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Lord Higgins: My Lords, before the noble Baroness sits down, I do not seek to raise any of the complicated points we discussed earlier in our deliberations with regard to the OECD and so forth. All I seek is this. As the noble Baroness has said, this Bill will involve an extra expenditure of £2.7 billion. The question is: what is the corresponding increase in taxation that is going to finance that expenditure? It is a simple point.
However, the recent increase in taxation has been in the form of higher national insurance contributions and therefore does not go into the general tax pot, except to the extent that the National Insurance Contributions Bill that I mentioned earlier will transfer it from one pot to the other. My question is this: from where will the increased taxation come to pay for the £2.7 billion which this Bill is going to transfer?
Baroness Hollis of Heigham: My Lords, this is no different from anything else that we have discussed during our debates on other Bills. The Government make a judgment on taxation, including tax credits, at each Budget consistent with strict fiscal rules. The noble Lord has respected those rules. He has agreed that we have observed them absolutely and properly. The Budget included measures to raise additional resources. It also provided additional moneys for government priorities, including tax credits. There is no hypothecation of revenue raised in one place to be
spent on tax credits. I believe that an element of hypothecation may be what the noble Lord is pushing for, but I do not think that I can help him.I repeat: I do not think that at any stage we are going to have a meeting of minds on this matter.
6 p.m.
Lord Higgins: My Lords, the relevant response is the one I once put on a test paper of a student at Yale—that is, "Four out of 10. See me afterwards". We shall have to discuss this matter outside. I am still very unhappy about the arrangements. It would be helpful to discuss this issue outside. Perhaps that is the best way of handling the matter. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 26 [Payments of working tax credit by employers]:
Lord Higgins moved Amendment No. 10:
- Page 18, line 28, leave out from "payments" to "to" in line 29.
The noble Lord said: My Lords, in moving Amendment No. 10, I shall speak also to Amendment No. 11. These are technical amendments and concern the rather broad way in which the regulations are to be drawn. Subsection (1) states that,
- "Regulations may require employers, when making Schedule E payments and in any such other circumstances as may be prescribed",
- "any such other circumstances as may be prescribed"?
Amendment No. 11 concerns the wording,
- "or prescribed elements of working tax credit",
- "in any other ... circumstances as may be prescribed"
Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Higgins, described the amendment as a technical amendment and I shall reply to it in that vein. The effect of Amendment No. 10 would be that employers could be required to pay working tax credit to their employees only when they are making Schedule E payments and in no other circumstances. It is the "no other circumstances" that he believes is too wide.
An employer who by mistake failed to make a tax credit payment at the same time that he made a Schedule E payment would not be able to correct the error until he was due to make another Schedule E payment—in other words, he would not be able to
make an intermediate payment to correct an error. That is the only effect that the amendment would have. It would slow down and coarsen the payment system. It would not have any effect in reducing burdens on employers.The effect of Amendment No. 11 would be to ensure that employers pay all elements of working tax credit due to an employee and would remove the power for the board to prescribe that certain elements should be paid direct to the claimant by the board and not by the employer. That strikes me as being directly in conflict with the passionate arguments that we have heard during the course of the Bill that this is a burden on employers.
The effect of the amendment would be that regulations could not prescribe, for example, that the childcare element is to be paid direct to the person in a family who is mainly responsible for caring for the children. So, in addition to increasing the burden on employers, Amendment No. 11 would stop the payment of childcare benefit direct to the carer. I cannot believe that that is right either.
Lord Higgins: My Lords, that is far and away the most convincing argument I have heard today. It is probably the most convincing argument I have heard for some time. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 11 to 13 not moved.]
Lord Higgins moved Amendment No. 14:
- Page 18, line 32, after "to" insert "inform the Board of the gross pay of each of their employees and to"
The noble Lord said: My Lords, in moving Amendment No. 14, I shall speak also to Amendment No. 15. The amendments seek to establish an easier system for employers to work. Indeed, it may be the case that the Government have in mind something of the same kind. Amendment No. 14 seeks to insert the words,
- "inform the Board of the gross pay of each of their employees",
- "and such notices to indicate to the employers the appropriate payment to be made to each employee".
It is my understanding that the Government, in deciding how much of a tax credit ought to be paid to an employee, have all the information necessary other than specific information about the gross pay of each employee. If they were provided with that information, it would be possible for them, taking into account all the various factors which will alter the tax credit, simply to indicate to the employers the appropriate payment to be made to each employee.
So the employer would tell the Revenue, "I have 10 employees. Their names are such and such. Their gross incomes are so much", and the Revenue will then say, "In that case, you should pay a specific amount to each of them by way of tax credit". My understanding is that all the information the Revenue will need to work that out should be available to it. That may or may not be the case, but I thought it would be helpful to
establish to what extent the Government feel that system would enable the burden on employers to be reduced by the Inland Revenue carrying out the calculations rather than the employer having to do it for the Revenue and on its behalf. I beg to move.
Lord McIntosh of Haringey: My Lords, both amendments are unnecessary. In particular, Amendment No. 14 would place a considerable extra burden on employers for no conceivable purpose. If it has not become clear in the course of the proceedings of the Bill, let me explain how this will work. People will claim either or both of the tax credits by completing a form and giving details of their family circumstances, the number of children, and their income, including earnings. They will complete the form on the basis of their income in the previous tax year—information that they will have from their payslips, their P60 or their self-assessment return. So normally there will be no need for employers to be directly involved in the claims of their employees.
Amendment No. 14 would introduce a new burden on employers. They would have to send the Revenue the gross pay of all their employees—it is not clear whether the amendment would apply to all their employees or only those who are or may become entitled to working tax credit—for no purpose. It is the employees' responsibility to give information about their income. I cannot see the point of employers doing that.
Amendment No. 15 would require notices to be sent to employers telling them to start paying tax credits to an employee and to,
- "indicate to the employers the appropriate payment to be made to each employee".
Lord Higgins: My Lords, the Minister has explained the matter clearly. Perhaps one had not fully understood the exact way in which the mechanisms operate. This may also arise on the next amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Saatchi moved Amendment No. 16:
- Page 19, line 12, after "calculated," insert—
The noble Lord said: My Lords, before I move the amendment, I draw your Lordships' attention to the declaration of interest that I made at earlier stages of the Bill.
The amendment returns to the fundamental question of what assistance the Government are prepared to give to businesses to compensate them for
Perhaps I may briefly set out the background to the amendment. I draw the attention of the House to three letters that I have received in the past week concerning the amendments. The first was a helpful and elegantly constructed letter from the Minister containing a description of all that the Government had done for businesses over the years. She concludes:
The letter paints such a touching picture of a benevolent government with grateful businessmen gathered at their feet that I was on the point of withdrawing the amendment altogether. But then I received a second letter, this time from the London Chamber of Commerce and Industry, which painted a very different picture. It spoke of the many complications in payroll systems and lamented the fact that,
At that point I was a slightly confused and, frankly, did not know what to do about the amendment—until I received a third letter—in fact, a copy of a letter from the Minister to my noble friend Lord Northbrook. This set out the details of the regulatory impact assessment for November 2001 in relation to the Bill.
Now here is a strange thing. There is no standard format for regulatory impact assessments; so it is hard to see all the required answers to one's questions. There is another odd thing about the regulatory impact assessment. Who, it might be asked, actually does the assessment of the impact of the Government's regulations? I was curious. Was it perhaps the Institute of Fiscal Studies, the National Audit Office, the Comptroller General, or some independent body of expert economists? No—I am afraid that the Government carry out their own assessment. This is
The letter explained that under that system—
"( ) for the payment by the Board of an allowance covering the estimated cost to the employer of administering tax credits based on the average number of employees paid during the year,"
"I hope you will agree that this is an impressive record and that it will explain why I cannot accept your suggestion that this Government is insensitive to the needs of small business".
"more time will have to be spent by employers completing paperwork, administering records and notifications.".
The letter refers to a survey conducted by the London Chamber in April this year, exploring the general impact on businesses of the last Budget and specifically the impact on their payroll administration. Members were asked:
"Did the Budget ... simplify the tax system for your business?"
Five per cent of respondents agreed that it did; 69 per cent disagreed.
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