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Baroness Hollis of Heigham: Yes, my Lords. However, I also made very clear--I am sure that the noble Lord would, with his usual integrity, have gone on to say it--that that was because it failed to be underpinned by a minimum wage and therefore it was a charter for an employer to continue to sweat cheap labour.

Lord Skelmersdale: My Lords, I shall remind the noble Baroness of exactly what she did say when my noble friend Lord Mackay announced it:

If family credit is folly, why is family tax credit not folly? If the noble Baroness was right in what she said at that time--and she was right then--why has this tiger in social security matters--all credit to her for that--changed her spots today? I believe that this Bill is folly--or, rather, if the Minister was right then, it is folly compounded. It still rewards employers who pay low wages, but it is the effect on the family that worries me.

Under family credit the payment usually goes to the mother. We have heard a lot about that this afternoon. However, under the new system it is not difficult to imagine frequent rows between parents as to who will get the benefit. Paragraph 14 of the Explanatory Notes makes clear that from April 2000 the tax credits will be received through the wage packet. I assume that this means that the earner will have to claim. It certainly means that the wage earner will get the money unless the female failsafe scheme (if I may so describe it) of the noble Baroness, Lady Lockwood, operates. Often, although I accept not invariably, that will mean that the male still gets the money. Is it not at least tempting for him to use it on beer, cigarettes, gambling or whatever? That point was made by my noble friend Lord Higgins and others.

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The Minister waxed positively lyrical over the choice available where there were two wage earners in the family, but in my book that makes the situation worse. The Government do not appear to have learnt anything from overseas. America and Canada had similar systems to this and discovered that the deals between employers and employees not only could, but did, result in fraud of the system. We have heard that Canada has now dropped it. Can the States be far behind? What makes this particular version of the tax credit scheme better than, say, the American or Canadian model? I am sure that the noble Baroness will have an opportunity to answer these points at some length a little later.

This scheme is also intrusive. Even if, as the Minister claims, it does not require employers to inquire into their employees' domestic arrangements in order for the credit to be paid, the employers will immediately know that individual employees' circumstances differ. It is also an admitted added cost on business to administer it as is made quite clear in the Explanatory Notes. If the Government are so dead set on a proven dangerous scheme, why at least can it not be administered through the tax code? We know that it will not be. However, I have not discovered any reason why that is so. Surely, that would minimise some of the problems. These tax credits are generous--much more so than family credit. I am not surprised that my noble friend Lord Buckinghamshire commented on this matter. They go much further up the income scale than family credit. I am told that families who earn as much as £37,000 a year can receive some help. In extreme cases, they can even draw higher rate taxpayers into the benefit net. Is this really what the Government, still less taxpayers generally, want?

No doubt the Minister will argue that by definition a tax credit is not a benefit. My answer to that is that anything which is means-tested, as working families' and disabled person's tax credits are, must be a benefit--and not only that. Here we have a benefit that is a distortion of the tax system. Is it logical that on the one hand the Chancellor is doing away with MIRAS--and here I agree again with my noble friend Lady Knight of Collingtree--and the married couples tax allowance and with the other introducing a new allowance that, on the face of it, appears to be anomalous because it penalises two-parent single-earner families as opposed to single-parent families, as the cost of bringing up children at home is ignored?

My noble friend talked about next-door neighbours looking after each other's children and described that as "absurd". I accept that money has to change hands and that both have to be approved childminders under Clause 15 but, with great respect to my noble friend, "absurd" is too weak a word. My father would have called it an absolute nonsense. My advice to the Government is to drop that innovation like a hot cake. Like the noble Lord, Lord Goodhart, I want the Government to make family credit work better, but they will not.

At least the Bill has a few ameliorating features. The noble Lord, Lord Rix, pointed out that disabled people will have 182 days instead of 56 to find a job after other benefits have been withdrawn, which is a distinct bonus.

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So too is Clause 7 and its Northern Ireland back-up in Clause 16. Unfair dismissal or other detriment is outlawed so far as concerns obligations on employers to be responsible for making tax credit payments. That is certainly helpful in ensuring that employees not only get the money due to them, but that they cannot be penalised for asking the employer for it. However, I cannot see that it does much to counter fraud.

As to Clause 16, I readily understand that tax and social security matters are not the prerogative of the Northern Ireland Assembly--nor, correctly, will working families' and disabled person's tax credits. However, the Bill amends the Employment Rights (Northern Ireland) Order 1996 by inserting at paragraph 4 of Schedule 3 a new regulation to deal with the right of an employee not to be dismissed unfairly--an arrangement that I have just lauded. The Minister might save time in Committee if she could explain what happens to those unfair dismissal rights if the Assembly decides to appeal the whole order. As I read the Explanatory Notes, the Assembly could do that if

    "repeal affects employment rights generally". That seems odd to me but there must be an explanation and no doubt the Minister will explain either today or by letter in due course.

The last time that the Minister and I crossed swords over a Bill--it was the Social Security and Contributions (Transfer of Functions, etc.) Bill--I gave it half a cheer. My noble friend Lord Higgins was somewhat more generous on that occasion. I seem to remember that he gave it two cheers. I doubt that he, and certainly not I, could go that far today.

5.52 p.m.

Baroness Turner of Camden: My Lords, I welcome the Bill and I am grateful to my noble friend the Minister for the clear way that she explained its complexities. The principles upon which it is founded are good. The Government are right to target benefits at children. It is clear from recent surveys that far too many children are being brought up in poverty, which is not in our country's long-term interests. Children in poverty who are raised on a poor diet perform less well in school and are likely to remain uneducated, unskilled and a largely unsatisfied underclass. The Government are determined that that should not happen and we should support them.

I am indebted to the Child Poverty Action Group for its briefing, which states:

    "Because we believe that the WFTC brings welcome resources to families, the CPAG concern is that the system should work as well as possible and be taken up as widely as possible". That is my standpoint.

I have one or two questions, mainly about the way that the new system will work. The WFTC is to be paid via the wage packet of the highest earner of a couple. Even now that is likely to be the male partner. I understand why the Government want that done. It was explained this afternoon that the intention is to provide an incentive for people to work. However, such research as has been done shows that money paid direct

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to the mother is more likely to be spent to the benefit of the children. The Minister said that there would be a choice as to who would receive the payment. The CPAG asks whether notification of the award could be sent to both partners and whether there should be provision for settling disputes between partners as to who receives the payment, with the aim of ensuring that the tax credit benefits the children.

The new system replaces the passporting of benefits under family credit, whose claimants are currently entitled to a whole range of passported benefits such as dental treatment, sight tests, prescriptions and so on. Children whose parents are in receipt of income support and income-based jobseeker's allowance are entitled to free school meals. Will those benefits be available to recipients of FWTC? Can one be sure that the Inland Revenue, which will have responsibility for payments rather than the Benefits Agency, will have in place mechanisms to ensure prompt payment--particularly where there is a change of job, the employer cannot or does not make a payment, and so on? I gather that in the latter cases the Inland Revenue will take over and make direct payments. The noble Lord, Lord Freeman, raised that issue in connection with the switch from the Benefits Agency to the Inland Revenue and the change of culture involved. Will there be staffing implications?

Allied to that is the situation of self-employed people. Many people now in self-employment as a result of the massive redundancies of the past decade are certainly not well off. I understand that they will be able to apply for WFTC. Many such people, employed on what the construction industry used to call the "lump", are technically self-employed on short-term contracts because that is the only work that they can get. Employers like the system because it enables them to avoid all the usual costs of conventional employment. Presumably systems will be evolved to take care of such people--who are really employees but are often more exploited than those who are technically regarded as employees.

The Bill has provisions for enforcement if employers do not co-operate. I welcome the provision in Schedule 3 which is headed:

    "Rights of Employees not to suffer unfair dismissal or other detriment". It is clearly the Government's intention to ensure that employers cannot escape their obligation by making threats to employees who insist on their rights which could result in their dismissal or conversion from employee status to that of a self-employed person on a short-term contract. In such a situation, the employee will have the right to take the case to an employment tribunal--which will presumably deal with it under the Employment Rights Act 1996. Those provisions are certainly most welcome and one hopes that they will be made widely known to employees so that they will know how to proceed if they have difficulties enforcing their rights.

I am glad to note from the Confederation of British Industry's briefing that it supports the introduction of WFTC and the increase in the value of the credit announced in the Budget. However, the briefing raises issues of concern in relation to which the CBI seeks

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amendments. The first relates to an exemption for small firms; but I cannot support that demand. There are far too many small firms employing far too many people for such an exemption to be realistic. Moreover, I understand that the Inland Revenue is prepared to assist small firms to cope. Also, employers and noble Lords who raise that point should appreciate that the WFTC supports small firms, as they are the very employers who complain that they cannot afford high wages. They should welcome the WFTC as a subsidy from the taxpayer.

The CBI's second point might have a little more validity but only in one respect. The confederation suggests that all employees be given the choice of receiving the credit directly from the Inland Revenue. That might import an element of complexity that the Government would not welcome. The only employees to whom that facility might be extended are lone parents. Many single parents might want a direct payment, believing that that is more likely to preserve confidentiality. I welcome the views of the Minister.

The CBI also suggests that employers should act only as agent for the Inland Revenue and should not be expected to become involved in assessment of entitlement. I gather from the Minister that that is to be the position. Employers will simply be agents. To some extent that deals with the point raised by the noble Lord, Lord Higgins, when he asked about the situation should there be more than one employer. I understand that the Inland Revenue will do the calculations and will be responsible entirely for assessment, and will do so in relation to the one employer via whom the tax credit is to be paid. I do not see that there is a great deal of difficulty about that.

The Bill also deals with the disabled person's tax credit. I believe that there are Members in this House far better able than I am to deal with issues affecting the disabled, notably my noble friend Lord Rix. Suffice it to say that it appears to me to be an improvement on the present situation. However, I wish to raise one point. The DPTC takes the place of the disability working allowance. I supported that when it was introduced by the former government. But there was always a problem. I believe that it had the lowest take-up of any benefit. I should not like that to happen with the new arrangements. What procedures are in hand to ensure that there will be a better take-up this time round? I understand from the Minister that there is to be a fast-track procedure. Is that intended to deal with the problem of low take-up? It is to be hoped that it will do so.

Finally, perhaps I may say how pleased I am that lone parents applying for the WFTC or DPTC will not be required to co-operate with the Child Support Agency in seeking maintenance from the absent parent. There will be no penalty for non-cooperation. That will allow child support to be used for the benefit of the children, which is what was originally intended.

Altogether it is a Bill to be supported. It has to be taken in conjunction with the introduction of the minimum wage, other measures announced in the Budget and the drive by the Government to increase

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the number of families with sufficient income to meet a low cost but acceptable budget. There will still be families below that level and that is regrettable. It means that there is still much more to do. But the Bill is a worthy step in the right direction and should be supported.

6.2 p.m.

Lord Swinfen: My Lords, I welcome the Government's efforts to make people feel that it is better to earn through work, even if there is a top-up on their earnings, rather than to survive on benefit. I welcome the reduction in the tax burden on families which will result from the introduction of the working families' tax credit and the disabled person's tax credit, and the attempts being made to deal with child poverty. However, I believe that the proposals as they stand have a number of major weaknesses.

The WFTC does not treat all families even-handedly, as has been mentioned. Married couples will be disadvantaged. They will receive less credit than other families. There is positive discrimination against marriage. That, together with the loss of the married couples allowance, calls into question the Government's claim that they support marriage.

The working families' tax credit helps families who need and can afford paid childcare but gives no additional help to families who pay for childcare by sacrificing income so that they can care for their children themselves.

The noble Lord, Lord McNair, raised the difference between the DPTC and the WFTC in the aggregation of a couple's income and savings to restrict the amount of credit. He pointed out that that point had been raised in the Commons but had not been answered. Will the Minister answer it this evening? Statistics from the Department of Social Security suggest that typically a family of four (two parents and two young children) will be poorer than a family of three (a lone parent and two young children). A fair system should take account of the second adult both for fixing the basic credit as well as for calculating family income. The DPTC also introduced in the Bill contains an enhanced credit when there is a second adult in the family. That is also the case with the income related benefits. Since the second adult has the same expenses in both cases there is a compelling case for bringing the WFTC into line with the DPTC.

My noble friend Lady Knight raised the question of marriage. I welcome the additional help being given to lone parent families, but I am concerned that once again married couple families have been discriminated against. That is in sharp contrast to the policy expressed in the Green Paper Supporting Families.

The working families' tax credit proposals are also defective in that they give more credit to families who pay for childcare than to those who do not. Some parents will wish to work and attach great importance to the availability and affordability of professional childcare. Other parents attach equal importance to caring for their children at home. Giving both groups of

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parents a genuine choice is important. As the consultation paper Meeting the Child Care Challenge states,

    "It is up to parents to decide what sort of child care they want for their children. This is not a matter for Government. But it is Government's responsibility to ensure that parents have access to services to enable them to make a genuine choice. This means good quality, affordable child care for parents who wish to work outside the home, and support for parents ... who look after children".

The skewing of the working families' tax credit in favour of one group of parents does not enable parents to make genuine choices, in particular those on low incomes. There is a built-in incentive not to care for children at home. The WFTC must deal with both groups fairly and needs to recognise the position of parents who are in effect paying for their childcare by not working, as well as those who are using professional childcare facilities. It would also be interesting to know how the behaviour of those children changes when they are looked after by their own parents at home in, I should have thought, a more loving sense of care than those for whom there is always paid help.

There is also a good case for bringing into line the treatment of disabled children under both working families' tax credit and disabled person's tax credit. Under the DPTC a disabled person who has a disabled child receives an additional credit. There is no similar credit under the WFTC. The needs of a disabled child should surely receive the same recognition whether or not the parent is also disabled. It is the child who is disabled in this instance and not the parent.

The noble Lord, Lord Rix, said that childcare which is eligible for assistance through the tax credit includes types of care that can be registered. Childcare that is not registered includes services for children over the age of eight and care in a child's own home. That has meant that disabled children who are more likely to need services in their own homes, and higher up the age range, have not been able to get registered services and so would not be eligible for the childcare credit. Care in their own home may be the only practical option for disabled children, in particular those who are severely disabled, if their homes have already been specially adapted to meet their special needs. A recent report by the House of Commons Social Security Select Committee recommended that eligible childcare should be extended to disabled children where childcare could be verified. The Government's recent amendment to the Bill at Report stage in the Commons allows for childcare to be eligible for the credit where provided by an accredited organisation. That is referred to in the House of Commons Hansard of 17th March at col. 1140. That will help parents of children over the age of eight to qualify for childcare tax credit. It is unclear whether it could help parents of disabled children who may be paying for childcare in the child's own home. Can the Minister clarify that point?

Passporting was mentioned by my noble friend Lord Higgins and the noble Baroness, Lady Turner. Currently, people who receive family credit or disability working allowance can also be eligible for other assessments. They include national insurance credit;

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social fund maternity and funeral payments; help with home repairs and energy efficiency; free legal advice and assistance; assisted prison visits; weekly payments of child benefit; fares to hospital; free prescriptions; and help with the cost of dental treatment and glasses. Will the Minister when replying to the debate confirm that those passported benefits will still be available to the recipients of the new credits under the Bill?

The national insurance credit is likely to become increasingly important for disabled workers on low earnings. I understand that the lower earnings limit for employee national insurance contributions is £66 a week. Can the Minister confirm that people earning below that level will also receive a disabled person's tax credit and requalify for incapacity benefit should they need to do so? Changes to the national insurance contribution conditions for incapacity benefit proposed in the Welfare Reform and Pensions Bill will mean that only people with a recent record of actually having paid two years' contributions will be able to qualify for incapacity benefit. While there is a two-year linking rule for people claiming the credit, the question remains for people who may need to reclaim benefit after more than two years on credit.

My final point was raised by my noble friend Lord Skelmersdale. Why cannot the tax credit be paid through the PAYE tax coding? It would make far less work for employers and would mean that other people working in the same firm would not know that a particular employee was in receipt of a tax credit.

6.12 p.m.

Baroness Fookes: My Lords, the noble Lord, Lord McNair, who is no longer in his place, referred to himself as an ugly duckling in a lake of swans because he did not pretend to have great expertise. I have a fellow feeling and in this case must also class myself as an ugly duckling because I do not pretend to be an expert in tax law or social security.

However, during my long years in another place I had considerable experience in dealing with the problems of constituents; some of the people who would be covered by social security. My noble friend Lady Knight will agree that such people are often perplexed by what appears to be a jungle of regulations. They are even more concerned when the regulations change. Therefore, I am very wary of changes unless they can be proved to be substantially better than that which they are replacing.

On that test, the Tax Credits Bill fails. We already have a reasonable system which has bedded in very well. If the Government were minded to make it more generous, they would have been better to have done so and not changed the system. However, it seems that the Government are obsessed with modernisation, with change and with tinkering with systems. Nothing, but nothing, must be allowed to remain the same. I see many drawbacks in the system brought before us in the Bill. Other noble Lords have described them in detail, so I shall deal only with those which I consider to be of importance and about which I feel strongly.

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I deal first with the issues surrounding the woman, the wife, the mother. The great merit of the present system is that the benefit goes to the mother without argument. As other noble Lords have indicated, once a choice is introduced problems arise. There are severe cases in which women are knocked about by their husbands but remain with them or, if they move into a refuge, return to them. What kind of true choice will they have? I would lay money on the man being allocated to receive the money and that it will not go to the children in the way that it does now. I have great fears about that and feel very strongly that the move is wrong.

It is also a matter which perplexes me, given that the Government have set great store on the role of women. They have instituted a Minister for Women in this House and in the other place. I had understood that one of their tasks was to put through a sieve all impending government legislation in order to ensure that it did not disadvantage women. The sieve must be very wide meshed because there is no doubt that in this case women will suffer as a result of the change. My noble friend Lady Knight dealt with the issue of marriage so I shall not dwell on it, but I utterly concur with her remarks.

I, too, am concerned about the burden on employers, in particular small employers. I come from the West Country where virtually every organisation is small, as the Minister will be aware. I can see real problems for small businesses because this is not the only burden that will be laid upon them. In addition to their current burdens will be the directive limiting hours and the minimum wage legislation. Whether they are right or wrong, they are additional concerns for small and large businesses to bear. I believe that these provisions will be too much and are unnecessary when it would be possible to introduce another system which did not impinge on employers in the same way.

As the noble Baroness, Lady Turner, observed, the CBI has asked for an exemption. She considered it to be impractical because of the number of small firms. I should like the Government to examine this matter. I think that it can be done, but if it is impractical it reinforces my view that we should not be going down this road. I shall be interested to hear the Minister's comments on that when replying to the debate.

Finally, I suggest that we take very closely to heart the words of Frank Field. I believe that my noble friend Lady Knight was in error in describing him as a spokesman. I believe that he has been blotted out of the government book of life. Nonetheless, he has more experience than most in examining these issues, and when he says that the new system contains serious errors and faults I take it very seriously and I hope that the Government will do so too.

6.18 p.m.

Lord Craigmyle: My Lords, yet another ugly duckling quacks up!

I welcome the attempt to lift us out of the iniquitous morass into which our tax and benefits system has sunk. It was only when I heard the Minister laying out her

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stall so well this afternoon that I was struck by how complex the Bill is. The noble Baroness spoke of incentives and "penal rates of deduction". She said that people are reluctant to take work which does not pay.

The WFTC carries its own incentives and disincentives. It will induce couples away from stable relationships into casual ones--something which I do not think the Government are hoping for. I will spell out some of the characteristics of this credit.

Married people will become more disadvantaged. There has been a shaking of heads on the Front Bench when this issue has arisen before, but it is a genuine concern. Their incomes will be added together. That is not something new to the Bill, but it is compounded by it. It is absurd. Two people eat more than one person, even without children to feed. They already pay more council tax and suffer from the loss of tax bands if they lose an income; and now this, on top of all that.

The Minister echoed the words of the Paymaster General that,

    "no family with children will pay net income until their earnings exceed £235 per week". If the couple has savings of £4,000 each they miss the credit entirely, no matter how low their income. It appears that they are being told that if they split up, dissipate their savings and dump their children in childcare, they will be a better family. I disagree. If they do, the mother can then claim maintenance, which is disregarded for the purposes of the credit. The Minister is right to be proud of that because it is very sound. But reconciliation between the couple will effectively be taxed, as their incomes will be assessed together once more. Working families' tax credit puts another brick in the wall which I call marriage tax.

I make a simple prediction: the effect of working families' tax credit will be to drive more families apart and to dissuade other couples from formalising their relationships. This will be sad for the couples: nobody aspires to raise children within casual or unstable relationships. For the children this is a disaster. The best they can hope for is that their parents have the wit to defraud the system by pretending to be separated, which is another advantage of not being married.

A number of changes could be made to the proposals. A useful change would be to give a second credit to the second adult. This would bring them in line with the DPTC, and the Bill would then be more consistent. It would treat families more even-handedly. I am not advocating any kind of assistance to the two-parent family, although that might be a good idea; I am just asking that they should not be penalised any more than they already are. Working families' tax credit gives us more nails with which to hammer down the lid on the coffin of marriage. I fully expect it to be drastically amended before the Bill passes.

6.25 p.m.

Lord Astor of Hever: My Lords, this debate has shown, with noble Lords' characteristic expertise and insight, why the Bill is so fatally flawed.

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I am sorry that the noble Earl, Lord Russell, has not preceded me in winding up tonight. From these Benches, we wish him a speedy recovery. Having read the speech of the honourable Member for Northavon, Steven Webb, at Second Reading in the other place, when he described the Bill as a fraudster's charter, I was expecting some fireworks from the noble Earl.

I much enjoyed the speech of the noble Lord, Lord Rix, who fights so hard for the disabled. His wife, who gives him so much support, deserves a very happy birthday party tonight.

There are ranged against the Bill many independent experts, large and small businesses, and other informed organisations which are urging the Government to think again. As my noble friends Lord Higgins and Lady Carnegy said, the working families' tax credit is not really a tax credit at all, but a transfer payment made through the wage packet. One third of the current recipients of family credit, against whom we must benchmark, do not pay any tax whatsoever, and of the remaining two-thirds, only 9 per cent. of their family credit could be offset against a tax liability.

All that the Bill seeks to do is alter the means of transfer, while clouding it in the grandiose rhetoric of welfare reform. The only real winner will be the Chancellor of the Exchequer who, it would appear, is looking to bring all welfare spending under the auspices of the Treasury.

The Government seem determined to ignore the evidence from other comparable schemes that have been introduced in Canada and the United States. This point was touched upon by the noble Earl, Lord Buckinghamshire, and the noble Lord, Lord Skelmersdale. The scheme in Canada, the working income supplement, which Martin Taylor, the architect of these proposals, admitted he had not even looked at, has been replaced by a benefits-based system because of wholesale abuse.

The American evidence is equally damning. There, the earned income tax credit (EITC) has been shown by the IRS to encourage taxpayers to claim over 4.4 billion dollars more than they were entitled to, while federal spending on the EITC ballooned from 1.7 billion dollars to 18 billion dollars from 1986 to 1996; and all this at a time of unprecedented growth throughout the United States economy.

The potential for fraud under the working families' tax credit has already been mentioned by my noble friends Lord Buckinghamshire, Lady Knight and the noble Lord, Lord Craigmyle. If a system is set up that can be milked, like this one, someone will milk it.

My noble friend Lady Knight told us that the Government's leading welfare reform thinker, the right honourable Member for Birkenhead, Frank Field, said that,

    "the whole of the family tax credit venture is fraught with great dangers ... it offers huge bonuses for dishonesty, strengthens employers' hands over working people and encourages low-paid jobs".

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    Moreover, he said:

    "It takes pressure off improving productivity and increasing the scope of real wages". All that from a man whom the Government charged with thinking the unthinkable over welfare reform. In fact, what he thought was so unthinkable that the Prime Minster decided that both he and his boss were unemployable.

The Select Committee on Social Security also expressed concern at the potential for fraud if priority was placed on prompt payment at the expense of rigorous checking of eligibility.

I turn now to the "purse-to-wallet" argument which has been voiced by many leading commentators. The working families' tax credit penalises two-parent, single-earner families as they do not qualify for the childcare tax credit. It fails to take into account the costs of bringing up a child at home and only takes account of another adult in the family purely as a means of reducing the credit. The comparable experience of the American EITC was that it encouraged couples to keep their relationships formally unrecognised. So much for the new party of family values.

My noble friends Lady Knight and Lord Swinfen enlightened us on the Government's contempt for the institution of marriage, having promised so much. Our major concern is that there is a strong possibility that by paying the WFTC through the pay packet, the money will not reach the mother and, therefore, the family. My noble friend Lord Buckinghamshire made the point that a side effect of the Bill is that those who need the money most--the mother and child--may well receive less. The noble Baroness, Lady Turner, also emphasised that point.

The payment method is a serious issue where couples are involved and one result will be to set husband against wife, as my noble friend Lord Skelmersdale said. Figures show that within family credit, 308,000 families have the man as the principal wage earner. Within that group, 93.5 per cent. of women had no earnings.

Under these proposals, the £900 million in WFTC could go directly to the man, since the wage earner is the default recipient. As Frank Field said, women will have to negotiate with their partners to get back the £900 million that they currently receive. Despite the Government's assurances that the Inland Revenue will step in to investigate, the Low Pay Unit and the TUC have both voiced clear criticisms of that approach.

In addition, research by the Joseph Rowntree Foundation found strong opposition among women to payment through the pay packet since they regard the current system as being clear, direct and guaranteed for their weekly budgeting. Many women suffer an unequal position within a relationship. Indeed, violence in families is a huge problem, as my noble friend Lady Fookes, with her great experience, pointed out. The same research showed also that men within the same couples were also opposed, on the grounds of the invasion of privacy by employers administering the arrangements.

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In Committee, we shall wish to consider how WFTC should be made available. As matters stand at present, lone parents will not have the option of choosing how they receive WFTC but we feel that they should be allowed to choose. If they prefer not to have it in the pay packet, they should have the option to collect it from a post office. Being paid through the wage packet inevitably requires the employer to intrude into the employee's private affairs which causes people, quite rightly, to be concerned.

The required close monitoring of employees' and their spouses' benefits could lead to an adverse adjustment of salaries. My noble friend Lady Carnegy made the point that unscrupulous employers could use access to information about their employees' and their spouses' benefits to take advantage of the more vulnerable people. On the other hand, family credit does not cause such problems as, according to the DSS's own figures, only about one-third of employers know that their employees are in receipt of the benefit.

The issue of stigma has been mentioned by my noble friend Lord Buckinghamshire. The Government claim that as the WFTC is no longer seen as a benefit, that will reduce the stigma attached to family credit. That is contradicted flatly by the Institute of Fiscal Studies and the CBI. The Institute of Directors states that it will be quite likely that an employee who receives, and of whom it is known that he receives, benefit in the workplace will be stigmatised. Employees do gossip.

The notion that it will reduce the stigma of family credit and encourage people to take lower-paid jobs is disputed even by the TUC which said, in its 1999 Budget submission:

    "Family credit has ... enhanced job security for many people in low paid jobs by delivering financial assistance in a direct and timely fashion". After all, levels of take-up are 70 per cent. by case load and 82 per cent. by expenditure. The CBI and the Joseph Rowntree Foundation have both stated that the stigma argument against family credit is weak.

Perhaps the final comment on this matter should go to Martin Taylor, in his evidence to the Select Committee. As my noble friend Lord Buckinghamshire said, he admitted that there was no evidence to criticise family credit on the basis of stigma, saying that

    "hard and fast evidence ... is difficult to come by".

Lastly, I turn to one of the most powerful arguments against the Bill--that is the financial and administrative burden that it places on business. That point was made eloquently by my noble friends Lady Knight and Lady Fookes. The draft regulatory impact assessment estimates that the WFTC will cost employers £103 million per annum to operate, with at least an additional £43 million in non-recurrent set-up costs.

It is the impact on small businesses--and many small businesses are very much on the breadline--that is of particular concern. Over the past 15 years, small businesses have created 2 million new jobs and they currently employ 50 per cent. of the private sector workforce in the United Kingdom, with the vast

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majority employing nine employees or fewer. In a small firm, the owner-manager often does the calculations on the kitchen table.

The CBI, the Institute of Directors and the Federation of Small Businesses have all criticised strongly the impact of the WFTC on business. That additional huge amount of hassle could well mean that benefit claimants are either not taken on or laid off as the Government continue to choke business through more and more regulation. It may make some employers prefer employees who are not claimants, rather than employing claimants who may be an administrative burden. The more that business people are dealing with government work, the less they are dealing with their own and creating new employment opportunities and profits. Moreover, concerns as regards privacy and innocent mistakes in calculation or receipt, resulting in benefits going to the wrong people or not being paid on time, may well sour industrial relations in that vital economic sector.

I have also received a number of representations from the National Farmers Union which is extremely concerned about the impact of the Bill on its members, many of whom have already suffered hugely under this Government. They question seriously the disproportionate burden of costs and administration on farmers who employ comparatively few people but are heavily reliant on casual and seasonal labour.

The cash-flow position of many employers will be worsened as they will effectively be lending the Crown the money to pay the benefits, with each loan outstanding for between two and six weeks, depending on the pattern of wage payments. The Institute of Directors has described the cash-flow problem as "massive" and the Chartered Institute of Taxation is extremely concerned about the impact on the solvency of businesses.

On that point, the Select Committee on Social Security recommended advance payments to ease the cash-flow problems of small businesses and the reimbursement of administration costs for those with only a few employees. Therefore, I ask the Minister whether she will consider those two points.

The Government increasingly seem to view an employer's payroll as their own unpaid executive agency whose role is to distribute and collect state transfer payments. In addition to the potential burden of the WFTC, there are proposals to use employers for student loan repayments and stakeholder pension contributions. Those have been reviewed and criticised at length by the British chambers of commerce.

Where will it all end? Will the Government make a commitment, for the benefit for the business community, that no more social security payments will be transferred to the payroll during the lifetime of this Parliament?

The draft RIA suggests that it will take an employer half an hour to read a book on the WFTC and understand it. For this purpose, the employer's time is valued at only £10. People who are not good at payroll to start with--the majority of small employers--are not going to learn the system in half an hour.

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What is the point of businesses even trying to be successful and competitive when the Government are imposing ever more burdens on them and diverting their valuable time and resources? However well intentioned the WFTC might be, it is merely adding to the pressures that make employers administrators and not businessmen.

I believe that we should see the WFTC in a wider context for the business community. This Government pledged in their manifesto,

    "to promote dynamic and competitive business and industry at home and abroad". Instead, we have a Government who are ignoring the pleas of both large and small businesses to end the burdens being forced upon them.

The Bill does nothing to serve the people that it most purports to help. It is ill thought-out and ill planned. This is not just the view of the Opposition; a formidable array of specific and general criticisms of the working families' tax credit is coming from many organisations which, unlike the Government, understand the practical implications of the Bill and the harm it has the potential to do.

We, on this side, are committed to encouraging people to work and to ensuring that work pays, but in our view the Government's Tax Credits Bill will not achieve that. Like the party of the noble Lord, Lord Goodhart, we shall seek important improvements in Committee.

6.41 p.m.

Baroness Hollis of Heigham: My Lords, we have had a wide ranging and detailed debate. If I were to seek to do justice to all the points raised, I would keep your Lordships here long past the dinner hour, but I am sure that that would not be to the advantage of the House. If your Lordships will allow, rather than take up the time of the House now, I will follow up, as I was invited to do, points of detail about Northern Ireland, the forms, regulations--yes, they will be published before we go into Committee--agriculture, and methods of payment for casual workers, by correspondence which can be circulated, otherwise the time of the House will be taken up inappropriately.

Listening to your Lordships, the issues we have heard seem to cluster into three main blocks of concerns. First, there were issues which related to the recipients of working families' tax credit, such as dependency, means testing, purse-to-wallet, the attack on marriage and the disabled persons' tax credit. I shall seek to address that bundle of issues, as to the effects on the employee, in roughly that order.

Secondly, there was a set of issues which concerned employers. I refer to the burden on business, in particular, which became a shorthand for issues such as cashflow, payroll costs, the question of whether there should be an exemption for small firms, and issues of privacy. That second bundle of issues concerns the employers' position.

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Finally, there seemed to be a set of issues concerned with the position of Government. One of these was a straightforward question which I was asked by the noble Lord, Lord Higgins, about accountancy methods. The noble Earl, Lord Buckinghamshire, raised issues of comparison with America and the Canadian experience. The noble Lord, Lord Astor, raised issues of comparison with other countries in terms of burdens on business .

If your Lordships will allow, I shall seek to answer the queries in those three forms: the questions affecting employees and families; the questions affecting employers, and finally the wider remarks on the Government's position.

The noble Lord, Lord Higgins, opened the attack by saying that this is not a working families' Tax Credit Bill but an Inland Revenue "handout" Bill. I cannot put it better than in the following quotation:

    "One advantage that we wish to establish in proposing that family credit should be paid with wages is a link between the credit and work. Sometimes, it is too easy for someone considering taking a job, perhaps at relatively low wages, to consider simply the wages and the deductions from pay for tax and contributions.

    "Another advantage is that payment with wages represents a step towards a closer alignment of the tax and benefit systems, a step which I am urged constantly to take".--[Official Report, Commons, 19/5/86; col. 148.] I think that puts the Government's case pretty well. Those comments were made by the then Mr. Fowler on 19th May 1986 at Third Reading of the Social Security Bill in the Commons introducing family credit, seeking to have it paid through the wage packet to integrate tax and benefit and urging that people should recognise that the point of entry wage would determine people's movement into work rather than the so-called stigma of what was then the family income supplement system. I know that the noble Lord, Lord Higgins, wishes to intervene.

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