Tax Credits Bill

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Mr. Hugo Swire (East Devon): I have not spoken to date in this Committee, but today I wanted to speak about the burden on small business. We agree with much in the Bill and it is a laudable aim to try to eradicate poverty. The question is how to achieve that.

I am not convinced that the Bill goes far enough to incentivise people who seek work or, as my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, that it goes far enough to encourage people to improve their skills and remove them from dependency on welfare. My worry, which is shared by my hon. Friends, is the burden that the clause imposes on particularly small businesses. In my constituency, businesses tend to be small—the average business employs two or three people in residential homes or tourist-related business. As the hon. Member for Teignbridge (Richard Younger-Ross) said last week, much of the employment is seasonal, which has its own implications.

We cannot assume that everything read in the press is accurate—far from it—but it is worth hon. Members bearing in mind the comments made by the right hon. Member for Birkenhead (Mr. Field) in The Mail on Sunday, the Sunday before last:

    ''Tax credits are an open invitation to fraud. In effect the Government hands over its own chequebook to individual employers and invites them to fill in the cheques on behalf of any workers who claim they are eligible.''

We already know that £350 million is being swindled out of the tax credit system. Does the Paymaster General think that that amount will be eradicated, or even reduced, by any of the measures in the Bill? I suspect not.

Unlike some members of the Committee, I am neither an accountant nor a distinguished professor in this subject. In other words, in many senses I am the ideal guinea-pig to consider the Bill. However, I confess that I am somebody who even struggles with self-assessment, although, with the ever-increasing burden of personal taxation, there is very little to assess at the end of most years. If I find the system complicated, where does that leave the applicants? The applicants who ideally will benefit in most of these cases are the same group of people who regularly come to see us in our surgeries. Most of them struggle to understand the benefits to which they are currently entitled: they are confused over housing benefits and

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other entitlements. I believe that in many cases—I do not say this in a condescending manner—some of these provisions will be beyond their comprehension.

I want to return to the burden on small businesses. We have heard this morning from various groups that have taken an interest in the Bill. Donald Martin, the United Kingdom policy chairman of the Federation of Small Businesses, said:

    ''Businesses should not be treated as a social welfare arm of government. It is an invasion of employee privacy and a major distraction from business wealth creating activity.''

I worry that there is increasing evidence that, as businesses look forward to the months ahead, they are increasingly lacking confidence. It is a sensitive time of the financial cycle for many businesses, as they look ahead. At a time when we should be reducing the burden on small businesses to allow them to do what they are there to do, we seem to be asking them to do more rather than less.

Any business man, and I am sure that there are people with business backgrounds in this room—or, indeed, in our part of the world, any farmer or small business man—will say that their chief enemy is the ever-present red tape. It is worth reflecting that during Labour's first term of office red tape costs increased by a staggering £15 billion, according to the British Chamber of Commerce. That staggering sum does not even include the financial cost of the national minimum wage.

Mr. James Clappison (Hertsmere): I hesitate to interrupt my hon. Friend when he is making an important point, but he mentioned a major survey carried out by the British Chamber of Commerce. He could have added that that survey was based on information from the Government's own regulatory impact assessment: it was not a figure plucked out of the air.

Mr. Swire: Indeed. I am grateful to my hon. Friend for intervening on that point. In all fairness to the Government, they are cognisant of some of the problems that the Bill will impose, and I shall return to that in a few moments when we discuss the Carter report.

The working time directive has imposed recurring financial costs of £2.3 billion, the data protection directive recurring administrative costs of £630 million and the pollution directive recurring financial costs of around £1 billion. In addition, there is the student loan repayment, stakeholder pensions, the parental leave directive, the part-time workers directive and other potentially major burdens that we are told are in the pipeline.

As my hon. Friend the Member for Hertsmere just intervened, I want to return to the point that he raised, which Patrick Carter also referred to in the foreword to the Review of Payroll Services, when he said:

    ''There is no doubt that the weight of payroll obligations falls disproportionately on small businesses, a part of the economy which employs 25 per cent. of the UK work force and contributes about 30 per cent. of gross domestic product.''

The segment of the economy represented by small businesses is its engine room, and any Government who wish to incentivise small businesses should aspire

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to regulating them in as light a manner as possible. They should be nurtured and encouraged to grow where possible, rather than smothered in red tape. They should certainly not be distracted by a role as unpaid tax collector and welfare worker on the Government's behalf. As my hon. Friend the Member for Arundel and South Downs said this morning, there is talk following the Carter report of businesses being paid £200 to administer the payroll burden. That is not enough, but financial compensation is not the point: they should not be expected to fulfil that role in the first place.

In the light of our on-going debate, I urge the Minister and her colleagues to listen carefully not only to our concerns, but to those raised by the CBI, the Institute of Directors and the Federation of Small Businesses. Those organisations are at the coal furnace of the problem and are in an ideal position to give advice.

Mr. Webb: Our amendment No. 51, which is part of this group, tackles the issue of payment through the pay packet from a slightly different angle by enabling the employee to opt instead for payment through a post office or into a bank account. I suspect that we shall consider post offices in some detail when we discuss amendments Nos. 101 and 113, but here we are trying to test the Government's belief that it is in the interests of the employee to be paid through the pay packet. It is clear that such a provision does not benefit employers, so unless it benefits employees one must question why it is there at all. If it is in employees' interests, it ought to be safe to give them a choice. As a good Liberal, I would argue that in cases such as this, employees are probably the best judges of what is in their own interests, rather than the state. Forcing them to receive payment in a particular way in order to educate them seems somewhat paternalistic—or, if one prefers, maternalistic.

There is no particular reason why payment through the pay packet should communicate something that a visit to a post office or a glance at bank statement cannot. It is clear to people that they will get the credit only when they work, and it matters not whether it appears in their pay slip, on their bank statement, or in the form of cash payment at a post office. Such differences should not affect their ability to add together two numbers.

Much the same argument was made when we debated the Tax Credits Act 1999—the Paymaster General was in her place then, and the same Liberal Democrat spokesman was in his—and I expect that much the same response will be given now. None the less, we shall try to convince the Government. We argued then that it was not necessary for two payments to be made in the same way for people to add together two figures, but we were assured to the contrary and that the provision teaches the value of work. The Government's argument has even less validity now, because it is being applied to a much smaller payment. Instead of paying people £70, £80 or £90 a week through the pay packet—the original working families

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tax credit route—the working tax credit will pay £15 typically. For goodness sake, do people really need to use the pay packet payment mechanism to add £15?

One could argue that the process of going to a post office and being handed crisp used fivers might lead someone to appreciate and understand the process more than would reading an entry on a pay slip or a line in a bank statement. Many people are paid not by their employer in cash but by direct credit transfer into a bank account. All that they actually get is one figure on their bank account whereas, if they could opt for direct payment from the board into their account, there would be two lines in their monthly bank statement: one for their take-home pay and one for their working credit. We are talking about the difference between two lines on a salary statement each month and two lines on a bank statement each month. One is supposed to give great educational benefit and teach people about the work ethic.

Mr. Chris Mole (Ipswich): Does the hon. Gentleman accept that most people receive a payslip, which would have the two lines, as well as having the single entry on the bank statement?

Mr. Webb: Yes. What we are saying is that if, under our amendment, someone could opt for direct payment into their bank account instead of through their employer, the difference would be between a payslip with two lines, one for pay and one for working credit, and a bank statement with two lines, one for pay and one for working credit. I cannot for the life of me see why we should cost employers £90 million a year to deliver the educational benefit of two lines on a payslip instead of two lines on a bank statement. That seems absurd.

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The amendment is about giving people choice. If no one opted for that method of payment, the amendment would have no consequence. It would quickly become apparent that no one wanted it, and it could be struck out later. It would do nothing and might even complicate the system unnecessarily. But if people do opt for payment in that manner, refusing the amendment would damage their welfare, denying them a choice that they would like to exercise.

I shall not go into great length about the post office side of the issue, to which we shall return later, but it is safe to say that some people might want to value the infrastructure of their village and post office. Giving them the option to do that is beneficial.

The amendment is in the interests of employees because it gives them a choice that they would not otherwise have. It is in the interests of employers, who will have a lower administrative burden. I venture to suggest that the option will be especially attractive to people who change jobs. There are discontinuities when people leave one employer and start with another and problems trying to ensure that the tax credit, if delivered through the employer, continues with no disruption. People would not have that if they had payment into the post office or bank account; the credit would continue, uninterrupted.

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There are many reasons why people might want to take this option, and the Government deny them a choice if they do not allow that. If almost everyone who receives the tax credit opts for the choice in this amendment, we might make it universal and give up on the silly notion of payment through pay packets altogether, but that is more in the spirit of some of the Conservative amendments.

I have a final observation on some of the Conservative amendments. The hon. Member for Arundel and South Downs asked about the fact, pointed out by the CBI, that once upon a time the credits were to be delivered through the PAYE code. Members of the Social Security Committee with us today will have gone through the process of deciding that that would not be practical. One reason is that the whole system is based on family assessment. It becomes very muddy trying to deliver through an individual tax code an amount of money connected with family assessment.

 
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