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Mr. Kevan Jones (North Durham): The hon. Gentleman has now been on his feet for 23 minutes, outlining what is wrong with the Bill. When will he give the House his alternatives to the Bill's proposals?

Mr. Flight: In just a minute I will point out what is in the Bill's favour. The job of the Opposition is to offer a critique of legislation, and I am sorry that the hon. Gentleman should have burnt up yet more time.

Martin Barnes, the director of the Child Poverty Action Group, recently pointed out that the figures released by the Department for Work and Pensions cast some doubt on Labour's claim that by the June election it had lifted more than 1 million children out of poverty.

The New Policy Institute and the Joseph Rowntree Foundation have commented that a major change will need to take place for the Chancellor's claim that 1.2 million children have been taken out of poverty to be achieved. The recent Barnardos study affirms that one in six of the poorest children—those in the bottom decile—will be worse off. They are most vulnerable to being pushed deeper into poverty.

The Government's intention towards couples and parents who wish to care for their children at home also needs to be clarified and, possibly, challenged. We all agree with the objective of reducing the number of families with no one in work, but let us be clear that that is not a universal panacea to address the problems of child poverty.

The Government's increasingly tax-based approach to administering welfare will also place an increasing administrative burden on business. For the new credits to work, employers will have to make complex and burdensome adjustments to PAYE records, especially if the new arrangements are to be sufficiently flexible to address changes in people's earnings. The real problem for small businesses, which have been promised some help in the pre-Budget report, is that they need to devote all their limited resources to running their businesses.

Dawn Primarolo: The hon. Gentleman refers to complex calculations involving the employer. He is simply wrong when he refers to the PAYE system. Employers will be told how much to pay during the year and when circumstances alter. The information in the tax system—the P60s and the P45s—will be used to determine a household's total income. Although he might want to make points about whether there should be a working tax credit at all, he is totally wrong to suggest that greater burdens will be put on business by the Bill; it will reduce them. He is completely wrong to suggest that the employer will be involved in any way with the calculation of payments.

Mr. Flight: I thank the Paymaster General for her comments, but I was not suggesting that employers will

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be responsible for calculating the payments; I was making the point that, if the Inland Revenue is to make the correct adjustments, it will be extremely necessary for employers to be absolutely bang up to date with all current adjustments to their PAYE records.

Dawn Primarolo: All that will be required is for employers to discharge their current and long-standing obligations under the tax system to ensure that their employees are properly informed of how much they have received and how much has been deducted.

Mr. Flight: The Paymaster General is raising an issue that we shall debate at great length in Committee. [Interruption.] No, this issue is very important—it is not funny. The system is based on annual earnings, but we need a system that can address changes in earnings and circumstances speedily and effectively, and which is not open to fraud. The precise mechanisms by which the PAYE system is expected to do all that reliably are not spelled out clearly in the Bill, and that issue awaits further regulation.

Dawn Primarolo: I am grateful to the hon. Gentleman for giving way yet again. I agree with him that having the correct information and being responsive to change in the system are crucial, but his misunderstanding seems to be that somehow employers are involved in those matters through the PAYE system—they are not. The households that apply and the Inland Revenue are directly involved in those matters. With the working tax credit, employers receive notification of how much should be paid. The child tax credit does not go through the employer at all; it goes direct to the claimant.

Mr. Flight: I thank the Paymaster General for that explanation, but all Members are well aware that the child tax credit will go directly to the main carer. That is one of the great benefits of the Bill and one of the key Opposition arguments that the Government have accepted.

I do not wish to prolong discussion on this point any longer, but I did not suggest that the employer would be responsible for calculating the working tax credit. However, for the Revenue to be able to provide the right support at the right time, there needs to be dialogue between the employer and the Revenue to get things right. If there is no dialogue, the risk of wrong payment and fraud will be greater. That point lies at the heart of whether the measures will work.

Mr. Ruffley: I find myself in the dangerous position of agreeing with both the Paymaster General and my hon. Friend. Be that as it may, he makes a genuine point in that, although there is an annual assessment basis to the new regime, the Bill also provides for in-year assessment. Almost by definition, the in-year assessment will involve notification to the employer so that, in year, the employer can adjust the amount of working tax credit. My hon. Friend is right, even though the Paymaster General is correct to say that the employer will not do the calculation.

Mr. Flight: I thank my hon. Friend for encapsulating the point that I was driving at.

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Last week, the Paymaster General was asked about the burdens placed on business in administering welfare, and I was somewhat surprised when she argued that business should appreciate the extent to which the Government are subsidising employment. As has already been said, we are in dangerous economic territory and it will do employees no good if the Government see the working tax credit as, essentially, a subsidy to employment.

I note that, although the child care tax credit is to be part of the working tax credit, it will be paid alongside the child tax credit. Will the Paymaster General explain the administrative arrangements that that will involve, as it would seem more logical for the child care tax credit to be part of the child tax credit rather than the working tax credit?

Dawn Primarolo: The child care tax credit and the payment of child care expenses will be attached to the working tax credit because many lone parents have said that they want to return to paid employment. However, by the time they have paid for child care, they are worse off and in an unemployment trap. The child care tax credit will be paid to remove a barrier to work, so one has to be in work and in receipt of the working tax credit. The trigger is the working tax credit but, after consultation, we felt that, as regards a couple, the main carer should receive the child care tax credit as the person likely to be responsible for arranging the child care. However, child care tax credit cannot be accessed unless an individual or household is also in receipt of the working tax credit.

Mr. Flight: I am glad that the Paymaster General has clarified the fact that the carer will receive the credit. I appreciate the point of principle involved, but this is a case in which two neat boxes do not operate as two neat boxes. For the reasons that she gave, someone has to be in work to receive the child care tax credit, but it is administered out of the other box, which will involve the Revenue attempting to operate the two credits together efficiently.

In assessing the case for a further shift towards tax rather than benefit-based welfare, the Government have again employed the stigma argument, but they are wrong. The evidence does not support their claim. Instead, it suggests that payment through the wage packet can stigmatise recipients rather more than benefits do. Many individuals understandably do not want their employers to know of their entitlements and circumstances, or for the employer to use that as a reason for holding down their remuneration.

It is also likely that workmates will know who is receiving such benefits. As the Institute for Fiscal Studies commented, for some people even the payment of the

In short, the Paymaster General has not presented convincing arguments on the key issue to support the need to make a further substantial shift to administering welfare payments via the Inland Revenue, and there is a major risk that the administrative costs saved will be more than offset by an increase in fraud.

We accept that the Bill makes some improvements. I am pleased to note that it addresses several of the issues that we raised in relation to the working families tax credit and children's tax credit. Payment of the child tax credit

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to the main carer is crucial, although the Bill is not clear on how that will work in the case of broken families. However, the point about the main carer is secure.

We welcome the fact that there will be no capital limits. We also welcome the extension of the tax credit to support about 100,000 families who are currently excluded, including students and nurses, and the fact that it will support families with young people who are in full-time education up to the age of 19. We are pleased to note that the child tax credit will end the unfair treatment of single-earner families, although we continue our quest to know whether, in principle, 1 million people will be worse off.

We have reservations about extending in-work support to those without children who are over 25, from which 400,000 are expected to benefit. Some of the poorest families in our society are also those in which the parents are under 25, and they will not benefit from the working tax credit.

On costs, the IFS analysis expects the new tax credits to add £2.8 billion a year, assuming no double-earner families are made worse off, and £2.2 billion extra if 1 million families are disadvantaged. It is clear from page 39 of the explanatory notes that the measures will also transfer a further £4 billion of expenditure that relates to income support and the jobseeker's allowance from welfare expenditure to a netting off of tax receipts, thus effectively concealing that expenditure. Allowing for the £2.8 billion expected additional costs, the total welfare expenditure that is not shown as expenditure but simply netted off tax receipts, will be up to £15 billion per annum. I am sure that that constitutes a major part of the Chancellor's real reasons for the existing and further move to Inland Revenue-administered welfare payments, which has less to do with the fundamental case—the Paymaster General did not argue it—that the Inland Revenue can administer them better.

Welfare expenditure will increase by 36 per cent. from 1996–97 to 2003–04, which is an increase from £92 billion, to £125 billion a year, at a time when unemployment has fallen. That gives the lie to the Prime Minister's pledge to cut social security costs to pay for higher health and tax spending. Is that the outcome that the Government privately expected, or has the Chancellor outwitted the Prime Minister's intentions?

Will the 725,000 people who come from overseas to work in the UK, mostly for a limited period and often taking low-paid jobs, qualify for the working tax credit and, if relevant, the child tax credit, particularly as a result of the central annual income qualification? If so, how much do the Government estimate that will cost?

Having observed for the past four and a half years the way in which the Chancellor's mind works, may I ask whether political objectives are the main reason for the Bill? Has the Chancellor remembered that Herbert Morrison built council houses to secure votes? Could it be that the real objective of paying benefits through the payroll is to try to gain votes, by creating the mentality that it is a Labour Government who are giving out these benefits?

Given the administrative costs and hassles involved, does it seem necessary for 40 per cent. of all families, 30 per cent. of those of working age and 56 per cent. of

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those in retirement to be eligible for means-tested benefits? At least 40 per cent. of them will be getting benefits financed by taxes that they themselves have paid. I am well aware that most do not pay significant amounts of income tax, but much of the tax that they pay is extremely regressive.

The Bill creates a mass of income-tested complexity, which many will not understand. It looks likely to provide less, not more, flexibility and looks less able to support those in real need. Apparently, the Chancellor is keen to learn much in other policy areas from the economies of north America, but he appears to be blind to the problems experienced by Canada and the USA with large amounts of income-supplement welfare. We are concerned that, as well as risking an increase in fraud, the measures will increase the burden on businesses, particularly small businesses. There is a risk that small businesses will not always address the requirements made of them. We are concerned also that the measures will fail to help those who are most in need.

We will not vote against the Bill today, substantially because we do not know what it proposes for the value of credits, what they will cost, or how, in practice, the arrangements based on annual income assessment will address needs arising from changed circumstances.

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