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Mr. Flight: The hon. Gentleman has just said something that may be important or may not be quite right. I await the Minister's response. All we know is that the Government will publish a report on numbers. We do not know what the commitment is under the Government's measures to report on take-up. If the hon. Gentleman can tell us, we would be delighted to hear.

Roger Casale: I draw the hon. Gentleman's attention to the text of the Government amendment, which refers to the number of awards, the number of inquiries conducted and the number of penalties imposed by the scheme. The Government have got the balance right in terms of the focus of the annual report. They are right to reject the suggestion that there should be an annual assessment, in addition to the regulatory impact assessment that will have been made, of the cost of the scheme to business.

It is interesting that in the other place it was Lord Saatchi who drew attention to the cost to business of the working of the tax credit schemes. During the debate in the other place, he explained why he was asking for an assessment of that cost as part of the report. He said:

and, presumably, everyone else's—

It is rather ironic that in moving the amendment in the name of cutting red tape on business, Lord Saatchi seems to want to do so by imposing a greater burden of red tape on the Inland Revenue—it would be onerous to run regulatory impact assessments every year. I am not saying that we should not be aware of the impact on business and seek to ameliorate that, but we must set the costs that there may be to business against the real benefits to business of increasing the number of people who are in work and participating in the labour market through the operation of the scheme.

Of course, it was Lord Saatchi who, 20 years ago, drew everyone's attention to the costs of "Labour's not working," as he put it then. It seems ironic that he is now

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drawing everyone's attention to the costs when Labour is working. We have more than 1 million more people in work as a result of labour market interventions such as the tax credit scheme.

It is all very well for the official Opposition and the Liberal Democrats to say that they support the tax credits, but if the tax credit schemes are to have their full beneficial effect in practice, it is important that they have the full support of the business community in their implementation. By drawing attention the whole time to the cost to business of operating the tax credit scheme, rather than taking a more balanced approach which emphasises the great benefits to business, especially if there is a high take-up of the scheme, the Opposition get the balance wrong.

In responding to the wishes of hon. Members in all parts of the House for the tax credit scheme to be effective, for a way of benchmarking that from year to year, and so for an annual report, the Government have got the balance right in their amendment. If the Opposition intend to support the scheme, they should stop carping about the form of the annual report and support the Government's amendment.

Dawn Primarolo: With the leave of the House, I shall respond to the three major points that have been made in the debate this afternoon, although I get the feeling that it does not matter what I say in my concluding remarks; the Opposition have already made up their mind that they will vote against the Government regardless.

The three points refer, first, to the cost to employers; secondly, to take-up; and thirdly, to fraud and the enforcement of the compliance system to reduce the level of fraud. I shall deal briefly with each point, starting with the cost to employers. As I said earlier, it is not for the Government to assess and account for employers' costs. However, it is for the Government—and it is we who introduced the process—to monitor and evaluate the introduction of measures that may impact on employers' costs, as the regulatory impact assessment does in relation to the regulations required under the Bill.

Two further issues were raised. First, the hon. Member for Northavon (Mr. Webb) accepted my argument that, if the regulations were set, they would not change. He also said, however, that the Government would do other things that might impact on employers and that the situation had to be seen in the round. The Lords amendment did not ask us to deal with such matters—it asked only for an annual report on the Bill—so even if he votes against the Government and in favour of the amendment, he will not get the assessment for which he has called on the Floor of the House. As the Government are committed to regulatory impact assessments, an evaluation is conducted of every measure's impact on employers and presented to the House.

I would also go further—the hon. Member for Northavon is aware that the same issue has arisen in previous debates on the working families tax credit, the disabled person's tax credit and the new tax credits—and say that the Government have worked very closely with business on the design and development of the systems. The consultative group has given an enormous amount of time, for which the Government are grateful, to ensuring

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that we properly take forward the work. That group will continue to have the ability to monitor and consider the situation should any changes occur that might impact on business. It will then be for the Government to bring the matter to the House. We take the view that the suggestion that we must conduct an annual report on regulations that will not change, costs that will not vary and an impact on business that is not yet accounted for is a waste of time, as such a report would produce information that would take the House no further forward.

The hon. Member for Arundel and South Downs (Mr. Flight) demonstrated that he still did not quite grasp what employers are being asked to do. In particular, he said that employers would be asked to supply a lot of information about hours. Precisely because of the way in which the new tax credits are structured, however, people will claim on the basis of information that the Revenue already has. Furthermore, the end-of-year checks will not routinely involve employers, so even his suggestion that the checking system will cause extra work is incorrect. The idea that we should conduct an annual report on something that is not happening is somewhat bizarre.

I turn now to the question of fraud and tax credits. The irony is that the Government, having listened closely to debates in this House as well as the other place, tabled an amendment that goes further than their lordships requested in their amendment. The Inland Revenue system does not operate only on the basis of prosecutions; the position is fundamentally different in relation to the Department for Work and Pensions. We also impose penalties, as we have a process that graduates through the system. The original Lords amendment asked for details on the number of investigations, prosecutions and convictions. The Government amendment requires the inclusion of both sets of information in the annual report. In addition, it requires that the report set out details of the number of penalties imposed under the Bill. That is an area on which hon. Members concentrated when we discussed the matter on the Floor of the House and in Committee.

On the first two points, hon. Members are asking for information as regards employers for which the Lords amendment does not provide, yet claim that that amendment is better. On the second amendment, about fraud and compliance with the system, the Government listened not only to their lordships but to this House, and tabled an amendment that goes further. We have also dealt with the issue of take-up.

Mr. Clappison: I am afraid that the Paymaster General is doing it again—she is bracketing fraud and non-compliance together. Does she appreciate that it is fraud that really angers members of the public, and will she now tell us how much fraud was involved in the working families tax credit?

Dawn Primarolo: I was hoping to save the House the explanation of the difference between how the Inland Revenue operates what it calls its non-compliance regime and how the Department for Work and Pensions conducts its regime for prosecutions. I fear that I will now have to give that explanation, because although the hon. Gentleman has repeatedly had the matter explained to him, he has not grasped it.

It is true—I think that the hon. Member for Northavon would entirely support this proposition—that the Government want to ensure that all those who are entitled

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to the new tax credits claim them. Of course, there is no reason not to tackle fraud where it arises, but the development of the regime must not have a negative impact in frightening or discouraging people from applying for their rights.

The Inland Revenue has a long history of dealing with non-compliance. Since 1999, that has been extended to dealing with tax credit claimants in order to ensure that tax credit claims are subject to a suitable compliance strategy. That experience, together with that obtained by the Department for Work and Pensions in operating the benefits system, has led to the development of a robust new compliance regime for the tax credit systems. That will make full use of automated systems and data sources used by the Inland Revenue to counter non-compliance. If we can prevent people from committing the fraud in the first place, we will not need to prosecute them because it has been picked up at an early stage.

The Inland Revenue can use penalties as forms of prosecution. We should consider the improvements that have been made. The Bill, like the previous tax credits provisions, contains structural improvements that should help further to reduce fraud. First, there is a move away from payment by the order book to payment directly into the bank account. Misuse of the order book is a well known and extensive area of fraud. Secondly, one of the biggest areas of fraud is understated earnings, which the Inland Revenue has long experience in tackling. Moreover, the measure of income for the tax credits will be aligned much more closely with those that are used for tax. Along with links between different Inland Revenue systems, that will make it much harder for claimants to hide sources of income.

The Bill goes further. It provides new powers to tackle fraud effectively, including powers to charge penalties and to provide the Revenue with the necessary power to obtain information, to check claims and to carry out inquiries where fraud is suspected. It allows for a co-ordinated approach of investigating tax and tax credit non-compliance. It includes new powers to investigate criminal fraud when necessary. It creates a new criminal offence of tax credit fraud and provides for powers that will allow the Revenue to recover overpayments. That contrasts with the system in the Department for Work and Pensions, which the hon. Member for Hertsmere (Mr. Clappison) keeps mentioning.

Compliance activity in the Department for Work and Pensions traditionally depends more on prosecutions, and contrasts with the Inland Revenue's approach of a compliance regime that reinforces at every point that the application is correct. The Inland Revenue's approach to tax credit fraud is consistent with its approach to other sorts of fraud. So the points made by hon. Member for Hertsmere are simply not valid.

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