Tax Credits Bill

[back to previous text]

Mr. Flight: Of those children's tax credits sampled by the Inland Revenue, about 30 per cent. were wrong. A lack of legal clarity opens the door to problems. Co-habitation has been an area of notorious problems, and there is a case for a more specific legal definition.

Dawn Primarolo: I do not agree with the hon. Gentleman. Given the household structure for millions of people in this country, I would be intrigued to see him table a Finance Bill amendment to entitle people to be legally treated only if they have a legal document of separation. If he asked me whether I could guarantee that people will not try to cheat the system, I would reply that in nearly 5 years as a tax Minister—seven if I include my years as a shadow Minister—I have discovered that some people behave outrageously. We do our best to check them.

The current definition works perfectly well. I understand the intention behind the hon. Gentleman's amendment, but people's personal and legal arrangements would be tax-driven. That is not appropriate if we can rely on the facts. Tax credits direct support to people according to their circumstances and responsibilities. The amendment would prevent that, requiring instead that awards be based on the legal status of a relationship, which is wholly inappropriate for many people. We will debate other safeguards and the methods of checking the system. Those who are determined to cheat the system will do so wherever they can.

Mr. Swire: Is it the case that the Revenue intends to investigate 1.5 per cent of applications for tax credit? If that is the case, how is that figure arrived at?

Dawn Primarolo: The hon. Gentleman is again dealing with a later clause. One of the problems in developing an anti-fraud strategy is that if one announces it in a Committee in the House of Commons, it is not much good. We will have a more

Column Number: 28

detailed debate about how the Inland Revenue will undertake its risk assessment and monitor procedures, penalties and any criminal offences for which investigators would recommend prosecution. He touches on the important question of how we monitor and what the risk assessments are to ensure that we keep downward pressure on the points where the scallywags may try to exploit the system. I would be more than happy to return to that debate at that time.

Amendment No. 81 is an entirely different kettle of fish. It seeks to recast the definition of married couple to replicate the definition in section 137(1) of the Social Security Contributions and Benefits Act 1992, which looks at whether a married couple are members of the same household. It is obviously a thoughtful amendment that seeks to ensure the same use across the entire system. I understand why the hon. Member for Northavon has tabled it. I considered carefully what was the most sensible way forward. On balance, I believe that it would not be appropriate to adopt the approach proposed in the amendment. The question of when a married couple should be treated as a couple arises in the tax and the tax credits system, as well as the social security system. In both we are concerned to establish whether a married couple really do arrange their lives as a couple, rather than continuing to treat them as a couple even though they have separated.

The technical definitions used differ slightly. I revisited this when I saw the hon. Gentleman's amendment, and I am sure that the effect is the same in terms of how households are treated. In setting a definition for the purposes of the new tax credit there is a choice between following the social security approach and the tax approach. I do not share his view that we should follow the social security system. The definition used in the Bill is the same as the definition in the tax system and it operates in particular for income tax reliefs. It is widely understood, straightforward and has been in use of many years. I am not convinced that we should use a definition from somewhere else and give up a system that is working very well. There is no overwhelming case to move the definition.

Mr. Webb: I suppose the distinction is that quite a few people who get the tax credits, unusually relative to a lot of taxpayers, are also benefit recipients. For example, every family with children on income support will receive social security benefit with one definition of marriage, and a tax credit with a different definition of marriage. I can understand that for the rich, consistency with the benefit system is much less of an issue, but many people go through two different systems with two different definitions simultaneously. When there is a conflict between the two there is a question of where they appeal.

Dawn Primarolo: It comes back to our debate on passporting. I was asked then whether someone on income support would have to apply in lots of different places. I said that they would not; even though it was administered by different organisations, there would be one point of contact. Someone who was in receipt of income support or jobseeker's

Column Number: 29

allowance would automatically move to a maximum child tax credit. There is not a double application.

The hon. Gentleman asked why the State Pension Credit Bill is different. There is a fine judgment about which definition to use. I approached the issue on the basis of, ''If it's not broken, why fix it?'' I do not think that that is the right why to say it, but hon. Members know what I mean. The definition has worked well in relation to children's tax credit and everyone understands it, so there is no reason to change it. For both Bills, we considered whether a married couple really live together as a couple. For unmarried couples, both Bills take the same approach and consider whether the couple live together as husband and wife.

The Tax Credits Bill replaces the minimum income guarantee, but remains in the social security system. The premise of the State Pension Credit Bill was presumably the same: the definition already worked and there was no reason to change it. As I understand it, the hon. Gentleman's point concerned the overlap and whether someone could find themselves qualifying for one and not the other. We discussed that quite a lot, and we could think of no scenarios because of the way in which the two systems operate. Apart from the theoretical example, I cannot think of a real-life experience where that might occur. For all those reasons, in the end I played safe and stuck with the definition that works.

As the hon. Members for Northavon and for Arundel and South Downs and other hon. Members regularly point out, the Bill makes several changes, but we should not make a change and risk something where that is unnecessary. That is why we went for the definition. We believe that it works most effectively. We do not believe that there will be any difficulties, and cannot find any. However, if there were any such difficulties, that would be a matter for regulation. I have tried to explain fully every point raised this morning, and I hope that the hon. Member for Arundel and South Downs will agree to withdraw his amendment. If he cannot, I will ask my hon. Friends to vote against it.

Mr. Webb: I do not want to go over the same ground, and you would not allow me to do so, Mr. Hood. However, the Minister said, ''If it's not broken, why fix it?'' I do not mean it pejoratively when I say that the Government are breaking it by splitting a single payment made through the social security system into a social security benefit and a tax credit with different definitions. It was not broken before. One payment was made under the social security legislation; one payment of income support for children was one social security payment. We are going down two separate avenues at the same time.

Dawn Primarolo: We are prepared to make a change where we believe that it will improve the system. I do not intend to go back over earlier discussions in relation to clauses 1 and 2, but the Government's clear objective on tax credits is part of the anti-poverty strategy. That is the most effective way to deal with the in-work, out-of-work divide and to get support to children. We did not make the change for the sake of it. When I used the phrase, ''If

Column Number: 30

it's not broken, why fix it?'' I was trying to say that, in my experience, what worked was making additions and improvements, which the Bill does.

Mr. Webb: I did not doubt that the Minister hoped to improve the system by making the change. It would have been reassuring if she had said that she stressed to her colleagues at the Department for Work and Pensions the advantage of moving to her definition for consistency and for the transition to retirement.

My only point that the Minister did not address was the issue of appeals. People will be under two separate systems; they may appeal to social security or to the tax commissioners. Perhaps the issue will arise again.

Dawn Primarolo: I apologise for not dealing with the question of appeals. The hon. Gentleman is right in saying that those who sit on the appeals tribunals must have the expertise to adjudicate the matter. The issue arises with working families tax credit.

I will confirm this in writing, but I believe that the point at which the appeal will be heard will be the same, because of the commonality of some of the points. I will double check, as the arrangements are transitional. However, we must ensure that the appeals tribunal has the skills necessary to deal with the issues.

12.30 pm

Mr. Webb: I am grateful for the Minister's response. She made an important point about a unified appeal system. A tax credits decision about marriage, for example, might have implications for social security entitlement. I would be grateful if the Minister would come back to us on that question.

Mr. Flight: The Minister has persuaded me of her case, but I am sure that it is on the basis that she will support some of our subsequent amendments, which tighten up the legislation. I asked how the clause interrelates with the next one, in which the cohabitation problem is more complicated when dealing with unmarried couples. Defining when an unmarried couple cease to be a couple is also a difficult issue. Making the separation legal does not particularly help, although it provides some clarification. On the basis of the Minister's response, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2002
Prepared 15 January 2002