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4.30 pm

At present, there are 1.17 million employers, of whom 825,000 are covered by the amendment. There are potentially 730,000 claimants of working families tax credit, of whom--according to the Minister's figures--100,000 are covered by the amendment. The amendment would thus affect 70 per cent. of firms, but 87 per cent. of those entitled to receive working families tax credit would continue to do so through their wage packet.

The amendment would preserve the principle of payment through the pay packet, and ensure that small firms did not have to go through an elaborate opt-out mechanism, as they could elect to opt out. I do not believe that payment directly from the Inland Revenue would in any way exclude the change of culture that the Government seek to achieve.

Today's CBI press release has been much quoted. It is only fair for me to refer to the only sentence that neither I nor the Minister have yet read out. It states that

The Government can retain the principle behind the Bill while still exempting small businesses. We are in a strange position, in that the Opposition want to strengthen the Bill, while the Government seek to weaken it. This is a modest amendment, and deserves consideration.

Mr. Webb: It is a pleasure to follow the hon. Member for Brentwood and Ongar (Mr. Pickles), as I have done on a number of occasions. Our styles are rather different, but we are of one mind about the amendments, which were tabled by my noble Friend Lord Goodhart in another place and which received the support of Conservative peers.

I listened with interest to the Minister. I started with a blank sheet of paper as I tried to list the possible arguments against the amendments. I made notes about the defences that she presented, and shall take this opportunity to reflect on them.

The Minister argued that payment through the pay packet would reduce stigma, and that allowing small employers to opt out and their employees to receive payment from the Inland Revenue would somehow be a stigmatising experience. My noble Friend Earl Russell in another place said:

In other words, people can distinguish between benefit payments and tax refunds. The difference is clear, regardless of whether such payments come through the pay packet or the post. The Government are patronising the prospective recipients of the tax credits. They assume that people cannot tell the difference between a social security payment and a tax credit, and that they cannot add up two numbers--the amount in the pay packet and the tax credit amount--if the tax credit is paid direct to their bank accounts. I do not feel able to support such patronising arguments.

The Minister said that we cannot have a system in which small firms opt out of their tax administration responsibilities, as though that were some grand,

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sweeping point of principle, then listed the exceptions. She said that the very smallest firms with no PAYE employees will not be so burdened. However, she noted that a line has to be drawn somewhere, which suggests that it is a matter of pragmatism rather than principle.

The Minister explained that the smallest firms would be exempted from the requirement because, on the balance of benefits, it was more beneficial to allow them to opt out. The reason that she gave was that the burden would be so great that it would outweigh the benefit gained by getting the money to the employee through the pay packet. On the balance of arguments about costs and benefits, it was accepted that certain categories of firm should be exempted. The amendments merely seek to exempt a broader category.

In contrast to similar amendments that we have considered, the present amendments do not exempt all small firms--merely those that opt for exemption because they would find compliance particularly burdensome. Those with sophisticated payroll systems or who are at home with personal computers are not forced to opt out. The Minister mentioned 100,000 employees--one in seven of those covered by the tax credit--but that figure is a maximum. Many small firms that do not find the change a burden might not opt out, making the number of employees withdrawn even smaller. It is almost impossible to argue that amendment No. 1 is a wrecking amendment as it would remove from the scheme only a fraction of those covered by it.

The Minister said that the amendments would cause an administrative problem because information on the size of firms might be a year out of date. That is no great problem. Most small firms clearly and consistently fall within the threshold employing fewer than 10 people. Off the top of my head, I believe that more than 90 per cent. of small firms are always small, perhaps with one or two employees, and it is irrelevant that information on them is a year old.

Of course, some firms will move above and below the threshold, and that would create problems. The Minister said that the smallest firms--those without pay-as-you-earn liability--would be exempted, but the same problems would apply if such a firm went over the line one year and back under it the next. The Minister seems to believe that the problem can be satisfactorily resolved for those firms, so why is the same not true of firms with fewer than 10 employees? Discrimination and workplace legislation applies only to firms with specified numbers of employees; if that legislation can be implemented, why cannot the amendments?

The Minister said that recipients would face uncertainty about whether the employer would deliver the tax credit. There might be delays in payment. But the tax credit is paid directly to the employee, and the money will reach the employee while the question of who pays is being resolved. There will be no delay. Even under the Government's proposals, the money will be paid direct at the beginning of a claim and employers will not be involved at that stage.

The problems that the Minister raised are fig leaves intended to cover the fact that the Government are taking an ideological position. Many of their arguments about practicality simply do not stand up. The Minister

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reassured us that employers would be able to attend seminars. Is she saying that hard-pressed business people, possibly sole traders with one employee, will be able to spend an afternoon at the local Inland Revenue office learning how to administer the system. The Minister cannot say that that is no burden on business. Small businesses should not have that obligation imposed on them.

The hon. Member for Brentwood and Ongar referred to the Minister's throwaway suggestion that the Bill's proposals are no more onerous than family credit. She may wish to set the record straight if that was not what she meant. It is certainly what we heard her say.

Dawn Primarolo: I am grateful to the hon. Gentleman for his seeking to assist me, but if he reads the record, he will find that I said specifically that the proposals would be no more onerous at the point at which an application is made. I referred clearly to compliance requirements on business, and I set out all the Government's points. The hon. Gentleman suggests--as did the hon. Member for Brentwood and Ongar (Mr. Pickles)--that we do not recognise the burdens. Let me remind of him of one item in the Budget. We moved quarterly PAYE payments from 600 to 1,000--

Mr. Deputy Speaker (Mr. Michael J. Martin): Order. The Minister is making an intervention, which should be brief.

Mr. Webb: Thank you, Mr. Deputy Speaker. I am happy to accept the Minister's clarification. If she was merely making the point that earnings information must be verified in both cases, I am happy to accept that that is so. However, the regulatory impact assessment makes it clear that business will face costs of an aggregate £100 million or more, recurring every year. The Minister has failed to convince me that will not be onerous for small firms.

Mr. David Willetts (Havant): Will the hon. Gentleman confirm that what the Minister has just said appears to admit that the method of paying the new working families tax credit is more onerous than the old method of family credit? Her defence was that she was referring only to the method of calculating entitlement to the benefit.

Mr. Webb: The hon. Gentleman is right that the regulatory impact assessment shows that the additional cost of more than £100 million relates to the cost of delivering the benefit, which does not feature in family credit.

There has been some discussion of what the burden of the tax credit on a small firm will be. Figures of £37 and £342 have been cited, but I suspect that the Minister would accept the figures advanced by Baroness Hollis in another place. In response to my noble Friend Lord Goodhart, she gave a figure for small firms and said:

Those are Government figures. The hon. Member for Brentwood and Ongar gave some larger figures, which may or may not be correct, but even the Government admit to £135 every year for a small firm. The Minister

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calls it the worst case scenario: £135 a year for a small business with one WFTC employee, using a manual payroll system, as must be the case with most such small firms. While £135 may not be much to the Minister, it is to small firms struggling to get by.

There is an inconsistency in the Government's approach. They argue that the burden on business and small business is so negligible that we should not allow small firms to opt out. However, schedule 3 provides protection for jobseekers turned down by employers who do not want to take on potential recipients of the WFTC. The Bill anticipates that employers may want to discriminate against such people. Why could that possibly be? It is because of the burden of administering their payroll.

The Lords amendments would reduce bureaucracy because one of the key bureaucratic elements of the scheme is that the Inland Revenue will have to pay small firms up-front so that they can pay the tax credit. The Minister would accept that it is small firms that will need to avail themselves of the facility. If the smallest firms could opt out, that central category of firms would no longer need to claim the money up-front, so a whole bureaucracy of advance payment to allow firms to pass the money on to their employees and reconcile the figures at the end would be done away with. All the difficult firms would be taken out of the system.

These are far from being wrecking amendments. They are helpful and constructive. They would leave 87 per cent. of employees in the existing regime but take the problem cases out of it. The CBI, in the full, unexpurgated version of its press release, expresses its concern. The Federation of Small Businesses, which includes a greater number of small firms, opposes the Government's proposals.

I disagree with the Conservatives in that I am clear that the principle of the tax credit and the extra resources are welcome, but the Liberal Democrats are concerned about the way in which they are being delivered. We are united in believing that small firms should not have to meet the cost of this piece of Government ideology.

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