House of Commons - Explanatory Note
Tax Credits Bill - continued          House of Commons

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Clause 56: Repeals

203.     Clause 56 introduces Schedule 6 which lists the provisions which are repealed or revoked as a result of this Bill.

Clause 58: Transitional provisions and savings

204.     Clause 58 enables the Secretary of State, (or DSD in relation to Northern Ireland), to make transitional provisions or to preserve any provisions of existing legislation otherwise repealed, in connection with the abolition of the child dependency increases in certain social security benefits. It also enables the Treasury to do the same in respect of all the provisions in the Bill.

Clause 59: Northern Ireland

205.     This clause amends the Northern Ireland Act 1998 to make the new tax credits, child benefit and guardian's allowance excepted matters in Northern Ireland. The transfer of child benefit and guardian's allowance from a reserved matter in Northern Ireland to an excepted matter was agreed by the Northern Ireland Assembly on 19 November. As a result, the requirement for the Secretary of State to consult Northern Ireland Ministers on any future changes to those benefits is removed.

206.     Clause 59(4) provides that the Northern Ireland Assembly may amend or repeal any provisions of the Employment Rights (Northern Ireland) Order 1996 dealt with in Schedule 1 (in particular, when consolidating employment legislation), provided that the amendment or repeal affects employment rights generally. The fact that tax credits are excepted matters would otherwise prevent this.

Clause 60: Regulations, orders and schemes

207.     This clause provides that orders, regulations and schemes to be made under this Bill are to be made by statutory instrument, apart from orders and schemes made by the Department of Health, Social Services and Public Safety in Northern Ireland and DSD which are made by statutory rule. Regulations under clauses 24 or 25 relating to appeals in Scotland require the consent of Scottish Ministers and regulations under clause 37(6) (appeals) require the consent of the Lord Chancellor and Scottish Ministers.

Clause 61: Parliamentary etc. control of instruments

208.     This clause provides that statutory instruments under the previous clause will be subject to the negative resolution procedure. A statutory instrument setting out a child care scheme made by Scottish Ministers under clause 12(4) is subject to negative resolution in the Scottish Parliament. Similarly, a statutory rule made by the Department of Health, Social Security and Public Safety in Northern Ireland under clause 12(4) is subject to negative resolution in the Northern Ireland Assembly.

Clause 64: Extent

209.     The Bill extends to England and Wales, Scotland and Northern Ireland.


Public sector financial cost

210.     In line with the accounting treatment of the existing tax credits, WFTC and DPTC, child tax credit and working tax credit will be accounted for out of the Inland Revenue's gross revenues, that is, the direct taxes collected by the Inland Revenue. There are expected to be annual reductions in expenditure across DWP policy responsibilities amounting to £4 billion, arising from the abolition of the child-related elements of IS/JSA, the New Deal 50plus employment credit and child dependency increases. And there are expected to be small equivalent reductions in relation to Northern Ireland. It is not possible to quantify the net reduction in revenues until the rates of child tax credit and working tax credit are set.

211.      This Bill transfers responsibility for child benefit and guardian's allowance from DWP to the Inland Revenue. This in itself will be cost neutral but there are expected to be additional costs of £6 million a year on the Consolidated Fund arising from minor changes to ensure closer alignment with child tax credit entitlement conditions.

212.      The annual administration costs in relation to tax credits cannot be determined until the rates of the new tax credits are set.


213.      A Regulatory Impact Assessment for this Bill is available in the Library of each House of Parliament and on the Inland Revenue website ( but the following paragraphs summarise the main points.

214.     For employers, there are several features of the new tax credits which are expected to help to reduce administrative and compliance burdens.

215.     First, as the new tax credits will be annual awards, renewable at the end of each tax year, this will eliminate the "stop-go" cycle created by the current six monthly WFTC/DPTC awards. Employers will continue to pay the new tax credits at the rate notified by the Inland Revenue until they receive a further notice to change the rate.

216.     Second, employers will no longer have to complete certificates of payments when a recipient leaves employment because in such cases entitlement to working tax credit will stop automatically.

217.     Third, employers will not, as a matter of course, have to complete an earnings enquiry form since claimants will be able to use information already provided for tax purposes such as a form P60 or a Self-Assessment return.

218.     Finally, the advance funding arrangements for employers who may face a shortfall between tax, National Insurance and student loan receipts and tax credit payments will be simplified. Employers will need to apply to the Inland Revenue only annually rather than every six months, as at present. Automatic adjustments to advance funding are also likely when there are in-year changes to the amount of tax credits which an employer will be required to pay.

219.     While there may be in-year costs for employers when they adjust the rates payable to employees in receipt of tax credits, overall, the Inland Revenue estimates that employer compliance costs for the new tax credits will fall by around £11 million a year compared with current costs for WFTC and DPTC.

220.     For smaller employers, the implementation costs of the new tax credits should be less than under WFTC and DPTC. Existing payroll systems should not need to be significantly altered to cope with the transition to the new credits. Within the small business sector, childminders will no longer routinely be required to provide written confirmation of their services to claimants of the new tax credits. Instead, claimants themselves will have to keep a record of their child care costs and childminders will only be asked to respond to periodic checks in certain cases.

221.     For claimants, income for new tax credits purposes will in general be based on gross income in the previous tax year (unlike WFTC and DPTC, which are based on net earnings). This means that claimants who are employees will no longer have to refer to weekly or monthly payslips but, as pointed out above, can use the figures on their annual P60. The self-employed will be able to use the same earnings figures that they submit for income tax purposes.


222.     Clause 57 specifies that the provisions of the Bill are to come into force by commencement order.


223.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). The statement has to be made before Second Reading. The Chancellor of the Exchequer has made the following statement:

"In my view the provisions of the Tax Credits Bill are compatible with the Convention rights."

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Prepared: 29 November 2001