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Mr. Heath: I gently suggest to the hon. Gentleman that he is perhaps talking about big business and has never had experience of a small business with a small number of employees. It is perfectly possible that all the employees in such a business might opt for the proposal, not least because there might be only one employee who is receiving the relevant payment.

Mr. Hugo Swire (East Devon): Does the hon. Gentleman agree that the point of the proposal is to give people a choice? It is important that people should have such an option.

Mr. Heath: The hon. Gentleman is absolutely right. Typically, the Government want to extend not choice, but compulsion, because there is only one way of delivering the objectives that they have in mind. We reject that position and I think that he probably rejects it as well.

Mr. Mark Hoban (Fareham): The hon. Member for Greenock and Inverclyde (David Cairns) mentioned set-up costs. The other costs that are borne by employers—the £90 million a year that the package will cost—are related to individual transactions. Although the set-up costs will be lost if all employees opt out, costs will still be reduced even if some of them remain in the system and are paid as before through their payroll, because there is a transaction cost as well as a set-up cost.

Mr. Heath: The hon. Gentleman is, of course, absolutely and transparently correct. The matter involves not all employees, but those who are receiving working tax credit. Often, only relatively small numbers of

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employees would be involved, so it is not unrealistic to assume that the new clause would have tangible benefits for employers.

I know that other hon. Members wish to speak to the new clause, so I shall conclude my remarks. I repeat that this is a win-win situation for the Government. No additional cost would accrue to them and the new clause would provide real benefits for individuals. It would safeguard our post offices at a time when many people are yet to be convinced that the Government's proposals, however creditable, will be in place when they are needed to safeguard the system. I commend it to the House.

Mr. Flight: The first part of the new clause deals with an issue that was extensively discussed in Committee. I put it to the House that there is not only a likelihood but an extremely strong probability that the arrangements that the Government envisage for delivering the new tax credits in April 2003, essentially through the universal bank, will not be in place. When the subject was discussed in Committee, after we had asked a number of questions, the Paymaster General effectively said that the Government accepted that that could happen and that standby arrangements were in place to deliver payment—it certainly included the child tax credit—by coupons or order books at post offices. I looked through the Bill, but could not find where it provides for such arrangements, so in principle, the new clause seems to be necessary to ensure that they are covered.

Rather than commenting on the proposed arrangements for the option on payment of working tax credit, however, I should like to focus on amendment No. 13. The Government are well aware that the Opposition believe in principle that the arguments stack up in favour of paying working tax credit not through employers but directly to recipients. One of the main arguments that they have put forward for paying it through employers is that of stigma. Amendment No. 13 is designed to test that argument. Rather like the second part of the new clause, it seeks to offer an appropriate option on a collective basis. Therefore, it requires a consultation process between employers and employees to take place before the obligation for employers to pay the credit through the pay packet takes effect. Implicit in the proposal is the idea that, if a majority of employees prefer to be paid directly by the board, that is the arrangement into which the company would enter.

We are extremely surprised that the Government have paid no heed to the arguments against paying working tax credit directly to beneficiaries. The evidence—in so far as it exists—is indeed that more stigma is attached to payment through the pay packet, as people's personal backgrounds will implicitly be known by their employers and often, as a result, by their work colleagues. The National Association of Citizens Advice Bureaux has made the point that, notwithstanding the provisions of the Bill, employers in smaller businesses could be discouraged from employing people if that entailed the hassle of administering working tax credit. There is strong evidence that the stigma element would be greater as a result of payment through the pay packet than as a result of direct payment.

David Cairns: This is one of the issues that I hope to raise later. The hon. Gentleman has twice referred to

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extensive evidence that greater stigma attaches to payment through the pay packet than to payment through the order book. Other than the anecdotal evidence that he has given, can he outline exactly what that extensive evidence is?

Mr. Flight: I refer the hon. Gentleman to the studies, which I have already mentioned, undertaken by the National Association of Citizens Advice Bureaux and by the Institute for Fiscal Studies.

Have the Government taken into consideration the fact that people in marriages and partnerships frequently hold joint bank accounts, and that those accounts might sometimes come under pressure from the more powerful character in the partnership? Going back to the child tax credit, one of the results of paying everything automatically through a bank account, as the Government wish to do, is that that might undermine their correct intention that the money should go to the carer.

The Government suggested, somewhat unenthusiastically, in Committee that if the recipients of child tax credit really wanted to go on receiving their payment through vouchers that were cashable at post offices, they would be able to do so. It is still not clear whether that is a realistic option. If there is a genuine intent that child tax credit should go to the carer, I suggest that that is more likely to be achieved by permitting those at the poorer end of society, in particular, to receive it through vouchers, rather than by forcing them down the bank payment route.

I return to the question whether working tax credit should be paid directly, which we believe remains the better option, or by employers. The Government have refused to accept that the result of what they are seeking to achieve will be to produce a social wage. People will take home a certain amount of money, but they will not understand the details in terms of whether they have paid tax, or of how much of the new negative tax rate income they have got back. They will simply have a sum of money. In many cases, their take-home pay will bear no relation to the economic market value of the job that they are doing.

We remain concerned that that will act as a disincentive to people to up-skill themselves and to improve the amount that they earn, and as an overall disincentive to productivity improvements in the economy. I urge the Government to be a little suspicious of the CBI's support for payment via the payroll. It is clear that that is attractive, and I recollect the Paymaster General making certain references to that effect. There are attractions to employers in having pay subsidies, because they reduce the pressure to pay a proper rate for the job and exert downward pressures on rates of pay. If the Government ignore that important aspect of the question, they do so at their peril and in the face of what is already happening.

3.15 pm

Amendment No. 14 is a probing amendment, and we discussed some of the issues involved in Committee. The proposal is a response to the issues raised by the Government's better regulation task force and by the Carter report. The burdens of administration transferred on to businesses by the Government have fallen particularly on small companies with fewer than four employees. That represents something like £25 million out of their total costs. Worse than that, of

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that £25 million, small companies spend some £15 million not on payments but merely on keeping on top of the regulations and the requirement to know what they are supposed to be doing.

We have argued consistently that it is undesirable for small businesses to be burdened with such administrative costs and focuses, when their main task is simply to keep their business alive. The Liberal Democrat amendment has proposed a slightly smaller minimum floor at which businesses would be exempt than the one that we have proposed, but it deals with the same issue of principle. Will the Government consider the points made by Lord Haskins and his taskforce in relation to small businesses?

Mr. Mark Field (Cities of London and Westminster): Prior to entering this place, I ran a small business that would have come within the scope of the Liberal Democrat amendment and our own, in terms of the number of employees. My concern is that whatever level is set, when a company gets near to that level it will provide a big disincentive to taking on any more employees. I am sure that that point will be addressed by the Minister later. What thoughts does my hon. Friend have on the matter?

Mr. Flight: I thank my hon. Friend for his comments. I was about to come to the other part of our amendment, which proposes that the Government should consider measures for the Board of the Inland Revenue to refund to companies the cost of administering working tax credit, if they remain charged with that burden. Again, this is a probing amendment, and we have touched on this subject before.

After consulting widely with businesses, it is clear that they understood that the relevant territory covered by the Carter review and the comments of the Chancellor of the Exchequer were not just concerned with technical arrangements for payroll—which, I grant, is most of Carter's territory, as the Paymaster General has pointed out. Businesses also understood that the Chancellor had indicated in the pre-Budget report that the Government would consider some refunding of costs for administration carried out on behalf of the Government in relation to working tax credit. That is particularly relevant to small businesses, if they are not to be exempt.

The total administrative costs for businesses is now of the order of £250 million a year, which covers tax credits, student loan repayments and the administration of stakeholder pensions. The Government will be turning a blind eye if they do not appreciate that business perceives them to have recognised those costs and to be thinking of doing something about them. In Committee, it was clear that the Government were not interested in so doing, and that they felt that businesses should be very pleased with the working tax credit because it would subsidise employment for them. However, I wish to give the Paymaster General a further opportunity to consider the matter, because that is certainly what business expects.

The amendments grouped with new clause 2 interact and relate to each other, but there are separate issues to consider. First, will the Government even be able to deliver the child tax credit, given the running-down of post offices, the likely failure of the universal bank and the lack of provision in the Bill for an alternative? Secondly, will they reconsider giving employees at least

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the option to receive working tax credit payments directly, whether on a corporate basis or as specified in new clause 2(2), when they express a wish to do so? Thirdly, it is necessary to tease out of the Government yet again whether they are willing to compensate business for the costs of administering their programmes.

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