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Lord McIntosh of Haringey: My Lords, I suppose it would be fair to say that I shot my own fox. The noble Baroness is quite right. I could not find any difference in the arguments to be used on Amendments Nos. 19 and 20 from those to be used on Amendments Nos. 21 to 23. Indeed, Amendments Nos. 21 and 22 are alternatives to Amendment No. 20. Amendment No. 23 is an alternative to Amendment No. 18 which has been withdrawn. The noble Baroness is entirely right. In order to put the case properly, I felt it necessary to respond to all the amendments together. If I had heard any particular new points I would have sought to respond to them on this occasion, but I do not believe I have.

The noble Lord, Lord Astor, has quite rightly drawn attention to the importance of small businesses in our economy. As I believe I made clear, the Government entirely agree with that. We seek to reduce the burden on small businesses.

Lord Astor of Hever: My Lords, I am grateful to the Minister for giving way. I was not just drawing attention to what small businesses do but to the costs on them in administering the tax credits.

Lord McIntosh of Haringey: Yes, my Lords, I accept that. However, the arguments I used, based on experience as well as the principle upon which we oppose the amendments, have made it clear that the additional burden involved in the administration of tax credits is very small compared to the burden which has existed for many years. Indeed, it is significant that the burden of tax credits on employers is not incremental. In other words, the smaller employers are much more likely to have no employees with tax credits than larger employers.

This gives me an opportunity to respond to the noble Baroness, Lady Carnegy. I repeat the arguments I used before. Statutory maternity pay is a benefit. The purpose of compensating employers for the administration of statutory maternity benefit is precisely as she set out in her speech on the previous group of amendments. The Government wanted to ensure that employers were not deterred from employing people who are entitled to statutory maternity benefit. That is simply not the case with tax credits or disabled person's tax credits. It is not possible for employers to know the financial circumstances of their employees from the fact that they are entitled to tax credits.

There are many reasons why a family should be entitled to working families' tax credit. The calculation is done entirely by the Inland Revenue and there is no possibility of disclosure of the financial details of the individual employee from the fact that a tax credit is payable. The objection in principle which applied to Amendments Nos. 19 and 20 applies equally to Amendments Nos. 21 to 23 and the Government cannot accept them.

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9.30 p.m.

Lord Astor of Hever: My Lords, I am grateful to the Minister for that reply and am sorry that he was not more receptive to our amendments. I am sorry also that he could not agree with what Jack Cunningham said; that is, that small firms need to be able to concentrate on running their business and securing new work rather than administering these tax credits.

I thank my noble friend Lady Carnegy for once again mentioning the precedent of SMP. We have received strong representations from organisations that represent small businesses and they are extremely unhappy on this point. However, at this time I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 22 and 23 not moved.]

Lord Higgins moved Amendment No. 24:


Page 4, line 25, at end insert--
("( ) Regulations under this section shall not require an employer to calculate the tax credit to which an employee is entitled during the period when the employer will be responsible for payment of tax credit to that employee, other than to relate the calculation made by the Board of the employee's entitlement to tax credit to the length of time the employee is employed.")

The noble Lord said: My Lords, I was a little mystified by the earlier discussion and perhaps the Minister should inquire who suggested the grouping. The whole set of amendments were somewhat similar but we did not think it appropriate to dissent from the groupings.

I thank the noble Baroness, Lady Hollis, and the noble Lord, Lord McIntosh of Haringey, for writing to me in relation to specific points relevant to this amendment. Indeed, throughout the proceedings they have been helpful in that respect and the noble Baroness, replying on behalf of her colleague, was kind enough to write to me and my colleagues to explain precisely how the Government envisage the system working with regard to payment of tax credits by employers.

This amendment seeks to spell out that explanation in black and white. If I understand correctly, the Government are saying exactly what is stated in the amendment. If that is on the record it will be helpful should there be any subsequent dispute. The noble Baroness was good enough to send me an extract of one of the statutory instruments setting out the way in which the regulations will operate in relation to the employer.

Perhaps I may make one point which is relevant to both this debate and the previous one. It is not helpful for the Minister to say, "We did not worry about the cost of operating this system in small businesses because it will be mostly done by the employer". I believe that was his argument, but it is a strange argument. If the entrepreneur of a business is being distracted by becoming an agent for social security payments--or in this case Inland Revenue payments as defined by the Government--that is a higher cost than if he were employing someone who did nothing else. Adam Smith and the pin factory suggest that a degree of specialisation would be more efficient. If the

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entrepreneur is having to do it, that is a disadvantage rather than, as the Minister was seeking to suggest, an advantage.

I do not wish to delay the Committee any longer. Perhaps the Minister can confirm my understanding that the Government envisage precisely what is said in Amendment No. 24. In that case it will not be necessary to put the amendment on the face of the Bill. I beg to move.

Lord McIntosh of Haringey: My Lords, I certainly hope that I did not say we do not need to worry about the cost to small businesses, because those costs are incurred by taking up the time of the entrepreneur. I was simply making the perhaps trivial point that small businesses do not have payroll departments. It is still a cost and we worry about all costs. I used to work on a Saturday afternoon when I had an office in central London and I would find from time to time that the landlord had locked the outside door and that I could not get out. Having completed my VAT return and the PAYE and NIC entries, I had to climb out of the window, jump down about 10 feet and get out though the fire escape. I do not recommend that to any entrepreneur, and it is a definite deterrent that the Government do not in any way support.

The noble Lord, Lord Higgins, invites me to put on record in Hansard the assurances and explanations which were given by my noble friend Lady Hollis in her letter, and I am delighted to do that. The main point I should like to make is that under no circumstances will employers be involved in processing applications for tax credits or in assessing the level of tax credit awards. That will always be the business of the Inland Revenue.

From October 1999, when the tax credits are introduced, the Inland Revenue will process all applications and will do all the calculations necessary to work out the level of tax credit awards. The Revenue will pay the awards direct to all successful applicants, whether they are employees, self-employed or non-earners.

From April 2000, when employer payment begins, there will be no change to the application and assessment procedure. The Revenue will continue to process and assess all applications and inform all applicants of the level of their award. The only change after April 2000 will be that, whereas self-employed and non-earning recipients will continue to receive their tax credit direct from the Revenue, employees will receive theirs through the payroll where appropriate.

What will happen when an employee is awarded a tax credit? The Inland Revenue will notify him of the award and tell him the daily rate at which payments will be made over the 26-week period of the award. The notification will also explain that initial payments will be made direct by the Revenue but that after a certain date the employer will take over payment.

At the same time the Inland Revenue will notify the employer when to start paying tax credit, how much to pay and when to stop. Employers will always be given enough time to adjust their payrolls before starting to pay tax credits (14 days notice in respect of weekly paid employees, 42 days in all other cases).

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The start notification will include the daily rate of tax credit payable to the employee and a table showing the 1-31 multiples of the daily rate. The daily rate refers to calendar days, not working days. The only calculation the employer will have to make is to read off from the table the amount of tax credit payable, according to the number of days in the pay period for which he is responsible. For example, if the employer's responsibility starts on 21st June for an employee paid monthly at the end of the month, he will have to pay 10 days' worth of tax credit up to the end of June (21 to 30 June). Therefore, he will need to use the Revenue-provided table to arrive at the tax credit due; that is, 10 times the daily rate. In subsequent months he will read off the 30 or 31 multiples of the daily rate to find out the appropriate tax credit amount for a particular month. That amount will be added each month to the employee's net pay.

If noble Lords are interested, this is all neatly illustrated in a table on page 9 of the Inland Revenue booklet, Working Families Tax Credit and Disabled Person's Tax Credit. Draft regulations 3(2) and 4(2) of the Payment by Employer Regulations also set out the information which the Revenue must provide to the employer and employee respectively. Draft regulation No. 5 spells out what the employer needs to do.

I hope that I have addressed the concerns of noble Lords. I have stated publicly what was contained in the letter and therefore hope that the noble Lord will be able to withdraw his amendment.


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