Draft Child Tax Credit Regulations 2002 and Others

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Dawn Primarolo: The hon. Gentleman makes an important point about increases in people's income and determining their entitlement as a result. It may be more appropriate if I answer that point when we reach income thresholds and the determination of rates.

Mr. Bercow: I am very happy with that. I am also happy to return to the point if I am not satisfied with the Paymaster General's reply. However, there is every prospect that I will be, because we have had rather

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harmonious consideration of the issues so far, and I am keen that that harmony should continue.

A number of other matters occur to me. The first is an extremely serious issue, about which we should not be complacent. The right hon. Lady will be aware of a report entitled ''Work in Progress'' from the National Association of Citizens Advice Bureaux. It found—I am quite shocked to say this—that

    ''employers have sacked workers entitled to the pay boost or cut their hours because they want to avoid the red tape of paying''

working families tax credit

    ''through the wage packet''.

The report was based on more than 700 case studies of people affected by the new tax credit. The study cited an example of a lone mother of three children who lost her job when the tax credit was put in her pay. The experience led the Institute of Fiscal Studies to conclude that there was a ground for concern on the issue of payment through the wage packet. I know that the Government think that it makes sense to pay the credit in that way, but have they assessed the number of cases involving the working families tax credit in which employers have, quite wrongly, dismissed or otherwise penalised an employee for claiming legitimate rights on the grounds of administrative awkwardness and financial cost? I want to make it absolutely clear that I utterly deprecate such behaviour, but it has happened, and it is a matter of concern and a subject of empirical research. I wonder about the extent to which it has informed Government thinking, though it has clearly not persuaded them to abandon the idea of payment through the wage packet. Perhaps the advantages of such payment outweigh the criticisms of the system.

According to the Institute of Fiscal Studies and the National Association of Citizens Advice Bureaux, abuse has occurred, so at the very least the Government require enforcement or policing machinery adequate to the task of dealing with it. Will the Minister respond to that point in due course?

I should like briefly to focus on the Government's regulatory impact assessment, which was published in July last year. The Government argued:

    ''We think that the costs of the new tax credits to small employers should be less than under Working Families' Tax Credit/Disabled Person's Tax Credit. The absence of Earnings Enquiries and Certificate of Payments forms will benefit all employers . . . As the system of paying the employment tax credit''—

the old name—

    ''through the payroll will be broadly the same as that used to pay Working Families' Tax Credits and Disabled Person 's Tax Credit, we expect that the transition from the existing tax credits to the new tax credits will not require employers to make significant changes to their systems.''

I am partly encouraged by that, but cannot afford to be over-encouraged. It is not a case of knocking me down with a feather; I am more concerned than that. In an attempt to apply soothing balm to right hon. and hon. Members who are concerned about the potential administrative compliance costs for businesses, the Government are saying, ''Don't worry; it won't be any more expensive than the working families tax credit.'' If those compliance costs were but a smidgeon or a nut from the packet, that would be reassuring. However,

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irrespective of whether the Minister believes that business organisations and companies are justified in complaining, she is well aware that they have complained about the compliance costs of the working families tax credit.

Mr. Boswell: Despite the power of my hon. Friend's analogy of the nut in the packet, does he recognise that the presence or absence of one nut in the packet has a disproportionate effect on the profitability of an enterprise? Small changes in administrative costs—additional impositions on top of the inevitable cost of doing business—might hugely affect the conduct and future viability of businesses.

Mr. Bercow: As well as being a courteous and efficient next-door-neighbour in parliamentary terms, my hon. Friend the Member for Daventry is a thoroughly insightful fellow. I must be careful, Mrs. Adams, because you have been an extremely fair Chairman this afternoon and I do not want to test your patience. However, in response to my hon. Friend, it is not unreasonable to recall that the Government have some form on costs to business.

We have already heard the Government espouse the idea that because a regulation accounts only for a modest proportion of the total compliance costs borne by business, it is therefore only a trifling matter. The Conservative Opposition simply do not accept that. It would be unfair to the right hon. Member for Hartlepool (Mr. Mandelson) to dilate at length on the point, but it is fair to recall for guidance in our consideration of the regulations that the Government have previously argued that if a regulation is modest and accounts for only a tiny fraction of the costs borne by business from the totality of regulations, that justifies being relaxed and expecting the Opposition to be quiescent. I am rarely quiescent and, if I am, it is usually the result of the intellectual dexterity and personal charm of the Paymaster General. On occasions, however, I am far from quiescent.

My hon. Friend the Member for Daventry will recall discussions on the parental leave directive. When I questioned its cost, the right hon. Member for Hartlepool disagreed about the estimated costs, but insisted in the end that it accounted for only a tiny fraction of the total costs borne by business. He added with a snippy disdain and a dismissive gesture of the hand that it was but marginal.

I gain the impression, Mrs. Adams, that you are eager for me to move on. The hon. Member for Sunderland, North (Mr. Etherington) is similarly eager and I am wary of falling foul of him. I view him as the embodiment of integrity in the House and one of the finest parliamentary orators of our time. Thus far, he has had an enjoyable discussion with the hon. Member for Mansfield (Mr. Meale). The thought of provoking either or both of those hon. Members into a fusillade of rhetorical invective against me causes even this hon. Member to be frit. I shall therefore resist and move on before I get into trouble with my elders and betters.

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I still have to say something about business resentment of payroll burdens. Does the Minister acknowledge the force of two anxieties about the method of payment that the Government propose? The first is the compliance cost for companies, and in that context it is fair to recall the verdict on 20 June last year of the Federation of Small Businesses policy chairman, Donald Martin, that the costs were a

    ''major distraction from business wealth creating activity''.

I would welcome the Minister's response to that.

The second is the implication for employees, and I want the Minister to make a statement on the record. If she has already done so, I hope that she will excuse me for not being aware of it. My concern is about privacy. The regulations are likely to come into effect because of the Government's majority, but have the Government conducted any consultation with client groups or representatives? I imagine that they have, but a privacy issue is, arguably, at stake. It may be efficient to pay in the proposed way, but it requires the employer and possibly several employees of a company who are not themselves eligible for working tax credit to be aware of the fact of the entitlement of some of their fellow employees. Have the Government considered that aspect?

Apart from the particular costs, do the Government believe that it is acceptable for a general trend to develop in which businesses are treated, to quote Donald Martin again, as

    ''a social welfare arm of government''?

Some people are concerned about that, and I hope that the Minister will respond.

What can the Minister tell us about wider passported benefits, as she commends the regulations to the Committee? The Government have said in the past that their main concern was to link a wider range of passported benefits to entitlement to new tax credits. The Revenue, we were told portentously, was continuing discussions with the ''relevant Departments''. I should probably know which are the relevant Departments, but confess that I do not. I suspect that some of my right hon. and hon. Friends do not know either. I would appreciate some guidance on that and on the formal responses. The Paymaster General might chide me for not being aware of all the details of all the responses and all the organisations that took part in the consultation. If she does, I am happy to accept that I could take up some of the summer recess finding out, the better to inform myself of the contents of those responses, but I am not entirely sure that it would be good for me to do that. Before I decide whether I need to do that, will the Paymaster General give the Committee a brief and helpful summary of the thrust of the submissions of the 14 professional bodies, 29 children's and family welfare groups, 35 child care groups, eight disability welfare groups, two welfare groups for the elderly, 12 employers' representatives and unions, six research organisations, 29 individuals and 37 others, including local government and non-governmental organisations? They had advance notice of at least the essence of the proposed regulations. What was their assessment of them? That is relevant to the

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Committee's consideration of whether to grant its approval to what the Government are proposing.

On the treatment of the new tax credits, the Paymaster General will know from previous Treasury questions over quite a long period that there has been some unease about the way in which the Government have treated, for accounting purposes, the parent of what they are recommending to us today—the working families tax credit. Under the European system of accounts, some parts of the integrated child credit currently count as Government spending, others as foregone revenue. The Institute for Fiscal Studies tells us that a small amount of the employment tax credit to people without children will, in effect, refund income tax payments, which will count as foregone revenue. The remainder will be counted as spending under the ESA.

In October 2001, the IFS told us that it is not yet known how the Treasury will prefer to classify the credits. Its decision should make no difference to how people respond to the payments, but it will make a difference to the estimates of the aggregate tax burden. I may be mistaken, but I recall, hazily and incompletely from Treasury questions of at least 18 months to two years ago, an exchange involving the hon. Lady on the subject of the international disquiet about how the Government chose to classify the working families tax credit. I believe that the thrust of the argument by the international organisation, the named representative of which was quoted in Treasury questions, was that the tax credit should be classified as public expenditure, not as a tax measure. The Paymaster General, reflecting the views of the Treasury, disagreed. I am not sure whether I was the person who had the exchange with her, but I seem to recall that she was brusque almost to the point of unkindness in her reply.

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