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If only the Government--who are desperate to appear tough on this measure after their battering by recent rebellions and their drubbings at the polls--would see reason. However, to give ground here might be portrayed as a U-turn, or as giving way to the middle-class values that the Paymaster General clearly embraces but about which some in her party have doubts. If the Government

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gave way today, they might make this dreadful Bill work. The amendment would not only exempt those small firms who so elected but ensure that the overwhelming majority of workers were still paid the working families tax credit through their pay packets.

Mr. Geraint Davies: Is not the real reason why the Tories want to scrap the working families tax credit that they want to take billions of pounds from young children to pay for the promises made by Opposition Members in Committee; for instance, not to increase tax on cigarettes and fuel and not to abolish the married couples allowance for older people? Is not the Conservatives' policy to take money and food from poor children to subsidise cigarette smokers? Is that the basic strategy of the Opposition?

Mr. Pickles: The short answer to that is no.

The Government's own advisers have doubts about the working families tax credit. The Paymaster General was most careful not to answer my question about Lord Haskins. I know that Lord Haskins is on the Euro-enthusiast wing of the Labour party and that the hon. Lady may wish to distance herself from him. However, she will recall that Lord Haskins is the chairman of the better regulation task force, which was set up by the Prime Minister to cut red tape on business. It may be an embarrassment to the Government that the first thing that the noble Lord has picked on has been the Tax Credits Bill.

We know that the noble Lord has received a number of complaints about the Bill. The Financial Times on 29 May reported that the Treasury had seriously underestimated the burden that the working families tax credit would impose on small businesses. If the noble Lord has been seen to be kicking over the traces a little, he is in good company. The Minister of Agriculture, Fisheries and Food and the Secretary of State for Trade and Industry--as reported in The Sunday Telegraph on 25 February--have expressed worries about the effect of the policy on small businesses, and particularly on agriculture.

According to the same article, the Prime Minister is worried about the effect on middle England--again, something that the Paymaster General has embraced: she is clearly in favour of warm beer, and matrons cycling happily through the countryside. Were it not for the European elections, the Government might have accepted our proposals. Perhaps our victory has had the detrimental effect of preventing this sensible measure from proceeding.

Maria Eagle (Liverpool, Garston): I have been trying to follow the hon. Gentleman's argument. Why does his party always seem to be against alleviating poverty? The Bill, along with the national minimum wage and certain other reforms, will lift 1.25 million people out of poverty, including 700,000 children. Why does his party oppose those measures?

Mr. Pickles: I cannot take credit for this point, because the hon. Member for Northavon (Mr. Webb) made it both on Second Reading and in Committee, but the working families tax credit does absolutely nothing for those in the

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lower income deciles: it only helps people at the other extreme, earning up to £38,000. I am sure that it will come as a great surprise and disappointment to the hon. Lady, but the Government are not giving a penny piece extra to those on lower incomes but are supporting those higher up the income scale. She is clearly mystified and I am sure that she feels badly let down by the Government.

Mr. Geraint Davies: Will the hon. Gentleman give way?

Mr. Pickles: First I must make a little progress, as I do not feel that I have done full justice to Lord Haskins and his views.

Mr. James Cran (Beverley and Holderness): We want to hear more.

Mr. Pickles: I am here to please the Whips, and if they want to hear more about Lord Haskins, they will. I know how the system works.

Lord Haskins is understood to have concluded that payroll issues are one of the main regulatory problems facing small businesses. In reporting to the Treasury on competitiveness--I understand that the report is on the Chancellor's desk as we speak and will be published in July--he concluded that, in respect of companies employing fewer than 10 people, the working families tax credit should be processed by the Inland Revenue for at least two years. That is the very point that the Paymaster General has just rejected. Companies need time to prepare and, according to Lord Haskins, owner-managers may require Government help if they are not to be swamped by the regulatory burden.

What is the regulatory burden? The Paymaster General said that it was no different from that arising from family credit, but family credit claimants only have to produce a certificate of work, after which they can rely on the pay slip. The conduit for small businesses is not as simple as the Government seek to suggest. The overworked, over-stressed small businesses have to complete a series of steps.

First, the employer must calculate the amount of WFTC or disabled persons tax credit to be paid by multiplying the specified daily rate--to be supplied by the Inland Revenue--by the number of days in the payment period. Then the employee's net pay after the deduction of PAYE and national insurance must be added. Then the employer must enter the figure on the employee's pay slip and record it as an item entitled "tax credit".

Then the total must be calculated and a separate tax credit figure recorded on another form. Total tax credits must be recorded on Inland Revenue forms P14 and P60. At the end of the year, a further form, the P35, is needed for each employee, including the total amount of any Inland Revenue funding for the year. Employers must also produce certificates of payment for leavers. That strikes me as reasonably onerous.

In Committee, the Financial Secretary, whom we all respect for her fairness and honesty, characteristically admitted that there would be some extra costs. In characteristic fashion, she said:

Dawn Primarolo: Will the hon. Gentleman accept that on application the requirements are no more onerous for

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the employer? Does he accept what I have said this afternoon about all the measures that the Government have taken to reduce compliance costs for small businesses? I explicitly recognised the increased requirements in the operation of the working families tax credit and pointed out that the consultation that the DTI is now undertaking, in particular on the voucher scheme, would also address the issue. The hon. Gentleman's argument that we have not recognised and are not dealing with the increase in costs is simply not accurate.

Mr. Pickles: The hon. Lady has recognised the problem but she is not doing anything about it. It does not help that the regulatory assessment is so woefully inadequate. The hon. Lady will recall that, on Report, my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) referred to the work of Mr. Roger Cockfield, Reader in taxation at De Montfort university, in which he demonstrated that the yearly impact on employers with fewer than five employees was not £35, as the Government suggest, but £342. The hon. Lady, who will have read the report of proceedings in the other place, will have seen that that issue was further explored by their lordships, who arrived at a similar figure. Neither the hon. Lady nor her hon. Friends have been able to knock down Mr. Cockfield's figures.

The burden will fall disproportionately on small businesses. It will affect their cash flow. The Social Security Committee recommended that, to ease the problem, advance payments should be made to employers with cash flow problems and that reimbursements of administrative costs should be paid to smaller firms. The Government have rejected both suggestions.

Dawn Primarolo: With regard to the question of reimbursement of employers, I made it clear that, if employers could not meet the costs of paying the tax credit because they could not deduct it from PAYE or NICs that they had collected on our behalf, they could apply for a grant from the Inland Revenue to cover those costs. That point has been specifically dealt with, and now that I have jogged the hon. Gentleman's memory, I am sure that he will acknowledge that.

Mr. Pickles: Of course I acknowledge the point. I would not wish to accuse the hon. Lady of feeling smug, but before she starts feeling too happy with herself she should bear in mind the views of the National Farmers Union, which said:

The Minister in the other place put that point more simply when he said:

    "There will be a reduction in the positive cash flow benefits of the employer's relationship with the Inland Revenue."--[Official Report, House of Lords, 26 April 1999; Vol. 600, c. 126.]

The Government expect small firms not only to be their agent for paying benefits but to pay for the privilege. It is therefore surprising that the only help that the Minister in the other place offered was a potential reduction in software costs which might help to ease the burden on small employers. The Government want to change employees' attitude to in-work payments, but not the attitude of employers.

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