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Lord Swinfen: My Lords, in Committee the Minister confirmed that there would be no Minister in the Cabinet fighting to improve the tax credits where necessary, and said that the only Minister in the Cabinet dealing with this would be the Chancellor of the Exchequer who, as is generally realised, always attempts to cut expenditure. The amendment is extremely useful and should be given serious consideration by the Government.

Baroness Hollis of Heigham: My Lords, this proposed amendment seeks to provide that the provisions in Part XIII of the Social Security Administration Act shall apply to tax credits, and that the Social Security Advisory Committee be renamed the "Social Security and Tax Credits Advisory Committee". So far, we are agreed.

We had some discussion of this issue in Committee. I explained then that, as it stands, the role of the SSAC is to provide advice to the Secretary of State for Social Security in relation to the carrying out of his or her functions. We greatly value such advice, of which I have first-hand experience.

The position of the Board of Inland Revenue is different from that of the DSS. Noble Lords expressed some concerns in Committee to the effect that the Revenue would need advice on the issues raised by the tax credits because this is a new area of work for it.

The Inland Revenue may not have a formal advisory body, but as the noble Lord, Lord Goodhart, acknowledged--in a back-handed if not a fore-handed way--it has a good record on consultation. Indeed, specifically on tax credits, there is a standing consultative committee of representatives from businesses large and small, payroll managers, and software providers. This committee has been meeting to discuss the scheme for the tax credits for over a year. The Revenue has also held regular discussions with other groups representing lone parents and people with disabilities and families on low incomes.

The Revenue regularly publishes regulations in draft for comment. For the DSS, that task is often carried out by the SSAC. As I said in Committee--the noble Lord, Lord Goodhart, recycled my words earlier--it thereby reaches a wider audience.

However, a similar situation arose recently as a result of the transfer of NIC issues to the Revenue, with the merger of the Contributions Agency, where the formal role of the SSAC has changed. That area of formal responsibility has moved away from the SSAC. Here, the Inland Revenue is currently discussing with the SSAC how best to establish appropriate arrangements for informal consultation on NICs regulations and is continuing to tap into its extensive expertise on social policy. As the recent 12th report of the SSAC states,


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    I am confident that similar, informal arrangements drawing on SSAC expertise will be developed for tax credits as for NICs which will prove satisfactory both to the Inland Revenue and the SSAC. Discussions to that effect are currently under way with the committee and the committee's chairman, Sir Thomas Boyd-Carpenter. I shall be happy to write to noble Lords explaining the arrangements when the discussions have been concluded. In the light of that, I hope that the noble Lord will be able to withdraw the substantive points of his amendment.

The noble Lord, Lord Goodhart, also raised points about the interpretation of the legal constraints under which the Act works. The advice I have been given is that it is also a new point for us. We appreciate it and accept that it was put very clearly. As we were invited to do, we shall write to the noble Lord with our considered response. In the light of that explanation, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Goodhart: My Lords, as I indicated earlier, I propose to withdraw the amendment, but before I formally ask leave to do so, may I say that I am grateful to the noble Baroness for having indicated that the situation will not be quite as bad as I had feared in that it is expected that the informal consultation with the advisory committee will continue. Nevertheless, it is unfortunate that formal role of the advisory committee is not to be continued. The advisory committee is a useful link between the normal tax collecting functions of the Inland Revenue and the new functions it will have under the Bill. Whether or not one describes tax credits as a benefit, the new functions will certainly be much closer to benefits than anything that the Inland Revenue has dealt with in the past. Therefore, it would be very appropriate for the formal role of the advisory committee to be continued. Nevertheless, I suppose that half a loaf is better than no bread. I am grateful for that.

As regards the point of interpretation which I raised, it is a matter which needs to be brought forward again at Third Reading for clarification. By that time I hope that it will be possible, whether by correspondence or otherwise, to make a clearer statement of what is intended to be the continuing role of the advisory committee. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 2:


Page 2, line 2, at end insert--
("( ) The Treasury, in making regulations under any functions transferred to it under subsection (1) above, shall ensure that payments of the tax credit are not made to individuals who have an income, or to couples who have a joint income, in excess of the income at which the higher rate of tax would be payable by an individual.")

The noble Lord said: My Lords, in moving this amendment I hope that it is convenient also to consider Amendment No. 3 because they are variations on the same theme. We discussed these matters in Committee. The amendments reflect the concerns we have expressed about the way in which the Government propose to change to a working families' tax credit, which means

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that benefits will become payable to those receiving what might be regarded as very high incomes. The first amendment seeks to deal with the matter by capping--the expression I believe we normally use--at a level where a higher rate of tax is payable. Alternatively, there is a tapered cap which in some ways has an advantage inasmuch as it increases the withdrawal rate of the working families' tax credit from 55 per cent. to 75 per cent. for families with incomes over £25,000. That figure has been calculated as probably being high enough for the majority of people to be above housing benefit and council tax benefit tapers. Thus the increase in the working families' tax credit taper would not compound with other benefits to produce high withdrawal rates.

We believe that this amendment is worthy of consideration. I raised the issue at Question Time today with the noble Lord, Lord McIntosh of Haringey. He is not present. At some stage we must consider the way in which we are beginning to pay benefits to people with high levels of income of something over £25,000 a year, yet with other benefits, for example, income support, we are reducing benefits to those who may have a relatively small amount of capital. I may be somewhat out of date; no doubt the noble Baroness will remind me of the figures. Benefits used to be reduced if one had capital of more than £3,000. People used to say to me on interview nights, "I am in a bad way, but I do not wish to give up my last bit of capital which gives me a feeling of security".

We need to consider whether the balance is right. In the one situation it concerns income, and in the other capital. It seems strange if the taxpayer is paying out benefits to people with income of £25,000 a year but is taking away benefits from people because they have capital of only £3,000, or whatever the amount may be. We need to look at the system as a whole. I suspect that the measure the Government are now introducing does not take sufficient account of the overall structure of social security benefits. We should be grateful if the noble Baroness could respond.

Lord Goodhart: My Lords, we are sympathetic to the spirit underlying the amendment. The reduction in the taper rate and the more generous childcare benefit, as well as the increased generosity of the other benefits, mean that tax credits are payable to some people who have well above average incomes.

I believe that this Government or one of their successors will have to deal with the problem sooner or later perhaps by tapering off the benefit more sharply when income rises above levels where other benefits such as housing benefit are payable.

I am somewhat doubtful whether it is a problem that should be dealt with in primary legislation. However, it is an issue that the Government should take on board. I shall be interested to hear the noble Baroness's reply.

Lord Blackwell: My Lords, my noble friend raises an interesting issue. Have the Government estimates of how many people would be affected by the overlap? Can that information be made available?

Baroness Carnegy of Lour: My Lords, on a more general point, it is increasingly realised that a large

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expenditure is incurred by the state in transferring money from the same households within the tax and benefits systems. Households receive money in benefit and pay tax. The cost probably amounts to billions of pounds. The cost will need to be addressed and reduced. That is an undisputed fact.

In making the WFTC available to people on the higher rate and on an income of up to £35,000 a year, the Government are exacerbating the problem. More people will experience the receiving of the benefits and the paying of tax within the same household, adding to the expenditure of the nation. Do the Government consider that when they extend the dependency of people on benefit? It is a separate point, but I wonder whether the Minister is able to comment on it.

9.45 p.m.

Baroness Hollis of Heigham: My Lords, I should love to, but I am not sure whether this is the time to do so in the detail required. The amendments seek to restrict the amount of tax credit available to households with relatively high incomes. In moving the amendment, the noble Lord, Lord Higgins, spoke about savings. I take his point, but given that Amendment No. 9 deals specifically with that issue perhaps he would allow me to deal with it separately.

The noble Lord raised some interesting points of a Second Reading nature which were followed up by the noble Baroness, Lady Carnegy. Without trying to recycle what I said in Committee, there is an interesting, difficult and decent problem about the shallowness of tapers so that as low a deduction rate as possible is gained. For every pound earned, people should receive enough of it to make it worthwhile to seek to increase their hours or earnings. The price of that is that they remain on those benefits for longer, at higher public cost.

The alternative route is to have a much sharper withdrawal rate, which gets them off benefits sooner. That is cheaper, but it also produces a strong disincentive to increase hours and earnings. We discussed that in Committee, but I do not believe that at this time of night your Lordships would wish me to repeat the argument. The debate has exercised all parties and all social policy commentators for a long time.

The Government believe that a 55 per cent taper, compared with the old tapers, has reduced the minimum deduction rates, particularly for those living in rented housing who might therefore be eligible for housing benefit, to a more acceptable figure. But for some people, the MDRs are still very high and to reduce them would require an even more shallow taper, going further up the income levels with greater public cost.

We believe that we have struck the balance right, but we must return to the issue whenever we are considering the integration of tax and benefits, or looking at the scope of the benefit or at what happens when a benefit becomes a tax credit, because they are proper and decent

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issues to raise. We believe that we have got it right, but that is not to say that a 55 per cent taper, for example, is right for all benefits or all tax credits in future.


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