Tax Credits Bill

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

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

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

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

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

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

Amendment, by leave, withdrawn.

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

    'not separated under a court order'.

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

    'members of the same household'.

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

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

    ''members of the same household''.

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

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

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

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

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

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

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

What we mean by

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

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

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

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

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

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

12.15 pm

 
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