Tax Credits Bill

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Dawn Primarolo: The hon. Member for Hertsmere spoke about swings and roundabouts. I would put it more in terms of balance. Although I appreciate the importance of ensuring that requirements and obligations on business are reasonable, the arguments so far have been one-sided and isolated from a wider set of changes that the Government are making with regard to facilitating the efficient and productive operation of large and small businesses. The Government's preoccupation in considering changes in legislation was not shared by our predecessors.

The CBI brief has been widely quoted in the debate. It states:

    ''The CBI supported the introduction of the tax credits system, including paying via the pay packet, as a valuable way of incentivising work. In that context, it also supports the extension of the principle of tax credits to employees without children.''

That is the CBI's principled position.

The debate has been long. I am more than happy to give way to the hon. Gentleman, but I should put more of my argument on record.

Mr. Swire: Will the Minister give way on that point?

Dawn Primarolo: If the hon. Gentleman allows me to finish my next point, he may find that I have answered his question. If not, I shall give way to the hon. Gentleman with great pleasure.

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I deal with negotiating positions in the tax system all the time, so I am aware of the issue. I am sure that all Committee members and those watching or listening to our debates recognise that a good negotiator always seeks to get a little more. As hon. Members have said, the CBI makes the point that it would be nice to be paid. Indeed, the general thrust of representations to the Government from businesses large and small is that it would be nice not to pay any tax and if the Government left them alone to get on with their businesses.

However, that is not how the world is. In a changing Britain, there is a partnership between Government, business and employees. By ''Government'', I mean the public sector as a whole. We must recognise the contributions that are necessary to support the various provisions in our society. Education, training and development contribute to the productivity of business. We must also recognise the aspirations of our communities. In striking that balance, the Government must ask how that partnership can be advanced and what we are doing. The CBI recognises that the incentivisation of the work force is important, particularly given that, in 1997, when the Government were elected, they had to tackle what many described as structural unemployment and underskilling.

I was interested to hear the hon. Member for Arundel and South Downs say that wages always equate automatically to productivity. Quite a lot of people in Britain would dispute that point when they consider what they do in their workplace and their remuneration.

Let us consider the responses made by other employer organisations in the consultation process, which have been placed in the Library.

Mr. Swire: The Minister kindly agreed to give way if she did not address my point in her opening remarks and she has not. The passage that she quoted from the CBI brief continues:

    ''Nevertheless, employers are concerned at the rising burden of payroll administration and their growing role as paymasters of the benefit system.''

On the Minister's second point, I ask her to address the concerns not necessarily of the CBI, which on the whole represents big business, but of organisations that may be more connected to employment in smaller businesses, namely the Federation of Small Businesses and even the Institute of Directors.

Dawn Primarolo: I was coming on to the attitudes of the type of organisation that the hon. Gentleman identifies. As a caveat, I should point out that the argument on tax credits is not new; it has been advanced against the collecting of tax and national insurance through the PAYE system, which is extremely efficient, since it was instituted. As I said, I understand that that is a negotiating position. With regard to the work that I as a Minister do on tax credits and the tax system, I entirely accept that pressure should remain on Ministers to examine the potential benefits, where the regulatory burden falls and what

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we can do to alleviate that, in the round and specifically. With your agreement, Mr. Hood, I would like to touch on that.

I referred to the CBI briefing. During the development of the working families tax credit, the disabled person's tax credit and the new tax credits, we have worked closely with employer organisations and considered the points that they raised. If we consider the impact of the working families tax credit, we can understand the size of the burden on small employers, on whom the greatest burden will fall. We anticipate an increased requirement for work of six minutes a week, if employers did their calculations manually with the tables. That requirement brings the benefits of retention of staff, commitment, and the other benefits that tax credits will bring. When people refer to the economic cost to the employer, are they just considering the costs, or are they pricing the benefits?

The Institute of Payroll and Pensions Management welcomed

    ''the beneficial changes from the employer's perspective''.

In its detailed response it recognised

    ''all the positive changes to the administration of tax credits that will benefit employers.''

I would not wish to mislead the Committee. Those comments are tempered by the comment that it will need to evaluate

    ''the responsiveness of the new system''.

I was pleasantly surprised to receive the following response from the Institute of Directors, which

    ''warmly welcome the ending of the requirement of certificates of payment and we strongly support automatic increases in funding when new employees become entitled to tax credits.''

The Association of Convenience Stores supports

    ''the Government's proposal to reform the existing system of tax credit payments and believes that this will go some way towards easing the problems faced by members at present.''

It went on to say that

    ''the decision to move to annual assessment and payment cycle will mean an end to the stop start nature of current payments and immediately remove the administration associated with regular changes to an individual's payroll.''

Mr. Webb: No one would question that the Government have reflected on the problems of administering the working families tax credit through the pay packet, and streamlined that process. That is welcome and we should acknowledge it. The Minister says that we have talked about the costs, not the benefits. However, it seems to me that the benefits are about giving low-paid workers more money, which can be done through their bank accounts. The benefits do not depend on payment through the pay packet: employers could have the benefits without the costs.

Dawn Primarolo: With respect, the Government and the CBI do not agree with the hon. Gentleman, neither do other employers and organisations that contributed to the extensive consultation exercise on the new tax credits and in the development of others. It is important to ensure that work pays, that people keep

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more as they earn more and that we help them through the transition. Payment through the payroll provides for that.

12 noon

The hon. Gentleman mentioned help for small and large employers. I acknowledge that when people receive a new benefit, they pocket it and ask for more. Everyone does that; it is what negotiations are about. However, I remind the Committee of changes that the Government have made to help small and large businesses: reduction of corporation tax; abolition of advance corporation tax; changes to streamline the national insurance system and make it more efficient, particularly for small businesses. We revised the thresholds for quarterly payments of PAYE and tax, ensuring a better cash flow position. We asked the small business service and the Inland Revenue business support teams specifically to look at how we can help small businesses.

The Carter review, which examined payroll services, has been mentioned. It dealt with the benefit to small businesses of using e-commerce and the internet. The Carter report indicates that there would be huge benefits for business and Government if small businesses could be encouraged to use and develop technology. We would have clean data, which would allow us to reduce burdens on business, and businesses would become more responsive.

Richard Younger-Ross (Teignbridge): The Minister made it sound as though the burdens on business were not too onerous. Many self-employed people wish to expand their businesses and take on staff, but the mountain of paperwork stops them taking that further step. Can we not make the burdens lower for new businesses?

Dawn Primarolo: In everything that we do, there is a difference between perception and reality. People may perceive something as a huge problem—that might act as a brake—whereas, if they were fully informed, they would not. We work with employers to ensure that all the information is available. [Interruption.] The hon. Member for Mid-Worcestershire says from a sedentary position that that is extraordinary. I shall give way to him in a moment.

The Government have done a huge amount of work to determine how to reduce burdens. They are looking for ways to achieve objectives on incentivising people to move into work and how that can best be rewarded, while constantly keeping in mind the requirements placed on business. I have explained what the Government have done so far, and I now wish to discuss how the Bill will reduce the burdens further.

When hon. Members discuss the Bill, they isolate it from other Government actions to benefit and assist employers and employees. They should consider it in the context of the Government's strategy.

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