|Tax Credits Bill
Mr. Hoban: The Minister has raised a point that concerned several hon. Members on Second Reading. He says that someone's current year income cannot be known; they have to estimate it. Much concern was expressed on Second Reading that people who are claiming a tax credit will have to estimate their current year income and the likely number of hours that they work in a year. Are fears that people will have to estimate those two factors unfounded?
Mr. Boateng: I do not think that the fears expressed in that regard on Second Reading bear too close an examination. We will come to clause 7 in due course, but the whole point of subsections (4) and (5) is to make it clear that awards will be based on income for a tax year. It is not a question of imposing on claimants a formal requirement to notify changes of income during the course of the year or to determine in advance what their income will be. The requirement is to notify the Revenue at the end of the year of any
Column Number: 69changes that occurred during the year and that make the information supplied inaccurate.
A change could involve hours, employment or the household, but claimants are not required to estimate during the tax year what their income will be for the whole of that year. At the outset, awards will be based on the previous year's income and, depending on decisions still to be made on how to respond to changes in income, claimants may have their awards adjusted during the year based on an estimate of the current year's income. That will be determined in the light of decisions that have yet to be made.
The concerns that were expressed on Second Reading are not justified. Even if thresholds were set in regulations under clause 7(3)(a) to (d), there would still be no formal requirement to report changes in income to the Revenue during the year. In debates on previous amendments, I said that our aim was to develop a culture in which people asked for reassessment and reported changes if their income had risen. That is sensible because it will reduce the risk of overpayment. Similarly, when people believe that changed circumstances might justify an increase in the amount that they receive, we want them to be in a frame of mind in which they see that as something to help them. We shall actively discourage people from notifying small changes of income during the year to minimise the scope for overpayments.
We do not propose to introduce penalties for submitting an estimate of income during the year that turns out to be incorrect. I do not want to trespass on your patience, Mr. O'Hara, by going into clause 7 in detail, but the corollary is that clause 7(9) gives the Inland Revenue discretion to decide whether to adjust payments during the year to reflect a claimant's estimate of their income. That will provide protection against abuse by claimants who wilfully submit unreasonable estimates to obtain extra tax credit. The threat of penalties may deter claimants more generally from asking for reassessment during the year.
We want to encourage people to change their attitude. We are moving towards an integrated tax and benefits system and that will involve consumer education. It will require close working relationships with benefits advisers, NACAB and others to smooth the transition—the Revenue is geared towards this—but we believe that the gains at the end of the process justify the proposed actions.
Mr. Webb: That was a helpful response, because it cleared up some of my misunderstandings about the way in which the system will work, although I am not sure that it was a reassuring response. In the system that the Minister is describing, changes to circumstances covered by the clause must be notified immediately or within three months, or whatever it turns out to be. Therefore, a change in a relationship or the birth of a child must be notified within three months. Changes in income do not have to be, but there will be a year-end reconciliation, if I understand
Column Number: 70it correctly, although claimants will be at liberty to report such changes. However, the Minister used the phrase ''small changes'', which was the starting point for the amendment, although I accept that it was in the wrong place. He is almost agreeing that there needs to be some concept of small changes for the system to work.
To avoid pursuing the matter for too long, I accept the Minister's point that the amendment is to a clause that deals with changes in personal circumstances and not changes in income, and therefore does not work here. However, his description of year-end reconciliations concerns me a great deal, particularly when we are talking not simply about the few poor but about 6 million child tax credit recipients, many of whom have never made a tax return and who, as far as I can see, will now all have year-end reconciliations. I suspect that we shall return to that on the next clause, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 ordered to stand part of the Bill.
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