Tax Credits Bill

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Richard Younger-Ross (Teignbridge): I am not too sure whether the Minister has pre-empted what I want to say, but I wish to pursue him a little further.

What we are concerned about through amendment No. 53 is that we do not get to a position from reading the Bill in which a claim could be made in one week, but then, because 1 April has come round, it has to be made again. That would be totally stupid. The Minister's earlier remarks make it clear that there will be a roll-on: an application shall be deemed to apply for the following tax year. However, I am not too sure whether, as the hon. Member for Fareham (Mr. Hoban) said, that will happen year on year on year so that a person could be deemed to have claimed for 10 years, or whatever. I know that I am being extreme, but it was not made clear in what the Minister said earlier. Can he clarify what period is intended? Obviously, to have to re-fill out a form after one week would be inappropriate, but will it be two, three or four weeks, or will a claim roll on year in, year out?

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Mr. Boateng: This has been an important debate, going to the heart, as does clause 5, of one of the most fundamental principles of the two new tax credits. That is that the period of the tax credit award should be linked to the tax year. Amendment No. 15, as the hon. Member for Arundel and South Downs was good enough to say in his opening remarks, challenges that principle. However, the hon. Gentleman did not make clear what his party would propose as an alternative. Of course, he does not have to, because it is for us to propose and the Opposition to oppose. That is what they are about. However, the hon. Gentlemen who speak for the Liberal Democrats do have a clear alternative, to which I will turn, which is that the period of the award should be restricted to six months.

Of course, the existing WFTC and DPTC are currently awarded for fixed periods of six months, and there are undoubtedly strengths in that approach. The fixed award provides certainty for claimants for those six months, but that inflexibility is also, in our view, a weakness. It makes it very difficult, except in limited cases, for the system to respond as people's circumstances change. It is important to understand that we want people to get what they are entitled to when they need it. It is not a question of seeking to develop a system that has two automatic reassessments during the year, which is presumably what would be achieved by a six-month period. We want to encourage people to tell the Inland Revenue about changes as they happen, rather than having a fixed, inflexible system of in-year assessments.

The new credits are designed to combine the advantages of a continuing award with the ability to adjust awards as changes occur, without additional burdensome requirements for claimants. By linking the period of the award to the tax year, we can make it easier for families to claim, provide continuity for those whose circumstances are settled and allow greater flexibility during the course of the award when it is needed. It is therefore important to stress—this deals with a point that several hon. Members, and certainly the hon. Member for Arundel and South Downs, made—that claims will not be rolled over except for people who have been on income support or JSA and are entitled to full CTC throughout, or for people who are clearly entitled only to the family element of CTC.

The scenario in which there is roll-over for year on year and in which it is possible for there to be wrong assessment, accumulated debts or underpayment is not likely to occur in real life. The new credits will be based on the annual income in a tax year and run for up to a year. Measuring income over a year fits better with the tax system and enables people to use the same information for their tax credits as they have to provide for income tax purposes. Crucially, it provides a fairer measure. I do not therefore accept the criticism that the whole scheme is based on aping the benefit system when it suits and the tax system when it suits. It is designed to move us towards a new system that is integrated, targeted, provides resources that take into account people's overall tax and national insurance contributions, and gives them the money when they need it.

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The system is a new departure and we make no apology for that. It is a radical measure and we make no apology for that. It is a departure from the way in which things were done in the past. The National Association of Citizens Advice Bureaux does invaluable work in the wider community, advising our constituents, and is now working closely with the Inland Revenue on a range of issues. It has written to hon. Members and it is interesting that it is not calling for a return to the six-month period, as Liberal Democrat Members are doing. It raised various issues, to which we must be alert, concerning the 12-month period, but we believe that that is the right period. It will reduce the scope for manipulating income over a short, snapshot period, make it easier to check against tax records—Opposition Members expressed concern about fraud and temptation—and will be equitable for those with fluctuating and steady incomes.

The hon. Member for Arundel and South Downs asked how hours of working will be defined and we shall come to that on clause 10. It refers to qualifying, remunerative work, which will be defined in regulations. We want to look at the hours that people are working at the time of making a claim. If a claim were made in advance on the basis of expected hours, it would not become valid unless the claimant had started work and was working those hours. This is a tricky area and before drafting the regulations it will be necessary to have discussions with interested groups and reflect on possible definitions. I am happy to assure the hon. Gentleman that that will take place. However, we shall proceed on the basis that enables us to introduce a system that does not impose added burdens on claimants. I shall give an example.

The emphasis is on looking at current circumstances. If someone stops working 16 hours a week after six months, their entitlement will stop, but they will not lose their entitlement for the first six months. That is an important distinction when it comes to overpayment and possible claims back. That entitlement will stand and income will be assessed annually, but not the other circumstances that may affect the award. It is a question of balance and we believe that we have got it right. The annual system will produce a real gain for families and their employers. The current system in which information is gathered annually for tax purposes, but tax credits are assessed on a number of weeks of earning causes extra hassle for claimants and employers, who must deal with two systems at once. On Second Reading, concern was expressed and consideration was given to the burden on employers. We want to minimise that burden. The clause helps to streamline the way in which tax credits interact with the income tax system. Families' tax liabilities and tax credit entitlements will fit more closely together.

5.45 pm

Mr. Webb: I wonder whether the Minister is overstating the gains on two fronts. Employers will still be told how much tax credit to pay and will still deduct PAYE as separate transactions. An annual assessment is neither here nor there and will make no difference to employers. Likewise, the client group for

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the working families tax credit part of the scheme does not usually fill in tax returns because the majority of them have the right amount of income tax collected cumulatively through PAYE. Again, assessing them over a year or six months is administratively neither here nor there.

Mr. Boateng: The issue cannot be dismissed as blithely as the hon. Gentleman suggests. We are moving towards integration of the tax and benefit systems so that the position is simplified for people and the resources they need to combat poverty are available as and when they need them. Employers certainly do not want a stop-and-start process involving changes in their payroll system every six months. That is a danger in the proposals of the hon. Member for Northavon. The measure provides important and practical benefits for families. I accept that a judgment must be made and the argument must be balanced. The issues are complex, but we believe that we have got the balance right.

The purpose of amendment No. 64 is to make it clear that references to the date on which claims are made include claims that are treated as having been made on a different date. For example, when a claim is made in advance of the relevant criteria being met, it is treated as being made on the date on which they are met. I understand why the amendment was tabled, but I can give an assurance that it is unnecessary. Once a claim is treated under clause 4(1)(b) as being made on a different date from the actual date, the first date becomes the one that counts for all later purposes in the Bill. The amplification suggested by the amendment is unnecessary.

On amendment No. 53, one of the guiding principles of the new system is that the claims process should be user friendly and assessable. To require two claims in quick succession when someone enters the system close to the end of a tax year—the hon. Member for Northavon referred to this—might be cumbersome to claimants. I shall explain how the process is intended to work in such cases, which may allay the hon. Gentleman's concern. When someone makes a first claim near the end of a tax year, the claim will be effective for the short period remaining in that year. However, it also gets the claimant on the books so that their claim for the following year will go through the renewal process with those of other recipients. The renewal claim for tax credits does not have to be made from scratch on a new blank form, but it entails asking the claimant to send back a renewal notice confirming that the details on which their claim is based remain the same while setting out any changes, in particular updates to income information. That deals with a point that has been made by several Opposition Members.

It is not a matter of receiving a form and continuing to get the credit. There is a requirement on the claimant to send back the renewal notice to confirm that the details on which the claim is based remain the same or to set out any changes. That information is used to check whether an adjustment is needed for the year that has just ended, and to set the award in place for the year that is starting.

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