. That would not be just, particularly at the difficult time when there are real needs in a family because of the end of a partnership through the death of a partner. The amendment would deny a partner the opportunity of gaining the benefit that should accrue to them by virtue of their partnership. That is probably not the intention of Opposition Members, so I hope that they will withdraw the amendment.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for his response. Whether the enforced making of joint claims, particularly in relation to children, accords with human rights law arises later in the Bill. A number of people in the charity sector are keen to ensure that that is the case. On the assumption that it is the case, I understand the reason for the provision. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Edward O'Hara (Labour, Knowsley South)

Before we proceed, I note that there will have been debate on no less than five groups of amendments to the clause. I am therefore minded, unless I sense strong objection, to move the clause stand part without debate. The next amendment gives opportunity for wide-ranging contributions, and I will be tolerant of that.

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 14, in page 3, line 28, leave out paragraph (h).

This is again a probing amendment. Why is the phrase

''treated . . . in such other circumstances as may be prescribed''

included? It appears to be a woolly, catch-all addition, which again widens scope for wasted administrative costs and fraud. As we have said, the rules should be clear and there should be a requirement to stick to them. In essence, why is the paragraph included?

Steve Webb (Liberal Democrat, Northavon)

Taking notice of your suggestion, Mr. O'Hara, I have a broader point that addresses clause 4(1)(g), but which could arise under paragraph (h). Where a claim is treated as being made by one member of a couple, there could be conflict between the two members about who makes the claim. What happens when dispute occurs between them? That may be covered in regulations, but can the Minister indicate whether the board will make a decision or ruling in such circumstances? The clause addresses claims that can be made by one member of a couple or another, but they may have conflicting reasons for wanting to be the claimant. Perhaps the Minister could give us a steer as to what the regulation may say.

Paul Boateng (Labour, Brent South)

The reading of clause 4(1)(h) is assisted when read in conjunction with clause 17. As I deal with the amendment, I will briefly outline how the clause is intended to work. In due course I shall come to the point made by the hon. Member for Northavon.

Clause 17 deals with the finalisation of tax credit awards at the end of the tax year. It would require the Inland Revenue to issue notices to people who have been awarded tax credits setting out the information on which the award has been based. Those people will be able either to confirm that the information is correct or to provide up-to-date details of their income and circumstances. The Revenue will use that information to make a final decision as to claimant's entitlement for the year just ended. That is dealt with under clause 17, which we shall discuss more fully in due course.

Where appropriate, the Revenue will use that information to renew people's awards for the year ahead without them having to do anything further. Co-ordinating the process of renewing claims with that of finalising awards will ensure that claimants are not subject to multiple requests for the same information. There will be a single information-gathering exercise each year, which will keep the burden on claimants to a minimum and ensure that claimants with an entitlement to tax credits can see their payments continue without interruption. For some families, significant changes in their income and circumstances from one year to the next may have little or no effect on the tax credits to which they are entitled. We

therefore intend automatically to renew the awards to those families each year, which will be less burdensome for them. That will be similar to the way in which claims to income tax relief such as the children's tax credit continue in many cases without a new claim being required every year.

The Inland Revenue will write to those families setting out the information that it holds about them, and explaining that it intends to renew their award. The claimant will have an opportunity to update the information if it is wrong, and under clause 17 they will be required to do so. If that information is correct, there will be no need for the claimant to contact the Revenue, which will simply renew their award.

Strictly speaking, clause 3 provides that when an award runs out at the end of the tax year, a new claim is needed to trigger entitlement for the following year. It will therefore be possible to renew awards automatically only if a new claim can be deemed to have been made each year, and regulations under clause 4(1)(h) will allow that to happen. The point of deeming the claim is that that allows the award to continue automatically. The hon. Member for Arundel and South Downs and other hon. Members have pointed out the importance of ensuring that the new tax credit system minimises the burdens on those claiming the credit, and of streamlining the system so that families are able to get the support to which they are entitled with the minimum of hassle.

James Clappison (Conservative, Hertsmere)

The Minister has provided a series of helpful explanations, which were needed, of the provisions in the Bill. Can we take it that in the course of renewals claimants will be kept fully informed as to what is going on and what is expected of them?

Paul Boateng (Labour, Brent South)

Claimants will be given the information required as and when it is necessary to inform them following any change in their circumstances. They do not want a barrage of correspondence. It is, however, important that they are aware of their entitlements and responsibilities, and the guidelines will make that clear. We must ensure that the Revenue is able to gather information to ensure that awards of tax credits are correct, and the Bill gives the Revenue all the powers that it needs to do that job. Where it is possible to keep awards running on the correct footing without asking claimants to fill in additional forms or to submit new claims, it must be right to do that. If the award is changed, and this has a direct bearing on the point made by the hon. Member for Hertsmere (Mr. Clappison), they must be told why.

I turn to the point made by the hon. Member for Northavon. Clause 3 makes it clear that couples will be required to make a joint claim for the tax credit. That means that we require them both to sign the initial application form. For many couples, however, entitlement to tax credits will run on relatively unchanged from year to year. For those couples, it is important to keep red tape to a minimum when it comes to renewing their claim at the beginning of each new tax year. In some cases, we plan to allow a claim to be renewed by one partner on behalf of the couple,

which is allowed for in subsection (1)(g). In those cases, the Inland Revenue would contact both partners to ensure that they were both aware of the basis on which the award had been renewed.

If a dispute arose about circumstances, the Inland Revenue would ultimately have to take a view. If it needed further information, it could seek it, and it would have to tell both couples its view. In those circumstances, it is vital that both couples should have the opportunity to make representations. Similarly both couples would have to know, and be able to determine, why a particular decision or course of action has been arrived at.

Steve Webb (Liberal Democrat, Northavon)

One concern about the sort of regime under which each partner is told the details of the whole claim, which would include information about the other partner's circumstances, is that the desire of men and women for privacy drove the move to independent taxation. The Treasury always tells us that tax credits are about making the benefits system more like the tax system, so why is there a distinction about privacy on tax credits that does not apply to income tax?

Paul Boateng (Labour, Brent South)

The distinctions exists for the very reasons that the hon. Gentleman outlined in his initial question. When people put forward a joint claim, they have decided jointly to claim. Once they have decided to do that, it seems right that both should subsequently be kept informed of decisions that arise as result of their joint claim. It is difficult to find a way around that without breaching another principle, namely that parties to a joint claim are entitled jointly to the information on which it is decided. A balance must be struck.

One is aware from one's experience of family law practice—other members of the Committee also have such experience—that trust may, sadly, break down between parties in the course of relationships. In those circumstances, it is important that both parties have available to them the information that informs decisions that affect them both. Without that, the situation is unlikely to improve, and it may be made worse.

Tax credits target support to families according to their circumstances, which helps to match support to changing needs. They provide a way for the tax system to recognise a family's needs and to take account of the resources available to them. To do that, communication with the family, as a unit, is required. In that way, we are better able to match a family's overall contribution to the Exchequer to the family's circumstances. The couple's contribution to the Exchequer and their shared circumstances are evidenced by their joint application. That is not a breach of independent taxation. Everyone continues to have his or her own personal allowance and to set his or her own personal set of rate bands—that does not change—but the couple make a joint application as a family. The circumstances of the family are taken into account, and it must be right that family members should know all that there is to know about the basis on which decisions that jointly affect them are made.

Sadly, some families break up. That leads to a change in circumstances, in that the family is no longer a family. The consequences will include changes to the couple's eligibility for tax credits.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for his explanation. If there is to be a regime of deemed new claims for the following year to save administration, it would be prudent to require people to confirm to the Revenue that their circumstances have not changed. If the Revenue is to rely purely on a roll-over of information, that will be an incentive to people not to come clean if their circumstances change. That creates a need for care.

As I now understand why the words are in the clause, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 82, in page 3, line 30, after 'made', insert

'or who may be entitled to make'.

The amendment would insert a phrase to include not only people who have made, but may be entitled to make, a claim in the context of the board of the Inland Revenue supplying information relating to the claim or any other information that is relevant to entitlement to tax credits. This is about take-up. We should provide the board with powers and encouragement to supply information to people who might be entitled to make a claim but do not realise it because they do not understand the system. The amendment would give the board powers to supply the sorts of information mentioned in clause 4 both to people who have made a claim and to those who might be entitled to make one.

People who are entitled to make a claim should be able to obtain from the Revenue ready access to calculations, face-to-face help, efficient and helpful helplines, clear forms and explanatory literature. None of those are cheap. What mechanisms does the Minister plan to put in place to help to ensure that not only those who know that they are entitled to make a claim, but those who might be so entitled, receive information and are helped as far as possible? The Minister and I share a desire to maximise take-up, and the amendment would do that by giving the board powers to provide information to a wider spectrum of people.

Paul Boateng (Labour, Brent South)

I have no disagreement with the hon. Member for Northavon on take-up, and I recognise that it needs to be kept under constant review. We will have an opportunity later to reflect further on the issues involved. Several hon. Friends share with me an interest in take-up, and constituency experience demonstrates its importance. I therefore understand why the hon. Gentleman tabled the amendment.

At first sight, the amendment suggests a misreading of clause 4(2), which does not deal with conveying information for the purposes of take-up, but allows the board to disclose to a claimant or claimants any information relating to their award so that they are aware of the basis on which decisions have been made. Of course, the board has powers to disseminate general information about the overall nature of the scheme

and its regulations. It does not require the amendment to enable it to fulfil its responsibilities.

Under subsection (2), the board can disclose to a claimant information relating either to the claim or to an award of tax credit made on the claim. That is important because the Revenue needs to react to the information that it receives, contacting claimants to check details and adjusting awards to ensure that the correct amount of tax credit is paid out. In doing so, it must ensure that claimants understand why any changes are made. For example, if a couple have made a joint claim and one member of the couple notifies the board of a change of circumstances affecting the award, the board will need both to amend the award to reflect the change and to explain to the other member of the couple why the award has been amended, to ensure that both parties agree.

The subsection is designed to deal only with that narrow purpose, but the amendment would widen its scope so that the board could disclose such information to any person who might be entitled to make a claim, as well as to claimants. That would make no sense in the context of the purpose of the clause. I do not denigrate for one moment the importance of take-up, but the amendment, in my respectful submission, is not the right way to deal with it. Where people have yet to make a claim, there is no claim or award about which to disclose information, so the proposed extension of powers is redundant.

I assure the hon. Member for Northavon and all members of the Committee that the Inland Revenue will make information about the new tax credits widely available so that people who are entitled to claim are able to do so. Work is already under way to ensure that people are helped to submit accurate claims and that clear, accurate and user-friendly information is provided. The Bill does not need to be amended to achieve that. There will be a dedicated tax credits helpline and publicity. Households entitled to income support or income-based jobseeker's allowance will be able to access the new credits at the same time as they claim their social security benefits.

People will need to provide information only to a single agency—jobcentre plus. That should assist in take-up. People moving into work from benefits will be able to ask staff at jobcentre plus for assistance in completing their claim for new tax credits, and information on tax credits will be provided by jobcentre plus when a person moves into work. That addresses a concern expressed by citizens advice bureaux and other organisations that have written to us. They want to ensure that people are fully aware of their entitlements and, where necessary, that they receive assistance in completing their claims. Jobcentre plus will then pass on their application to the Revenue, so people need to deal with only one Department and will not be pushed from pillar to post, as our constituents undoubtedly sometimes feel they are. Similarly, people will be able, if that is what they need, to obtain face-to-face help from Inland Revenue officers.

James Clappison (Conservative, Hertsmere)

Before the Financial Secretary concludes his remarks, will he say a little about the circumstances in which a person would have a face-to-

face interview? If not, I should be happy to receive a letter from him about it, if he wanted to deal with it in that way.

Paul Boateng (Labour, Brent South)

I should be happy to write to the hon. Gentleman about that and to inform other hon. Members of the contents of that correspondence.

Howard Flight (Conservative, Arundel and South Downs)

I thought that subsection (2) was a statement of the obvious and was in the Bill for data protection reasons. Is that the case?

Paul Boateng (Labour, Brent South)

Data protection is taken into account in the wording, but the Bill must make it clear, partly for the reasons outlined in our previous debate, that when people make joint applications, there will be communication as to outcomes and reasoning jointly with the parties to that application. Everybody should be aware of that from the outset.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister for putting on record some of the strategies that the Revenue will adopt to try to enhance take-up. I am particularly concerned about take-up of the working tax credit, as to some extent we are dealing with a client group that has had no experience of claiming means-tested benefits: the childless or the low paid may never have claimed means-tested benefits. If they have gone through the Jobcentre Plus process, some of the mechanisms that the Minister has described will reach them. I am aware, however, that a proportion of previously unemployed people and people who change jobs never come into contact with a jobcentre. I hope that the Minister can reassure us at some point, not immediately, that other take-up mechanisms for that group, which has less contact with officialdom, are also being put in place.

However, I accept what the Minister said about the specific purposes of this part of the clause and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 ordered to stand part of the Bill.

Clause 5 - Period of awards

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 15, in page 3, line 40, leave out subsection (1).

Edward O'Hara (Labour, Knowsley South)

With this we may take the following amendments: No. 45, in page 3, line 41, leave out 'whole' and insert 'first 6 months'.

No. 64, in page 3, line 44, after 'made', insert

'or is treated as being made,'.

No. 46, in page 3, line 45, at end insert

', or six months after that date, whichever is sooner'.

No. 53, in page 3, line 45, at end insert

'; and where such a claim is made within a period to be prescribed by regulations before the end of a tax year, it shall also be deemed to have been made in respect of the following tax year.'.

Howard Flight (Conservative, Arundel and South Downs)

As hon. Members will be aware, the clause sets out the length of time that tax credit awards will last and what will bring an award to an end. The

arrangements are by no means clear. If, for example, a couple ceased to be entitled to a joint claim, it would come to an end, or vice versa, if an individual became part of a couple. However, a change in circumstances does not necessarily bring a claim to an end, except if the claimant no longer meets the conditions for a tax credit. In other words, if a tiny entitlement remained, the claimant would as a result, as I understand it, continue to receive a larger tax credit.

The second big issue relates to the definition of hours worked. If a claim is permitted before the tax year starts based on the previous tax year, is it based on the hours worked in the previous tax year or on the hours expected to be worked in the ensuing and current tax year?

I appreciate that our amendment may partly defeat the intention of the Bill, because it proposes that claims should not be made in advance before the tax year starts and before people know what their circumstances are. The Liberal amendments follow the existing practice in limiting the time period for claims in advance to six months.

We are concerned that an unclear and complicated system for making claims in advance runs the risk of leading to major problems in recovery if claims are excessive, to substantial legal costs and to the inevitability of moneys going astray and that the provisions of the clause and subsequent related clauses are sufficiently loose to threaten a shambles.

If the Government wish to stick to this system for administrative reasons, other areas must be tightened up, but at least one approach is that suggested by our amendment—to deal with claims on the basis of the year in question and not on estimates which may or may not be favourable and which many people who do not know what their working hours will be, may find difficult to make.

Steve Webb (Liberal Democrat, Northavon)

I want to respond briefly to Conservative amendment No. 15 and say a few words on the first three of the four Liberal Democrat amendments. I know that my hon. Friend the Member for Teignbridge (Mr. Younger-Ross) will seek to catch your eye, Mr. O'Hara, to say a few words on amendment No. 53.

Amendment No. 15 would not allow a claim for a tax credit in advance of the year in which it was to be paid. While I understand the concerns about forecasting incomes, which I am sure we shall return to, the amendment would prevent historic data being used as a basis for a subsequent claim, even on the day before the start of a new tax year. Given the strong case for using historic data, and that is the direction in which some of the poverty groups would want to go, it could be counter-productive to remove that power. I should be interested in the Minister's comments.

Amendment No. 64, which inserts the words

''or is treated as being made''

after the word ''made'', is intended to achieve consistency. Clause 4(1)(b) refers to a claim for a tax credit being made in prescribed circumstances

''to be treated as having been made on a prescribed date''.

Therefore there is a provision in the Bill that relates not merely to the date on which the claim is made but to the date on which it is treated as having been made. Our question is whether that terminology should run through the Bill, so that subsequent references to when claims are made should also allow for the possibility that the date on which they are treated as having been made might be the relevant one. We have tabled the amendment once rather than 65 times, to see whether there is any substance in the point.

Our amendments Nos. 45 and 46 go to the heart of one of the two key issues of the new tax credits—whether it is sensible for them to run for a whole year. Clearly it is a question of balance and there is a trade-off here. The amendments enable us to raise our concerns about paying people a sum of money for a year.

The first concern is that, although there is provision for reassessment during the year, it may not happen. I am not saying that it will never happen, but that, for a variety of reasons that are not too difficult to imagine, some of the people whose claims should be reassessed during the year may not apply for reassessment. Therefore, at the end of a year people could find that they had been substantially overpaid. In an extreme case, somebody who anticipated, in good will, that they would be working an average of 30 hours a week might find, when looking back at the year, that they had worked 29-and-a-half hours a week. Their whole payment, including working credit, might turn out to be invalid. We could be talking about hundreds, perhaps thousands, of pounds in overpayment and the longer the period of assessment, the bigger overpayments will be. Because we are talking about low-income groups—high-income people get their flat rate child credits, analogous to the children's tax credit, so this is not an issue for them—the burden of repaying overpayments is more acute. The purpose of the amendment is to say that if things are allowed to continue for 12 months, large overpayments could result and make life a nightmare. Just as there is a take-up issue with claiming credit, sure as eggs is eggs, there is take-up issue on reassessment. Those who have claimed money do not always realise that their circumstances have changed sufficiently to warrant a reassessment.

James Clappison (Conservative, Hertsmere)

I am listening carefully to the hon. Gentleman. Does he agree that somebody who discovers that they have received an overpayment is in a difficult position and possibly in the way of temptation? Many cases of fraud may arise because people do not declare a change in circumstances when they should. The circumstances that the hon. Gentleman outlines could be difficult for the person concerned.

Steve Webb (Liberal Democrat, Northavon)

I have some sympathy with the hon. Gentleman's comments. When prediction is involved, there will be a grey area between people who, in good faith, make a mistake about how many hours they will work or what there income will be and those who wilfully misrepresent their circumstances. The division between those two groups is far from clear cut. The longer we allow matters to continue unreviewed,

unchecked and unassessed, the greater the danger and the larger the sums that will be involved.

In a similar vein, a corresponding danger exists for underpayments. The longer the set period of assessment, the more suffering that will occur for someone whose circumstances change and whose award is too low relative to what they would be entitled to were they reassessed. One could argue that if a person lost overtime or one day's work a week, they would know that they were worse off so would ask for a reassessment. However, we know that the world is not like that in reality. There will be a threshold for making reassessments and if a person stands to gain £5 a week of tax credit because of a change in circumstances, they may not pass the threshold for reassessment. In practice, a person would have to work out whether what had happened to them was big enough to warrant reassessment—we will be getting into difficult sums. If something happens in month three of a sixth-month period, people might get by for two or three months, then have a reassessment and catch up. However, what happens when something occurs in month one and the person does not get reassessed for 11 months? Lasting 11 months on an inadequate income—

Mark Hoban (Conservative, Fareham)

Does the hon. Gentleman think that the position will be exacerbated when claims are rolled over from one tax year to another, as the Minister indicated will happen on the previous clause? If a person receives a piece of paper through the post that states their circumstances, they may not look at it. They could put it on their to-do list, not look at it again and be underpaid or overpaid as a consequence of an administrative procedure, which the Minister believes will make life easier for those claiming benefits.

Steve Webb (Liberal Democrat, Northavon)

I understand the hon. Gentleman's point and he raises an important issue, which could be dealt with by shorter periods of assessment. I have some sympathy with the rolling over principle. Trade-offs must happen and rolling over in circumstances where nothing much has changed will cut administrative costs, increase take-up and help everyone. However, if rolling over happens in circumstances that have changed, a person may not realise that they are above a threshold. That could continue for another year, or more, and could be a problem. Real dangers are associated with a long period of assessment and the option of reassessment is not a defence. It will help extreme cases in which it is blindingly obvious that things have changed so much that a person should be looked at again, but there will be cases somewhere between negligible change and extreme change in which we will want people to get help and in which they would suffer if they were to get the wrong rates for the best part of a year.

I touch briefly on the question of whether it would cause administrative chaos to have six-monthly instead of annual assessments. The jury is out on that because there will be people who will in any case have one, two or more reassessments under the Bill. Institutionalising the fact that people might have two assessments a year by allowing for six-monthly awards will not add to the number of assessments in some cases. If someone's

circumstances change a lot, they will already have two, three or four assessments a year. To provide automatically for two assessments will not necessarily create a huge increase in bureaucracy.

One might draw a distinction, which I do not think has been made in our discussion so far, between the people who are getting only what in the current system is the children's tax credit—the part that almost everyone gets—and those who get what is currently the tapered working families tax credit. The latter group are on lower incomes and more vulnerable and, for them, getting by on the wrong amount might matter more. The people at present on the children's tax credit can have huge variations in their circumstances without their entitlement being affected. Unless they go well into higher-rate tax, CTC does not get tapered away altogether, but the working families tax credit cuts out at middling incomes. There is a big chunk of people about whom we perhaps do not need to worry if they do not have six-monthly reassessments. It might be possible for them to roll on automatically for a year. The people we would then catch would be those whose circumstances change and who would really suffer were they not reassessed.

This is a big and radical issue for us. I understand the philosophy that says that it is all related to the tax system, although to be honest, it is related to the tax system when it suits the Government and not when it does not. We have joint assessment, which has nothing to do with the way in which the tax system works, because it makes sense for tax credits. In some respects, this system resembles the tax system, but not always. To put it charitably, if the desire to look too much like the tax system is at the expense of claimants' welfare, we need to think again. I hope that the amendments have put that important issue on the agenda.

Richard Younger-Ross (Liberal Democrat, Teignbridge)

I am not too sure whether the Minister has pre-empted what I want to say, but I wish to pursue him a little further.

What we are concerned about through amendment No. 53 is that we do not get to a position from reading the Bill in which a claim could be made in one week, but then, because 1 April has come round, it has to be made again. That would be totally stupid. The Minister's earlier remarks make it clear that there will be a roll-on: an application shall be deemed to apply for the following tax year. However, I am not too sure whether, as the hon. Member for Fareham (Mr. Hoban) said, that will happen year on year on year so that a person could be deemed to have claimed for 10 years, or whatever. I know that I am being extreme, but it was not made clear in what the Minister said earlier. Can he clarify what period is intended? Obviously, to have to re-fill out a form after one week would be inappropriate, but will it be two, three or four weeks, or will a claim roll on year in, year out?

Paul Boateng (Labour, Brent South)

This has been an important debate, going to the heart, as does clause 5, of one of the most fundamental principles of the two new tax credits. That is that the period of the tax credit award should be linked to the tax year. Amendment No. 15, as the hon. Member for Arundel and South Downs was good enough to say in his opening remarks, challenges that principle. However, the hon. Gentleman did not make clear what his party would propose as an alternative. Of course, he does not have to, because it is for us to propose and the Opposition to oppose. That is what they are about. However, the hon. Gentlemen who speak for the Liberal Democrats do have a clear alternative, to which I will turn, which is that the period of the award should be restricted to six months.

Of course, the existing WFTC and DPTC are currently awarded for fixed periods of six months, and there are undoubtedly strengths in that approach. The fixed award provides certainty for claimants for those six months, but that inflexibility is also, in our view, a weakness. It makes it very difficult, except in limited cases, for the system to respond as people's circumstances change. It is important to understand that we want people to get what they are entitled to when they need it. It is not a question of seeking to develop a system that has two automatic reassessments during the year, which is presumably what would be achieved by a six-month period. We want to encourage people to tell the Inland Revenue about changes as they happen, rather than having a fixed, inflexible system of in-year assessments.

The new credits are designed to combine the advantages of a continuing award with the ability to adjust awards as changes occur, without additional burdensome requirements for claimants. By linking the period of the award to the tax year, we can make it easier for families to claim, provide continuity for those whose circumstances are settled and allow greater flexibility during the course of the award when it is needed. It is therefore important to stress—this deals with a point that several hon. Members, and certainly the hon. Member for Arundel and South Downs, made—that claims will not be rolled over except for people who have been on income support or JSA and are entitled to full CTC throughout, or for people who are clearly entitled only to the family element of CTC.

The scenario in which there is roll-over for year on year and in which it is possible for there to be wrong assessment, accumulated debts or underpayment is not likely to occur in real life. The new credits will be based on the annual income in a tax year and run for up to a year. Measuring income over a year fits better with the tax system and enables people to use the same information for their tax credits as they have to provide for income tax purposes. Crucially, it provides a fairer measure. I do not therefore accept the criticism that the whole scheme is based on aping the benefit system when it suits and the tax system when it suits. It is designed to move us towards a new system that is integrated, targeted, provides resources that take into account people's overall tax and national insurance contributions, and gives them the money when they need it.

The system is a new departure and we make no apology for that. It is a radical measure and we make no apology for that. It is a departure from the way in which things were done in the past. The National Association of Citizens Advice Bureaux does invaluable work in the wider community, advising our constituents, and is now working closely with the Inland Revenue on a range of issues. It has written to hon. Members and it is interesting that it is not calling for a return to the six-month period, as Liberal Democrat Members are doing. It raised various issues, to which we must be alert, concerning the 12-month period, but we believe that that is the right period. It will reduce the scope for manipulating income over a short, snapshot period, make it easier to check against tax records—Opposition Members expressed concern about fraud and temptation—and will be equitable for those with fluctuating and steady incomes.

The hon. Member for Arundel and South Downs asked how hours of working will be defined and we shall come to that on clause 10. It refers to qualifying, remunerative work, which will be defined in regulations. We want to look at the hours that people are working at the time of making a claim. If a claim were made in advance on the basis of expected hours, it would not become valid unless the claimant had started work and was working those hours. This is a tricky area and before drafting the regulations it will be necessary to have discussions with interested groups and reflect on possible definitions. I am happy to assure the hon. Gentleman that that will take place. However, we shall proceed on the basis that enables us to introduce a system that does not impose added burdens on claimants. I shall give an example.

The emphasis is on looking at current circumstances. If someone stops working 16 hours a week after six months, their entitlement will stop, but they will not lose their entitlement for the first six months. That is an important distinction when it comes to overpayment and possible claims back. That entitlement will stand and income will be assessed annually, but not the other circumstances that may affect the award. It is a question of balance and we believe that we have got it right. The annual system will produce a real gain for families and their employers. The current system in which information is gathered annually for tax purposes, but tax credits are assessed on a number of weeks of earning causes extra hassle for claimants and employers, who must deal with two systems at once. On Second Reading, concern was expressed and consideration was given to the burden on employers. We want to minimise that burden. The clause helps to streamline the way in which tax credits interact with the income tax system. Families' tax liabilities and tax credit entitlements will fit more closely together.

Steve Webb (Liberal Democrat, Northavon)

I wonder whether the Minister is overstating the gains on two fronts. Employers will still be told how much tax credit to pay and will still deduct PAYE as separate transactions. An annual assessment is neither here nor there and will make no difference to employers. Likewise, the client group for

the working families tax credit part of the scheme does not usually fill in tax returns because the majority of them have the right amount of income tax collected cumulatively through PAYE. Again, assessing them over a year or six months is administratively neither here nor there.

Paul Boateng (Labour, Brent South)

The issue cannot be dismissed as blithely as the hon. Gentleman suggests. We are moving towards integration of the tax and benefit systems so that the position is simplified for people and the resources they need to combat poverty are available as and when they need them. Employers certainly do not want a stop-and-start process involving changes in their payroll system every six months. That is a danger in the proposals of the hon. Member for Northavon. The measure provides important and practical benefits for families. I accept that a judgment must be made and the argument must be balanced. The issues are complex, but we believe that we have got the balance right.

The purpose of amendment No. 64 is to make it clear that references to the date on which claims are made include claims that are treated as having been made on a different date. For example, when a claim is made in advance of the relevant criteria being met, it is treated as being made on the date on which they are met. I understand why the amendment was tabled, but I can give an assurance that it is unnecessary. Once a claim is treated under clause 4(1)(b) as being made on a different date from the actual date, the first date becomes the one that counts for all later purposes in the Bill. The amplification suggested by the amendment is unnecessary.

On amendment No. 53, one of the guiding principles of the new system is that the claims process should be user friendly and assessable. To require two claims in quick succession when someone enters the system close to the end of a tax year—the hon. Member for Northavon referred to this—might be cumbersome to claimants. I shall explain how the process is intended to work in such cases, which may allay the hon. Gentleman's concern. When someone makes a first claim near the end of a tax year, the claim will be effective for the short period remaining in that year. However, it also gets the claimant on the books so that their claim for the following year will go through the renewal process with those of other recipients. The renewal claim for tax credits does not have to be made from scratch on a new blank form, but it entails asking the claimant to send back a renewal notice confirming that the details on which their claim is based remain the same while setting out any changes, in particular updates to income information. That deals with a point that has been made by several Opposition Members.

It is not a matter of receiving a form and continuing to get the credit. There is a requirement on the claimant to send back the renewal notice to confirm that the details on which the claim is based remain the same or to set out any changes. That information is used to check whether an adjustment is needed for the year that has just ended, and to set the award in place for the year that is starting.

Richard Younger-Ross (Liberal Democrat, Teignbridge)

Will the Minister explain the impression that a new claimant would have if they filled out a form one week and got a renewal notice one week later? That would be bureaucratic and unnecessary.

Paul Boateng (Labour, Brent South)

No, it is cause and effect. If one fills out a form and sends it off one would not expect nothing to happen. I imagine that a claimant would welcome something happening because they would have received benefit in the interim, the tax year would be nearing its end and a new year would be about to come. This is, after all, a tax-based system and claimants will do what we all have to do, which is to respond to that. If they provide the information that is required of them they will continue to receive the benefit, and that is how the system works. The hon. Gentleman believes that that would have a negative or detrimental impact, and we shall see whether his judgment is accurate.

The benefit of putting these matters to regulations to be laid before the House is that we shall be able to reflect on the impact of our approach on issues such as take-up, which means that we shall be able to judge whether this is burdensome or unduly complex. Our view is that it is not, and I hope that hon. Members are reassured that the claims process will be streamlined. I suspect that there is sceptic or two among the Liberal Democrat Members, which is fair enough. In the course of our deliberations I hope to challenge and address that scepticism, and to turn it into a recognition that we are seeking to find the best way forward. Of course, we shall listen to points that are made and bear them in mind when we formulate the regulations. I hope that the amendment will be withdrawn because it is unnecessary in achieving the objective that we all share.

James Clappison (Conservative, Hertsmere)

As the Minister said, this has been an important debate in which several helpful points have been made. Although he has eloquently put forward the balance that he seeks to achieve, I must say that there is a lingering sense of unease at the back of my mind because, as the hon. Member for Northavon put it, the Government may be in danger of overstating their case.

Understandably, the Minister wants to put his case forward, but it should be accompanied by an acknowledgement of the risks that may be involved. He referred to the submission that we recently received from the National Association of Citizens Advice Bureaux, and it will be worth putting its comments on record:

''The shift the change to 12 month awards which will alter in defined circumstances will represent should not be underestimated. There must be a risk that the loss of the certainty of a six month fixed award could weaken confidence in tax credits . . . NACAB is therefore a bit concerned that the rules proposed by the Tax Credits Bill will be more complex and less workable. If this is the case the system may be daunting, particularly to those who are moving into work for the first time.''

Those are important concerns that we would do well to bear in mind.

We should put those concerns alongside those expressed by the Institute for Fiscal Studies, which deals fairly with the balance that the Minister has set

out by acknowledging the benefits of greater responsiveness and a year-long system, but setting that against the risks implicit in such a system:

''The principle of within year responsiveness relies crucially on people volunteering information to the Inland Revenue within the year, and therefore introduces the risk of substantial (intentional or accidental) non-compliance.''

In an intervention on the hon. Member for Northavon, I put forward my concern about this matter. When we discuss the details we must be aware of introducing a greater risk of non-compliance that may lead to a greater risk of fraud. We should do our best to reduce the risk of exposing people to temptation. We must understand that this might tempt people not to declare changes in their circumstances that could have a profound effect on their income and standard of life.

We must also be aware that we are dealing with people who are not used to the tax system and filling in self-assessment forms, and who do not have famous firms of chartered accountants advising them.

Hugo Swire (Conservative, East Devon)

Does my hon. Friend agree that insufficient distinction has been made between fraud and inadvertent fraud?

James Clappison (Conservative, Hertsmere)

My hon. Friend makes a valuable point. The risk in these circumstances, as has been proved with other forms of benefit, is that people become aware of a change to their circumstances and conceal that fact. When they take the decision to conceal the change in circumstances, they are moving from inadvertence into fraud because they are concealing a material fact. We want to avoid putting them in that position and exposing them to temptation.

The Minister and the Government will have to monitor how many families have a problem with this because there are significant changes and fluctuations in their income over the course of a year. This is the group that the Government must watch because, and again I quote the Institute for Fiscal Studies:

''Financial uncertainty and hassle will also be higher for this group of families. The success of the new credits will therefore partially depend on how many families experience these changes and on how good families are at estimating current-year income.''

I do not want to anticipate the next group of amendments because we are coming on to them with the next clause, but there is a warning for the Government. There is no room for complacency, the system is not entirely straightforward and we want to avoid the risk of making it more complex than it already is.

As the Minister has said, a balance must be struck. However, the Government initially chose the balance of the six-month system, and they are changing from a system that they chose so we must be aware of the risks.

Steve Webb (Liberal Democrat, Northavon)

I shall briefly respond to the Minister's comments. On amendment No. 64, I accept his reassurance that we do not need to insert the words

''or is treated as being made''

if, once the process has occurred, references incorporate the date of the claim.

The Minister rightly discerned the scepticism of my hon. Friend the Member for Teignbridge. I can imagine the scene in all our surgeries. Someone who has claimed tax credits the week before the start of the financial year will say, ''I filled in all the forms, I gave them all my details and by return of post I received another form asking, 'Have your details changed?''' As I understand it, that is how it will work. That seems unnecessary. We were trying to be constructive in our amendments, and I hope that the Minister was hinting that there might be scope for looking at the matter again. If an amendment to the same effect were to find its way into the Bill in another place in this building, we would have no objections.

I turn to amendments Nos. 45 and 46, which seek reassessment after six months rather than a year. I was disappointed that the Minister hardly addressed the issues of in-year reassessment, whether people will understand how big a change must prompt a claim for reassessment and the suffering that they could face, possibly for 11 months, if they failed to make such a claim. I was disappointed, because those are fundamental issues.

Our debates have made it clear to me that the people for whom we seek quick reassessment are those on low incomes who correspond to the current working families tax credit group. If there was automatic roll-over for the income support people and some sort of quasi-automatic roll-over for those on higher incomes, whose tax credit entitlement is not affected by a big change in income because they are in the flat bits of the system, the only people who would need an extra reassessment involving some detail would be those on rather low incomes who could suffer if the wrong assessment were made and whose circumstances were likely to fluctuate.

In many ways, the debate has strengthened the case for our six-month proposal, and nothing that I have heard from the Minister reassures me that it is not necessary. I am still, even after four years, slightly hazy about the process, but if the opportunity to divide the Committee on amendment No. 45 arises, I wish to take it.

Paul Boateng (Labour, Brent South)

I shall respond first to the hon. Member for Hertsmere. I have had the pleasure of sitting opposite him, listening and responding to him in a number of incarnations—all of them welcome in my case, although I do not know about him—and I know that he lives in a state of perpetual unease. In some circumstances, that might be a healthy, albeit rather uncomfortable, state of affairs in which to find oneself. I do not mean to be complacent, but I believe that in this respect his unease is not justified.

Of course we must be vigilant; vigilance is certainly justified. We are making a major change, and I hope that I have acknowledged the scale of it. That is one reason why we are ensuring that NACAB, the Institute for Fiscal Studies and others who have expressed a view about these matters are involved as we prepare the regulations and draw up the detail of the system. It is right that they should be involved and also that we

should be able to reflect, as hon. Members have, our constituency experience. However, we must consider how the system proposed in the Bill builds on what already exists.

The hon. Member for Hertsmere said that in relation to the working families tax credit we initially chose the six-month period. We did, and we are moving on from that. We did not believe that that was the last word. This is a process of reform. The burden on claimants to report changes is a real one and is not to be sneezed at. The hon. Members for Teignbridge and for Northavon as well as some Conservative Members have referred to it.

We must remember, however, that the principle is not new. Both income support and JSA claimants need to respond, and are required to respond, to changes in their circumstances and to report those changes. However, this is new territory for tax credits, which encompass a wider population. It is therefore important to make sure—and we will make sure—that the responsive nature of the credit does not mean that we end up imposing excessive requirements to report changes.

We plan to consider the area carefully. We shall introduce detailed proposals in the form of draft regulations in due course, and there will be an opportunity to discuss them then. There will also be an opportunity for us to hear and incorporate the concerns of bodies like NACAB, which have day-to-day responsibility for providing advice and information to claimants. We shall need to address the risk of concealing changes, to which the hon. Member for Hertsmere referred, by monitoring those changes closely, as in income support or JSA, or by introducing fixed awards.

Our aim is to strike a balance between continuity and flexibility. It is a challenge, but we shall work out the details of the framework in a way that strikes the balance between preventing abuse and not deterring take-up—because that, too, is important. That point has been forcefully brought home to me and to my hon. Friend the Paymaster General by hon. Members of all parties who are concerned with poverty reduction—not least my hon. Friends—and I assure the Committee that we have it very much in mind.

With those assurances and having listened carefully to the contributions of those on the Liberal Democrat and Conservative Benches, I hope that hon. Members will not press their amendments.

Howard Flight (Conservative, Arundel and South Downs)

This has been a useful debate. I hope that the Minister will not mind my saying that it illustrates the fact that the Revenue and the Treasury have perhaps not fully made up their minds how best to address such difficult territory. In essence, the Government seem to be striving for a system of negative income tax coding, in the same way as tax coding applies positively to income tax. The system is pretty seamless: it can roll from year to year and, where there is no material change in circumstances, it is relatively easy. Clearly, if people's circumstances materially improve, the risks to which my hon. Friends referred arise, and, as the Minister pointed out, if people's circumstances deteriorate, there is the danger

that people will not know how to apply in time to improve their tax credits.

The thought goes through my mind that, as the Treasury and the Revenue think further about the issue, they may even conclude that the only reliable way to address those matters is to present what I will call annual negative income tax returns and, as with income tax, permit clawbacks out of tax credits if there have been overpayments. Without such mechanisms, there will be problems.

We have addressed the issue in one way and our Liberal Democrat colleagues have raised it in another. The six-month arrangements for working tax credits have been subject to many of the problems on which the hon. Member for Northavon has commented.

The Bill is a framework. As I said in moving the amendments, it has been introduced almost too soon—before all the thinking has been done. The clause is all about regulations that may be introduced. Therefore, there is still flexibility for the brains of the Inland Revenue to decide exactly how they will deal with the problems. In that context, it is correct to withdraw amendment No. 15. However, we remain concerned that the framework that the Government are seeking to establish will give rise on one hand to a great deal of money not being clawed back where people's circumstances have improved, and on the other to people in need not getting the extra credits as quickly as they might require them. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed, No. 45, in page 3, line 41, leave out 'whole' and insert 'first 6 months'.—[Mr. Webb.]

Question put, That the amendment be made:—

The Committee divided: Ayes 2, Noes 9.

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 16, in page 4, line 7, leave out subsection (4).

Many aspects of the amendment relate to matters that we have already discussed in some detail, and I will therefore be as brief as possible. Subsection (4) states:

''An award . . . does not end by virtue of any change''

affecting the rate at which it is paid. In other words, a change in someone's circumstances does not necessarily end the award. That arrangement could create problems over whether there are 12-monthly or six-monthly assessments. It may create unfairness in the de minimis entitlement of claimants and non-

claimants. A person who still has a tiny entitlement can go on receiving a larger award. A person who has just tipped over the edge and lost that tiny entitlement is supposed to report it and not get anything. People at the margins will feel a sense of unfairness over the positions of each.

Would it not be clearer and fairer for everybody if the system operated on the principle that if there is any change to one's circumstances, the award ends and one is required to re-file information? The arrangement is intended to reduce administration, but it could draw an unfair distinction between the two types of people whom I described. Moreover, it leaves an open door for moneys to go missing, which will be expensive and difficult to recover. That has been a problem with the six-month assessment arrangements for the working families tax credit.

Steve Webb (Liberal Democrat, Northavon)

I wanted to say a few words in lieu of the Minister, but his return has denied me that opportunity.

The explanatory notes suggest that the thinking behind subsection (4), which the amendment would delete, is to allow for continuity when people move from one circumstance to another. The example given in the explanatory notes is positive—the birth of a child, which enhances the rate of entitlement. Continuity is a problem in the tax and benefit system. When one entitlement stops and another does not start it causes real problems. The subsection allows an award to continue while a recalculation is made. That is beneficial, and I would not want to remove it from the Bill.

Paul Boateng (Labour, Brent South)

I am grateful to the Member for Northavon for describing the purpose of subsection (4), which is much as he said. It enables the award of tax credits to be adjusted without requiring new claims to be made when a change occurs that affects the maximum amount of tax credit to which claimants are entitled, and without the entitlement stopping altogether.

Amendment No. 16 would prevent awards from having that degree of continuity and flexibility. The ability of the new credits to respond to changes during the period of the award is key to the improvements that we seek in the design of the new system. There is an important balance to be struck. The system must have the ability to reflect changes in entitlement as they occur, delivering additional support when it is warranted and reducing it when it is no longer appropriate.

Annual awards provide a stable framework for families to know clearly on what basis and for what period their award is made. Within that framework, the new credits will be able to react to changes in circumstances—one of which was outlined by the hon. Member for Northavon—and the rate of the tax credit payable can be adjusted when appropriate. It is important that adjustments can be put in place quickly and that the process is simple for claimants to understand. It would be onerous to require claimants to have their awards stop and then to make a new tax credit claim whenever their maximum

entitlement to a tax credit changed. Subsection (4) establishes flexibility within the tax year without interrupting the claim where entitlement continues but at a different rate.

I understand why the hon. Member for Arundel and South Downs tabled the amendment, but it represents a real disagreement between us on the proper way of approaching the issue. I am not sure that I will be able to square the circle for him or to satisfy him other than in the way that I have sought to do so far. There is not much that I can add to the points that I made in response to earlier amendments. The subsection is important, and to remove it would be damaging and deleterious to the Bill. I therefore urge the Committee to reject the amendment.

Howard Flight (Conservative, Arundel and South Downs)

We are putting down a marker. If we are to have a type of what I call negative income tax PAYE coding to provide continuity—I understand the reasons for that—the Government must think of other ways to monitor it and to get it right. As I have said, negative income tax annual returns may be required to provide the information necessary for keeping up-to-date records.

The amendment represents the other, jagged approach, whereby an award must be reassessed whenever there is a change. Our point is that the continuity system has some significant problems to solve. Nevertheless, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 ordered to stand part of the Bill.

Clause 6 - Notifications of changes of circumstances

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 77, in page 4, line 30, after 'given', insert

'within a period of 28 days'.

Edward O'Hara (Labour, Knowsley South)

With this it will be convenient to take amendment No. 83, in page 4, line 37, at end insert

'being not less than three months'.

Howard Flight (Conservative, Arundel and South Downs)

Clause 6 claims to set out the arrangements for notifying the board of changes in circumstances that affect tax credit entitlement. It is not entirely clear, however, whether the provision of such information will be wholly the job of the individual, or whether there will be any onus on the employer—an issue that I raised on Second Reading. Under the clause as drafted, it appears that the employer may indeed be required to provide such information. The amendment is necessary because the framework remains rather woolly. There is no apparent time limit on the provision of such information. Under our amendment, regulations could require that the board be notified

''within a period of 28 days''

when a claim ends.

The Liberal Democrat amendment, which would require that notice be given within three months, is similar. Doubtless the Government will propose a notice period of their own, with which we may all

agree. In any event, it is clear that a sensible notice period is needed.

Steve Webb (Liberal Democrat, Northavon)

I speak in support of amendment No. 83. The time scale for notification of a change of circumstance will be set out in regulations, but if the amendment were accepted, regulations would have to specify a notice period of

''not less than three months''.

It is perhaps worth pointing out my concern—shared, I suspect, by both Opposition parties—that the debate is being conducted in the absence of any draft regulations. I tabled a question, asking that we see such regulations before or during our deliberations; indeed, to see them at any point would be nice. It is tempting to say that regulations are about detail and the Bill is about principle, so we do not need to see them, but the line between detail and principle is slightly fuzzy. If the implications of certain regulations prove particularly extreme, the entire principle that we are debating will be undermined. I register my concern, therefore, about the lack of even draft regulations. Failure to provide draft regulations is not universal. In fact, draft regulations were available to the Committee that debated the previous Tax Credits Bill. I therefore hope that the Minister can offer a time scale in that regard.

Amendment No. 83 would, to a limited extent, circumscribe what the regulations may say, given that we have yet to see them. We are trying not to write the regulations into the Bill, but simply to establish the parameters in which they operate.

One example of a change in circumstance—the ending or starting of a relationship—would be reportable in all cases. The issue has been drawn to our attention by the Low Income Tax Reform Group, which, like the National Association of Citizens Advice Bureaux, has first-hand experience of the client group in question. The group states that, where two people's

''relationship ends in tragic circumstances . . . their first reaction is unlikely to be—Ah! We must inform the Inland Revenue straight away because section 5(3) of the Tax Credits Act''

requires that we do so. It is clear that they must inform the Inland Revenue at some point, but we should bear it in mind that, just because one partner has walked out, it is not certain that the relationship is definitely over. It may not become apparent for some weeks or months that that is final. That is just one example of how the establishment in regulations of a short notice period would be rather unfair on that client group.

Obviously, there is a balance to be struck, and we must also consider administrative convenience and the interests of the taxpayer. A period of three months does indeed strike the right balance—a view that is shared by the Low Income Tax Reform Group. As it modestly says, its representatives are

''those who habitually advise potential tax credit claimants'',

and who are very familiar with the circumstances that we are discussing.

As I have said, we are not trying to write the regulations into the Bill. Instead, the purpose of our

amendment, given that we have yet to see the regulations, is to establish some parameters.

Paul Boateng (Labour, Brent South)

Opposition Members have made their points fairly and succinctly, and they contain a great deal of force. I say immediately to the hon. Member for Arundel and South Downs that there will be no onus on employers to report changes in claimants' circumstances, and I hope that he feels reassured by that. I see no obvious manifestation of unease—[Laughter.] Perhaps I should not tempt fate.

The hon. Member for Northavon has tabled a question for the Paymaster General, to which she will doubtless reply shortly. I do not doubt that she will want the draft regulations to be completed as soon as possible, that her general approach to such matters is to consult and to involve people, and to share as much information as possible, so that we can get matters right. Indeed, that is what we are here to do. None the less, I hear what the hon. Gentleman says, and I will ensure that, so far as is possible, his comments are taken into account in timetabling these matters.

There is probably a measure of agreement among all hon. Members on the substance of the amendments. As we have said, the new tax credits are designed to respond to the changing needs of claimants. It is important that awards be able to adjust to changes as they occur. If awards are to adjust to changes in circumstances during the year, it will of course be necessary for claimants to tell the Inland Revenue about those changes as they occur. The clause deals with that notification process. Broadly speaking, it is equivalent to notifications under clause 4. As with deciding how long a period to allow for claims, deciding how long a period to allow for notification involves striking a balance. The provision must be flexible and recognise the practicalities of people's lives.

We accept that changes that may affect entitlement could occur when people are particularly busy and tax credits are not at the forefront of their minds. The example of the circumstances surrounding the birth of a baby has already been given. Similarly, as the hon. Member for Northavon said, when a relationship collapses, people do not think clearly about the consequences. It does not necessarily become immediately apparent that the change is permanent. Often, one or both parties harbour unrealistic expectations that are not met.

We need to have flexibility and a recognition of real life. At the same time, people need to be encouraged to report changes as soon as practicable so that they receive appropriate support. Allowing people three months to notify changes is the right balance. We have alighted upon that figure because we believe that it gives claimants a reasonable time to identify that the change may affect their award, and to submit notification. Opposition Members may disagree among themselves. Some may prefer 28 days, some may agree with three months, but the consensus will probably be around three months.

Amendment No. 83 would write that into the Bill. Although I happen to agree that three months is appropriate, the amendment would not be the correct way in which to proceed. It should not be written into the Bill and would be better dealt with in regulations.

Amendment No. 77 is evidence, if it were needed, that it is possible to reach a different view. That is all the more reason for matters to be dealt with in regulation. I do not share the view that 28 days is appropriate, although I understand the reason for the amendment. We want to monitor closely how the system works in practice to see whether three months strikes the right mark. It would be unwise to limit our ability to learn from that experience by including in the Bill a deadline as specific as the amendments urge. I hope that that argument will be accepted by Opposition Members, whether they favour 28 days or three months. We will carefully look at the practical impact of the regulations, just as we will reflect on their content. I hope that hon. Members will not press their amendments.

I cannot stress sufficiently the importance of developing a culture in which people are encouraged to report changes, rather than one in which they have an interest in not reporting them. We must get them to see the system as an aid rather than a hindrance. The efforts of the Government, the Inland Revenue and those with whom it works to make advice and information available to those claiming the credit will be focused on that end.

Steve Webb (Liberal Democrat, Northavon)

I am greatly heartened that the Minister is plumping more for three months than 28 days. I will cut my losses and not press the amendment.

Howard Flight (Conservative, Arundel and South Downs)

We are content with the three-month notice proposal and I thank the Minister for making it clear that that is the Government's intention. As people get used to tax credits, it is likely that prompt notice will be given if circumstances worsen; if they improve, it is likely that people will take the maximum three-month period. Again, that raises issues of ease of recovery. However, we have an acceptable minimum and on that basis I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 61, in page 4, line 34, at end insert—

''; the prescribed description shall include reference to a threshold below which changes in income do not have to be notified.''.

We are still on clause 6, looking at the regulations concerning notification of changes of circumstances. We are concerned through the amendment to ensure that the regulations, which we have not yet seen, will include a minimum threshold beyond which changes that would reduce someone's entitlement do not have to be reported. There will be further discussion on those thresholds and their size, but we do not want someone who has a marginal change in circumstance to accrue an overpayment or, worse still, be accused of fraud. There could be something in the regulations about that. NACAB bravely put a figure on it and suggested that £500 a year might be a relevant change. Thus if someone received up to about £10 a week more in tax credit than their current circumstance implied,

when under their previous circumstance that was not the case, notification or failure to notify would not make any difference to their entitlement.

Obviously, as with all such things, there is a balance to be struck. The bigger the threshold, the more taxpayers' money will go to people who are technically not entitled. On the other hand, if the threshold is very small, many people will need to tell the Inland Revenue about trivial changes, which will have an administrative cost.

It is worth reflecting for a moment on the fact that quite a lot of changes could affect the amount of tax credit to which one is entitled, especially in the lower income ranges. All manner of changes in child care arrangements, working hours, overtime and family circumstances could affect entitlement to working tax credit, its child care element and child tax credit. We do not want the Inland Revenue constantly to be bombarded by 6 million people telling it all about the fine details of their lives. That is not the world that we want to go towards.

The amendment relates specifically to fluctuations in income. The group currently in receipt of working families tax credit are the sort of folk who may do an extra shift or a bit of overtime, and it may be different from one week to the next. There may well need to be some averaging provisions, and there should certainly be a de minimis threshold, which is what the amendment proposes. I would be grateful, in probing the matter, for an assurance that that is the Government's thinking and that there will be such a threshold, and for an early suggestion of the level of threshold that they are thinking about.

Mr. Boateng indicated dissent.

Steve Webb (Liberal Democrat, Northavon)

The Minister helpfully shakes his head, indicating that he will not tell me a threshold.

To return to my earlier point, the line between detail and principle is rather grey here. If the Government end up with a tiny threshold, we will be very unhappy with the system, but nor should they come up with a socking great one. There is a balance to be struck. Some sort of ball-park estimate—I am not sure if that is a parliamentary phrase, but it is what we are after—would be very helpful.

Howard Flight (Conservative, Arundel and South Downs)

In this territory, as in others, there is a trade-off. In order to reduce administrative requirements on individuals and the Revenue, we could end up, as is the case with longer periods of notice, with more and more tax credits potentially being paid at a greater level than people are strictly entitled to. That, of course, will be paid for by other people's taxes. There must be a balance. The more one goes down that route, the more it highlights the need for an easy mechanism to claw back overpayments, to which I previously referred. One cannot have it both ways. Either there must be a system requiring annual reporting that can claw back overpayments, or the rules must stay pretty tight.

Paul Boateng (Labour, Brent South)

I am afraid that I shall disappoint the hon. Member for Northavon. After the dawn comes the deep, deep dusk, and not a hint or shaft of light shall I cast on the issue of thresholds. There will be no

ball-park figure revealed by anything that I say. Those matters are entirely for the Chancellor. In due course, the gloom will be dispelled and all will be revealed, but I shall not be doing it.

I shall address the principle that underlies the hon. Gentleman's contribution. I am interested in the line that the hon. Member for Arundel and South Downs is taking, and I can see exactly where he is coming from. Time will tell, but we believe that the system that we have unveiled will be able to deliver without the modifications that have been suggested. It is a matter of judgment and experience, and it will be interesting to see what emerges, but I am confident in the system that we propose.

One reading of the amendment suggests an apparent misunderstanding of clause 6 and a misreading of its purpose. Clause 6 is concerned with changes in non-financial circumstances: for example, when a family becomes responsible for a new child. It does not touch at all on how the credits will respond to changes in income from one year to the next. I understand what the hon. Member for Northavon is getting at in his amendment, but he will appreciate that, as drafted, it concerns the regulations setting out changes that decrease the rate of entitlement, which have to be notified by a claimant to the Inland Revenue during the year.

The amendment seeks to introduce the proviso that the regulations must include

''a threshold below which changes in income do not have to be notified.''

That is not necessary, because the power to make regulations about the changes that must be notified does not extend to regulations about notifying changes in income. Income is dealt with in clause 7 and I shall not anticipate our consideration of that clause, except to point out that subsections (4) and (5) of the clause make it clear that awards will be based on income for a tax year. It would be unreasonable to impose on claimants a formal requirement to notify changes in their annual income during the course of a year because annual income cannot easily be determined until after the end of the year.

Mark Hoban (Conservative, Fareham)

The Minister has raised a point that concerned several hon. Members on Second Reading. He says that someone's current year income cannot be known; they have to estimate it. Much concern was expressed on Second Reading that people who are claiming a tax credit will have to estimate their current year income and the likely number of hours that they work in a year. Are fears that people will have to estimate those two factors unfounded?

Paul Boateng (Labour, Brent South)

I do not think that the fears expressed in that regard on Second Reading bear too close an examination. We will come to clause 7 in due course, but the whole point of subsections (4) and (5) is to make it clear that awards will be based on income for a tax year. It is not a question of imposing on claimants a formal requirement to notify changes of income during the course of the year or to determine in advance what their income will be. The requirement is to notify the Revenue at the end of the year of any

changes that occurred during the year and that make the information supplied inaccurate.

A change could involve hours, employment or the household, but claimants are not required to estimate during the tax year what their income will be for the whole of that year. At the outset, awards will be based on the previous year's income and, depending on decisions still to be made on how to respond to changes in income, claimants may have their awards adjusted during the year based on an estimate of the current year's income. That will be determined in the light of decisions that have yet to be made.

The concerns that were expressed on Second Reading are not justified. Even if thresholds were set in regulations under clause 7(3)(a) to (d), there would still be no formal requirement to report changes in income to the Revenue during the year. In debates on previous amendments, I said that our aim was to develop a culture in which people asked for reassessment and reported changes if their income had risen. That is sensible because it will reduce the risk of overpayment. Similarly, when people believe that changed circumstances might justify an increase in the amount that they receive, we want them to be in a frame of mind in which they see that as something to help them. We shall actively discourage people from notifying small changes of income during the year to minimise the scope for overpayments.

We do not propose to introduce penalties for submitting an estimate of income during the year that turns out to be incorrect. I do not want to trespass on your patience, Mr. O'Hara, by going into clause 7 in detail, but the corollary is that clause 7(9) gives the Inland Revenue discretion to decide whether to adjust payments during the year to reflect a claimant's estimate of their income. That will provide protection against abuse by claimants who wilfully submit unreasonable estimates to obtain extra tax credit. The threat of penalties may deter claimants more generally from asking for reassessment during the year.

We want to encourage people to change their attitude. We are moving towards an integrated tax and benefits system and that will involve consumer education. It will require close working relationships with benefits advisers, NACAB and others to smooth the transition—the Revenue is geared towards this—but we believe that the gains at the end of the process justify the proposed actions.

Steve Webb (Liberal Democrat, Northavon)

That was a helpful response, because it cleared up some of my misunderstandings about the way in which the system will work, although I am not sure that it was a reassuring response. In the system that the Minister is describing, changes to circumstances covered by the clause must be notified immediately or within three months, or whatever it turns out to be. Therefore, a change in a relationship or the birth of a child must be notified within three months. Changes in income do not have to be, but there will be a year-end reconciliation, if I understand

it correctly, although claimants will be at liberty to report such changes. However, the Minister used the phrase ''small changes'', which was the starting point for the amendment, although I accept that it was in the wrong place. He is almost agreeing that there needs to be some concept of small changes for the system to work.

To avoid pursuing the matter for too long, I accept the Minister's point that the amendment is to a clause that deals with changes in personal circumstances and not changes in income, and therefore does not work here. However, his description of year-end reconciliations concerns me a great deal, particularly when we are talking not simply about the few poor but about 6 million child tax credit recipients, many of whom have never made a tax return and who, as far as I can see, will now all have year-end reconciliations. I suspect that we shall return to that on the next clause, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 ordered to stand part of the Bill.

Clause 7 - Income test

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 65, in page 5, line 10, leave out from 'means' to end of line 23 and insert

'current year income or previous year income as prescribed in regulations.'.

This is the nub of the Bill for us in relation to people's entitlements. Clearly, fraud is an important issue and I know that Conservative Members will seek to raise it. We are particularly interested in the way in which the measurement of income will work. I had to read subsection (3) many times and I still do not really understand it.

Howard Flight (Conservative, Arundel and South Downs)

Hear, hear.

Steve Webb (Liberal Democrat, Northavon)

That is reassuring assent. However, I am concerned about the way in which it appears that it will work in a number of respects.

We are glad that the Minister has had discussions with such groups as the Child Poverty Action Group. Its presumption had been that assessment would be based on the previous year's income. The beauty of that system is that the income is knowable, so the danger of underpayments and overpayments is much diminished. I think that it would be fair to say that members of this client group are not necessarily the greatest record keepers. I do not mean that in a patronising way, but they have not needed to be. Typically, they do not file annual tax returns, and those who do have found the record keeping responsibilities to be a bit more of a stretch. If we require folk on much lower incomes and in much more variable circumstances to do the amount of record keeping that will be necessary to present not only a previous year's income but a plausible estimate of the coming year's income, we shall be asking a great deal. The better model that the amendment seeks is a presumption that the previous year's income would be the norm, and regulations would then prescribe circumstances in which the previous year's income

might not be used. I shall give the Committee a few examples to show where that presumption might not be appropriate and to stress that we would prefer the previous year's income to be taken as the norm.

Clearly, in income support or JSA cases one would want the circumstances to be updated immediately. A person may have lost his job, so it would not be right to look at last year's income from earnings; they would want to go straight to the current year's income. One would also want notified straight away any big change in the family composition, such as becoming a lone parent or the birth of a first child. If there were big changes in income beyond the threshold, one would want to start looking at the current year's income. In the case of a change in hours that goes across a 16-hour or 30-hour threshold, one might want to go to the new year's income. But beyond those dramatic changes in the family circumstances, it seems a much better route simply to use last year's income, which is knowable and known, for which there is no scope for error and which will be on the P60 anyway. That is the principle behind the amendment, which leaves out subsection (3).

I have one concern about the subsection that I should like the Minister to clarify, as, if left in, it could have an anomalous effect. The provision seems to say that if income has gone up by less than a threshold, we go on using the previous year's income. If it goes up by more than a threshold, we use the previous year's income plus the amount of the increase—not the whole amount. If we use the whole amount, there is huge

discontinuity. However, the paradox with that approach a year on is that, if nothing has changed, the previous year's income will include not just the income for the year before that plus the bit above the threshold, but the width of the threshold as well.

If that is as clear as mud, I could illustrate it for the Minister with some figures, but a disregard effect seems to be at work in subsection (3). If income has gone up beyond the threshold, the width of the threshold is disregarded in the assessment and only the bit above the threshold is assessed. Will that disregard continue a year on from that or will the system suddenly say, ''Hang on a minute. You've got that income. Now we shall start using it for this part of your income''? That could create a jump, especially if the threshold was big. Again, NACAB suggests that a threshold of £2,000 might be appropriate for changes in the other direction.

If subsection (3) remains in the clause, an anomaly could arise, unless I have misunderstood it. We would prefer a presumption based on the previous year's income and then for circumstances to be prescribed in which the current year's income would be used instead. We believe that that would be a simpler system—although I have not presented it as such—than that contained in subsection (3).

Debate adjourned.—[Mr. Sutcliffe.]

Adjourned accordingly at two minutes to Seven o'clock till Thursday 17 January at half-past Nine o'clock.