Tax Credits Bill

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Clause 5

Period of awards

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

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

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

    'or is treated as being made,'.

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

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

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

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

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

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

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

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

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

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

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

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

Amendment No. 64, which inserts the words

    ''or is treated as being made''

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

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

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

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

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

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

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

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

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

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

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

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

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

5.30 pm

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

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

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