Tax Credits Bill

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Mr. Flight: The amendment simply asks the Government whether they are willing to confirm that nobody in receipt of CTC will be worse off when the new arrangements and amounts are introduced. We are well aware that that could happen, but it will depend on the levels that the Government intend to prescribe for benefit. The amendment would undo one of the improvements that we believe needs to be made. That is the obverse of the situation where a single earner whose spouse or partner is at home looking after several children is compared with two earners with older children. In each case the family depends on the one income or the combined income. At present many in the former category are disadvantaged against the latter category and the combined incomes are significantly larger than the single income. We welcome this as a probing amendment, but we would not support staying with the present arrangements.

Dawn Primarolo: This is interesting. The hon. Member for Northavon tables an amendment that he does not really want to speak to, because he recognises that it is not a very good amendment. The hon. Member for Arundel and South Downs agrees that it is not a good amendment and he does not want to speak to it. They decide to ask me a question that they have asked me often which takes us straight to the thresholds, tapers and decisions for the Budget.

The hon. Member for Northavon asked about a specific group who are currently in receipt of CTC. He has done this a number of times on the Floor of the House. He has probably asked me in writing. I give him the same answer, which is that the rates and thresholds in the full range of the new tax credits are a matter for my right hon. Friend the Chancellor of the Exchequer in his Budget statement. I look forward to being able to answer his question at the appropriate time, in the appropriate place, when the Chancellor has made his announcement.

I congratulate the hon. Gentleman on his ingenuity. To him I say, nice try. I ask him to withdraw this amendment, as he recognises that it is not a terribly good one. If he does not, I will ask my hon. Friends to oppose it. In the debates on all the clauses between now and the passing of this Bill, I look forward to

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being amused by the many varied and ingenious ways that the hon. Gentleman will find to ask me the same question. I hope that I can rise to the challenge in finding many ingenious ways to give him the same answer.


Mr. Webb: I think the Minister is mistaken, if I may be so bold. She mistakes as an attempt to probe for specific rates and balances for future claimants—it is not that at all—what is an attempt to probe an issue of principle for existing claimants.

Hon. Members: A very good response to a serious question.

Mr. Webb: That makes me nervous. Clearly, the Chancellor of the Exchequer will set the rates and balances that will apply to new claimants under the new system. That will have an impact on existing claimants—it must have an impact on existing claimants. Up, down or whichever way, it will have an impact. Naturally, I am not dreaming of suggesting that the Minister should tell us what that will be. There will be genuine concern. A million or more families in this situation stand to lose some or all of their £500 tax credit. It would have been helpful for the Minister to put on record an assurance that the Government understand and know that there are people in this situation, and that they would not want to create a windfall loss of £520 to a hardworking teacher and a nurse married to each other.

I am disappointed at the lack of assurance from the Minister, even on a matter of principle—without giving any figures—that the Government will seek to address transitional issues. There has not even been a hint of that, which disappoints me.

As I have indicated, this amendment is rather more sweeping than that specific point. Indeed, if the Minister encouraged her hon. Friends to oppose the amendment, I might do so myself. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Flight: I beg to move amendment No. 17, in page 5, line 43, leave out subsection (8).

This is a probing amendment into two areas in particular. First, what is income? There have been various rules and practices built up over the years on the DSS side, as to what additional money earnings count as income and what does not. In another sense it partly involves the treatment of perks, but it is also goes into the difficult territory of voluntary firemen, the Territorial Army service and so forth. The Revenue has a different but related body of doctrine as to which perks count as income, and which do not. There are different practices also in relation to people in receipt of charitable help.

In principle, it seems to me that if we are moving to a negative income tax and arrangements under the control of the Inland Revenue, it would be logical for the treatments in these areas to be in accordance with Inland Revenue treatments. But it has been suggested to me that subsection (8) exists in part to enable the transfer over of a lot of the old holy grail of the DSS, in terms of what is and is not to be treated as income. I

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ask the Minister for clarification as to policy here. I am not asking for the umpteenth detail in these tricky areas, but for the Government's intent.

I now come to the second area of what is or is not termed as income. Although I searched for it, I could not find this reference in the Bill, but the National Association of Citizens Advice Bureaux briefing expressed support for the fact that maintenance payments would not be treated as income. I presume that that means periodic or maintenance payments made by agreement or by court order.

My brother-in-law, with whom I discussed the subject, is a defence divorce lawyer. He said, ''It is outrageous. I am doing settlements for people in fairly wealthy situations getting more than £3,000 a month and they are all aggressively applying for and getting maximum income children's tax credit.'' That seems unreasonable. Why should the rest of the citizenry pay for maximum children's tax credit in a divorce when the settlement on the divorced spouse and children is comfortably sufficient for them to live on? Although I appreciate the argument that at more modest income levels the proposal saves much complication and that bringing up children by oneself is bad enough without such difficulties, at higher income levels, if the situation I have described is correct, CTC is unnecessary and unfair.

Dawn Primarolo: I am grateful to the hon. Gentleman for explaining what lies behind his amendment. I shall deal with its effect and then explain, in broad terms, as the hon. Gentleman, requested, our plans in respect of income.

The amendment would prevent income from being defined in secondary legislation, which I think was not what the hon. Gentleman intended. Such detail is better dealt with in secondary measures because it enables us to consider any changes that may be necessary without recourse to primary legislation.

We announced in response to our consultation on the new tax credits that child maintenance would not be taken into account for tax credit purposes; that also applies to working families tax credit. The hon. Gentleman mentioned his brother-in-law's huge success in a small number of cases, but for the vast majority of lone parents, who will be the major beneficiaries, the income that they are likely to receive is considerably smaller—perhaps tens of pounds. Recently published research shows that the presence of income disregard for maintenance payments to that group has been very successful in ensuring that they take up and stay in paid employment. We took the decision on child maintenance on that basis. I am a little surprised that people with such vast incomes bother with recourse to WFTC or CTC. I suppose it goes back to my scallywag point, regardless of gender.

By far the overwhelming number of beneficiaries of the proposal are on low incomes; it has exactly the effect that the Government intended. During the consultation, the 140 organisations were very clear indeed that in terms of work incentive, the continued disregard of maintenance was vital. We are firmly of

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that view. I understand the hon. Gentleman's point, but I hope he will agree that the benefits to the vast majority outweigh that point.

Mr. Flight: Indeed, I made that point. Some divorce practices act for well-off people, but my brother-in-law's is not one of them. There is an argument for a simple cap, because CTC amounts are likely to increase in some circumstances under the new legislation. Depending on the number of children, people will be motivated to apply for £500 or £1,000 a year free of tax if they are so entitled, even though their maintenance payments from a wealthy ex-spouse could be substantial. Why not add a cap to prevent that?

Dawn Primarolo: To be honest, that returns us to the point that the hon. Gentleman made in previous debates. A cap would be an unnecessary complication for everyone claiming tax credits and in the legislation, in order to deal with a few exceptions. I would also hazard to suggest that an individual would have to be going some to spend £500,000 a year—that is a more lavish lifestyle than mine. Moreover, that income may be deposited somewhere, generating an income that would come into consideration, which leads me to his question of what the income tests would be.

The clause ensures against the anti-avoidance element in which people put income under the name of one of their children or a friend. We trace that money, which is a method used often in the tax system. The starting point is to bring tax credits in line with the tax rules. It would be right to depart from those rules for some types of income. During the current consultations, we are discussing exactly what they may be and whether it is necessary to exempt them. The income taken into account will be the annual taxable income from all sources, such as employment, self-employment, social security benefits, pensions, or other incomes: savings, trusts, overseas income and so on. Those rules come straight from the tax system, and we need to decide whether it would be right to include any other form of income. I hope that that explains the basic criteria. We are now deciding whether any other income should be identified. That would be implemented by regulations.

We will always make a judgment whether the income would be enough to merit its being drawn in, or whether that would complicate the system by dragging a large proportion of those claming tax credit into a burdensome submission of information.

At every point, we strike a balance and make a judgment. When that is finally made, I will be happy to go through it with the hon. Gentleman and to provide an explanation if the position is different from what I have said today. I appreciate that what regulations contain is a big issue for Committee members. I am trying to be as open as I can as well as to manage the final consultation to ensure that we get things right as much as possible. The Committee will receive the information as soon as possible.

I am sure that everyone appreciates that it is right to settle these matters in secondary legislation so that, once the tax credits are operational, we have the opportunity to learn from experience, to make

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adjustments if necessary and to consider how people's income changes over time and whether other things need to be drawn in. On that basis, I hope that the hon. Gentleman will withdraw the amendment.

11 am

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