Tax Credits Bill

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Mr. Webb: I beg to move amendment No. 69, in page 19, line 38, leave out 'or negligently'.

The Chairman: With this it will be convenient to consider the following amendments: No. 70, in page 20, line 14, leave out 'or negligently'.

No. 72, in clause 35, page 22, line 21, leave out 'or neglect'.

Mr. Webb: The amendment stands in the names of several hon. Members, but I shall speak to it first.

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We are dealing with the same issue, which is the distinction between fraud, on which we are all keen to clamp down, and innocent error. At one end of the scale, many Conservative amendments are aimed at toughening the Bill's provisions on fraud, and I understand that, but the motivation behind this group of amendments is to ensure that the provisions on people who are subjected to penalties and, with amendment No. 72, interest penalties do not apply to people who make genuine errors. To have an idea about why we are concerned about that, it is worth reading a sentence from the explanatory notes on clause 29, which say:

    ''Clause 29 provides for a penalty of up to £3,000 to be imposed on any person who fraudulently or negligently provides a false or incorrect statement or incorrect information or evidence in respect of a claim''.

If we take out the part about fraud, on which we all agree, and the part about false or incorrect statements, we get this:

    ''Clause 29 provides for a penalty of up to £3,000 to be imposed on any person who negligently provides incorrect information''.

We have discussed the difference between negligence and wilful negligence. The Minister suggested that adding ''wilful'' would give the lawyers a field day, but it seems to me that any definitional issue makes a field day for the lawyers. They will spend just as long and earn just as much discussing what negligence means as they would discussing what wilful negligence means. It would benefit the innocent to strengthen and clarify what we mean by negligence, although the three amendments would take out the relevant part altogether.

The Bill contains clauses concerning penalties and interest. Someone who was deemed to be negligent, although a lay person might not judge them to be culpably negligent, could face a combination of repayment of overpayment, interest on the overpayment, a penalty charge, interest on the penalty charge and, if the negligence bordered on fraud, that panoply as well. Do we need all of those measures?

For people on high incomes, an error on their income would probably not affect their entitlement, but if people on low incomes get something wrong, it would affect what they receive. We are dealing with a client group who are generally on low incomes and understandably might neglect to keep proper records. The culture shock for the highest earners in the land of the record-keeping implied by self-assessment was quite something, and many people still rely on the traditional shoebox technique. If we extended that to a group of people whose incomes are much less predictable, whose record-keeping is on average likely to be poorer, and who do not have accountants, it would make it much more likely that they would neglect to record or supply something.

A related issue refers back to clause 14(2) and concerns a person who fails to supply information—perhaps some supporting information for a claim. Such people can be deemed to have supplied the information. For example, if a person is sent a form asking whether their circumstances have changed and they do not send it back—it gets stuck behind the sofa

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or they are busy with other paperwork or whatever—they are deemed to have said that their income has not changed.

Should it transpire that the income has changed by a relevant amount, the system says that that is negligence, which incurs a potential fine of up to £3,000, recovery of the overpayment, interest on the overpayment and possibly also interest on the penalty charge should the person not have current means. In the clause 28 stand part debate, the Minister said that interest would be charged for negligence and not only for fraud.

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We are hammering people with a concept of record keeping that goes beyond anything they have previously faced. By proposing in the amendment that ''negligently'' be removed, we seek Government reassurance us that they will only go after people who exhibit culpable or wilful negligence. Such cases are on the borderline of fraud and are far from those at the other end of the spectrum involving people who are not good at record keeping, whose lives are haphazard, or whose dealings with officialdom are somewhat chaotic. We have all met such people and we do not want them to be fined £3,000.

Mr. Clappison: The Committee has had a trailer of my views on this matter in the comments of my hon. Friend the Member for Arundel and South Downs. I have sympathy with some of the remarks made by the hon. Member for Northavon. We must be vigilant about public money, ensuring that it is properly returned and that people who have been negligent are penalised when appropriate. However, we must also be realistic about the circumstances of some of those who fall within the ambit of the system, their resources and, in some cases, their culture.

We are discussing negligence, which, under the new system, is a failure to discharge duties. On top of everything else, we are imposing additional duties on claimants under the new system of yearly income assessments and the requirement on them to notify of changes in their circumstances. By extending the duties that we place upon people, we increase the scope for potential negligence. The Minister must give us a careful explanation that strikes a balance between vigilance and realism.

Mr. Boateng: I shall deal first with the point made by the hon. Member for Northavon about lawyers when they discuss fraud and negligence. I am sorry to disabuse him of another of his cherished illusions, but he is mistaken in his belief that it is not possible to excite legal activity by introducing words into legislation that, of their very nature, excite a feeding frenzy among lawyers. Anything that suggests an additional mental element in criminal or civil law will lead to extra debate among lawyers. Terms such as ''knowingly'' and ''wilfully'' are the subject of much discussion among lawyers.

No doubt like my legal colleagues on the Committee, I have spent many a happy, lucrative and productive hour discussing the additional element required to satisfy a definition that contains ''knowingly'' or ''wilfully''. That is why, although it

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is difficult to get rid of the term ''knowingly'' from the law, great efforts have been made by parliamentary draftsmen for many years to avoid using the term ''wilfully'' because it adds little other than an opportunity for lawyers to discuss the additional import of the word.

A problem surrounds the concept of wilful negligence. Is it not somewhat a contradiction in terms? If one has a sufficient will to do something, can one be held act negligently? I see the look on the face of the occasionally—mercifully, normally—silent one on the Conservative Benches to whom, surprisingly, Liberal Democrat Members sometimes defer. It is a dangerous practice to defer to Conservative Whips—even Conservative Members seldom defer to their Whips. I know that I am trespassing on ground that you would not want me to explore, Mr. Beard.

I assure the hon. Member for Northavon that nothing is served by adding the term ''wilful''. For years, the term ''fraud and negligence'' has existed in law in relation to tax, national insurance contributions and, now, tax credits. It is well understood by lawyers, advisers and those who have an interest in those matters. In our view, there is no point in tampering with it. It does not include, and does not result in, penalties or interest for those who have made an innocent error. People who have made an innocent error will not be trapped by that phrase, or, indeed, by the provisions that the hon. Gentlemen seek to amend.

The purpose of clause 29 is to provide for financial penalties when a person fraudulently or negligently makes an incorrect statement in relation to tax credits, or provides incorrect information.

Mr. Webb: The Minister is responding helpfully. Will he give an instance of an action that would be negligent but not fraudulent in this context?

Mr. Boateng: Yes. If, in the hurry of a late return of information, an item were omitted innocently—through an oversight—there would not be a problem. However, as the hon. Member for Hertsmere mentioned earlier, when a course of action has been taken that is clearly motivated by a deliberate and dishonest attempt to draw a veil over certain activities and obscure them from the attention of the Revenue, that is fraud. One is deliberate dishonesty, while the other is failure to take reasonable care. The third category is omission by accident. If one has made no attempt to communicate, one has shown unwillingness to respond to queries, or one has shown a determination to take no interest in ensuring that the Revenue is aware of a relevant fact, that is clearly a failure to take reasonable care.

Ms Karen Buck (Regent's Park and Kensington, North): My hon. Friend has been extremely helpful in explaining the matter, but I am still a little worried. That is partly because of the examples—with which all Committee members will be familiar—of people whose level of functional literacy is not high. Such people are not used to regularly completing forms unaided. I would be most worried about those whose record keeping is shambolic. Into what category of treatment would they fall? How will people cope if they do not have the experience and literacy skills needed to

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compile the information for which they are to be asked?

Mr. Boateng: Let me give an example. Someone who fills in an incorrect income figure because he cannot be bothered to look at his payslip is not being fraudulent, but negligent; he is not taking reasonable care. Let us suppose that someone puts down £175, when the figure is £195. That could be the result of an innocent misreading of the payslip, which is in script form. However, if a person writes down £95, it would be harder to believe that such action was innocent. It might not be fraudulent action, but it shows a lack of reasonable care. If there were a query and the person still wrote down £95, it would show that he had stepped over the boundary from negligence, and that his action was fraudulent.

We all know from constituency experience that some people lead lives that appear shambolic to others. However, it would be wrong to believe that they have no clear sense of what is coming into the home and what is going out. Sometimes, they have a clearer sense of outgoings than income, but in the main people are fairly clear about such matters, even if some of the detail is fuzzy. It would not be right to underestimate people's capacities in such matters.

My hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) is right to remind the Committee to make sure that the guidance given, the discretion exercised and, when it is relevant, the prosecution's policy take the whole picture into account. Often the recipients of tax credits do not have the degree of familiarity with forms and figures that can be expected of those who utilise the PAYE system.

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