Tax Credits Bill

Public Bill Committee, 22 January 2002.

Standing Committee A

Tax Credits Bill

Peter Luff (Conservative, Mid Worcestershire)

On a point of order, Mr. Hood. Last week we had a useful debate on the regulation-making powers in clause 10. I suggested that although the Bill contains some 19 regulatory powers it would be helpful for the good conduct of the Committee if we tried to avoid having too many debates about them, and your co-Chairman, Mr. Beard, agreed. Then, over the weekend, I saw a report in The Sunday Telegraph stating that the Government have used regulation-making powers to a record-breaking degree—4,155 times last year, which is an increase of one third on the previous record in 1997. The article says:

''Although MPs can vote against statutory instruments, in practice this never happens . . . MPs are now largely irrelevant to the way our laws are made.''

So far we have debated some nine regulation-making powers, three of which went through on the nod because of the guillotine, and there are about seven coming up in relation to our proceedings today and possibly on Thursday. The exact number depends on how one defines a regulation-making power; some are very narrow and some are very broad. Clause 23 certainly contains regulation-making powers.

In view of the revelation that the Government are using regulation-making powers on such a massive scale, Mr. Hood, what is your view on clause stand part debates in that respect? The Bill contains an enormous range of such powers, so will you allow us to test the Minister on the rationale behind each one?

Dawn Primarolo (Labour, Bristol South)

Further to that point of order, Mr. Hood. The hon. Gentleman's question was addressed to you, and you decide on how best to handle our debates. However, I may be able to help the Committee. I have not seen the article that he mentioned, but our first concern is to ensure that draft amendments are available. We will discuss regulatory powers in the context of clauses 23 and 24—

Jimmy Hood (Labour, Clydesdale)

Order. The Minister is responding to a matter for debate that was raised by the hon. Gentleman in his point of order. Revelations in the press, regardless of whether they are factual, are not a matter for the Chair, and the hon. Gentleman should address his remarks to the Minister. In relation to clause stand part debates, I will consider them on their merits, as I always do.

Clause 23 - Payments

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 94, in page 16, line 19, leave out 'Subject to section 24'.

Jimmy Hood (Labour, Clydesdale)

With this it will be convenient to take the following:

Amendment No. 36, in clause 24, page 16, line 28, leave out 'Regulations may' and insert

'Nothing in this Act shall entitle regulations to'.

Amendment No. 37, in clause 24, page 16, line 30, at end insert

'unless payment is made to such employers equal to the full economic cost to the employer of doing so.'.

Amendment No. 51, in clause 24, page 16, line 30, at end insert

'except where an employee requests payment into an account notified to the Board or via a Post Office, in which case the employee shall be entitled to receive payment in this manner'.

Amendment No. 35, in clause 24, page 16, line 31, leave out subsections (2) to (7).

Amendment No. 104, in clause 24, page 17, line 2, at end insert

'provided the Board shall reimburse the full costs of so doing to employers.'.

Clause 24 stand part.

Howard Flight (Conservative, Arundel and South Downs)

I welcome you back to the Chair, Mr. Hood.

Clauses 23 and 24 provide for child tax credits to be paid directly to the carer and for working tax credits to be paid by employers. They do not explicitly say what happens to the large numbers of self-employed people, but I assume that the intent is that they will be paid directly by the Revenue.

In the group of amendments that we are addressing, our amendments take two different lines and raise two separate issues. Amendments Nos. 36 and 35 would provide that working tax credits were not paid by employers but were paid directly to claimants. Amendment No. 37 raises the issue of remunerating employers for the economic costs incurred in making working tax credit payments, and amendment No. 104 raises the issue of the costs incurred in relation to the provision of information to employees. Liberal amendment No. 51 goes down the middle by stating that employees should be permitted to request direct payment to their banks or post office accounts.

There is some important background information to run through. There are currently about 5 million households getting support directly from the tax system. That involves around 300,000 employers in making payments, especially under the working families tax credit. The Carter review, which the Government instigated, found that employers have incurred £220 million of costs since these arrangements were introduced. The Bill extends tax credits to couples and individuals without children, which the Institute for Fiscal Studies estimates would add 250,000 single people and 170,000 working couples to those being paid tax credits by employer.

Overall, the total of 5 million households receiving support from the tax system would be raised to 6 million.

Steve Webb (Liberal Democrat, Northavon)

One thing that struck me when I read those estimates was that the IFS could not have known the rate that the Government would pay for a second adult, which we have discovered that they plan to do, and that it could not have known the amount for lone parents through the working tax credit. Both those additions to the value of the credit will bring on extra people beyond those estimates.

Howard Flight (Conservative, Arundel and South Downs)

I thank the hon. Gentleman for that additional point. We are addressing a framework Bill, we do not know its provisions and that seems wrong to me and to the hon. Gentleman. The total number of households affected may be more than 6 million. The Government have argued that because child tax credits will be paid directly to the main carer this will offset the additional numbers of people with whom employers must deal under working tax credits. It is unclear whether that follows, but it is their line of defence.

Amendments Nos. 35 and 36 take the route of providing for all tax credits, including working tax credits, to be paid directly. The logic behind this is separate from the issue of the costs to business. On Second Reading I referred to the consequence of that, which will be that people's pay packets will become a social wage that is unrelated to the economic reward for the job that they are doing. I am concerned, and the Government should be concerned, that this sends the wrong signal. There must be clear monetary signals if people are to be motivated to enhance their skills. If we are to achieve better productivity growth we need a more skilled population. In the past, people such as the parents of Lady Castle, who were coal miners in Wales, knew that to obtain skills was to progress in life. Happily, much of the Asian immigrant community knows that message, and its members get themselves more skills than other parts of the population.

The Government have admitted in their reports on skills that we are lagging far behind other developed economies. They predict that jobs will go vacant because of a lack of skill growth in the economy, and they point out that the proportion of the work force with intermediate vocational skills is one of the worst in the Organisation for Economic Co-operation and Development area. I put it to the Minister that there is a contradiction in that the Chancellor is saying that the top priority is to upskill to obtain productivity growth, which has declined, but we are making arrangements for pay that will send people the wrong signals.

The Government have argued that tax credits must be paid through the pay packet because of the stigma associated with the alternatives, but the inquiries that have been made point in the other direction. Employees prefer to receive such payments directly because they do not want either their employers or other members of staff getting to know their personal affairs.

There is an issue—it is not major—about employees taking a credit risk on employers. If employers have received money from the Revenue and go bust before they have paid it out, employees could suffer.

In principle, the biggest concern is that there is a Speenhamland element in that there will be an obvious disincentive to employers to up pay where they are able to give out pay checks that include a significant element of tax credit, which is obviously a form of negative income tax. Psychologically, if not in market terms, it will lead to downward pressure on pay, especially in areas where pay is low.

There is another fundamental point that underlies the amendments, which are intended to tease out from the Government how they will remunerate employers for their work. The Bill provides for a negative income tax, and, as the Confederation of British Industry has made clear, the Government indicated to it at the outset that tax credits would be administered by a tax coding system. We discussed tax coding last week, but the CBI and the Government have deemed it to be impractical, and I should like to know why. In principle, a system of tax coding would avoid muddle and fraud because annual negative income tax returns would provide the evidence, which would be different from payroll information, which the Revenue would need. That would enable the continuity of payment that the Government seek, just as a system of coding and tax returns would make easier the payment of tax on a rolling basis.

There is a probing question implicit in the amendments: why is a negative income tax system impossible? Is it the Government's intention to work towards that? As the CBI has argued, it would be the best solution to the problem.

Amendments Nos. 37 and 104 are probing amendments. The Government commissioned the Carter review, and they have indicated that they will respond to the issue that it raises, namely their imposition of costs on all employers for administering tax credits. What are the Government proposing? They cannot use the argument that they do not want to reveal the rates of tax credits because that will be announced in the Budget. The Government are imposing burdens on employers and have said that perhaps they want to alleviate them, so it is reasonable to want to know what alleviation the Government are considering following the Carter review.

The Minister has argued that moving to 12 months, rather than six months, might ease the burden on employers. The employer view, as expressed by the CBI, is to the contrary: because of the 12-month gap, people whose circumstances change materially during the year will advise the Revenue accordingly and will, as a result, have changed tax credits. Although the employer will be given information by the Revenue, every time that that happens they will have to change their computer programming to pay out a different individual amount to the employees who are affected.

The Government's better regulation task force indicated its worries about the impact of tax credit costs and time burdens on small business. Such

businesses must focus on their business to survive and they are already burdened with excessive regulation. Here we have not just a regulation, but a task and small businesses do not necessarily have the money to easily subcontract their payrolls. With staff who work differential hours, they are likely to be faced with changes in the tax credit arrangements during the year. We would like to hear what the Government plan to do about the problem. We also register the major contradiction between an economy that ends up operating with a social wage and a Government policy that wants higher productivity growth and people to upskill themselves so that they become more valuable. The Government should listen to employees who clearly do not want to be paid their tax credits in the pay packet.

Hugo Swire (Conservative, East Devon)

I have not spoken to date in this Committee, but today I wanted to speak about the burden on small business. We agree with much in the Bill and it is a laudable aim to try to eradicate poverty. The question is how to achieve that.

I am not convinced that the Bill goes far enough to incentivise people who seek work or, as my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, that it goes far enough to encourage people to improve their skills and remove them from dependency on welfare. My worry, which is shared by my hon. Friends, is the burden that the clause imposes on particularly small businesses. In my constituency, businesses tend to be small—the average business employs two or three people in residential homes or tourist-related business. As the hon. Member for Teignbridge (Richard Younger-Ross) said last week, much of the employment is seasonal, which has its own implications.

We cannot assume that everything read in the press is accurate—far from it—but it is worth hon. Members bearing in mind the comments made by the right hon. Member for Birkenhead (Mr. Field) in The Mail on Sunday, the Sunday before last:

''Tax credits are an open invitation to fraud. In effect the Government hands over its own chequebook to individual employers and invites them to fill in the cheques on behalf of any workers who claim they are eligible.''

We already know that £350 million is being swindled out of the tax credit system. Does the Paymaster General think that that amount will be eradicated, or even reduced, by any of the measures in the Bill? I suspect not.

Unlike some members of the Committee, I am neither an accountant nor a distinguished professor in this subject. In other words, in many senses I am the ideal guinea-pig to consider the Bill. However, I confess that I am somebody who even struggles with self-assessment, although, with the ever-increasing burden of personal taxation, there is very little to assess at the end of most years. If I find the system complicated, where does that leave the applicants? The applicants who ideally will benefit in most of these cases are the same group of people who regularly come to see us in our surgeries. Most of them struggle to understand the benefits to which they are currently entitled: they are confused over housing benefits and

other entitlements. I believe that in many cases—I do not say this in a condescending manner—some of these provisions will be beyond their comprehension.

I want to return to the burden on small businesses. We have heard this morning from various groups that have taken an interest in the Bill. Donald Martin, the United Kingdom policy chairman of the Federation of Small Businesses, said:

''Businesses should not be treated as a social welfare arm of government. It is an invasion of employee privacy and a major distraction from business wealth creating activity.''

I worry that there is increasing evidence that, as businesses look forward to the months ahead, they are increasingly lacking confidence. It is a sensitive time of the financial cycle for many businesses, as they look ahead. At a time when we should be reducing the burden on small businesses to allow them to do what they are there to do, we seem to be asking them to do more rather than less.

Any business man, and I am sure that there are people with business backgrounds in this room—or, indeed, in our part of the world, any farmer or small business man—will say that their chief enemy is the ever-present red tape. It is worth reflecting that during Labour's first term of office red tape costs increased by a staggering £15 billion, according to the British Chamber of Commerce. That staggering sum does not even include the financial cost of the national minimum wage.

James Clappison (Conservative, Hertsmere)

I hesitate to interrupt my hon. Friend when he is making an important point, but he mentioned a major survey carried out by the British Chamber of Commerce. He could have added that that survey was based on information from the Government's own regulatory impact assessment: it was not a figure plucked out of the air.

Hugo Swire (Conservative, East Devon)

Indeed. I am grateful to my hon. Friend for intervening on that point. In all fairness to the Government, they are cognisant of some of the problems that the Bill will impose, and I shall return to that in a few moments when we discuss the Carter report.

The working time directive has imposed recurring financial costs of £2.3 billion, the data protection directive recurring administrative costs of £630 million and the pollution directive recurring financial costs of around £1 billion. In addition, there is the student loan repayment, stakeholder pensions, the parental leave directive, the part-time workers directive and other potentially major burdens that we are told are in the pipeline.

As my hon. Friend the Member for Hertsmere just intervened, I want to return to the point that he raised, which Patrick Carter also referred to in the foreword to the Review of Payroll Services, when he said:

''There is no doubt that the weight of payroll obligations falls disproportionately on small businesses, a part of the economy which employs 25 per cent. of the UK work force and contributes about 30 per cent. of gross domestic product.''

The segment of the economy represented by small businesses is its engine room, and any Government who wish to incentivise small businesses should aspire

to regulating them in as light a manner as possible. They should be nurtured and encouraged to grow where possible, rather than smothered in red tape. They should certainly not be distracted by a role as unpaid tax collector and welfare worker on the Government's behalf. As my hon. Friend the Member for Arundel and South Downs said this morning, there is talk following the Carter report of businesses being paid £200 to administer the payroll burden. That is not enough, but financial compensation is not the point: they should not be expected to fulfil that role in the first place.

In the light of our on-going debate, I urge the Minister and her colleagues to listen carefully not only to our concerns, but to those raised by the CBI, the Institute of Directors and the Federation of Small Businesses. Those organisations are at the coal furnace of the problem and are in an ideal position to give advice.

Steve Webb (Liberal Democrat, Northavon)

Our amendment No. 51, which is part of this group, tackles the issue of payment through the pay packet from a slightly different angle by enabling the employee to opt instead for payment through a post office or into a bank account. I suspect that we shall consider post offices in some detail when we discuss amendments Nos. 101 and 113, but here we are trying to test the Government's belief that it is in the interests of the employee to be paid through the pay packet. It is clear that such a provision does not benefit employers, so unless it benefits employees one must question why it is there at all. If it is in employees' interests, it ought to be safe to give them a choice. As a good Liberal, I would argue that in cases such as this, employees are probably the best judges of what is in their own interests, rather than the state. Forcing them to receive payment in a particular way in order to educate them seems somewhat paternalistic—or, if one prefers, maternalistic.

There is no particular reason why payment through the pay packet should communicate something that a visit to a post office or a glance at bank statement cannot. It is clear to people that they will get the credit only when they work, and it matters not whether it appears in their pay slip, on their bank statement, or in the form of cash payment at a post office. Such differences should not affect their ability to add together two numbers.

Much the same argument was made when we debated the Tax Credits Act 1999—the Paymaster General was in her place then, and the same Liberal Democrat spokesman was in his—and I expect that much the same response will be given now. None the less, we shall try to convince the Government. We argued then that it was not necessary for two payments to be made in the same way for people to add together two figures, but we were assured to the contrary and that the provision teaches the value of work. The Government's argument has even less validity now, because it is being applied to a much smaller payment. Instead of paying people £70, £80 or £90 a week through the pay packet—the original working families

tax credit route—the working tax credit will pay £15 typically. For goodness sake, do people really need to use the pay packet payment mechanism to add £15?

One could argue that the process of going to a post office and being handed crisp used fivers might lead someone to appreciate and understand the process more than would reading an entry on a pay slip or a line in a bank statement. Many people are paid not by their employer in cash but by direct credit transfer into a bank account. All that they actually get is one figure on their bank account whereas, if they could opt for direct payment from the board into their account, there would be two lines in their monthly bank statement: one for their take-home pay and one for their working credit. We are talking about the difference between two lines on a salary statement each month and two lines on a bank statement each month. One is supposed to give great educational benefit and teach people about the work ethic.

Chris Mole (Labour, Ipswich)

Does the hon. Gentleman accept that most people receive a payslip, which would have the two lines, as well as having the single entry on the bank statement?

Steve Webb (Liberal Democrat, Northavon)

Yes. What we are saying is that if, under our amendment, someone could opt for direct payment into their bank account instead of through their employer, the difference would be between a payslip with two lines, one for pay and one for working credit, and a bank statement with two lines, one for pay and one for working credit. I cannot for the life of me see why we should cost employers £90 million a year to deliver the educational benefit of two lines on a payslip instead of two lines on a bank statement. That seems absurd.

The amendment is about giving people choice. If no one opted for that method of payment, the amendment would have no consequence. It would quickly become apparent that no one wanted it, and it could be struck out later. It would do nothing and might even complicate the system unnecessarily. But if people do opt for payment in that manner, refusing the amendment would damage their welfare, denying them a choice that they would like to exercise.

I shall not go into great length about the post office side of the issue, to which we shall return later, but it is safe to say that some people might want to value the infrastructure of their village and post office. Giving them the option to do that is beneficial.

The amendment is in the interests of employees because it gives them a choice that they would not otherwise have. It is in the interests of employers, who will have a lower administrative burden. I venture to suggest that the option will be especially attractive to people who change jobs. There are discontinuities when people leave one employer and start with another and problems trying to ensure that the tax credit, if delivered through the employer, continues with no disruption. People would not have that if they had payment into the post office or bank account; the credit would continue, uninterrupted.

There are many reasons why people might want to take this option, and the Government deny them a choice if they do not allow that. If almost everyone who receives the tax credit opts for the choice in this amendment, we might make it universal and give up on the silly notion of payment through pay packets altogether, but that is more in the spirit of some of the Conservative amendments.

I have a final observation on some of the Conservative amendments. The hon. Member for Arundel and South Downs asked about the fact, pointed out by the CBI, that once upon a time the credits were to be delivered through the PAYE code. Members of the Social Security Committee with us today will have gone through the process of deciding that that would not be practical. One reason is that the whole system is based on family assessment. It becomes very muddy trying to deliver through an individual tax code an amount of money connected with family assessment.

Howard Flight (Conservative, Arundel and South Downs)

I readily appreciate the point that the hon. Gentleman makes, but I point out that if they have a tax code, claimants must have annual negative income tax returns, as I suggested. I am surprised that the Committee did not conclude that that, at the end of the day, would be a lot tidier and more reliable than the arrangements being opted for. As we discovered when debating them earlier, they are likely to create a lot of muddle and greyness. There is no ready way of reconciling to ensure that all claimants have provided the Revenue with the information that it needs to assess them. We also discovered that people would themselves be quite unable to understand what they were entitled to.

Steve Webb (Liberal Democrat, Northavon)

As is so often the case, we are wrestling with the tension that in the British tax system it is not the custom for people, apart from high earners and the self-employed, to fill in annual tax returns. I would not want to force that on more people, given the choice.

My point is that the Government talk the language of integrating taxes and benefits, and have gone a little way down that track, but there is a road block beyond which they will not go. Given the choice between harmonising individual assessment and family assessment in the Bill, they went for family assessment. It will never be possible to deliver it through the PAYE code, so there will always be an administrative burden if it is delivered as a separate payment by employers.

The welfare of individuals and employers is enhanced by giving people a choice, and our communities will also be enhanced, a point to which we shall return. I hope that the Minister will tell the Committee why she wants to deny people that choice.

Mark Hoban (Conservative, Fareham)

I am concerned about the burden that the Bill will place on small businesses particularly and businesses in general. I raised this point on Second Reading and I want to return to it today in the context of this group of amendments and the clause stand part debate.

We want responsibility for the payment of tax credits to move back to the Government, where I believe it belongs, to ensure that there is no

unnecessary burden on business. The regulatory impact assessment for the Bill stated that the cost to business would fall to about £90 million and that the majority of the £9.5 million saving would arise from moving from six monthly to annual claims. I welcome that reduction, which provides some relief to small businesses, but that cost does not show the true picture.

We must remember that employers will receive not just the coding notice that they receive for employees at present but, for those claiming tax credits, a separate piece of paper that will need to be processed to ensure that the correct tax credit is paid to the employee. Therefore, employers will need to meet the cost of processing each transaction that is a consequence of the Bill. One of my concerns is that, every time there is an in-year assessment, the employer will have to amend the employee's details on his payroll system and change the credit that he receives and there is a processing cost attached to that.

To an extent, some of my concerns were addressed in last week's debate about thresholds, when the Minister said that, as thresholds would be quite wide, there would be only a small requirement to submit an in-year assessment for changes in income. But until the thresholds have been set, it is difficult to assess the changes of income and the consequent in-year assessments on the employer's payroll costs and the number of transactions that he needs to process.

Again as we discussed last week, a number of other circumstances, particularly changes in family circumstances, give rise to changes in tax credits during the year. In its report on tax credits, the Institute of Fiscal Studies gave an idea of the quantum of changes that we might see as a consequence of some of the other changes. Based on evidence from the labour force survey, it suggested that at least 360,000 adults in couples with children and 90,000 lone parents change employment status within three months. Each one of those changes will trigger a cost to the employer, because the new employer will have to set up the tax credits for that employee. At least 840,000 adults in couples with children and 180,000 lone parents change employment status within 12 months, so again a large number of people are coming through the system. Each time somebody moves job, a new payroll cost will be incurred by an employer.

In terms of changes in family make-up, at least 225,000 couples with children break up and at least 200,000 lone parents start to cohabit within 12 months, again a change in family circumstances that will give rise to a change in tax credits for the employee and an additional cost on business as a consequence. Costs could be removed from the employer if the Inland Revenue required direct payment of all tax credits to the employee and did not require the employer to process those costs.

Another aspect of the Bill that will have an impact on businesses and the number of people falling within the scope of the Bill will be the number of claimants. That number will depend on the rates and tapers, information which, despite the valiant and ultimately fruitless efforts of the hon. Member for Northavon,

the Paymaster General kept a jealously guarded secret during last week's debate—I suspect that she will not change her mind this week.

Depending on the generosity of the Treasury, the number of claimants could go up, putting an additional burden on business as every new claimant registers as a transaction cost. Ministers are forcing a cost on to small businesses that is ultimately unpredictable and unquantifiable and is entirely dependent on the Government's policy objectives.

Jim Sheridan (Labour, West Renfrewshire)

I thank the hon. Gentleman and his hon. Friends for this nostalgic trip back to the dark days of his Government, whereby any legislation enhancing the life of people in the lower quartile of our society suddenly becomes a burden on businesses. The hon. Member for East Devon (Mr. Swire) said that the working time directive is a burden on industry. It is ridiculous in this day and age to say that about legislation that allows workers to work for less than 48 hours a week or sets a minimum wage, which takes people off benefits so that they do not need tax credits. It is nostalgic rubbish.

Mark Hoban (Conservative, Fareham)

I am grateful to the hon. Gentleman for his intervention. All that we are suggesting is that by shifting the burden from employers to the Inland Revenue, his Government can still achieve their objectives in terms of alleviating poverty and improving work incentives without imposing the cost on business. That is a reasonable position to take.

Payroll processing costs on small businesses are significantly higher than those on large companies. A business with between one and four employees incurs an average cost of £288 per employee, but for a large company employing more than 5,000 people it falls to £5 per employee. In small businesses, the payroll is often done by the owner-manager, a bureau service or the company accountant. Significant costs may be incurred, as well as a significant distraction in terms of time from the valuable task of job creation and wealth creation to which my hon. Friend the Member for East Devon referred.

Hugo Swire (Conservative, East Devon)

I am grateful to my hon. Friend for pointing out that we are not necessarily opposed to the list that I mentioned, but to the idea of small businesses, rather than the Government, being responsible on those occasions. Further to the burden that he is describing, does he see any difference between the 7 million people who are paid weekly and the 16 million who are paid monthly?

Mark Hoban (Conservative, Fareham)

It depends on how the payroll is compiled. In the case of an automated payroll system it probably does not matter if it is weekly or monthly, but where it is compiled manually, as it is in many small businesses, costs may arise.

My hon. Friend talked about the additional burdens that are placed on businesses by the earlier legislation to which the hon. Member for Northavon referred. A business with just one employee, perhaps a self-employed person operating as a sole trader, may, when

faced with the administrative burdens that arise from employing another member of staff, wonder whether it is worth while. Some of the costs that are imposed, especially those of processing and administration, may act as a barrier to further recruitment, thus diminishing the number of opportunities for people to move from unemployment into work, which is the Government's objective in introducing the tax credits system. Shifting the burden of paying tax credits back to the Inland Revenue might make it more attractive for small businesses and small traders to recruit more members of staff to grow their business and create the wealth and jobs that the country needs. Time and again, the Government have imposed burdens on business, and the amendments present an opportunity for them to relieve small businesses of a burden that could have big effect on the lives of those who run them.

There are three solutions to the problem of imposing additional costs on businesses. The first, to which my hon. Friend the Member for Arundel and South Downs referred in his opening remarks on the amendments, is to move to a negative income tax so that there is only one coding to process, not the standard PAYE coding and a separate piece of paper for the tax credits. I will be interested to see how the Paymaster General responds to that, because to have only one coding to process, not two as at present, would be a very straightforward way for an employer to reduce the initial transaction costs.

The second solution, which the CBI suggested yesterday in its briefing to the Committee, is to compensate employers fully for the cost of administering tax credits. There is much merit in that. It would meet some of the objections of small businesses, but would impose an additional burden on them because they would have to submit a claim form and get a cheque back from the Revenue to meet their costs. I am also uncomfortable about it because it would not remove the time burden of payroll costs from small businesses. I would rather that the time burden of complying with the measure was pushed back on to the Inland Revenue.

The third solution, which I favour, is direct payment to the claimant, as the amendments suggest. The Paymaster General has already said that child credits will be paid directly to the main carer by the Inland Revenue, so it would require a relatively small extension of the system for it to cover childless couples in receipt of tax credits. I do not see that implementing that would be onerous on the Inland Revenue.

When there has been discussion on that idea, the Government have argued that it would break the clear link between the incentive to work and joining the work force. They might use that argument on this occasion, but the very process of leaving jobseeker's allowance to move to the working tax credits, completing additional paperwork and submitting the forms, would show clearly to the claimant that a change had arisen solely because of their movement from being unemployed to being in work. That

change, together with the extra line on their bank statement marking a payment from the Inland Revenue, would demonstrate the incentives again.

I am not sure that the Government are right in saying that the proposal would act as a disincentive for people to move from benefits into work. The IFS report states that the Government also hope that

''as a tax credit rather than a welfare benefit, it should reduce the stigma associated with claiming in-work support, and encourage higher take-up''.

However, the IFS concludes:

''There is no evidence, though, that payment in this way improves work incentives or reduces stigma''.

The evidence collected by the CAB suggests that payment through the wage packet caused substantial difficulties for some recipients of working families tax credit, especially if employers refused to pay, or refused to increase hours above 16 a week so that people could not claim the tax credit. There are some significant problems still arising on the payment of tax credits through the payroll by employers.

Hugo Swire (Conservative, East Devon)

What my hon. Friend says on that point is entirely true. He no doubt remembers the case of the lone mother with three children who lost her job when the tax credit was actually put in her pay.

Mark Hoban (Conservative, Fareham)

Yes. We must recognise that those incidences are regrettable, and that employers should not do such things. However, from time to time employers are in situations in which they do not wish to incur additional costs.

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman is making a very important point. I am sure that he will agree with me that the overwhelming majority of employers fulfil their obligations, and the situations that he mentions do not arise. In the particular case raised by the hon. Member for East Devon, we keep asking for information to pursue the case to see whether an issue was not dealt with in legislation, but unfortunately we still do not have details from the organisation that reported it or the individual that would allow us to ascertain the facts. The legislation protects the employee in those circumstances, and we expect it to be used.

Mark Hoban (Conservative, Fareham)

The Minister is right to say that the vast majority of employers deal with such matters properly. However, we should not use that argument to ignore the fact that some employers do not, and we should consider ways of minimising the impact on claimants. That is why I believe that moving to direct payment by the Inland Revenue will not only reduce the cost for business, but remove stigmatisation and discrimination against employees who apply for tax credits.

So far, comments have primarily related to the annual running costs of the tax credit system. Additional costs will arise from the Bill. The move from six months to 12 months will require adjustments to the wages software used by companies. Even the regulatory impact assessment points out that, although the number of employers will remain unchanged, different employers will have to process

tax credits under the new arrangements compared with previous arrangements. Rather than take another batch of employers up the learning curve of implementing and administrating the regime, and allay their anxieties about the incurred costs and the changes that all employers will have to understand are a consequence of the legislation, the Government should accept the merits of moving to direct payments from the Inland Revenue, as they have done for child tax credits. Once and for all, that would lift the burden from small businesses, which are often the motors of the economy in constituencies such as mine. Administrative burdens often needlessly distract them from their valuable job of wealth and job creation.

Peter Luff (Conservative, Mid Worcestershire)

Following your response, Mr. Hood, to my point of order at the start of the sitting, I rise to make the obvious point that I do not believe that regulations are always wrong. Often, Government must rely on regulation to allow for the flexibility to interpret primary legislation. However, clauses 23 and 24 contain largely regulation-making powers, so I will ask what, from now on, may become the usual question to the Minister. Is she satisfied—she probably is, but I want to hear her say so—that she needs to rely on the regulatory powers of the two clauses? I anticipate, Mr. Hood, that you will probably not allow a separate clause 23 stand part debate. Is the Minister also satisfied that they should go through the negative, not the affirmative, procedure?

I will not debate post offices either because they can be debated under the Liberal Democrat amendment in the next but one group of amendments. However, I associate myself with what the hon. Member for Northavon said. My substantive point relates to poverty, how we fight it and the trade-offs that we engage in. Along with my hon. Friend the Member for East Devon, I was glad that a sense of the need to fight poverty is shared across the Committee. It was tremendous to hear the authentic voice of old Labour raised by the hon. Member for West Renfrewshire (Jim Sheridan). He used the phrase ''nostalgic rubbish'', which I throw back at him. We must engage in serious debate about trade-offs. If legislation and forcing employers to do things could end poverty, they would have ended it years ago. However, we must think carefully when the Government invite us to impose or change a burden on a group of people in society in the name of a good cause. Cliche after cliche comes to mind, but the road to hell being paved with good intentions is probably the most obvious. I have two more to offer before I sit down.

I remind the hon. Member for West Renfrewshire that the Conservative party needs no lectures on fighting poverty. The Conservative party began employment protection in the 19th century. [Interruption.] The Minister laughs, but she is showing a shameful ignorance of history, which is uncharacteristic. It is the Conservative party's proud record of industrial and social reform that led to me becoming a member.

Dawn Primarolo (Labour, Bristol South)

I was not laughing; I winced at the hon. Gentleman's suggestion that the Conservative party has a fine and long history in this area. I accept that Winston Churchill advocated a national minimum wage, which this Government introduced. However, if we examine the statistics for the growth in child poverty under the Conservative Government, I am sure that the hon. Gentleman would not suggest that the figures showed that they were tackling poverty. The reverse is true because they presided over a massive growth in poverty.

Peter Luff (Conservative, Mid Worcestershire)

The Minister tempts me into avenues down which I would dearly like to go, but I suspect that you would become impatient, Mr. Hood. Suffice to say that names such as Wilberforce and Shaftesbury are written proud in the history of the Conservative party. Some of the work done on relative poverty under the previous Conservative Government was discredited afterwards because it ignored various issues, but I shall not go into that because I do not want to waste the Committee's time.

When we debate poverty, and the Tax Credits Bill's approach to fighting it—clauses 23 and 24 lie at the heart of the mechanism that the Government propose—we must ask whether the balance is being struck appropriately. I must say that this is the one issue in relation to the Bill on which I received lobbying from my constituency, which is why I am speaking. The Herefordshire and Worcestershire chamber of commerce shares many of the concerns that my hon. Friends raised in their earlier contributions. It reminded me that the problems of small businesses in Worcestershire must be addressed with particular rigour by the Government because 84 per cent. of them employ 10 people or less. It points out that the proposals in these two clauses will be easier for large companies with large human resources departments to cope with than for small businesses.

The CBI's briefing, which has been alluded to on several occasions in the debate, is interesting in that respect. The CBI reaffirms its principled support for what the Government are trying to do in the two clauses and the Bill, but it states:

''If there is no possibility of administering the tax credits system within the Inland Revenue, employers should be compensated for the administrative costs associated with running the scheme . . . Small employers, in particular, will welcome the support offered by paying administrative costs. These employers have reported to us that they are struggling under an increasingly heavy burden of payroll administration. The Better Regulation Task Force has also indicated their concern at the possible effect of the tax credits system on small employers.''

Karen Buck (Labour, Regent's Park and Kensington North)

The hon. Gentleman is making a serious point, but those same organisations, the chambers of commerce and the CBI, also issued apocalyptic warnings about the impact of the minimum wage. Before its introduction his party told us that it would cost 1 million jobs, but the history of its implementation has been the reverse of those dire predictions.

Peter Luff (Conservative, Mid Worcestershire)

I shall not get on to the minimum wage because you would rule me out of order, Mr. Hood. Suffice to say that the level at which it was set meant that it did not have the apocalyptic consequences that it would have had if it had been set at the level preferred by some of the hon. Lady's colleagues in the trade union movement. I could have a longer debate about that issue, but you would rightly call me to order if I tried to do so, Mr. Hood.

Businesses in Worcestershire are concerned about the Bill in general and these two clauses in particular, and the Minister cannot dismiss their concerns lightly when she responds to the debate. The Herefordshire and Worcestershire chamber of commerce points out that smaller businesses are typically run by owner managers who are skilled in doing whatever that business does, but not skilled at being tax collectors for the Government. It says:

''Credits paid out are deducted from amounts the employer pays to the Revenue, where the employer is owed money then this could aggravate a weak cash flow position.''

She shakes her head, but I hope that she will address that point. I look forward to hearing what she has to say, because that is a real fear of businesses in Worcestershire.

I remind the Minister that when the Small Business Service was established it identified the fact that payroll management was a weakness in many small businesses. Many small businesses were worried because they thought that the Government were getting into the business of providing payroll services, but that was not the case. The Government were trying to encourage small businesses to examine solutions to payroll problems, such as better use of modern software. The fact that they recognised through the Small Business Service that small businesses needed practical help with their payroll should make us think carefully about these clauses.

The chamber of commerce says:

''Administering certain benefit credits through the payroll means that some employers may know more (perhaps only in general terms) about the family circumstances of employees than either would wish. The business will often be a small group of three or four people working very closely together. It may be the case that they do talk about family matters and are aware of each other's circumstances. However that is different to having to make one's employer aware of personal circumstances. It is also one of the differences between the large and the small employer. In the large employer there is often more ''distance'' between the individual concerned and the payroll administrator who may not know all the individuals concerned anyway.''

The Government must address the issue of privacy and intrusion. The suggestion to delete clause 24 is welcome for the sake of the individuals whose privacy is threatened. The Government often think in terms of big business. They talk to big business but they do not understand the dynamics. It is not a criticism but an observation. They have not been involved in small business and do not understand the difficulties that this well-meaning legislation causes these companies.

Mark Hoban (Conservative, Fareham)

If a number of employees who all have the same skills compare their wage packets, they may find that one gets significantly more than others

because of his family circumstances and the way in which the tax credit has been processed. That may confuse employees about their value to the employer and cause discontent among the work force.

Peter Luff (Conservative, Mid Worcestershire)

That is a powerful point that I had not properly considered until now. I used to run a medium-sized business. One of our real difficulties was precisely that: people comparing pay packets and reaching judgments about their work. It is an immensely difficult problem in a small business, which typically wants more flexibility in setting its pay rates than some larger businesses operating to agreed pay scales.

James Clappison (Conservative, Hertsmere)

Those who are interested in this important aspect of the payment of the tax credit through the employer would do well to study the speech on Second Reading by the right hon. Member for Birkenhead (Mr. Field) in which he set out the conclusions of his research into the effect that such information leaking out has on the work force as a whole.

Peter Luff (Conservative, Mid Worcestershire)

I am grateful to my hon. Friend for prompting my memory. I hope that the right hon. Gentleman will be able to express some of his concerns on Report.

Another issue is fraud. I am sure that my hon. Friend will mention that later, but it is an important part of these two clauses. The chamber of commerce says:

''Collusion between an unscrupulous employer and employee could lead to an agreement to pay a deliberately low wage and make the amount up through benefits.''

That was another point made by the right hon. Member for Birkenhead. With the greatest respect to the hon. Member for West Renfrewshire, these powerful points are not nostalgic rubbish. They are highly contemporary points about how we conduct the fight against poverty. The Government are quite cavalier in their regulatory impact assessment. They say that the implementation costs should be less and that existing payroll systems should not need to be significantly altered and they give lots of unconvincing reassurances. Even it the costs are a little less than those of the present system, which causes deep concern among employers in Worcestershire, the opportunity should be seized to make them considerably less. Marginal changes are not good enough.

A market gardener in my constituency told me a year or so ago that as soon as he got to spending more than half his time doing Government paperwork and less than half his time growing, he would give up market gardening. He was getting perilously close to that point. I say again to the hon. Member for West Renfrewshire: this is not nostalgic rubbish. This is people fighting on a day-by-day basis in highly competitive markets who need every opportunity to create jobs. We are not talking about wicked employers. These small businesses usually have a good relationship with their work force and want to help them. They are anxious to give them time off and provide them with any moral, physical or spiritual assistance that they can, because it is a small team

pulling together. They want to create more jobs and to employ more people. The Government must make it easy for them.

I should like to remind the Committee of just two more cliches. The first is willing the end but not the means. The Government are willing the end of poverty but not the means to fight it. The second, and more important, is killing the goose that lays the golden eggs, which is what the Government are in danger of doing. Many small businesses in my constituency face intense market pressures and look with dismay at the rising tide of regulations—and I refer to my original point of order. I hope that the Government will not dismiss their concerns as being those of wicked employers who want to grind the faces of the poor. They are caring, compassionate people who want to help their employees and employ more people, but could be denied the chance to do so by measures such as these.

James Clappison (Conservative, Hertsmere)

This has been an important debate on an important part of the Bill. We have had some significant contributions from Conservative and Liberal Democrat Members, and we are all grateful to the Minister for the way in which she has assiduously listened to them. She will give us her considered response shortly. I was interested particularly in her recognition that employers were complying with the provisions. She nods at that, and we remember the National Association of Citizens Advice Bureaux survey on which those assertions were based. The recognition will be useful to bear in mind when we reach later provisions in the Bill. Given that she believes that employers are complying so well, we shall push for easing the burden on employers and securing a little more flexibility for them, although that is for the future.

The payment of tax credits is an important subject, and I will add the perspective from my constituency. My hon. Friend the Member for Mid-Worcestershire (Mr. Luff) talked about Worcestershire. Manufacturers in Hertfordshire are no different and encounter the same problems of having to comply with an ever growing regulatory burden that causes a distraction and in some cases leads to a reluctance to take on additional labour.

The hon. Member for West Renfrewshire must understand that we are not saying that trying to alleviate poverty is a bad thing, but when one does it in a way that causes additional burdens for employers and undesirable side effects, one must look at whether it is a good way of operating. My hon. Friend the Member for Arundel and South Downs was right in his comments and asking whether the Bill provides for the best way of making the payments available to workers on low pay.

Jim Sheridan rose—

James Clappison (Conservative, Hertsmere)

I will give way to the hon. Gentleman, but he may want to hear one fact first, because I know that he is concerned about this. Manufacturing industry, in particular, cites the system as one burden on it, especially on small and medium-sized employers. The background to that is a massive

job loss in manufacturing industry of 350,000 jobs since 1997, accelerating last year to 111,000 jobs. Hon. Members are looking puzzled at that. The figures are not from employers.

Ms Buck rose—

James Clappison (Conservative, Hertsmere)

I will give way to the hon. Lady as well, but she may want to reflect on the fact that those figures come from the GMB, which is running a campaign to draw attention to the fact that one manufacturing job is being lost every minute.

Jim Sheridan (Labour, West Renfrewshire)

I do not suggest for a minute that running a small business is easy, and I have some sympathy for people who do it, because of the difficulties that they face. Does the hon. Gentleman accept that beneficiaries of tax credits work for companies such as McDonald's and Burger King and contractors that work for local authorities? By no stretch of the imagination are McDonald's or Burger King small companies.

James Clappison (Conservative, Hertsmere)

We can reach common ground to the extent that paying working families tax credit through the payroll is more of a burden to small employers than it is to large ones. Many small employers, from my constituency and other parts of the country, have told me that it has an important effect on their administration costs and, cumulatively with other burdens, can govern their decisions about whether to take on more workers or lay off some that they already have.

Karen Buck (Labour, Regent's Park and Kensington North)

I was not doubting the figures that the hon. Gentleman cited, which I am prepared to accept, but I want to quibble about the fact that he said that job losses in the manufacturing industry are due to the administrative burden of the working families tax credit. I do not think that, with some of the serious problems that British manufacturing has faced, such as the strength of the pound, it could be said that the working families tax credit has been the problem. He and his colleagues have also made a great deal of the issue of small businesses. I do not think it would be fair to say that job losses in manufacturing industry have been predominantly in small firms.

James Clappison (Conservative, Hertsmere)

I agree with the hon. Lady to the extent that, to be fair, this is part of the wider economic background. I part company with her on the emphasis that I place on the effect on small and medium-sized enterprises. The burden on them increases the marginal costs, particularly for small and medium-sized employers, and affects the decisions that they take.

One manufacturer who had employed about 50 workers but recently downsized to 44, leaving the machine room empty, said to me, ''Given the amount of regulation that I have to comply with, why should I employ another soul?'' That is the feeling of many manufacturers. That manufacturer was not in my

constituency, but I have been pressed by small and medium-sized manufacturers in my constituency on this point.

I am not saying that tax credits alone, or the administration of student debt, or the stakeholder pensions, or any of the rest, are the problem in themselves. It is the cumulative burden of regulation. That is why we need to have important debates such as this, to examine each and every piece of regulatory burden that is placed on employers and consider whether yet another element of burden is justified, and to put some sort of cost on it.

I now come to what the industry itself says about this matter. The Government's regulatory impact assessment assures us that there will be a reduction in the burden placed on employers. They are trying to make a virtue of that. They have suggested a figure of £11 million a year for the reduction of costs for employers, but we must consider that against the background of a current burden of about £90 million to £100 million, so we are talking about only a relatively small part—about 10 per cent.—of the present burden.

It is not clear that the reduction really will be of that order in any case. Of course, the Minister has been at great pains to say that she does not yet know, because—properly, in her view—she is not prepared to disclose to the Committee her view on the tapers and the rates at which the benefit will be set. We cannot say exactly say how many new people are coming into the system. We know that people who have been receiving the child tax credit allowances have been going out of the system, but a whole new group of people in childless households will be coming in. We do not know exactly how many there will be.

Looking at the mechanics, the Government's regulatory impact assessment set out the ways in which the burden will be reduced: they think that employers not having routinely to complete an earnings inquiry form will save them about £1 million a year; the move towards annual awards about £9.5 million; and certificates of payment about £400,000.

I am slightly hesitant about this, because the Government do in fact say that there may be an increase in the regulatory burden as a result of some of the changes that are being made. Paragraph 2.17 of the regulatory impact assessment says:

''The only change that might generate a cost for employers is that some employers might be asked to adjust the value of tax credit payments to a worker within the year, as the new tax credits system will respond to in-year changes in recipients' circumstances. The impact of this can only be estimated once the system is up and running and so will be assessed as part of the evaluation of the new tax credits.''

I can understand the justification that has been offered, but I am a little hesitant about regulatory impact assessments that cost the reductions but not the increase. We need to hear more from the Minister about that, even if it is only a ball-park figure.

Industry itself is concerned about this. In the submission that we have received from he CBI, it specifically states:

''Employers will need to change the payment rate if an employee notifies the Inland Revenue of a change in circumstances and this may even require the payment of different rates in one pay period.''

The CBI proposes that as a main justification for seeking the payment of administrative costs, which we will deal with under another clause. There are clearly swings and roundabouts to all this, in that there will be reductions and increases in the administrative burden. As a result of the changes to the tax credits, some people will not be paid by employers, and others will be paid for the first time. We cannot gainsay that overall a substantial burden on employers will remain. My hon. Friend the Member for Arundel and South Downs is right to table amendments that question whether such a burden should be placed on employers. We should also ask whether there are other ways of paying tax credits that would not involve that burden.

I share the scepticism of the hon. Member for Northavon about whether paying the tax credit through the pay packet would have an impact on employees, rather than paying it in another way. The Government seem to have adopted that argument to some extent, because they now propose to pay the child part of it in a different way and not through the pay packet. I doubt whether that makes enough of a difference to justify imposing the burden on employers, although the Government claim that it does. The burden on employers is substantial and cumulative, and affects many employers in my constituency. We need to consider the proposal urgently, given the job losses especially in the manufacturing sector, and it is right that we have considered it in the debate.

Dawn Primarolo (Labour, Bristol South)

The hon. Member for Hertsmere spoke about swings and roundabouts. I would put it more in terms of balance. Although I appreciate the importance of ensuring that requirements and obligations on business are reasonable, the arguments so far have been one-sided and isolated from a wider set of changes that the Government are making with regard to facilitating the efficient and productive operation of large and small businesses. The Government's preoccupation in considering changes in legislation was not shared by our predecessors.

The CBI brief has been widely quoted in the debate. It states:

''The CBI supported the introduction of the tax credits system, including paying via the pay packet, as a valuable way of incentivising work. In that context, it also supports the extension of the principle of tax credits to employees without children.''

That is the CBI's principled position.

The debate has been long. I am more than happy to give way to the hon. Gentleman, but I should put more of my argument on record.

Hugo Swire (Conservative, East Devon)

Will the Minister give way on that point?

Dawn Primarolo (Labour, Bristol South)

If the hon. Gentleman allows me to finish my next point, he may find that I have answered his question. If not, I shall give way to the hon. Gentleman with great pleasure.

I deal with negotiating positions in the tax system all the time, so I am aware of the issue. I am sure that all Committee members and those watching or listening to our debates recognise that a good negotiator always seeks to get a little more. As hon. Members have said, the CBI makes the point that it would be nice to be paid. Indeed, the general thrust of representations to the Government from businesses large and small is that it would be nice not to pay any tax and if the Government left them alone to get on with their businesses.

However, that is not how the world is. In a changing Britain, there is a partnership between Government, business and employees. By ''Government'', I mean the public sector as a whole. We must recognise the contributions that are necessary to support the various provisions in our society. Education, training and development contribute to the productivity of business. We must also recognise the aspirations of our communities. In striking that balance, the Government must ask how that partnership can be advanced and what we are doing. The CBI recognises that the incentivisation of the work force is important, particularly given that, in 1997, when the Government were elected, they had to tackle what many described as structural unemployment and underskilling.

I was interested to hear the hon. Member for Arundel and South Downs say that wages always equate automatically to productivity. Quite a lot of people in Britain would dispute that point when they consider what they do in their workplace and their remuneration.

Let us consider the responses made by other employer organisations in the consultation process, which have been placed in the Library.

Hugo Swire (Conservative, East Devon)

The Minister kindly agreed to give way if she did not address my point in her opening remarks and she has not. The passage that she quoted from the CBI brief continues:

''Nevertheless, employers are concerned at the rising burden of payroll administration and their growing role as paymasters of the benefit system.''

On the Minister's second point, I ask her to address the concerns not necessarily of the CBI, which on the whole represents big business, but of organisations that may be more connected to employment in smaller businesses, namely the Federation of Small Businesses and even the Institute of Directors.

Dawn Primarolo (Labour, Bristol South)

I was coming on to the attitudes of the type of organisation that the hon. Gentleman identifies. As a caveat, I should point out that the argument on tax credits is not new; it has been advanced against the collecting of tax and national insurance through the PAYE system, which is extremely efficient, since it was instituted. As I said, I understand that that is a negotiating position. With regard to the work that I as a Minister do on tax credits and the tax system, I entirely accept that pressure should remain on Ministers to examine the potential benefits, where the regulatory burden falls and what

we can do to alleviate that, in the round and specifically. With your agreement, Mr. Hood, I would like to touch on that.

I referred to the CBI briefing. During the development of the working families tax credit, the disabled person's tax credit and the new tax credits, we have worked closely with employer organisations and considered the points that they raised. If we consider the impact of the working families tax credit, we can understand the size of the burden on small employers, on whom the greatest burden will fall. We anticipate an increased requirement for work of six minutes a week, if employers did their calculations manually with the tables. That requirement brings the benefits of retention of staff, commitment, and the other benefits that tax credits will bring. When people refer to the economic cost to the employer, are they just considering the costs, or are they pricing the benefits?

The Institute of Payroll and Pensions Management welcomed

''the beneficial changes from the employer's perspective''.

In its detailed response it recognised

''all the positive changes to the administration of tax credits that will benefit employers.''

I would not wish to mislead the Committee. Those comments are tempered by the comment that it will need to evaluate

''the responsiveness of the new system''.

I was pleasantly surprised to receive the following response from the Institute of Directors, which

''warmly welcome the ending of the requirement of certificates of payment and we strongly support automatic increases in funding when new employees become entitled to tax credits.''

The Association of Convenience Stores supports

''the Government's proposal to reform the existing system of tax credit payments and believes that this will go some way towards easing the problems faced by members at present.''

It went on to say that

''the decision to move to annual assessment and payment cycle will mean an end to the stop start nature of current payments and immediately remove the administration associated with regular changes to an individual's payroll.''

Steve Webb (Liberal Democrat, Northavon)

No one would question that the Government have reflected on the problems of administering the working families tax credit through the pay packet, and streamlined that process. That is welcome and we should acknowledge it. The Minister says that we have talked about the costs, not the benefits. However, it seems to me that the benefits are about giving low-paid workers more money, which can be done through their bank accounts. The benefits do not depend on payment through the pay packet: employers could have the benefits without the costs.

Dawn Primarolo (Labour, Bristol South)

With respect, the Government and the CBI do not agree with the hon. Gentleman, neither do other employers and organisations that contributed to the extensive consultation exercise on the new tax credits and in the development of others. It is important to ensure that work pays, that people keep

more as they earn more and that we help them through the transition. Payment through the payroll provides for that.

The hon. Gentleman mentioned help for small and large employers. I acknowledge that when people receive a new benefit, they pocket it and ask for more. Everyone does that; it is what negotiations are about. However, I remind the Committee of changes that the Government have made to help small and large businesses: reduction of corporation tax; abolition of advance corporation tax; changes to streamline the national insurance system and make it more efficient, particularly for small businesses. We revised the thresholds for quarterly payments of PAYE and tax, ensuring a better cash flow position. We asked the small business service and the Inland Revenue business support teams specifically to look at how we can help small businesses.

The Carter review, which examined payroll services, has been mentioned. It dealt with the benefit to small businesses of using e-commerce and the internet. The Carter report indicates that there would be huge benefits for business and Government if small businesses could be encouraged to use and develop technology. We would have clean data, which would allow us to reduce burdens on business, and businesses would become more responsive.

Richard Younger-Ross (Liberal Democrat, Teignbridge)

The Minister made it sound as though the burdens on business were not too onerous. Many self-employed people wish to expand their businesses and take on staff, but the mountain of paperwork stops them taking that further step. Can we not make the burdens lower for new businesses?

Dawn Primarolo (Labour, Bristol South)

In everything that we do, there is a difference between perception and reality. People may perceive something as a huge problem—that might act as a brake—whereas, if they were fully informed, they would not. We work with employers to ensure that all the information is available. [Interruption.] The hon. Member for Mid-Worcestershire says from a sedentary position that that is extraordinary. I shall give way to him in a moment.

The Government have done a huge amount of work to determine how to reduce burdens. They are looking for ways to achieve objectives on incentivising people to move into work and how that can best be rewarded, while constantly keeping in mind the requirements placed on business. I have explained what the Government have done so far, and I now wish to discuss how the Bill will reduce the burdens further.

When hon. Members discuss the Bill, they isolate it from other Government actions to benefit and assist employers and employees. They should consider it in the context of the Government's strategy.

Peter Luff (Conservative, Mid Worcestershire)

For the Minister to dismiss the concerns of small businesses, like the one raised by the hon. Member for Teignbridge, as ''perceptions'' is remarkable. They have these ''perceptions'' because their fellow small business men tell them these things.

It is not perception it is reality that these people are confronted with and that is why they are reluctant to expand.

Dawn Primarolo (Labour, Bristol South)

I certainly did not intend to suggest that it was not important. It is very important. People's perceptions are as important as the reality because, as the hon. Gentleman suggests, otherwise they do not move on. It is part of the educational role that we need in working with employers and getting information to them to ensure that they are fully aware of the reality and that we can get that message to them. As individuals, we are all familiar with that problem because our own understanding may sometimes not be what it should be.

I am being extremely careful in this important debate to put it in context and not to undermine real concerns that need to be addressed, and I hope the hon. Gentleman accepts that.

Richard Younger-Ross (Liberal Democrat, Teignbridge)

When people are starting out to build a business, they see it as building an empire. Some have a small hill that they wish to build, some a small mountain range and some think that they can build a business the size of Mount Everest. However, the perception of climbing a mountain is that one starts on gentle slopes, but it gets harder as one climbs higher. Having a heavy burden of taxation and regulation to start with is like coming to a cliff face that is hard to ascend. If regulations are simplified at the early stage, they can be started on the foothills, enabling climbers to get to the top of the mountain.

Dawn Primarolo (Labour, Bristol South)

I agree with the hon. Gentleman's point about a system that navigates through the foothills to reach the peak. The new tax credits are available to the self-employed, as were the working family and disabled tax credits before them. The information that we have is that one of the benefits, particularly for those starting up their business for the first time—they may have been unemployed and be moving into self-employment—is that the tax credits have provided, and will continue to provide, a crucial certainty for them to calculate in the development of their business.

I accept the issue about helping small businesses to navigate the growth of their business and the first point I make is that the tax credits can assist people in starting up and taking decisions to move into their own business. We are seeing that within the current system.

The sort of things that are already in place, and that would continue, are free help and support, principally for new and small employers; dealing with requests for information; working with them to look at their responsibilities; payroll; and making sure that advice is given at the beginning to ensure that they are fulfilling their obligations in the most efficient way. This support is provided through a range of workshops, internet sites, direct communication and, of course, the one-to-one new business support, which is a mentor system. All this is specifically directed at the point that the hon. Gentleman makes, which is how important it is that that information is available, easily understood and accessible to overcome some of the issues that he has identified.

In explaining the Government's approach to recognising the requirements and obligations on business, we should consider the tax system and not just the tax credits. The Committee will see that the arguments about why the Government continue to be committed to that principle follow exactly what the hon. Member for Northavon said. We had this discussion before. The Government argued the case for paying working tax credit through the pay packet and remain convinced that that is the correct way to proceed.

When the Revenue notifies employers to pay their employees the working tax credit through the payroll, they will not be required to assess the amount of the tax credit to be paid. The Revenue will do that, and will tell employers when to start paying it. Employers will be given at least 42 days' notice to adjust their payrolls. Hon. Members asked about variation and where employers may move to a current year assessment. The Revenue would need to be satisfied of two issues. Having decided on the new payment, employers would be given the 42 days' minimum notice to prepare their payroll. There should also be at least three consecutive periods in which the tax credit could be made.

Employers will fund the tax credits from the PAYE tax and national insurances contributions, which they already collect, and pay the Inland Revenue monthly or quarterly in arrears, as is currently expected. If the allowances are expected to be insufficient, the employers will not be expected to pay the tax credit from their own cash flow, as is the case with working families tax credit. They will apply to the Inland Revenue for payment in advance of the difference between what was collected and what will be paid. While the annual assessment runs for 12 months, the payment pattern will be clearly notified to the employer in advance and the employer will receive the money. The employer will give additional information on the tax credit payments. Their year-end returns, which they already make for the purposes of PAYE and national insurance, will also account for the total tax credits paid.

Peter Luff (Conservative, Mid Worcestershire)

On a point of information, it took about three months recently for me to get a refund from the Inland Revenue. What is the experience in practice of the mechanisms that the Minister is describing? Have there been complaints from employers about slowness in making the compensatory payments that she identifies?

Dawn Primarolo (Labour, Bristol South)

I am not aware of any complaints. There is a specific period in which the payment must be made to the employers to ensure that they have received funds before they start paying. That period does not spring to mind, but I am sure that I will have that information for the hon. Gentleman before I sit down, and I will reply to his question before I conclude. The only caveat would be if the employer knows what the expenditure is but does not apply in time. If employers leave it until the day before they are due to pay their employee, there will be problems in ensuring that they had funds available at the time. There is a period within which the employer should

receive the funds. This is how the system operates now, and we have not experienced any substantial difficulties with it. However, I cannot put my hand on my heart and say that in the hundreds and thousands of cases there might not have been one where something went wrong.

James Clappison (Conservative, Hertsmere)

The information that the Minister promised my hon. Friend the Member for Mid-Worcestershire may or may not be available before she sits down. However, will she undertake to make it available before we reach clause 31, where these issues become very important because employers are subject to a regime of strict liability for failing to pay tax credits.

Dawn Primarolo (Labour, Bristol South)

Indeed. Many of the powers in the Bill have been carried forward from preceding legislation on working families tax credits. That it works well is in no small part due to the fact that it is buttressed by a number of reminders of the consequences of non-compliance.

I can now answer the question from hon. Gentleman the Member for Mid-Worcestershire. The caveat is that employers must apply in time. If they leave it to the last minute, which no one appears to be doing, there will be problems. The employer will have to have the payment at least three days before it is due to the employee. By this, I mean that employers must have money available before payment is transferred to the employee.

We are not aware of any complaints that have been made to us, claiming that this system is not work, or that it does not assist the employers. Obviously, when the arrangements have been known for 12 months, it is a straightforward transfer. It also depends on the time of the pay period. We are talking about transferring the tax credits from the employer three days before the employee's pay period.

Although the general framework is familiar to employers and, as I have said already, they are using it, we took seriously the comments that were made with regard to working families tax credit. We sought, in designing the new tax credits, to go further in the legitimate requirements for employers. We have managed to do this in four main ways. First, claimants will not routinely have to ask their employers for verification of earnings, which is what happens in the current system as we normally work from the previous year's income, which is based on the P60.

Secondly, if an employee receiving working tax credit leaves the employment, the employer will simply stop paying the tax credit. There will no longer be any need for the employer to complete a certificate of payment, as is currently the case. The fact that it is a fixed award will also make a difference. If the employee remains entitled—and that will be obvious because of the fixed 12-month award—it is their responsibility to tell the Revenue the identity of their new employer. The engagement is then made with the new employer.

Thirdly, because the new tax credits will be awarded annually, there will no longer be the six-month stop and start. That was a troublesome feature which employers wanted to be changed. Finally, the application procedure for employers who need funding has been simplified. Employers will apply at the beginning of each tax year, and the Revenue system will adjust the funding amount paid to them if there is a change in-year. Payments will be made to employers in advance, so they will have certainty.

The Government are not prepared to concede the principle of payment through the payroll, but I hope that I have shown that we continue to consider ways of refining the system and reducing the burden. All the amendments, however, are concerned with not paying the money through employers.

Amendment No. 94 would remove the power to make regulations requiring employers to pay tax credits to their employees. It would make it impossible for payment to be made other than by the board of the Inland Revenue. I have explained why the Government are not attracted to that. It would be odd to amend a clause so that it did not do what it was supposed to, but still to leave it on the statute book. The amendment would be a way of removing clause 24.

Amendments Nos. 36 and 37 would provide that employers had to receive payment of the full economic cost of paying the working tax credit to their employees through the payroll. I think that the hon. Member for Fareham (Mr. Hoban) touched on the relevant point and I shall not elaborate on it, because Committee members will appreciate it immediately. The Government are not attracted to the proposition. We believe that we should look elsewhere to reduce burdens; there are trade-offs. There would have to be a complex system to calculate the economic cost, which could increase the burden on employers, particularly small employers. A complex formula as to what was and was not counted in the calculation would have to be written in legislation. Attempting to create such a system would aggravate the complications that hon. Members seek to alleviate.

As I said initially, it is incumbent on the Government to reduce burdens, streamline the system and support small and large businesses alike. Part of that is ensuring that those businesses flourish in parallel with the development of the work force and the Government's objectives on full employment.

Amendment No. 51 would allow employees to ask for payment to be made into an account, which would be against the principle of payment through the wage packet. I can only repeat what I have said in this and previous debates: I understand the point made by the hon. Member for Northavon, but the Government do not agree with it.

Amendment No. 35 would remove any reference to the sort of provisions that may be made in regulations under clause 24. I am puzzled as to why hon. Members should propose such an amendment when they have argued that the provisions should be included in the Bill. It goes exactly against what the hon. Member for

Arundel and South Downs has argued in relation to regulations. It is probably a glitch in the drafting of the amendment.

Howard Flight (Conservative, Arundel and South Downs)

The point is consequential on amendment No. 94, and if that were carried there would be no need for amendment No.35.

Dawn Primarolo (Labour, Bristol South)

That is very interesting. Usually when hon. Gentlemen do not like a clause, they simply propose its deletion. It is quite unusual to table six amendments when one would have sufficed.

We have had an interesting, long and important debate this morning, from which I am sure we will all benefit in terms of ensuring that the issues are on the record.

I have dealt with all the points that have been raised, although not always specifically referring to the hon. Gentlemen who have raised them. Finally, I return to the point about regulation as I know that the hon. Member for Mid-Worcestershire will not let me conclude without referring to the issue. Matters relating to payments being made through the employer and the ability to adjust those payments are exactly the type of issues that it is sensible to have in the regulations. They are subject to negative resolution. It is right that the fine detail should be set out in regulations.

Regulations under clause 23(8) are specifically about payments to accounts—we are rolling forward what had been done in previous years, although payment through the payroll is a new arrangement. This morning I listened to what the hon. Member for Mid-Worcestershire had to say, and I need to reflect on whether the Government can accommodate him in terms of how we process the regulations. If the hon. Gentleman gives me a little longer to consider how that might be done, I can assure him that by the time the Bill is considered on Report I will have come back with a suggestion on dealing specifically with his point of negative regulations.

On that basis I hope that I have responded to all the questions that have been raised although I do not suppose I have convinced Opposition Members of some of the principles. If they are unable to withdraw their amendments I will ask my hon. Friends to vote against them.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for her responses. On this occasion I was a little disappointed that she did not address a number of fundamental issues.

First, it is one thing, where there is broad consensus, to argue that there is sense in paying people benefits in work in order to deal with the poverty trap. We started the process, the present Government have continued it and provided that it does not get out of hand there is consensus that it prices people into work. Making that payment, however, is quite another issue.

If I were the Minister, I would be suspicious of the fact that, as she rightly quoted from the CBI paper, many businesses like the payments going through the payroll, even though they would like to be remunerated for the costs. When not talking with Government, the Minister will find that many

businesses, particularly those in the low-paid service sector, like it because it represents a pay subsidy. As they see it, it saves them having to pay their employees more, which was one of our main worries about payments going through the payroll. The Minister will be aware of past examples in which wages were driven down by that attitude, with dire economic consequences. Let us not muddle the principle of pricing people into work to avoid poverty traps and the side effects of how to make such payments.

The several amendments were designed to make different points. After the Government's response to the Carter review, pointing to costs and implicitly suggested some help for small businesses, and the Chancellor's comment that the Government would examine the issue, I took the Minister's earlier comments as saying that they would not provide any financial help and that they were looking for some trade-offs.

Dawn Primarolo (Labour, Bristol South)

The Carter report is not within the remit of this Committee, but if the hon. Gentleman examines its main thrust, he will see that in electronic transactions, the use of e-commerce was of huge benefit, not only in terms of communication between small and large businesses and the Revenue, but in terms of conducting business. It is necessary to take business forward, and Carter proposed that the Government should consider compulsion in respect of electronic communication with the Revenue, as well as ways to incentivise small employers to do that, perhaps initially by using of an intermediary.

In the pre-Budget report, the Government said that all the recommendations should be out in the open. We saw the strength of the report's argument because it was about productivity. We asked people to comment on the issues by the end of this month. The proposed measure is much wider, encompassing productivity and interaction with the tax system as whole, but it could be of huge benefit. If accepted, it would require Government action.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for her comments. I am aware of the nature of the Carter report. She will be aware that the CBI and other business organisations pointed to the Carter report's coverage of this issue. The Chancellor's response in the pre-Budget statement was understood by commerce to mean that the Government would give it consideration, along with the other important matters that have been raised. However, I repeat that when asked whether the Government would consider it, the Minister's response was basically, ''No. No financial help; hoping to find some trade-offs''.

Interestingly, although cash flow is important, it has not often been raised by business. The ''putting businesses in money'' arrangements have generally worked. The Minister did not respond to my questions about coding. She likes to quote the CBI, whose brief ends:

''Over the long term, the CBI remains convinced that a technical solution''—

that is, tax codes—

''is required, which will allow payments via the pay packet to administered by the Inland Revenue and bypass the need for employer intervention.''

It would be useful, not just to this debate but to the CBI, if the Government made it clear whether they have ruled that out for ever, and if so, why.

The amendment tabled by the hon. Member for Northavon raises a point that I also raised but to which the Minister did not respond. The evidence shows that individuals would prefer to be paid directly and have their tax credits sent to their bank account or the post office. That fact seems to be of no interest to the Government. They have made up their mind: whatever the worker wants, their position is, ''Hard luck, mate''. I cannot understand the reasons for their stance.

The Minister asked how I equate pay and productivity growth. That is simple: as night follows day, an economy will not get better productivity growth without getting more skilled workers. The question is how we get people to enhance their skills. Obviously, all sorts of training courses and improvements in education are needed, but at the end of the day, people must be motivated to want them. The strongest motivation is blindingly obvious: if people think that their pay packet will increase if they have more valuable skills to sell, they will work to enhance their skills. That fact is as old as the hills and, as I pointed out, it is recognised strongly and happily by most of this country's immigrant community from south-east Asia. The argument, which I thought that I had put clearly, is that a social wage will blur the message about what an individual's skills are worth in the current market. Whether that is deemed fair is another issue, but that is what will happen.

We will say much more about this subject on Report. There are many different issues involved—issues of principle as well as what is fair to business. In that context, we will not now press the amendment to a Division. The Government must properly make the case as to why they will not allow individuals choice, and state what economic and other advantages they perceive will be gained by their insisting on a mechanism that pays everything via the employer. There are widely acknowledged and powerful arguments against that in principle, aside from the issue of the burdens that are placed on small business. 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. 103, in page 16, line 19, at end insert

'except for recipients of the child care elements of income support and income based jobseeker's allowance, which shall continue to be paid by the Department of Work and Pensions.'.

Amendment No. 103 relates back to the debate that we had on clause 1(3)(d). Some points have been dealt with, but the overall position is not entirely clear. Clause 1(3)(d) removes the child care elements of income support and income-based jobseeker's allowance. As the Minister explained, those will be wrapped into the child credit element of the new working tax credit. We suggested that it would have

been better to leave them as the responsibility of the Department for Work and Pensions, and this amendment repeats that in the context of payment.

Of the issues that need clarification, the first is that many people who are entitled to the current child care elements of income support and jobseeker's allowance may not be in work. We must be clear about how they will qualify to pick up the equivalent as a work-related tax credit. Another issue is that many people in work are likely to work relatively few hours, so they might fall outside the hours requirement. Even if they are in work, they may not be entitled to any working tax credit either.

I am sure the Government do not intend the people most in need to be disadvantaged by the Bill, but I am not clear how someone will qualify for the replacement under the new arrangements when they are disqualified from working tax credit. Clearly something else will be needed to replace that, and I want to know what that will be. The amendment would have gone with amendment No. 94, which would leave the benefits, which are not work related, within the purview of the Department of Work and Pensions.

Dawn Primarolo (Labour, Bristol South)

I am at a bit of a loss to know what to say on the amendment. I could suggest that the hon. Gentleman reread what I said when we debated clause 1. I understand his point about there being a link.

The amendment refers to the child tax credit. As I made clear at the beginning of the Committee and throughout subsequent debates, the child tax credit has no work conditions. Anyone who gets either income support or JSA, and who is therefore likely to be unemployed, will get the full child tax credit which replaces the child premiums that existed before in income support and JSA. To return to the position in which child premiums for those who were not in paid work were part of income support and JSA would break the back of the principle of child credit, which is that it is paid on the assessment of the needs of the children, regardless of whether the adults in the family are in or out of work.

It would make no sense to say that those in paid employment can have the child tax credit and those who are unemployed can receive income or JSA with the premiums restored. To have it administered by two different Departments completely removes the advantage of the continuous stream applied for at one point and administered by one Department. The payment is made directly to the main carer. I hope that the hon. Gentleman would see that it would be nonsense to keep income support and JSA in place. If the adult or adults in the family are in receipt of income support or JSA and there are children in the family, the child tax credit is given to them automatically at the maximum amount. As they move into paid employment and up the income stream, there will be a gradual withdrawal of the child tax credit as the tapers and the threshold operate.

Howard Flight (Conservative, Arundel and South Downs)

Am I correct in understanding that the extra element of child tax credit that such people will receive will equate to what they would have received

under income support and JSA, and that there is no element within the working tax credit in respect of children that relates to what they would have got?

Dawn Primarolo (Labour, Bristol South)

If the hon. Gentleman looks at the increases in the child premiums in income support and JSA he will see that the Government have been aligning those premiums with the working families tax credit, and that they will now be in the child tax credits. Whether the family is in or out of work, the maximum payment for the child will be the same.

Howard Flight (Conservative, Arundel and South Downs)

As I pointed out, the amendment was tabled in conjunction with a previous amendment. I am satisfied that there are no problems. 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. 101, in page 16, line 21, at end insert—

''provided that the regulations shall not directly or indirectly require the recipient to hold a bank account''.

Jimmy Hood (Labour, Clydesdale)

With this it will be convenient to take amendment No. 113, in page 16, line 21, at end insert—

''provided that the regulations shall provide that payment shall be through post offices where the claimant elects for payment by such method''.

Howard Flight (Conservative, Arundel and South Downs)

The amendments will be known as the post office amendments. The issue is whether regulations will directly or indirectly require a citizen to hold a bank account. That is implicitly the case in the Bill, and paragraph 150 of the consultative document says that all direct payments of new tax credits will be made to a client's bank account. However, many of the most needy will not have bank accounts, and the Government have admitted that the universal bank arrangements may not be in place for April 2003. Therefore, the amendments provide for payments to be made to a post office account, if someone so elects.

There are two aspects to consider. First, it is unlikely that the universal bank facilities will be in place to deal with payments when the Bill comes into effect. Secondly, we should consider what is convenient to tax credit recipients. The amendment is partly a probing amendment and partly a matter of principle.

James Clappison (Conservative, Hertsmere)

I wish to set the amendment against the background of events surrounding the post office, to which the Bill represents an important development. When I say ''post office'', I mean the network of 17,000 sub-post offices throughout the country. Last year, I believe that we lost more than 500 of them; a question mark hangs over the future of many.

Many sub-postmasters and sub-postmistresses are thinking hard about whether they will be able to continue in business. They are looking for anything that might help them to survive. They face the prospect of automated credit transfers coming into effect in April 2003. The Government led them to believe that the universal bank would be up and running by then.

That would have helped to offset the loss of revenue that they will suffer when ACT replaces the transactions that the Government paid them to administer, and the loss of custom from people coming through the sub-post offices. The amendments would provide some help to sub-post offices at a time when they need help.

Recent reports suggest that the universal bank will not be up and running by April 2003. It would be useful if the Minister commented on that. What are the Government's plans for the scale of the universal bank? How many account holders do the Government anticipate? That would be of great interest to sub-post offices. This week, a survey from Consignia, which has a commercial interest, stated that up to half of the sub-post offices in the country could close. Sub-postmasters and postmistresses are thinking long and hard about their future, and I am sure that they welcome the amendment's highlighting of their plight.

Richard Younger-Ross (Liberal Democrat, Teignbridge)

I support the comments of the hon. Member for Hertsmere. It is important to include a clause that allows payment to a post office. In my constituency, there are people who have experienced changes in their employment. They have been paid fortnightly via their employer, which makes their cash flow very difficult and chips away at the narrow profit margin of small sub-post offices, such as the one in Moreton Hampstead. Accepting the amendment would help such post offices until the universal bank is in place. The principle of allowing payment to a post office is vital. At another stage, amendments may be put that would introduce an exclusion for small employers, requiring payments to be made by other methods. I support the amendment.

Dawn Primarolo (Labour, Bristol South)

Let me answer directly the points on the payment of tax credits. I understand the concern of the hon. Member for Hertsmere regarding ACT, but I am not tempted to enter into a debate about the Government's plans for post offices.

The hon. Gentleman will be aware that those who are potentially eligible for new tax credits, especially those in poorer families, may not have access to a bank account. However, he will also be aware that direct payments by other methods, such as order books, do not always provide a reliable way of getting the money to those entitled to it. The Government are committed to modernising the payment mechanism to reduce the use of such methods.

The Government are also spearheading a drive to tackle financial exclusion and make easily available suitable types of bank accounts to those who have been unable or unwilling to use banks. To achieve that, work is being undertaken with the high-street banks and the Post Office to ensure that suitable, accessible accounts are made available. High-street banks are already offering new accounts and arrangements are being made to enable customers to access them through a post office. The crucial factor is not where the account is held, but where it can be accessed.

Work is being undertaken to create a new post office account for those who are unable to use the new types of bank account. That will ensure that claimants are

able to access some sort of account, whether through a bank or post office, into which their tax credits can be securely paid. Claimants can still go to the post office or sub-post office to collect their money. Payment of automatic credit transfer will provide that new tax credit claimants' payments will be made more flexibly, and claimants will be able to access those funds via a wide range of outlets, including post offices, which are the most convenient points of access for many.

The hon. Gentleman tried to tempt me into a debate subject to rules of confidentiality, dealing with the discussions of another Department about the Post Office. I am not able to join that debate. Suffice it for me to say that, as the Prime Minister said in his statement, claimants will still be able to go to the post office to withdraw their money, whether that be from one of the new high-street bank accounts, or one of the post office accounts. That provides a good basis for secure delivery direct to the individuals. It minimises the risk of things going wrong or the book being stolen. It gets the money to the family concerned, and at the same time ensures flexibility over the point at which it could be withdrawn.

Given his concerns about fraud, I hope that the hon. Gentleman will accept that that is the right way to proceed, and that my undertaking about being able to draw money via the post office satisfies his wider concerns about the problems faced by post offices in rural areas.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for her comments, but she has not addressed my concerns. First, what happens if the universal bank facility is not available within the timetable of the Bill? It is not satisfactory simply to say that it will be, because those responsible for it in Government are giving out distinct noises to the effect that the project is in dire trouble, and those on the other side of the coin tell exactly the same story. It clearly would be foolhardy to enact a piece of legislation that depends on the money being dispersed via a mechanism that, when the time comes, is not there. What alternative arrangements do the Government propose in the event that that happens?

Secondly, if the universal bank comes to life and works, it is intended that people should go to the post office and draw money out of their universal bank account. For many that may be the only practical way to draw money out. That does not entirely answer the point of principle. The Minister implied that it would be the only mechanism and that if people wanted to

have child tax credit vouchers to cash at the post office like child benefit vouchers, they could not do so. It would only be the universal route.

The third point, which she wisely sought to sidestep, relates to the problems facing the post office. Self-evidently, the whole arrangement of universal bank accounts and drawing cash at the post office will not work if half the post offices have disappeared. That is an issue in some of the most deprived rural and inner city areas where there are no banks and where post offices are crucial. For the Bill to work in getting the child tax credit money to the citizens in need, there must be an alternative to the universal bank in case it is not running, and enough post offices to dispense the money if it is.

Dawn Primarolo (Labour, Bristol South)

I understand that, but the main issue is not whether people can draw cash from a post office or a sub-post office because an account is held there or because they need to go to a post office to cash a giro. The wider issue is not about how we choose to pay the tax credits. We must deal with the issues of social exclusion and reduce the chances of fraud, which clearly points towards making sure that bank accounts are available. Alternative payments would have to be made if they were not. People still need to go to the post office to cash a giro or to draw out money that is held in a post office account. The points that the hon. Gentleman makes to get a wider debate on post offices are not relevant. I ask him to withdraw his amendment or I will ask my hon. Friends to vote against it.

Howard Flight (Conservative, Arundel and South Downs)

I am sorry, but the Minister's response is unreasonable. Hon. Members need to know that effective facilities will be in place for people to get their child tax credit money.

Dawn Primarolo (Labour, Bristol South)

I said that if the accounts were not in place another method would have to be found to ensure that the money got to them. We have that power. Whether people had a giro or a bank account, it would have to be at a post office or a bank.

Howard Flight (Conservative, Arundel and South Downs)

Will the Minister say a little more to clarify what those other methods might be?

Jimmy Hood (Labour, Clydesdale)

Order. I have agreed to convene our Programming Sub-Committee in this Room at 4.15 pm.

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 23 - Payments

Nigel Beard (Labour, Bexleyheath and Crayford)

I remind the Committee that with this we are taking amendment No. 113, in page 16, line 21, at end insert—

'provided that the regulations shall provide that payment shall be through post offices where the claimant elects for payment by such method'.

Howard Flight (Conservative, Arundel and South Downs)

I welcome you to the Chair, Mr. Beard. At our previous sitting, I was first seeking a clear answer from the Minister about whether the Bill will provide for tax credits to be paid via coupons at post offices in the event that the universal bank arrangements are not up and running by April 2003. In other words, will there be a safety proviso to ensure that tax credits are paid? Secondly, as a matter of principle, if claimants, for whatever bona fide reason, wish to be paid directly at post offices via a coupon process when the new arrangements with the universal bank are in place, can they continue to be paid in that way?

Dawn Primarolo (Labour, Bristol South)

I am happy to clarify those points for the hon. Gentleman. As I have explained, the preferred arrangements in connection with social exclusion, the development of the high street banks and the new types of accounts, and the post office is to transfer the money directly to a point at which the correct person receives it into an account from which he could draw the money. That would take account of a person's choice of using a post office, which was the first major point raised by the hon. Member for Arundel and South Downs (Mr. Flight).

I had misunderstood slightly the hon. Gentleman's second point and I am grateful for his clarification of it today. The Bill provides for regulations that give the Inland Revenue the power to make payment directly to a bank account. That is our preferred option, as it will ensure that we further eliminate fraud when order books are mislaid, lost or used in ways in which they were not intended to be used. However, the regulations are permissive in that, although that is the preferred route, the Inland Revenue will still have the power to pay the person directly by a giro payment. I do not want to leave the Committee in any doubt. However, we shall encourage people to have accounts into which the money can be paid.

The hon. Gentleman wanted to ascertain whether the Bill provides powers to pay directly into bank accounts and removes the power to pay by the alternative giro payment method. I can confirm that both methods can be used. However, we could not send a brown envelope stuffed with cash. The two traditional methods of payment to which I have referred will remain, although as we progress with the universal bank, the work on the high street banks and the social exclusion agenda, we expect that payment will be made into bank accounts, but obviously there will be some exceptions.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Minister for that clarification. I shall withdraw my amendment, but strongly advise her to get the plans to pay by coupon up and running because no one working on the universal bank—at least not those with whom I am in contact—expects it to be up and running by April 2003. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Beard (Labour, Bexleyheath and Crayford)

We now come to the Programming Sub-Committee's further programme motion, which has been circulated.

Ordered,

That the Resolution of the Committee of 15 January be amended as follows—

(1) in paragraph (1), at end insert 'save that on Thursday 24 January the Committee shall meet between half-past Nine o'clock and half-past Ten o'clock and at Two o'clock; and

(2) paragraph (4) is omitted.—[Dawn Primarolo.]

Clause 23 ordered to stand part of the Bill.

Clause 24 ordered to stand part of the Bill.

Clause 25 - Liability of officers for sums paid to employers

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 105, in page 18, line 2, leave out 'or neglect'.

The amendment stands on its common-sense interpretation. The clause puts a liability on culpable officers. Officers could be secretaries and clerks as well as managers and directors, and they would be liable not just for fraud, but neglect. It is not clear what the regulations will do. What does ''liability'' mean under the clause? Does it involve recovering money paid by the Revenue, and does it mean that legal proceedings can be brought?

More important still is the inclusion of the word ''neglect''. No one doubts that people should be pursued for fraud, but neglect is a different matter. First, it is impractical to pursue for neglect as many businesses subcontract their payroll arrangements, so it is not be easy to identify the guilty person when there has been sloppiness. Secondly, ''neglect'' is a loose concept. Thirdly, it is inherently unreasonable for companies to undertake a task for the Revenue when the Government have made it clear that they have no intention of paying the costs thereof. It is inappropriate to pursue people for neglect.

Paragraph 103 to the explanatory notes suggests that in circumstances such as those that I described this morning, in which a company receives funds from

the Revenue to pay the tax credits and then collapses, the clause might be used to pursue the officers—not just senior members of staff, but officers at all levels—for the money that had gone because the company collapsed. An important point is that neither the Confederation of British Industry nor other representative bodies are aware that the clause can be interpreted in that way. The explanatory note suggests that, substantially, that is why it is there. It is wrong that that should be the intent of the Bill.

Fraud is a different matter. Let us suppose that there is a case of neglect. A company may have gone under due to adverse economic circumstances or being overburdened with Government regulations, its staff having done their best in the circumstances and having certainly not committed fraud. Not surprisingly, if people are struggling to save a business, they may be a little sloppy in administering tax credits. As the whole structure of tax credits is so sloppy anyway, it is unreasonable for the Government to have the power to pursue individuals personally—down to the payroll clerks—to recover money from them for neglect.

We want to know the Government's intention and what is meant by paragraph 103 of the explanatory notes. We are earnest in our belief that neglect is not appropriate.

Paul Boateng (Labour, Brent South)

I join the hon. Member for Arundel and South Downs in welcoming you, Mr. Beard, to the Chair this afternoon. It is a pleasure to serve under your chairmanship for the first time.

Clause 25 allows regulations to be made to hold an officer of a company—in practice, that is usually a director—personally liable for the company's tax credits debts, when it is believed that the debt has arisen through fraud or neglect by that person. The amendment would limit the scope of the measure to cases of fraud and remove from it cases of neglect.

In practice, the Revenue would use the regulations when there appears to have been deliberate exploitation of companies' limited liability and the tax credit system, for a director or other officer's personal benefit. Sadly, there are occasions when unscrupulous directors attempt to use the status of limited liability to enrich themselves. It is necessary always to provide for that possibility.

It may seem, as the hon. Gentleman put it, that only the fraud test is needed, but there are two reasons why it is right to maintain the fraud or negligence test. First, there is an important argument of principle. Neglect simply means a failure to take reasonable care. It is right that, when companies have received significant sums of public money to fund the payment of working tax credit to their employees, the officers of the company should be expected to take reasonable care to ensure that the money is used for that purpose. That is not unreasonable.

Secondly, there are practical difficulties with a fraud only test. There will be cases when it is clear that there has been either fraud or neglect, but it may be difficult

to demonstrate categorically that there has been fraud rather than neglect.

James Clappison (Conservative, Hertsmere)

I am grateful to the Financial Secretary for giving way. Of course, we all know how important it is to take good care of public money. I want to give him a slight warning. He did not spell it out, but there was an implication that businesses had asked for the responsibility. The Government are placing the responsibility on businesses. By and large, that responsibility is unwanted by them, and is of no benefit.

Paul Boateng (Labour, Brent South)

I take great exception to the notion that the provision, which is designed to address a real need on the part of our fellow citizens, is unwanted by businesses. There is no evidence to support that proposition. Responsible business people are concerned to ensure that the needs that the measure seeks to deal with are addressed. The measure is in the interests of social cohesion and good business and is welcomed by responsible business people. I do not accept that there is anything inimical to business interests in what we propose. The reverse is true.

The danger of the amendment is that the deliberately dishonest would be able to hide behind the cloak of negligence, making it more difficult to counter such abuse. There is nothing new in the clause. Opposition Members would have come across such a clause on numerous occasions in the course of their service in the House when debating those who exploit limited liability companies. It is sad but true that some people—mercifully only a few—are unscrupulous and do not hesitate to exploit that particular status.

There is nothing new in the potential application of the clause to cases in which there has been negligence on the part of company officers. The Inland Revenue already has such powers in relation to the working families tax credit, the disabled person's tax credit and national insurance contributions, which go back many years. The amendment would be a backwards step in tackling such behaviour.

In an uncharacteristic display of party political rancour, the hon. Member for Arundel and South Downs suggested that, as a result of excessive regulation by this Administration, more businesses are going under—the implication being that fewer went under during the previous Conservative Government. As the hon. Gentleman knows, the reverse is true. In the four or five years since Labour came to power in 1997, many more businesses have been created than under the previous Conservative Government and their stewardship of the economy. Those businesses have also tended to last longer. In his heart, the hon. Gentleman knows that such a suggestion and his claim that the clause will be damaging to business is not supported by the facts.

Nevertheless, the hon. Gentleman raises a serious point about insolvency and I am happy to deal with that. By the nature of our system of enterprise, there will, quite properly, be some companies that genuinely fail. Directors of such companies will be unaffected by the provision. The power will be used only in cases in which directors have engineered the insolvency of their

own companies to avoid paying the working tax credits for which they received funding. Such individuals are unlikely to suffer personally, as I hope the hon. Gentleman accepts.

Richard Younger-Ross (Liberal Democrat, Teignbridge)

The Minister used the word neglect when he spoke about companies that, through no fault of their own, find themselves in difficulty and make errors in their tax credit calculations. He referred earlier to hon. Members who had not been in the House for long. I apologise because I have not been a Member of Parliament for long and may not understand everything. Perhaps more learned hon. Members who come from the legal profession know better than me. I come from a simple trade—I do drawings. Is the Minister not talking about wilful rather than simple neglect? There may be a fear that the term ''neglect'' may penalise those who have inadvertently made an error.

Paul Boateng (Labour, Brent South)

I do not think that inadvertent error is caught by the clause. The important point is that people should be able to demonstrate that they have exhibited reasonable care, which is not a concept understood only by lawyers—there is common-sense application of the phrase ''reasonable care''. We all know it when we see it, and the courts are capable of judging whether reasonable care has been taken. With regard to those who exhibit reasonable care, there is no need to inject concepts of wilfulness. That would simply give lawyers a licence to make yet more money by arguing about the difference between wilful neglect and neglect.

Those who take reasonable care have nothing to fear from the provision, but that is not the case with regard to those who do not fall into that category. Some people utilise the status of limited liability for their own purposes and follow a practice that is known as phoenixism. That is an interesting phrase. I had not come across it before but, on reflection, one can see why it is called that—a phoenix rises from the ashes. Those who deliberately engineer the insolvency and winding up of their companies for personal benefit and those who do not take reasonable care will be caught. It is right that that should be the case, and I hope that Opposition Members have been persuaded, by the explanations that they have received, not to press the matter to a Division.

Howard Flight (Conservative, Arundel and South Downs)

Nobody would disagree with the proposition that directors who have used limited liability to engineer an insolvency to purloin Revenue tax credit funding should be pursued—and I take on board the point that full-blooded fraud might not be involved. That is what we want the Bill to do, but that is not what it says. It gives a much wider power. There is a meaningful distinction between neglect and wilful neglect. If a company goes under, it is likely that there will be neglect, because everything will be at sixes and sevens.

The Minister rightly made the point that it is likely that the people whom the Revenue will want to pursue are the directors. However, the Bill employs the phrase ''culpable officers'', and the definition of officer includes managers, secretaries, and any Tom, Dick and Harry.

It is unacceptable that legislation should prescribe wider powers than are needed, and which could subsequently be used in a different context. With regard to a company that has failed, the Bill currently gives the Revenue wide powers to go after the staff to recover whatever is owing. That is unacceptable, particularly as the Bill forces the task of administering the tax credits on companies, without paying them for the extra work.

We made it clear that it would be better if the Revenue performed that task. With regard to that, my hon. Friend the Member for Hertsmere (Mr. Clappison) was not arguing that businessmen do not support the concept of a fair society; the issue is whether businesses or the Revenue should administer that task.

I consulted a leading counsel on this clause. He forcefully took the view that it was inappropriate for it to contain the bare word neglect. To some extend the Minister's comments have had the effect of putting on the record an interpretation of the clause that can be used in legal proceedings. The Government may have allowed themselves, understandably, to be egged on by the Revenue to give it more powers than are necessary. Such powers should be defined more precisely to address the pheonixism that the Minister accurately described.

We are minded to vote on the amendment because it is a bad principle of law to introduce provisions that allegedly deal with problems, but are not sufficiently specific and consequently can be applied in a wider context.

Question put, That the amendment be made:—

The Committee divided: Ayes 6, Noes 10.

Schedule 1 - Rights of employees

Paul Boateng (Labour, Brent South)

I beg to move amendment No. 90, in page 36, line 1, leave out 'claim' and insert 'complaint'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take Government amendments Nos. 91 and 92.

Paul Boateng (Labour, Brent South)

I hope that the Committee will find favour with these minor drafting amendments. They do not change the substance of the schedule.

Amendment No. 90 is necessary because legislation provides for people to present a complaint, not a claim, to an employment tribunal. Amendment No. 91

is needed because paragraph 2 relates to Northern Ireland, where the bodies that consider employees' complaints are known as industrial tribunals—as they used to be in our jurisdiction—not employment tribunals. Amendment No. 92 corrects a typing error. The provision that is referred to should be article 71(1)(b) of the Employment Rights (Northern Ireland) Order 1996, not article 70(1)(b). These things do happen. The best laid plans of mice of men are gaen awa', as we say at this time of year, at least in Scotland.

The amendments will ensure that the wording of the schedule is legally correct. They do not alter the meaning of the schedule, and I hope that hon. Members will accept them.

Amendment agreed to.

Amendments made: No. 91, in page 37, line 10, leave out 'claim to an employment' and insert 'complaint to an industrial'.

No. 92, in page 37, line 14, leave out '70(1B)' and insert '71(1B)'.—[Mr. Boateng.]

Schedule 1, as amended, agreed to.

Clause 27 - Overpayments

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 67, in page 18, line 44, at end insert—

'but such a decision may only be made after it has been finally determined (on appeal or otherwise) under subsection 27(2A) that the excess if recoverable.'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take amendment No. 68, in page 18, line 45, at end insert—

'(2A) For the purpose of subsection (1) above, an excess is only recoverable if it is determined that, whether fraudulently or otherwise, any person has misrepresented, or failed to disclose, any material fact, and in consequence of the misrepresentation or failure an excess was paid.'.

Steve Webb (Liberal Democrat, Northavon)

The amendments are a pair. They deal with overpayments and recovery of overpayment of tax credits. They would clarify the scope of recovery and the circumstances in which overpayment would be recovered.

Under social security legislation, overpayments can be recovered if someone is found to have failed to disclose or to have misrepresented a material fact. We wonder whether similar provisions—which we cannot see in the Bill—will apply to tax credits.

Amendment No. 67 would define a category of excess payments that are recoverable by reference to a new subsection (2A), which is introduced in amendment No. 68. It determines that overpayments are recoverable, whether there has been fraud or—I hesitate to use the word ''wilful''—misrepresentation or deliberate failure to disclose. The genesis of the amendments is the problem of people who have to forecast their incomes. When someone's income from a previous year is recorded on a P60, there should not be problem. At the end of year, no reassessment

should be necessary, because that person's income in the previous year is historical fact, and will be known to the Revenue through the P60. However, if the person had to estimate his income in the current year, or if a change of circumstance has affected his entitlement, resulting in overpayment, what will be the scope for recovery of overpayment?

One case that springs to mind, for the purposes of the working tax credit, is of someone who is on the border of 29 or 30 hours, or 15 or 16 hours. Given that such matters will be determined on the basis of an annual average of hours worked, or the weekly equivalent of the annual average, it would be extraordinarily easy for someone to incur an overpayment, through no fault of his own, because he did not average his hours accurately. Consequently, he would find that a substantial overpayment could arise. For a single person who has to work 30 hours to get anything, who is in low-paid work and who therefore receives a generous tax credit, the amount of overpayment could easily be in excess of £1,000 for a year.

The amendments establish the circumstances in which there will be an attempt to recover overpayment. Will recovery be sought only when there has been fraud and deliberate misrepresentation, or will the Government try to recover money when there has been an accidental failure, or when someone's estimate of annual income is incorrect? The amendments are intended to mirror the social security provisions for recovery of overpayments. We hope that the Government will accept the amendments on that basis. Alternatively, will the Minister clarify any differences in the principles that will be applied to overpayments of tax credits?

Paul Boateng (Labour, Brent South)

I am grateful to the hon. Gentleman for his careful explanation of the amendments. I well understand his concerns. We have rightly debated at length the way in which the new tax credits system is designed to provide continuity of awards, with the capacity to adjust awards to reflect the changing needs of claimants. In particular, we have discussed the way in which the system will work in relation to changes in circumstances during the course of an award, and therefore the flexibility that clause 7 engenders in dealing with responses to income change. One key part of the work to be done on decisions about thresholds under clause 7, which I know is of great interest to the hon. Member for Northavon (Mr. Webb), will concern scope for overpayments of tax credits. To a certain extent, decisions made during the formulation of regulations on thresholds will have some bearing on the outcome of the scenarios that he described. He will understand why I do not intend to go down that road this afternoon.

Amendments Nos. 67 and 68 relate to the circumstances in which the Inland Revenue would be entitled to recover an overpayment of tax credit. By importing wording from social security legislation, they would limit those circumstances to cases in which there has been a failure to disclose a material fact or misrepresentation. In a previous sitting, we had a discussion instigated by the hon. Member for Northavon about the extent to which the provisions

would reflect elements of both social security and tax legislation. Elements have undoubtedly been taken from both, but the whole is, and is intended to be, very different from that for social security benefits.

The provision that he described made a lot of sense in relation to social security benefits but would not be appropriate for the proposed system. As I said, claimants to new tax credits will have access to guidance and support through a variety of means to help them decide when they should notify the Revenue of a change that might affect their entitlement to tax credits. It is in no one's interest for people to run up debts that they will subsequently find difficult to repay. On the other hand, we do not want to impose obligations across the board for notification of changes when there will be a substantial number of people—for example, those who receive only the family element of child tax credit—for whom major changes would not affect their award. Why should we put them to the bother of notifying a change?

As I have said on numerous occasions, we must strike a balance. We want to minimise the scope for overpayment of tax credit through support offered to claimants and the type of regulations that will be made under earlier clauses. When awards are reconciled at the end of the year, some people will find that they have been paid too much tax credit with no fault on either their part or the Revenue's. In some cases, people may decide to wait until the end of the year before they finalise their entitlement. Provided that they have told the Revenue all that they should have done, that is fine and it is their choice.

It is only right and fair, however, to other recipients of the credit that the Revenue should be able to recover overpayment, just as it would pay out extra tax credits that were due. The same principle applies when the Revenue recovers tax that has been underpaid with no fault on either side. We have all been through that process. Some years we get something; other years we find ourselves paying more. It would not be right to constrain the Revenue as the amendments would.

The hon. Member for Northavon gave an example about hours worked and the annual average. The system would not work in that manner. Entitlement will be based on current non-financial considerations and income will be assessed annually. That is not a question of averaging out in the way that he suggests. People who worked 30 hours a week for the first six months of the year, would receive the 30 hours credit. That would not be clawed back, even if they did not work during the latter six months of the year. We make no attempt to average that out: people receive the credit when it is due. If they stop work or undertake fewer hours, they are not subject to clawback.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister. That is a helpful clarification for someone whose life is so clear cut that they work 30 hours a week for six months in a year. For a single childless person, 30 hours is the difference between zero and entitlement, which is a big cliff edge.

What about people whose life is more random? Some weeks they may have an extra shift, or overtime.

In extreme cases, let us suppose that they do 30 hours one week and then 25 hours the next. What do they do?

Paul Boateng (Labour, Brent South)

Their entitlement will be based on their current financial circumstances. At the end of the year, if the reconciliation is such that some overpayment has been made, the provision will apply. That will be subject to regulations and thresholds. Short of accepting the sort of benefit model that the hon. Gentleman suggests, that cannot be avoided.

Steve Webb (Liberal Democrat, Northavon)

I am glad that the amendment deals with the problem that I raised.

Paul Boateng (Labour, Brent South)

That is not always the case.

Steve Webb (Liberal Democrat, Northavon)

The Minister said something that confused me. He mentioned the end-year reconciliation and referred to thresholds. However, thresholds concern variations in income, not absolute entitlement. The Minister seems to be saying that at the end of the year, people may find that the Revenue identifies weeks in which they were not entitled.

Howard Flight (Conservative, Arundel and South Downs)

The hon. Gentleman is hitting on the central problem of the lack of definition of what ''hours worked'' means. If it is defined as average hours per week during the tax year, the meaning is clear. For someone working 25, 30, 35 and then down to 25 hours a week, that averages out or it does not. As the Institute for Fiscal Studies pointed out, a major weakness of the Bill is the lack of clarity about that definition.

Steve Webb (Liberal Democrat, Northavon)

I suppose that it has been decided that the amount will not be averaged and that there will be some notion of what ''current'' means. Until we see the regulations, we will not know what the definitions are.

I am worried about the mixed messages from the Government on how often they want people to contact the Inland Revenue. The Minister said that the Revenue does not want to hear from those on higher incomes who receive only the children's tax credit. Wild fluctuations in their incomes will not make a difference to their entitlement. However, people whose hours are fluctuating will have to be on the blower every week. The entitlement of people who do a shift one week but not the next depends on their current circumstances. Under the current circumstances eligibility rules, if those people do not want to fall foul of the overpayment provisions at the end of the year and face a possible £1,000 repayment, they must report all those changes all the time. There is tension here. In the case of income-based assessment, someone can assess their income by performing an end-year reconciliation by comparing their forecast with what happened.

Claimants have to understand that if they are in the higher income band, changes to their income do not matter, but changes to their circumstances—marital status, hours and the rest of it—do matter. If they are in the lower income band, they should immediately report all changes so that a reassessment can be undertaken. I worry about how that will work. Employers are employing people whose hours will

vary, because that is the nature of their work. The board will require those employees to pay a tax credit one week but not the next if they do not satisfy the qualifying hours.

We have come a long way from annual assessment. This is a muddle that has nothing to do with the claimant, but with the uneasy marriage of current circumstance-based assessment and annual income-based assessment. They do not fit well together and we should revisit the issue. There will be problems even when the scheme is up and running. We are worried that people will receive money that is demanded back at the end of the year, because they did not report every shift. Such people will end up being penalised, possibly substantially.

The wording of the amendment and the attempt to mirror social security legislation may not be exactly what is required, but I have grave concerns about people who run up overpayments. The Minister has not greatly reassured the Committee so far that those people will be looked after properly, given the onus that is being placed on them to understand the different reporting rules.

Paul Boateng (Labour, Brent South)

As I said, I well understand the hon. Gentleman's concerns. We share a determination and an interest in ensuring that people do not find themselves moving in and out of entitlement. He described the Government's approach as an ''uneasy marriage''. That is not fair, but I do not underestimate the technical challenge of the route that we have taken, which is designed to avoid the possibility of people moving in and out of entitlement and to give people income when they need it to tackle poverty and to encourage them to advance themselves through work.

We seek to meet those objectives in a flexible and understandable way. That is technically challenging, and that is why we are engaged in detailed discussions with those with an interest in this area to ensure that we get it right technically, so that people can get advice when they need it about how best to safeguard their interests. The outcome of those discussions has not yet been finalised in regulations. We are considering the hours that people usually work and not a 12-month average.

That is the best way of meeting our shared objectives. We do not want to impose on people across-the-board obligations that attract penalties. We want to ensure that people get in touch when they need to and to avoid the hazard that the hon. Member for Northavon illustrated. We are working closely with the stakeholders who have the greatest interest in this and we believe that the regulations will demonstrate that we have achieved that objective.

We hear what the hon. Gentleman says. We are working on it. The regulations will reflect that. I do not believe that the Bill is any the weaker. On the contrary, it is stronger because we are discussing it and are engaged in careful reflection and negotiation with those most intimately concerned about how to overcome those technical challenges. I hope that with that assurance the hon. Gentleman will not push the

amendment to a vote. We understand what he is getting at, but we do not believe that the answer is to return to the social security model. We recognise that there is a problem and we are trying to resolve it.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister for the spirit in which he responded to the amendments. He says that this problem is technically challenging. Indeed, it is. If it is technically challenging for the combined brains of the Treasury and the Inland Revenue, what will it be for the claimant? If it is so difficult to draw up rules that will embrace all the possible changes in circumstances, how can we come up with something that will prevent claimants—due to no fault of their own—running up overpayments that have to be recovered? We are trying to say yes in the case of fraud and failure to disclose material facts. In those complicated changes of circumstances at the margins, however, there should not be a presumption that overpayments will be reclaimed.

Paul Boateng (Labour, Brent South)

A television is a technically challenging invention. People worked long and hard to create that form of broadcasting. It is simplicity itself to turn on and off, once one has got over the cultural predisposition to have it on all the time, which my hon. Friend the Member for Warrington, South (Helen Southworth), who sits silently behind me, clearly shares. Despite the technical complexity of the instrument, once it is in place it is simple. My hon. Friend the Paymaster General pointed that out clearly and succinctly last Thursday. The whole point of this provision is to get the legal context right so that the regulations and explanatory documents that we will have available at our surgeries will enable people to access the help that they need when they need it.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister and I hope that he is right. I hope that once the wits of the Treasury and Inland Revenue have got together he can design some streamlined amendments that are straightforward for the claimants. I still have reservations. In answer to my query about someone working 30 hours, 29 hours, 30 hours and so forth, he said that it was the normal hours in the current circumstances that mattered. Normal implies some sort of short-term averaging. Clearly a snapshot of one week is not what is meant; it must take one week with the next and perhaps one month with the next. That immediately leads us to issues of reporting and what people have to say.

I am trying to knock this on the head. We have a couple more sets of amendments on overpayments, so I will not pursue this amendment any further. I am grateful that the Minister says that these matters continue to be considered. I trust his assurances that he will come up with some streamlined regulations to deal with my concerns. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 116, in page 19, line 13, at end insert—

'(6) No overpayment of tax credit may be recovered under this section or under section 28 until after the Board has laid before both Houses of Parliament a statement of its policy in respect of the operation of the sections following consultation on a draft of that statement.'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this we will consider clause stand part.

Steve Webb (Liberal Democrat, Northavon)

Here we are again.

The Low Income Tax Reform Group and other organisations have expressed reservations about the recovery of overpayments. Amendment. No. 116 is intended to prevent the powers under clause 28 from being exercised until the board has told people what to expect with regard to the recovery of overpayments.

One of my worries about the Bill is the loss of certainty. Working families tax credit may have had its problems and inflexibility and lack of responsiveness may have been among them, but that lack of responsiveness lasted for only six months. However, the National Association of Citizens Advice Bureaux and other organisations have suggested to us that claimants valued the certainty of that tax credit; they knew what they were going to get for six months.

I understand that a balance must be struck between the conflicting qualities of responsiveness and certainty, but what concerns me and organisations that deal with people on low incomes is that uncertainty might hang over such people; they might worry that at the end of the year the reassessment will leave them out of pocket, and that it might be decided that overpayments should be recovered from them.

That uncertainty is inherent in the sort of system that we are discussing. People ought to be informed of the sorts of circumstances in which overpayments will be recovered—it might be possible to do that when they make a claim, by handing them a sheet of paper that lists such circumstances. They should also be informed about the mechanism by which that overpayment might be recovered. If, at the end of the year, someone found out that they owed a few hundred pounds, they should know in advance how that would have to be repaid—as a lump sum, for example, through the tax code, or through underpayment of future tax credit—and how that decision would be made. That matter links in with the next clause.

The amendment is not intended to prevent the exercise of the powers provided in the clause. It is intended to ensure that people know, before the powers are exercised, the criteria for applying them and their mechanisms and practicalities. That would give claimants a degree of certainty.

Howard Flight (Conservative, Arundel and South Downs)

Clearly, we cannot have such a vague and woolly system. Those who are entitled to tax credits should be required to follow simple rules that they can understand—regardless of whether those rules address every conceivable matter of fairness. If the rules are not easy to understand, people will either be put off applying, or they will make mistakes. The situation will be a mess.

Those rules also need to contain a fair and firm system for the return of overpayments. If that system is loose and woolly, people will exploit it to the maximum. Logically, the system should operate in a similar way to the underpayment of income tax—but the other way around as, regrettably, people will probably be excluded from subsequent tax credits and

they will be required to make a payment if they no longer qualify for such credits.

To borrow the Minister's metaphor, if a black box—a television—was invented that would deliver a lovely picture if it was switched on, but nobody understood that it was a television or knew how to switch it on, I cannot see how it could operate. With regard to tax and tax credits, it is axiomatic that people should understand what they are—and are not—entitled to. They cannot have a dialogue with the Revenue—or with anyone else—unless that is the case.

Paul Boateng (Labour, Brent South)

In our debates on amendments Nos. 67 and 68 and earlier clauses, we discussed overpayments that might arise as a consequence of the new fiscal tax credits, but through no fault of the claimant or the Revenue. I explained to the Committee that we want the tax credit system to adjust to meet changes experienced by claimants, but without it imposing a disproportionate burden on them or subjecting them to intrusive monitoring. We want people to receive what they are entitled to at the right time.

I return to the theme that has been characterised in my responses and those of my hon. Friend the Paymaster General. The Revenue will be providing guidance to ensure that that is so. It is inevitable, however, that when the final entitlement has been determined, some people will have been overpaid or underpaid for the year. People who have been subject to numerous changes during the year may choose to wait until the end of the year to sort matters out, while others may find that their income for the year, when finalised, produces a change in their entitlement.

When debating clause 7, we referred to the importance of any threshold that had been set under the regulations and the care that we are taking about the decisions to be made in such matters. People who have been underpaid will have the extra tax credit paid into their bank account. Overpayments of tax credit are dealt with under this and the following clause. Clause 27 establishes that there is an overpayment, while clause 28 provides for the means of recovery. No doubt Opposition Members will have views on that.

Clause 25 gives the Revenue the power to decide whether all or part of an overpayment should be recovered. It makes the claimant liable for that repayment. With joint claims, the clause makes both claimants jointly and severally liable. However, the Revenue may also decide that each partner should be able to repay a specified amount of that overpayment. Such a decision might be made when it was clear that the overpayment was the result of action by one partner, of which the other knew nothing. Overpayment arises when a final decision is made under clause 17.

There will be times, however, before the decision has been made, when it is clear that there will be an overpayment. For example, a claimant may have been receiving tax credits in respect of two children, one of whom has gone to live with someone else during the award. It may be some time before the Revenue is notified of that. The clause also allows payments to be adjusted to recover an overpayment in anticipation of

the final decision about the award. It is right that the Revenue should have that power, but we aim to ensure by advising and educating the claimant that the number of tax credit overpayments to be recovered is kept to a minimum. That is the reason why the information must be given, why the advice should be made available and why we should make the system as clear as possible for those who are to benefit from it. When overpayments arise, clause 27, together with clause 28, will enable the Revenue to deal with them fairly and sensibly.

Amendment No. 116 would require the Inland Revenue to consult on its policy about the recovery of an overpaid tax credit and to lay a statement before both this House and the other place. Only then will it be possible for the board to start recovering overpayments. I can well understand the objectives of the hon. Member for Northavon in tabling such an amendment, although I do not consider that its procedure is necessary or right. It is overly cumbersome and procedurally fraught. However, I understand what he is getting at and I assure the Committee that we shall continue to ensure that we take into account the worries that have been expressed by NACAB and others about the measure. That is why the Revenue plans to produce a code of practice on its compliance work in relation to new tax credits. It will also set out how it intends to exercise its discretion in the recovery of overpaid tax credits, provided for under clause 27.

So we will certainly consider and reflect the views of others in preparing that code. My hon. Friend the Paymaster General will be taking a close, personal interest in the Revenue's proposals. The code of practice will be made available in draft for comments, so there will be plenty of opportunity for NACAB and others to form a view. Indeed, there will be an opportunity for the hon. Member for Northavon and his colleagues to form a view as to whether the code is fit for purpose. The purpose of publishing it and making it available in draft for comments is to make sure that we get it right. As hon. Members on both sides of the Committee have said, even if one supports the objectives, the aims and the means of the legislation, one can honestly have different views about how best to achieve them. That is why we are making the draft code available for comments.

I hope that in the light of that assurance, and with the prospect of having a personal input into the thinking of the Revenue—[Interruption.] Well, it is an opportunity not to be sneezed at. I hope that the hon. Gentleman will feel able to withdraw the amendments.

Steve Webb (Liberal Democrat, Northavon)

I am grateful and heartened by the mention of a draft code of practice. I am assuming that by that the Minister means that such a document would be publicly available before the Inland Revenue applies the powers. That seems to be the logic of what he is saying. It certainly goes some way towards addressing our concerns.

One hopes that once the code of practice is in force—perhaps I could sow this seed in the collective conscious of the Revenue—a summary version will be

available to recipients, perhaps once a year when they receive their annual reconciliation statement. That will give people the certainty that we are seeking. Heartened by the Minister's characteristically inclusive approach, I beg to ask leave to withdraw the amendment.

Amendment by leave withdrawn.

Clause 27 ordered to stand part of the Bill.

Clause 28 - Recovery of overpayments

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 52, in page 19, line 35, at end add—

'(6) Where an amount is liable to be repaid under subsections (3) to (5), the amount repaid in any period may not exceed a specified percentage of the person's income during that period, such percentage to be set out in regulations.'.

We are back on overpayments again. Clause 28 allows overpayments to be recovered in one of three ways, as I understand it. A recovery may be made through a request for a lump sum—or an account—through the PAYE system, or through an underpayment of tax credit.

What clause 28 does not do, and what our amendment seeks to do, is to put some sort of ceiling on the rate at which overpaid tax credits can be recovered. We do not want to tie the hands of the Government in any way so our amendment merely provides regulatory powers—with due deference to the Conservative Whip, the hon. Member for Mid-Worcestershire (Mr. Luff)—to pass regulations that would prescribe the percentage rate at which recovery could be made.

Clearly, at the margin, if someone's income has gone up or down a bit and they remain below the threshold, no overpayment will be made. However, when someone's circumstances change—a relationship breakdown or other changehich—it can take several weeks before the authorities hear about it, for understandable reasons, and quite a significant overpayment can arise. A person who becomes a lone parent as result of such a relationship breakdown and who, perhaps, must give up work, could have a large overpayment and a small current income. There is nothing in the Bill that tells us how quickly the board would try to recover the money. Will the Minister tell us the Government's thinking? Would it try to recover any overpayment during the following year? Is that the maximum time during which recovery will be attempted? I would be worried by that. If a person is receiving benefit because they have a low income and a large repayment is to be recovered over a 52-week period, substantial sums could be involved that would leave the person with little to live on.

The precedent for such circumstances—I hesitate to refer to the social security system, but what the heck—are procedures such as the recovery of social fund payments. There are guidelines about the rate at which payments may be recovered. Similarly, even under the convoluted child support legislation, there are ceilings on the percentage of someone's income that may apply in maintenance assessments. Higher ceilings exist for arrears, which is an analogous system to the one that

we are discussing. The concept of ceilings on percentages of income is familiar in the system.

Will there be a ceiling in regulations? Must we force the Government's hand, or are they ahead of us? Have they drafted regulations to that effect? I mention the specific case of a childless person who goes on to jobseeker's allowance but has an overpayment of tax credit. PAYE is not relevant to that person because they do not pay tax. Underpayment of their tax credit by the Government would be irrelevant because they would not be entitled to it. A lump sum bill saying, ''You owe £1,000,'' would not help either. I understand that those are the three ways in which the Government may recover overpayments. Will the Minister address that specific case in addition to our general worry about the rate of recovery of overpayment?

What powers will the Government use to recover money from a person who no longer receives tax credits, who is not handled by the PAYE system and who cannot pay a lump sum? Our worries about maximum thresholds are germane to such a case. I hope that the Minister will reassure us that he is ahead of the game.

Paul Boateng (Labour, Brent South)

The clause provides for the mechanisms by which an overpayment of tax credits may be recovered after provisions in clause 27 have established that that is due. There are three ways to do that, which the hon. Member for Northavon touched on. Money may be deducted from future payments of tax credits, obtained direct from the claimant as if the money were a tax debt—the ordinary law of debt recovery and judgment will apply—or by adjustment to the PAYE coding.

In practice, the first avenue used to collect overpayments would be deduction from future tax credits. The Revenue will establish guidelines under the code of practice to which I referred the hon. Gentleman earlier for the maximum amount by which a future award could be reduced to allow the recovery of an overpayment. That is necessary to avoid people experiencing undue hardship while the recovery is being made. That experience would be self-defeating within a measure that is designed to combat poverty and its effects, particularly if that relates to children.

Further recovery methods may be used if deduction from future payments is impossible. For example, as the hon. Gentleman mentioned, there may no continuing entitlement to tax credits. A debt would exist and a range of measures would be available to those who are entitled to enforce a debt. The ordinary range of measures, which would be available to any of us who are owed debts, will be available to the Revenue. I have already made it clear that the aim is to minimise incidents of overpayment, but the clause provides a variety of means of recovering money in a fair and cost-effective way when such incidents occur.

The hon. Gentleman asks whether we will try to recover everything in the following year. The answer is a categorical no for the reasons that I have described. That would be self-defeating. The time scale for recoveries will and must depend on the claimant's

resources and the amount of the overpayment. Those are the deciding factors.

It is important to consider whether a non-PAYE person or someone who is not in receipt of tax credits should be required to pay the sum at once. Again, the answer is no. The clause simply provides for direct repayment to become due and payable after 30 days. That does not mean that after 30 days a demand for the full amount will arrive for people on low incomes. However, repayment is then due, and one would require the Revenue to exercise proper discretion when considering the claimant's resources—again, the guidance is important—and to bear in mind the amount of the overpayment. The Revenue should proceed accordingly.

Richard Younger-Ross (Liberal Democrat, Teignbridge)

The Minister has kindly explained that there will be no instant demand, and that repayment will be spread over time. When people who deal with PAYE underpayment talk to the tax office at the beginning of the year, they hear, ''You have underpaid £500. We want it now.'' I have experienced two instances of that, and it was the Inland Revenue's fault. There is still the shock of a bill for £500. Will the Minister ensure that the guidelines and regulations make it clear that there shall be no demands such as, ''You have been overpaid £200. We want it back''? The Revenue should state that there has been an overpayment, and that repayment will be expected over a period. It should state how it will deal with the matter, rather than argue about the period for repayment.

Paul Boateng (Labour, Brent South)

The hon. Member for Northavon referred to the collective consciousness of the Revenue. That is a rather scary phrase. One thinks back to watching ''Doctor Who'' in one's youth, and imagines something amorphous and pulsating in a hidden room in the Treasury. There is no such entity, but we are anxious to ensure that we take into account the sort of constructive representation that the hon. Member for Teignbridge made. I do not doubt that the hon. Gentleman's point will be taken into account not only in the guidance, to which I have referred, but in the care that will be taken in drafting the standard communications with those in receipt of tax credits.

The exact wording of those communications is not an appropriate matter for the Committee, but it is important to make sure that the wording of all communications will not be such as will instil apprehension and fear. That is a serious point, because for many people, any communication from what is perceived as authority—or from actual authority—instils fear. That is something that we must take into account. It is important to remember that for those in receipt of income support or jobseeker's allowance there is no power to deduct tax credit overpayments from the amount they receive.

As I said earlier, the Inland Revenue will need to consider cases individually. It will consider the amount of the overpayment and the individual's resources before determining the period over which payment should be recovered. With that explanation, I hope

that the hon. Gentleman will withdraw the amendment.

Steve Webb (Liberal Democrat, Northavon)

A question remains about the Minister's response to my example of a childless person who is not on PAYE and does not receive tax credits. Such people fall into the third category, which is tax debt; they are treated akin to someone who owes tax. However, someone who owes tax on a particular date but does not pay it has to pay interest. Will people in the circumstances that I have described have to pay interest? That would be intolerable, but I do not know whether the relevant section of the Taxes Management Act 1970 implies that or allows flexibility. It would be helpful if the Minister would clarify that point.

More generally, I am not sure whether the Minister said that the code of practice would deal with maximum rates of repayment. He seemed to imply that it was not in the Revenue's interest to push someone into hardship, but as the Revenue has first claim on someone's money, it has nothing to lose by making life tough for them. That was not a tremendous reassurance, which is why we seek to put in place something more meaty in the form of a threshold.

We are concerned about the Minister's reliance on codes of practice as distinct from regulations, for which the amendment would provide. Regulations are not subject to the same scrutiny as primary legislation, but codes of practice are subject to even less scrutiny. Secondary legislation may not receive serious scrutiny, but codes of practice receive none once they have been put in place, and changes in codes of practice are not scrutinised at all. They do not go before bodies such as the Social Security Advisory Committee. I have reservations about relying on a code of practice, which, once we have commented on a draft, we may never see or have an opportunity to comment on again. People need protection and parliamentary scrutiny of that protection.

How hard people will be pursued for debts that they may have incurred through no fault of their own is a fundamental point. I mentioned relationship breakdown. Whether or not a breakdown is permanent may not be immediately apparent. Indeed, it may be weeks or even months before that is clear. If the breakdown is then reported and the Revenue decides that the reassessment should take place from the time when one partner moved out, even though the breakdown was not seen as permanent at that point—that may be a grey area—someone could run up a big overpayment and end up on benefit with a tax debt.

I asked the Minister to clarify whether the debt would incur interest, but even if it did not, the person would still have a big liability hanging over them. The Minister assured us that the Revenue would not push too hard because that would not be in its interest, but in fact very little constrains the Revenue from trying to get its money. The Minister's response did not entirely reassure me, so I shall test the Committee's opinion.

Question put, That the amendment be made:—

The Committee divided: Ayes 5, Noes 9.

Clause 29 - Incorrect statements etc.

James Clappison (Conservative, Hertsmere)

I beg to move amendment No. 24, in page 19, line 38, leave out ''fraudulently or''.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take amendment No. 114, in page 20, line 14, leave out ''fraudulently or''.

New clause 10—Fraudulent incorrect statements—

''(1) If a person fraudulently—

(a) makes an incorrect statement or declaration in or in connection with a claim for a tax credit or a notification of a change of circumstances given in accordance with regulations under section 6 or in response to a notice under section 17, or

(b) gives incorrect information or evidence in response to a requirement imposed on him by virtue of section 14(2), 15(2), 16(3) or 18(2) or regulations under section 24 he shall be guilty of an offence.

(2) A person guilty of an offence under subsection (1) above shall be liable on summary conviction to a fine not exceeding level 5 on the standard scale, or to imprisonment for a term not exceeding 6 months, or to both.''

James Clappison (Conservative, Hertsmere)

We now move from overpayments to the penalty regime, which is constructed between clauses 29 and 33. Clause 29 provides for penalties for persons who make incorrect statements in applications for tax credits. A person who fraudulently or negligently makes incorrect statements or declarations may be subject to a penalty of up to £3,000. In many respects, that mirrors provisions already in place in the Tax Credits Act 1999.

The purpose of the amendments and new clause 10 is to separate fraudulent statements from negligent statements and make fraudulent statements subject to a more serious regime. We had a short debate about negligence earlier. I do not think that there is an important difference between—

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. I beg the Committee's pardon. I omitted to put the clause stand part question for clause 28.

Question proposed, That clause 28 stand part of the Bill.

Paul Boateng (Labour, Brent South)

I wonder if I might take this opportunity to put a point on the record about interest on overpayments. It is of interest to those who observe our proceedings and to those who subsequently read the record. My comment has a direct bearing on the debate on clause 29, and I would

have made it then, Mr. Beard, if you had not given me an opportunity to do so now.

It would be our intention to seek interest only if the overpayment arose because of fraud or neglect. The hon. Member for Northavon would have pressed the matter to a vote even if I had mentioned that earlier. I could see him working himself up to pushing for a vote. However, it is important that the record should be clear: people who receive overpayments in the circumstances that we described and receive notice of overpayment due after the 30-day period will not have to pay interest if they do not pay immediately or if they pay over a period of time.

Question put and agreed to.

Clause 28 ordered to stand part of the Bill.

James Clappison (Conservative, Hertsmere)

The image still in my mind is that of television. We have now had a demonstration of video equipment from the Minister, who has given a proficient demonstration of playback. I will not freeze frame but will endeavour to fast forward—back to the future—to clause 29, which is about fraud and negligence. We believe that fraudulent statements are more serious than negligent statements and should be dealt with accordingly; that is the purpose of new clause 10.

Amendment No. 69 probes the Bill's implications for negligent statements under the new tax credit arrangements. However, we wish to make fraudulent statements a criminal offence and ensure that they are dealt with as such under clause 29. In order to assist deliberation on the subject, we would like to know how many of the 478 penalties that were imposed for false working families tax credit applications since the system began in October 1999 were for fraudulent statements and how many were for negligent statements. We would like to have clear information about the operation of the penalty regime.

The Paymaster General recently told me in correspondence that the Inland Revenue was not recording information about how much was recovered through tax credit penalties. Until 26 October last year, penalties received as a result of tax credit investigation settlements and tax credit penalties were recorded as income tax. Only since 29 October last year have tax credit investigation settlements and tax credit penalties been recorded separately from income tax. The Paymaster General told me that, in the first two months of recording tax credit receipts separately—as penalties and settlements—the Inland Revenue collected £191,000 in settlements and £50 in penalties. We would like to have clearer information about that, and greater transparency in the system. We detest fraud, and no doubt that view is shared by all members of the Committee. As a criminal matter, fraud should be taken seriously, and we want to see it dealt with as a criminal offence.

Paul Boateng (Labour, Brent South)

Through the amendments, he hon. Member for Hertsmere wants to remove from clause 29 the reference to fraudulent behaviour. He would prefer that such behaviour were dealt with as a new

criminal offence under his proposed new clause. I agree with the hon. Gentleman—as I am sure do all members of the Committee—that we want to ensure that the compliance framework for the new tax credit is effective against those who may attempt to abuse the system. Fraud is undoubtedly such an abuse and it is our objective to prevent it, while not deterring people who are genuine from claiming their entitlement.

I want to explain how we propose to take such action. In the light of our intentions, the hon. Gentleman's proposed new clause 10 is redundant. Nothing would be caught under it that would not already be caught under the new criminal offence introduced under clause 33. The Bill already makes clear provision to counter criminal abuse of the system, and the criminal offence that the hon. Gentleman wants to introduce would not add anything to that.

We are always open to suggestions about how the law may be made more effective and, as the hon. Gentleman knows from previous exchanges with me in Committee, we are open always to suggestions on how to improve the focus of criminal justice measures, particularly as they relate to fraud of the public purse. We do not believe that new clause 10 would achieve anything that is not already achieved under clause 33. If he has a contrary view, can he establish any defect or failing under clause 33? I am not sure whether it is his intention that civil penalties should not be available in cases of fraudulent behaviour. If so, amendment No. 24—and amendment No. 69, which we shall discuss when we reach the next group of amendments—would remove ''fraudulently'' and ''negligently'' from the clause. That would mean that we do not have a civil penalty either, but clearly that is not his intention.

James Clappison (Conservative, Hertsmere)

In the first part of my remarks, I said that amendment No. 69 was a probing amendment.

Paul Boateng (Labour, Brent South)

I am grateful to the hon. Gentleman. Were that not the case, penalty provisions would be available whenever someone made an incorrect statement or provided inaccurate information, including cases of fraudulent behaviour. That would not be desirable. It would even make the penalty available where there was neither fraud nor neglect. It clearly would not be right to punish an innocent error in that way.

Perhaps we should look at cases where there has been an innocent error. The hon. Member for Northavon has expressed concerns about that in the past. The Government's policy for tax credits, as for tax matters more widely, is that civil penalties should be applied in most cases of fraud but that there should be criminal prosecutions in cases of serious or organised fraud. Governments of all political persuasions have adopted that approach. It is cost effective and experience tells us that prosecutions for minor frauds do not generally result in sentences likely to provide a realistic deterrent.

We want to ensure that we develop a legal framework that is effective, but proportionate in its response, and that gives us a compliance regime that is fit for the purpose. We think that we have got the

balance right. I do not think that the improvements suggested by the hon. Member for Hertsmere would turn out to be improvements at all. They are either unnecessary or technically flawed. However, we accept the spirit that underlies them, which is to bear down hard on fraud and to make it clear that fraud is unacceptable and will result in a proportionate response.

James Clappison (Conservative, Hertsmere)

I am grateful for the spirit in which the Minister responded. I will endeavour to answer his main point, but there is another important point that I should make first. The amendment is designed to deal with fraud and is not intended to deter people from claiming the credits to which they are entitled, or to deal with people who receive an overpayment through no fault of their own or who, through their own failing or carelessness, but not dishonestly or fraudulently, receive too much working families tax credit. It is designed to get at people who deliberately set out to defraud the system by making deceitful representations. There is a big difference between those who form a dishonest intention to deceive the system and the honest person who perhaps loses out as a result of the dishonest activities of the fraudsters.

The Minister asked me why the provisions in clause 33 are not sufficient and why we want to have this additional new clause. Clause 33 could be improved. We would like to see a stiffer penalty. Even were that not the case, it is possible under the existing provisions of tax credit to prosecute people for false WFTC applications. That has been done. I would draw more confidence from the Minister's response if the prosecution policy had been more vigorous. So far, the number of prosecutions has been very low indeed. No one can reasonably say that the extent of fraud in tax credits is reflected by the number of prosecutions. It is more likely that fraud is going unprosecuted. Either it is not being detected or, when it is detected, it is being dealt with by penalties rather than prosecutions. The new clause would mean that if someone acted fraudulently or made a fraudulent statement, they would be prosecuted for a criminal offence.

I have listened carefully to the Minister's comments. I want to reflect on his points but, at the moment, I am not entirely satisfied by his response. Notwithstanding the generous spirit in which he put forward his response, we are concerned about the issue and may wish to return to it on Report. 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. 69, in page 19, line 38, leave out 'or negligently'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to consider the following amendments: No. 70, in page 20, line 14, leave out 'or negligently'.

No. 72, in clause 35, page 22, line 21, leave out 'or neglect'.

Steve Webb (Liberal Democrat, Northavon)

The amendment stands in the names of several hon. Members, but I shall speak to it first.

We are dealing with the same issue, which is the distinction between fraud, on which we are all keen to clamp down, and innocent error. At one end of the scale, many Conservative amendments are aimed at toughening the Bill's provisions on fraud, and I understand that, but the motivation behind this group of amendments is to ensure that the provisions on people who are subjected to penalties and, with amendment No. 72, interest penalties do not apply to people who make genuine errors. To have an idea about why we are concerned about that, it is worth reading a sentence from the explanatory notes on clause 29, which say:

''Clause 29 provides for a penalty of up to £3,000 to be imposed on any person who fraudulently or negligently provides a false or incorrect statement or incorrect information or evidence in respect of a claim''.

If we take out the part about fraud, on which we all agree, and the part about false or incorrect statements, we get this:

''Clause 29 provides for a penalty of up to £3,000 to be imposed on any person who negligently provides incorrect information''.

We have discussed the difference between negligence and wilful negligence. The Minister suggested that adding ''wilful'' would give the lawyers a field day, but it seems to me that any definitional issue makes a field day for the lawyers. They will spend just as long and earn just as much discussing what negligence means as they would discussing what wilful negligence means. It would benefit the innocent to strengthen and clarify what we mean by negligence, although the three amendments would take out the relevant part altogether.

The Bill contains clauses concerning penalties and interest. Someone who was deemed to be negligent, although a lay person might not judge them to be culpably negligent, could face a combination of repayment of overpayment, interest on the overpayment, a penalty charge, interest on the penalty charge and, if the negligence bordered on fraud, that panoply as well. Do we need all of those measures?

For people on high incomes, an error on their income would probably not affect their entitlement, but if people on low incomes get something wrong, it would affect what they receive. We are dealing with a client group who are generally on low incomes and understandably might neglect to keep proper records. The culture shock for the highest earners in the land of the record-keeping implied by self-assessment was quite something, and many people still rely on the traditional shoebox technique. If we extended that to a group of people whose incomes are much less predictable, whose record-keeping is on average likely to be poorer, and who do not have accountants, it would make it much more likely that they would neglect to record or supply something.

A related issue refers back to clause 14(2) and concerns a person who fails to supply information—perhaps some supporting information for a claim. Such people can be deemed to have supplied the information. For example, if a person is sent a form asking whether their circumstances have changed and they do not send it back—it gets stuck behind the sofa

or they are busy with other paperwork or whatever—they are deemed to have said that their income has not changed.

Should it transpire that the income has changed by a relevant amount, the system says that that is negligence, which incurs a potential fine of up to £3,000, recovery of the overpayment, interest on the overpayment and possibly also interest on the penalty charge should the person not have current means. In the clause 28 stand part debate, the Minister said that interest would be charged for negligence and not only for fraud.

We are hammering people with a concept of record keeping that goes beyond anything they have previously faced. By proposing in the amendment that ''negligently'' be removed, we seek Government reassurance us that they will only go after people who exhibit culpable or wilful negligence. Such cases are on the borderline of fraud and are far from those at the other end of the spectrum involving people who are not good at record keeping, whose lives are haphazard, or whose dealings with officialdom are somewhat chaotic. We have all met such people and we do not want them to be fined £3,000.

James Clappison (Conservative, Hertsmere)

The Committee has had a trailer of my views on this matter in the comments of my hon. Friend the Member for Arundel and South Downs. I have sympathy with some of the remarks made by the hon. Member for Northavon. We must be vigilant about public money, ensuring that it is properly returned and that people who have been negligent are penalised when appropriate. However, we must also be realistic about the circumstances of some of those who fall within the ambit of the system, their resources and, in some cases, their culture.

We are discussing negligence, which, under the new system, is a failure to discharge duties. On top of everything else, we are imposing additional duties on claimants under the new system of yearly income assessments and the requirement on them to notify of changes in their circumstances. By extending the duties that we place upon people, we increase the scope for potential negligence. The Minister must give us a careful explanation that strikes a balance between vigilance and realism.

Paul Boateng (Labour, Brent South)

I shall deal first with the point made by the hon. Member for Northavon about lawyers when they discuss fraud and negligence. I am sorry to disabuse him of another of his cherished illusions, but he is mistaken in his belief that it is not possible to excite legal activity by introducing words into legislation that, of their very nature, excite a feeding frenzy among lawyers. Anything that suggests an additional mental element in criminal or civil law will lead to extra debate among lawyers. Terms such as ''knowingly'' and ''wilfully'' are the subject of much discussion among lawyers.

No doubt like my legal colleagues on the Committee, I have spent many a happy, lucrative and productive hour discussing the additional element required to satisfy a definition that contains ''knowingly'' or ''wilfully''. That is why, although it

is difficult to get rid of the term ''knowingly'' from the law, great efforts have been made by parliamentary draftsmen for many years to avoid using the term ''wilfully'' because it adds little other than an opportunity for lawyers to discuss the additional import of the word.

A problem surrounds the concept of wilful negligence. Is it not somewhat a contradiction in terms? If one has a sufficient will to do something, can one be held act negligently? I see the look on the face of the occasionally—mercifully, normally—silent one on the Conservative Benches to whom, surprisingly, Liberal Democrat Members sometimes defer. It is a dangerous practice to defer to Conservative Whips—even Conservative Members seldom defer to their Whips. I know that I am trespassing on ground that you would not want me to explore, Mr. Beard.

I assure the hon. Member for Northavon that nothing is served by adding the term ''wilful''. For years, the term ''fraud and negligence'' has existed in law in relation to tax, national insurance contributions and, now, tax credits. It is well understood by lawyers, advisers and those who have an interest in those matters. In our view, there is no point in tampering with it. It does not include, and does not result in, penalties or interest for those who have made an innocent error. People who have made an innocent error will not be trapped by that phrase, or, indeed, by the provisions that the hon. Gentlemen seek to amend.

The purpose of clause 29 is to provide for financial penalties when a person fraudulently or negligently makes an incorrect statement in relation to tax credits, or provides incorrect information.

Steve Webb (Liberal Democrat, Northavon)

The Minister is responding helpfully. Will he give an instance of an action that would be negligent but not fraudulent in this context?

Paul Boateng (Labour, Brent South)

Yes. If, in the hurry of a late return of information, an item were omitted innocently—through an oversight—there would not be a problem. However, as the hon. Member for Hertsmere mentioned earlier, when a course of action has been taken that is clearly motivated by a deliberate and dishonest attempt to draw a veil over certain activities and obscure them from the attention of the Revenue, that is fraud. One is deliberate dishonesty, while the other is failure to take reasonable care. The third category is omission by accident. If one has made no attempt to communicate, one has shown unwillingness to respond to queries, or one has shown a determination to take no interest in ensuring that the Revenue is aware of a relevant fact, that is clearly a failure to take reasonable care.

Karen Buck (Labour, Regent's Park and Kensington North)

My hon. Friend has been extremely helpful in explaining the matter, but I am still a little worried. That is partly because of the examples—with which all Committee members will be familiar—of people whose level of functional literacy is not high. Such people are not used to regularly completing forms unaided. I would be most worried about those whose record keeping is shambolic. Into what category of treatment would they fall? How will people cope if they do not have the experience and literacy skills needed to

compile the information for which they are to be asked?

Paul Boateng (Labour, Brent South)

Let me give an example. Someone who fills in an incorrect income figure because he cannot be bothered to look at his payslip is not being fraudulent, but negligent; he is not taking reasonable care. Let us suppose that someone puts down £175, when the figure is £195. That could be the result of an innocent misreading of the payslip, which is in script form. However, if a person writes down £95, it would be harder to believe that such action was innocent. It might not be fraudulent action, but it shows a lack of reasonable care. If there were a query and the person still wrote down £95, it would show that he had stepped over the boundary from negligence, and that his action was fraudulent.

We all know from constituency experience that some people lead lives that appear shambolic to others. However, it would be wrong to believe that they have no clear sense of what is coming into the home and what is going out. Sometimes, they have a clearer sense of outgoings than income, but in the main people are fairly clear about such matters, even if some of the detail is fuzzy. It would not be right to underestimate people's capacities in such matters.

My hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) is right to remind the Committee to make sure that the guidance given, the discretion exercised and, when it is relevant, the prosecution's policy take the whole picture into account. Often the recipients of tax credits do not have the degree of familiarity with forms and figures that can be expected of those who utilise the PAYE system.

Richard Younger-Ross (Liberal Democrat, Teignbridge)

I said previously that I expected a learned member of the Committee to correct my use of the words ''wilful negligence'' and to define them better than I can. However, I used that term before because I worry about people who make mistakes at the boundary—not between negligence and fraud, but between negligence and error. We are dealing with people whose lives may be shambolic and who have difficulty dealing with forms, let alone tax return forms, because they have never had to deal with them before. Most of us are fairly intelligent, but we struggle with tax return forms—I certainly do. I put up my hands and am honest about it.

Some people are on the edges. One person's negligence is another person's lack of understanding. We want an assurance that people will not be hurt or penalised through another's lack of understanding.

Paul Boateng (Labour, Brent South)

I hope that I have made it clear that we do not intend to include innocent error in the category of neglect or fraud. Everything that my hon. Friend the Paymaster General and I have said reinforces our intention to ensure, with aid of the Revenue and the National Association of Citizens Advice Bureaux, that understanding of the provisions is thorough and that people are aware of their responsibilities and rights. As in every other area of

life, we must strike a balance between rights and responsibilities.

There is a long-established test of negligence, which will apply to those who failed to take reasonable care in making their claims, or in providing information. Circumstances are relevant: bereavement or family crisis, for example, are relevant to determining the reasonableness of people's responses. There are no penalties for innocent mistakes, and the Revenue has to prove fraud or negligence. If there were a dispute about an accusation of negligence, it would be resolved by the tax commissioners. I know that hon. Members have concerns about the appeals process, but the commissioners are experienced in deciding cases of negligence. They understand the test, and will be well placed to apply it.

In the light of that detailed explanation, I hope that the hon. Member for Northavon will withdraw the amendment, and that the hon. Member for Hertsmere will not press for a vote.

James Clappison (Conservative, Hertsmere)

I am not minded to press the amendment to a Division.

Steve Webb (Liberal Democrat, Northavon)

We are grateful to the Minister for his expertise and comments. Perhaps it was unfair to spring the question on him, but when I asked him what might constitute negligence, but not fraud, the first example that came to his mind was a person who is in a hurry to submit the form and misses something out. If that is negligence, it falls in the scope of the penalties. I would not want such a person to suffer a £3,000 fine.

The Minister gave other examples that more clearly illustrate the definition of negligence. We are in a grey area, but our amendments are somewhat blunt in their proposed removal of all references to negligence. The Minister referred to an instance in which a person had a pay slip but did not bother to look at it. However, we do not want people to reach the stage of appealing to tax commissioners. The clause is too sweeping in scope, and we might want to refine the types of negligence that we want to exclude at a later stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

James Clappison (Conservative, Hertsmere)

I beg to move amendment No. 18, in page 20, line 1, leave out ''£3,000'' and insert ''£5,000''.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to discuss the following amendments: No. 19, in page 20, line 10, leave out ''£3,000'' and insert ''£5,000''.

No. 20, in page 20, line 18, leave out '£3,000' and insert '£5,000'.

James Clappison (Conservative, Hertsmere)

As I said earlier, the distinction between fraud and negligence is that the fraudulent applicant sets out to deceive the system and knowingly engages in fraud. In our consideration of earlier amendments, I was unable to persuade the Minister that there should be a more serious regime for fraudulent statements, and that those who make them should be prosecuted for fraud. I invite him to consider that there should instead be a more serious penalty under the penalty regime for people who behave fraudulently. A maximum penalty of £3,000 is not sufficient. A maximum penalty of £5,000 should be

available to cater for the worst cases: those who commit fraud by making fraudulent statements.

Paul Boateng (Labour, Brent South)

I expect the criminal sanction to apply in the worst cases, in which there is serious or organised fraud. Let us be up front about that. However, we are discussing a civil penalty. Although I share the hon. Gentleman's revulsion of fraud of any sort, I am not persuaded that there should be a distinction between the current tax system, in which a maximum civil penalty of £3,000 is set, and tax credits. That is a bit like the old suggestion that social security fraud should be punished more severely than any other form of fraud or theft from the public purse. That is not borne out by proper sentencing policy.

Fraud is unacceptable and must attract a penalty. I am not convinced that the penalty for those who are negligent or commit fraud in relation to PAYE should be less than the penalty in relation to tax credits, simply because PAYE has always existed in its current form and tax credits are a development of the social security system. It would be unfortunate if that were to creep into our thinking. They should be treated alike. As the current maximum penalty is £3,000 for the ordinary tax system, so it should be for the development of that tax system in the form of tax credits. The case has not been made for more stringent penalties for tax credit claimants compared with others who have breached their tax obligations.

Nevertheless, I take the point that it is important to mark any act of fraud or negligence that has caused loss to the public purse through the tax system in a way that is commensurate with the harm done. The good news is that that will be the case under the system that we propose, just as it is under the current system. Because the penalty applies to each claim, if a person has persisted in making incorrect statements over a period, the total maximum penalty will far exceed £3,000. Those responsible for prosecuting such cases—it is not a matter for Ministers—will prosecute the more serious cases using the criminal sanction. For the civil sanction, the penalty should remain £3,000. I hope that the hon. Gentleman is sufficiently satisfied, if not persuaded, not to press the matter to a vote.

James Clappison (Conservative, Hertsmere)

We want to treat any case of fraud as a serious matter. I take issue with the Minister about whether public sector benefit fraud is treated as seriously as private sector fraud, when someone who obtains funds by similar deception—making a false statement—from a building society, bank or other financial institution faces a penalty of criminal prosecution. The statistics seem to show that prosecutions for false statements in the benefits system are few and far between. That is a debate for another day. We will come to it when we deal with later clauses.

I will consider carefully what the Minister said. I am far from satisfied with his response as I believe that there should be a more serious penalty for those who commit fraud. Given that I may wish to return to the issue later, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29 ordered to stand part of the Bill.

Clause 30 - Failure to comply with requirements

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 71, in page 20, line 28, leave out ''14(2)''.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take amendment No. 109, in page 20, line 28, leave out

'or regulations under section 24'.

Steve Webb (Liberal Democrat, Northavon)

Clause 30 introduces yet more penalties, not for incorrect statements but for failure to supply information. Amendment No. 71 would remove from its scope people who are in the process of making a claim. For reasons that we will deal with in a moment, they should not be penalised if they do not supply information that they have been asked for, thereby halting the processing of their claim. That is the significant point.

As the CPAG remarked,

''people have liabilities to pay tax but they do not have liabilities to claim tax credits.''

People can decide whether they wish to claim, see through a claim or withdraw a claim that they have initiated. Under the clause, which includes a reference to section 14(2), they can be penalised a £300 lump sum and another £60 a day for not providing information that would facilitate the progressing of a claim.

If someone decides to withdraw a claim, they would suffer a penalty for not supplying information that would facilitate processing it. For example, they may realise that information of a personal nature that they do not want to disclose, perhaps to a partner, would become known. Indeed, there is no obvious facility for withdrawing a claim; again, applicants would suffer a penalty for not supplying information.

The amendment would remove the penalties, not for people who are receiving or who have received money or who fail to supply information that might reduce the amount of the payment, but for people who have only made an initial claim. They should be able to withdraw the claim or give it up by not supplying information. At present, that appears to incur a penalty, which is not appropriate.

James Clappison (Conservative, Hertsmere)

I shall speak briefly to amendment No. 109, which concerns information that will be sought from employers under regulations in clause 24. Employers are in a different position because, unlike claimants who provide information in support of their claim for tax credits, they will receive no direct benefit. I do not wish to go over old ground again with the Minister and debate indirect benefits for employers. They face prospective penalties and may also face burdensome regulations. We make a plea to the Government to keep the burden of information that is asked of employers to a reasonable minimum. The Government are making substantial powers by regulation to require information of employers. I will not press the amendment, but I moved it in the spirit of keeping the burdens on employers to a minimum.

Paul Boateng (Labour, Brent South)

I am grateful for the way in which the hon. Gentleman spoke to the amendment. I assure him

that we will bear in mind the way in which the Revenue relates compliance and burden to employers. We will expect employers to act reasonably and they will face a penalty if they do not. However, I take the point that we should ensure that compliance is not unduly burdensome.

There is no question that the situation is different for people who are not in the business of engaging in fraud or a concerted action by deceit to obtain money. If a person makes an application and chooses to withdraw it in the ordinary circumstances of the case, there would be no question of imposing a penalty. I give the Committee that assurance.

Penalties may arise in a case such as this. If an application is made and the informal approach, which will always be made, is rebuffed, the application would be persisted with and a formal request made under formal powers. If there were still resistance, it is important that the Revenue should be able to invoke powers to require information to be provided within a set deadline. A penalty should be imposed for failure to do that.

There are safeguards against the indiscriminate application of penalty provisions. Penalties cannot be applied if there is a reasonable excuse for failing to provide information. If an application were made in an ordinary way but it were not pursued—that would be the end of the matter—that would appear to be a reasonable excuse. The initial penalty under the provisions is not at the Revenue's discretion because only the commissioners may impose it.

After hearing those reassurances, I hope that the hon. Member for Northavon will not press the amendment to a vote.

Steve Webb (Liberal Democrat, Northavon)

We want to remove clause 14(2) from the scope of clause 30. Clause 14(2) relates to situations in which no public money is paid. It is a preliminary stage. The clause states:

''the Board must decide . . . whether to make an award . . . and . . . if so'',

how much that should be. However, before the board decides, it asks for information. If the person who makes the claim fails to provide that information and the claim does not proceed with any public money payable, I cannot think of circumstances in which we would want clause 30 to apply to clause 14(2). No public money would be handed over unless information were supplied. If it is not handed over, why do we want to penalise people for not supplying the information?

I am grateful for the Minister's reassurance that only the commissioners will impose the penalty. On the assumption that they would not want to use the power, although it is in the Bill, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 30 ordered to stand part of the Bill.

Clause 31 - Failure by employers to make correct payments

James Clappison (Conservative, Hertsmere)

I beg to move amendment No. 21, in page 21, line 17, after 'fails', insert 'without reasonable excuse'

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take the following amendments: No. 38, in page 21, line 22, leave out subsection (2).

No. 39, in page 21, line 22, after 'employer', insert 'without reasonable excuse'.

James Clappison (Conservative, Hertsmere)

The clause provides that a penalty of up to £3,000 can be imposed on an employer who fails to make correct payments. Is there not a case for at least giving employers a let-out from liability under the clause when they have a reasonable excuse for the omissions? The opportunity to put forward a reasonable excuse is available under the preceding clause in the case of, for example, an applicant who fails to supply the correct information. However, the same opportunity is not given to an employer. In fairness, is there not a case for doing so? It would certainly be welcomed, especially by small and medium-sized enterprises. We have debated under previous clauses the burdens that the provisions would impose on such businesses.

Clause 31(2) seems to be a stiffening-up of the equivalent provision under the Tax Credits Act 1999, which would appear to be section 9(7). It provides that an employer is liable for a penalty if he

''fraudulently or negligently makes or receives incorrect payments''.

The requirement for the employer's failure to be established as fraudulent or negligent is removed and the employer faces what the Minister will recognise as a regime of strict liability, which is a stiffening-up as far as employers are concerned. Why is that stiffening-up being proposed at a time when concern is being widely expressed about the increasing burdens on employers?

Paul Boateng (Labour, Brent South)

Uncharacteristically unfairly, I portrayed the hon. Gentleman in an earlier debate as living a life of perpetual unease. In this regard, however, his lack of ease is entirely justified. He has put his finger on an error on our part. It is only right that I should own up to that—it's a fair cop, guv, you caught me bang to rights. The hon. Gentleman will be gratified to hear that he has put his finger on an omission. It was not our intention that penalties should be imposed on the basis of strict liability. We shall table an amendment in due course to make that absolutely clear. It would be wrong to penalise an employer for a course of action when the mistake was entirely innocent.

I must disappoint the hon. Gentleman on his first point, however. Our view is that there can be no reasonable excuse for refusing or repeatedly failing to pay tax credits to an eligible employee. We are not persuaded of the strength of the hon. Gentleman's amendment and I hope that, on reflection, he will feel able to withdraw it.

James Clappison (Conservative, Hertsmere)

What can I say? I am grateful to the Minister for that response. If I did feel unease in

relation to amendment No. 38, it has been removed. On the basis of the Minister's generous remarks, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 31 ordered to stand part of the Bill.

Clause 32 - Supplementary

Steve Webb (Liberal Democrat, Northavon)

I beg to move amendment No. 117, in page 21, line 30, leave out 'has effect' and insert—

'shall take effect on the laying by the Board before both Houses of Parliament of a statement explaining—

(a) how it will balance the need to encourage persons entitled to claim a tax credit to do so with the need to control abuse so far as is reasonably practicable,

(b) its criteria for deciding whether a claimant has been fraudulent or negligent, the manner in which it will exercise its discretion in cases of minor error, and its prosecution policy in relation to claims for a tax credit, and

(c) the relationship between these criteria and those relating to income tax and national insurance contributions,

following consultation on a draft of that statement.'.

I am being prompted by hon. Members on both sides of the Committee that a football match is due to start imminently, but I will not allow that to inhibit me from giving the exhaustive analysis of schedule 2 that I had planned.

We have been here before. The board has wide powers to impose penalties under schedule 2 as conferred by clause 32. We sought before to have guidance notes published and we should like the board to set out its approach to the imposition of penalties—the definition of negligence and so on—so that claimants know where they stand.

I will give an example of a grey area. Clause 29, which deals with one set of penalties, explicitly states that if one member of a couple did not know what the other was up to, he or she is not deemed culpable for that. However, that exemption is not explicit in clause 30. Someone is let off the penalties for incorrect statements if they did not know what their partner was up to, but it is not clear whether that applies to the penalties for not complying with requirements.

We seek a consistent statement, in the code of practice produced by the board if not in the Bill, that explains how the board will approach those issues. The penalties are quite serious, especially for the client group under discussion, and people might reasonably expect such a statement to be put in place before the penalty regime is imposed.

Paul Boateng (Labour, Brent South)

I hear the hon. Gentleman's argument, but I regret that I am unable to satisfy him on the amendment except to say that the thrust of his arguments will be taken on board. It is important to remember that the proper place to reflect that is not in the Bill, where the requirement is unnecessary, but in the code of practice on compliance. It will be made available in draft for comment, and the hon. Gentleman will have his opportunity to make an impact on the collective consciousness of the Revenue then. With that satisfying prospect in sight, I hope that he will withdraw the amendment.

Steve Webb (Liberal Democrat, Northavon)

As I said before, my reservation about that strategy and that response from the Minister is that, after my initial profound impact on the consciousness of the Revenue, any subsequent changes that it decides to make without the benefit of my benign impact will be unbeknown to me and to members of the Committee. There is an issue about scrutiny.

On a slightly more serious note, we are talking about quite serious penalties for quite poor people and there are grey areas about neglect and so on. I am concerned that the level of scrutiny will not be all that it might be, but I am grateful that we have had further clarification at least on the draft code of practice for the Revenue. That goes some way to addressing our concerns and we look forward to seeing the draft. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 32 ordered to stand part of the Bill.

Further consideration adjourned.—[Mr. Sutcliffe.]

Adjourned accordingly at one minute to Seven o'clock till Thursday 24 January at half-past Nine o'clock.