Select Committee on Social Security Second Report

The preparation of legislation

75. Once the scheme is finalised it will then be necessary to introduce primary legislation. The Low Income Tax Reform Group drew our attention to the existing legislation for WFTC, which has been largely formed by amendments to a plethora of interrelated Family Credit and other social security regulations.[146] The LITRG complained that, as a result, the law relating to WFTC "is almost totally inaccessible even to those with ready access to a well-stocked library."[147] Will the situation improve when the new generation of tax credits is introduced? Tony Orhnial of the Inland Revenue told us:

"What we would envisage is to have, as much as possible, a separate and clear system. The extent to which it will rely on other bits of legislation really depends very much on the extent to which we are essentially reproducing existing bits. With the new credits we are looking at a new enterprise and a new system, so we would not envisage that happening to a great degree."[148]

76. We believe there is a strong case for a single and comprehensible source for the rules which will relate to the new generation of tax credits including ICC. We recommend that the new rules for tax credits should not consist merely of multiple amendments to social security benefit legislation. Rather, both the primary and secondary legislation relating to tax credits should be drafted, as far as possible, as stand alone legislation.

77. The LITRG also drew our attention to the Tax Law Rewrite Project, which has the task of re-writing existing tax law in plain English. Tony Orhnial told us, "Whether or not we will have the legislation drafted on Tax Law Rewrite lines is an issue we will need to look at closer to the time."[149] We recommend that, in planning the legislative timetable for ICC and ETC, sufficient time is allowed to enable careful drafting of both primary and secondary legislation in plain English.

The overall timetable for ICC

78. Opinions of witnesses on the viability of the timetable for the introduction of ICC varied. Perhaps predictably the Government witnesses thought it was a realistic timetable and said that they would not have set the date without believing it could be achieved.[150] CPAG's witnesses agreed that the deadline could be met and were concerned that since the introduction of ICC is a constituent part of the Government's aim of ending child poverty, there should be no slippage.[151] Sue Middleton was equivocal[152] but IFS cast serious doubt on the possibility of achieving the timetable:

"2003 is now looking like a brave target."[153]

79. Taking into account the views of the witnesses and the wider aspects which might affect the successful on-time introduction of ICC such as the need to ensure that the various IT systems are installed, fully tested and operational, together with other factors such as the timing of a General Election, we incline to the view that the timetable for the implementation of ICC may be too ambitious and should not be rushed. We invite the Government to give an unequivocal undertaking that ICC will not be implemented unless and until the administrative framework and IT systems to support it are fully operational.

Delivery: issues for recipients

80. The aim of ICC is to develop a benefit which is simple to understand and simple to administer. Key elements already identified are therefore a relatively 'flat' structure for people on low incomes where the maximum rate of ICC is paid across a relatively wide band of income; and fixed awards with a relative lack of responsiveness to changes of circumstances. There has to be a safety net which protects people who suffer a severe drop in income. The Government appears to be proposing that if a person moves on to Income Support or Jobseeker's Allowance they would immediately be entitled to 100% ICC. This is obviously very important.

Information gathering

81. If the benefit is going to be as simple as the stated aim it will be necessary to extract the basic information about claimants in an equally simple way. Since most households contain someone who pays income tax there would seem to be potential for a more integrated approach to collecting information on income using tax records. We saw in study visits that this approach is used in both Australia and Canada, where it is customary for most adults to file annual tax returns. Could such an approach work here? Jane Millar's view was that "if the goal is to integrate taxes and benefits more fully, then I cannot see how we can avoid moving to a system where we have more families filling in tax returns".[154] Andrew Dilnot of IFS proposed a simple annual return to the Inland Revenue which, alongside earnings information provided through the PAYE system, might aid information collection: "An annual return which asked how many children you had, what your relationships with other adults were, whether you had income from sources other than your main employment, would be a way of getting useful information from a large group of the population".

82. We believe that the introduction of a simple annual tax form to complement existing information held by the Inland Revenue would enable people to report unearned income; the presence of children and if appropriate, the existence of a partner. It would provide the required balance between simplicity and eliciting the basic information and we recommend the consideration of such a system.


83. We welcome the proposal that ICC should be paid to the main carer. This mirrors the situation in Canada, where benefit is paid to the "primary carer"[155] and in Australia where benefits for children have been made separately payable to the mother.[156] A question arises as to intervals of payment. In the United States, payment of a tax credit similar to the UK's Working Families Tax Credit is made on an annual basis. In Canada payments of Child Tax Benefit are made monthly by cheque or direct deposit.[157] In Australia, families have a choice as to how payments will be made. They can choose to receive Family Tax Benefit as a direct payment each fortnight (paid into a bank or credit union) or through the tax system. Ninety per cent of families in Australia currently choose to be paid through the benefits rather than the tax system.[158] If paid through the tax system, payment can be made either directly through the tax office in the form of a lump sum, or through employers in the form of periodic reductions in tax instalment liabilities.[159] During the course of the year, families are able to change their method of payment at any time.[160] In the UK, decisions relating to the intervals of payment for ICC will be taken in the context of the Prime Minister's commitment that benefit and tax credit payments will continue to be available on a weekly basis at the Post Office.[161] Traditionally, as the IFS pointed out, a considerable emphasis has always been put in this country on getting money to people when they really need it, and getting it there regularly.[162] On the other hand, families on middle incomes may prefer payments monthly or even annually. Payment of ICC will be made electronically into bank accounts, although the Government has said that "Any developments will take into account the needs of those who do not have a bank account."[163] The acknowledgement of the need for arrangements to take account of those who do not have a bank account is important, given the commitment to pay ICC to the main carer. If the main carer does not have a bank account, the option must be available to receive ICC in another form.

84. We therefore recommend that recipients be given a choice concerning the intervals at which they are paid: (for example fortnightly, monthly, annually), and that the main carer be given the option of payment otherwise than electronically, if he or she does not have a bank account.

Perceptions of a simpler system

85. At grassroots level will ICC paid by the Inland Revenue really make things simpler? It will be sitting alongside IS/JSA for people out of work paid by the Working Age Agency and the Employment Tax Credit, also paid by the Inland Revenue, for those in work. There will also be Housing Benefit and Council Tax Benefit, paid by the local authority. Whilst it is unclear whether Child Benefit will still be paid by DSS, Disability Living Allowance will be. Other payments for children will include various children's allowances paid with Incapacity Benefit, Invalid Care Allowance, and Bereavement Allowance, available from the Working Age Agency. Although unusual, children's allowances paid with Retirement Pension (paid by the new Pensions organisation) might even enter the equation. Where parents have separated, the Child Support Agency may also be involved. In this complex web of benefits and credits, the introduction of ICC may not produce much simplification from the recipients' point of view. For example, Jobseeker's Allowance for a family is currently paid as one payment. After the introduction of ICC, that payment will come in two income streams: one from the Working Age Agency and the other from the Inland Revenue. Where a parent suffers a sudden drop in income through loss of a job, the government agencies will have to co-ordinate their activities to ensure that the two income streams (ICC adjusted to the maximum rate) are paid at the same time . The Government's aim for the new tax and benefits system is to enable people to provide information about their circumstances once, which is then shared among the different agencies and offices administering benefits. This is very important. A change of circumstances, such as a child moving to live with one parent rather than another, can have knock on consequences across a range of benefits and tax credits. We conclude that although ICC is a welcome step towards a simpler system, there is still a considerable way to go to create a tax credit and benefit system which is easy to understand and easy to use from the recipient's perspective.

146   Appendix 1, para 21. Back

147   Ibid. Back

148   Q 235. Back

149   Q 234. Back

150   Q 222. Back

151   Q 86. Back

152   Q.157. Back

153   Q 185. Back

154   Q 23. Back

155   Ev. p. 5, para 6. Back

156   See Peter Whiteford, Ev. p. 27. Back

157   See Jane Millar, Ev. p. 5. Back

158   Q 55. Back

159   Peter Whiteford, Ev. p. 28. Back

160   Ibid. Back

161   Q 275. Back

162   Q 188. Back

163   HMT 2000, 4.19. Back

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