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Mr. Flight: First, I cannot resist noting, in connection with the US experience with similar arrangements, that evidence did emerge that there had been some $4.7 billion in unjustified claims. Also, the Select Committee duly noted the serious concerns raised about increased potential fraud in working families tax credit, as compared with family tax credit.

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These are new arrangements. Let us hope that the right hon. Lady and the Committee are correct that the measure will not depress remuneration. However, rather cynically, one reason for businesses welcoming many aspects of the Bill is because it is seen in the business community—as similar measures have been seen in our history—as a jolly good way of subsidising employment, enabling companies to pay less because their staff will get more from the Government. However, it is the business of the House to know whether the concerns of many are justified and how the legislation will work out in practice.

I repeat that we are glad that the Government have essentially accepted our argument. We think that extracting the evidence will not be easy. On cost, it was not clear until the Bill was in Committee that the tax credits would cost some £15 billion overall, as I recollect pointing out. The Government have now agreed that the figure will be £16 billion, which is not easily identifiable in their statistics. It was not clear until the Bill went to the other House that 90 per cent. of tax credits will be accounted for as Government expenditure paid as benefits and not treated as bogus deductions against tax revenues. We think it thoroughly healthy for the proper accounting principles of the Government that the objections of the Office for National Statistics should eventually have won the day.

The Budget Red Book estimate for 2002 shows that tax credits will cost some £4.6 billion next year. That figure is based on a take-up assumption of 85 per cent. If the take-up were 100 per cent, tax credits would cost some £5.43 billion. It will be necessary to know, for reasons of cost as well as meeting the target of helping the needy, what take-up is expected and how much more or less than budgeted the measures will cost as a result of the actual take-up figures.

It is important to know the total public expenditure on social security, including the 10 per cent. that will not be treated as expenditure. The figure for 2001–02 seems to be £110 billion—about 30 per cent. of total expenditure. That figure has increased in the past five years by more than spending on health or education and despite a massive and welcome fall in unemployment, and is expected to grow to £126.7 billion next year—an increase of £34.58 billion or 37 per cent. over the past seven years. That contrasts with increases of only £22 billion for education and £28 billion for health.

Rob Marris (Wolverhampton, South-West): Only £22 billion?

Mr. Flight: I remind the House of the Government's commitment in 1997 that the additional spending on education and health would come from rationalisation and reforms of social security expenditure. It is important to note that in reality the reverse occurred: at a time of prosperity, spending in that sector has increased by more than spending on health or education.

The crucial point is whether the money is reaching those in greatest need. The latest estimates on income-related benefits for 1999–2000 showed disappointing take-up figures, mainly for pensioners where the figure was between 74 and 78 per cent. by case load; 1.2 million pensioners had not received council tax benefits, while 580,000 had not received their income support and 150,000 had not received housing benefit. About £3 billion in benefits were unclaimed.

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The arrangements for the new tax credits are rather more complicated than the long-standing arrangements in the areas to which I have just referred. I beg to differ strongly with anyone who does not think that take-up data are important in a humanitarian sense.

Our main concern is that the tax credits should address their key objectives—helping those in need. The report is about that and about not wasting money. In essence, the Government's version fine tunes the Opposition's proposals, but before I agree to it I should like the Paymaster General to confirm two points: first, that the reference to numbers will cover everything that I mentioned in respect of take-up; and, secondly, that, although it is sensible not to have annual estimates or guesses as to the cost to business, the Government will encourage the Revenue to indicate any evidence that costs to business are rising substantially as a result of administrative problems with the tax credits.

Mr. Webb: I congratulate the hon. Member for Arundel and South Downs (Mr. Flight) on the breadth of his contribution, although I was slightly disappointed that he did not ride into battle on behalf of his noble Friends, instead seeming meekly to accept the Government's half-offering in the form of the amendment in lieu.

We are being asked to consider two versions of an annual report to Parliament on tax credits. It is instructive to reflect on the fact that when the proposition was first put to the Government in another place, they felt that no annual report was necessary. The Government advised their lordships that Parliament was able to scrutinise such matters through parliamentary questions—we all know what an effective and lucid means they provide for obtaining information—or that perhaps the appearance, once a year, of the chairman of the Board of Inland Revenue before the Treasury Committee would enable us to acquire all those hard data. It strikes me, however, that the Treasury Committee might want to raise other issues with the chairman.

I welcome the fact that, after their defeat in another place, the Government have conceded the principle of an annual report.

Dawn Primarolo: I am sure that the hon. Gentleman did not mean inadvertently to mislead the House. The annual report of the Inland Revenue is placed in written form before the House. It is not dependent on the attendance of the chairman of the Board of Inland Revenue before the Public Accounts Committee—the Committee to which he reports, as accounting officer. The report is already produced in written form and presented annually to the House. If the House decides that it wants to receive the report in another form and that it wants more bureaucracy—something that it normally does not want—the Government will provide it.

Mr. Webb: The right hon. Lady is right; there is an annual written report. However, in another place, Lady Hollis referred to the written report and said:

If we want scrutiny of detailed aspects of tax credits, an annual response to a report that covers the whole range of the Inland Revenue's activities may not provide the necessary degree of detail.

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5 pm

Dawn Primarolo: I remind the hon. Gentleman that we have a very effective Select Committee system in the House, and the Treasury Committee calls me, as the responsible Minister, before it. I have just appeared before the Treasury Sub-Committee as part of its examination of that very annual report. There are checks on the accounting officer and on the Minister, and there is a printed form in the annual report, so there are three ways to check the information. Our amendment merely provides a fourth way for exactly the same information to come before the House. Quite rightly, Baroness Hollis pointed out that the House already had this information; but if hon. Members insist that they want more bureaucracy and a fourth way of expressing the same information, we are happy to provide for it in the amendment.

Mr. Webb: I think I am right in saying that the amendment in lieu before us is a Government proposal to produce an annual report containing the information. Therefore it is the Government who are today offering to produce it. If the Government consider that that would be a waste of time and a duplication and would add nothing else, they should have stood against—[Interruption.] No, they should be standing against the Lords amendment today. They have decided not to, and essentially accept the principle of an annual report.

Dawn Primarolo: Let me get this right. The hon. Gentleman is saying that, when something is pressed on the Government that they do not believe to be necessary, but which Members of the House and the other place continue to insist they would like in a particular form, the Government should turn their face against those propositions and continue not to provide it. He is saying that, consequently, when a Minister comes to the House saying, "Even though we do not believe that this is necessary, we will do it anyway because that is what the Members of the House want," that Minister should be criticised. That is a bit crazy.

Mr. Webb: The right hon. Lady told us that the information that her proposal would make available was unnecessary because it would be available in three other ways, but she proposes to ask the House to support its publication.

We have before us two alternative proposals for different variants of the annual report, which the Minister considers to be unnecessary. There are two differences between the Lords and Commons versions of these annual reports and, as the hon. Member for Arundel and South Downs said, one relates to take-up and one relates to the burdens on business.

If we accept the Government's version, we have sold the pass on take-up, because the Lords version refers in paragraph (d) to

and in paragraph (c) to

The word "take-up" can be used by different people to mean different things. Let me make it clear what we are talking about here.

If the information published is an estimate, it must be an estimate of the proportion of those who are entitled to the credit who take it up. It cannot be statistics on the

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numbers who get it, because the Government know the precise number, so if it is an estimate, it must be information about rates of take-up—the proportion of the eligible population who claim the credit—which is very valuable information indeed. The Government have taken that out of the Commons version of the report. The Government's amendment in lieu simply refers to "the number of awards".

I absolutely agree with the Minister on that point. The number of awards will be available trivially, all over the place. The value added of the Lords report would be an estimate of take-up rates, which are, as the hon. Member for Arundel and South Downs said, absolutely central to any means-tested or tax credit-based approach. It is a central issue: what proportion of the money available is claimed by those who need it, as compared with other routes. I am sure that the Minister's amendment in lieu takes out the requirement to give an annual report on tax credit take-up as part of the overall report, and that is a very important thing to keep in, because not enough work is done on giving the House up-to-date information on take-up.

The hon. Member for Arundel and South Downs quoted take-up figures for 1999–2000—three years ago. The House should have much more up-to-date information on take-up, and if the Lords amendment requires that that information be provided annually, systematically and together with all the other information on tax credits, that amendment is preferable to the amendment that the Government have asked us to accept today.

The second thing that is different about the two versions of the annual report concerns burdens on business. When I first read the ministerial response, I thought, "That's fair enough." An initial assessment on business would be undertaken, and then things would be left to run, so why would anyone want to keep picking away at the burdens on business each year? However, one reason why things might change would not be picked up by the initial regulatory impact assessment.

The legislation on tax credits might not change, but the environment in which they are applied will change. For example, the balance between small and large firms changes over time, as does the minimum wage. Because of those changes, the effects of the tax credit regime on business will change over time. So it is no good saying, "We did an impact assessment when we passed the legislation a year or two ago and things will always be more or less the same until we change the primary legislation."

The world in which the legislation operates is changing all the time. For example, one can imagine that a Government who substantially increased the minimum wage and floated large numbers of people off tax credits would substantially reduce the burden on business because far fewer people would claim the credits. However, if the minimum wage were allowed to drift below the wages of the low paid over a period, people would be drawn into tax credits and the burden on business would increase, but none of that would be captured in the initial regulatory impact assessment.

Obviously, if nothing else changed, there would be no point in carrying out a reassessment every year for the sake of it—but the world is changing all the time.

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The measure's impact on business will change because unemployment and employment rates, working patterns and business patterns are all changing.

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