Tax Credits Bill

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Richard Younger-Ross: Will the Minister explain the impression that a new claimant would have if they filled out a form one week and got a renewal notice one week later? That would be bureaucratic and unnecessary.

Mr. Boateng: No, it is cause and effect. If one fills out a form and sends it off one would not expect nothing to happen. I imagine that a claimant would welcome something happening because they would have received benefit in the interim, the tax year would be nearing its end and a new year would be about to come. This is, after all, a tax-based system and claimants will do what we all have to do, which is to respond to that. If they provide the information that is required of them they will continue to receive the benefit, and that is how the system works. The hon. Gentleman believes that that would have a negative or detrimental impact, and we shall see whether his judgment is accurate.

The benefit of putting these matters to regulations to be laid before the House is that we shall be able to reflect on the impact of our approach on issues such as take-up, which means that we shall be able to judge whether this is burdensome or unduly complex. Our view is that it is not, and I hope that hon. Members are reassured that the claims process will be streamlined. I suspect that there is sceptic or two among the Liberal Democrat Members, which is fair enough. In the course of our deliberations I hope to challenge and address that scepticism, and to turn it into a recognition that we are seeking to find the best way forward. Of course, we shall listen to points that are made and bear them in mind when we formulate the regulations. I hope that the amendment will be withdrawn because it is unnecessary in achieving the objective that we all share.

Mr. Clappison: As the Minister said, this has been an important debate in which several helpful points have been made. Although he has eloquently put forward the balance that he seeks to achieve, I must say that there is a lingering sense of unease at the back of my mind because, as the hon. Member for Northavon put it, the Government may be in danger of overstating their case.

Understandably, the Minister wants to put his case forward, but it should be accompanied by an acknowledgement of the risks that may be involved. He referred to the submission that we recently received from the National Association of Citizens Advice Bureaux, and it will be worth putting its comments on record:

    ''The shift the change to 12 month awards which will alter in defined circumstances will represent should not be underestimated. There must be a risk that the loss of the certainty of a six month fixed award could weaken confidence in tax credits . . . NACAB is therefore a bit concerned that the rules proposed by the Tax Credits Bill will be more complex and less workable. If this is the case the system may be daunting, particularly to those who are moving into work for the first time.''

Those are important concerns that we would do well to bear in mind.

We should put those concerns alongside those expressed by the Institute for Fiscal Studies, which deals fairly with the balance that the Minister has set

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out by acknowledging the benefits of greater responsiveness and a year-long system, but setting that against the risks implicit in such a system:

    ''The principle of within year responsiveness relies crucially on people volunteering information to the Inland Revenue within the year, and therefore introduces the risk of substantial (intentional or accidental) non-compliance.''

In an intervention on the hon. Member for Northavon, I put forward my concern about this matter. When we discuss the details we must be aware of introducing a greater risk of non-compliance that may lead to a greater risk of fraud. We should do our best to reduce the risk of exposing people to temptation. We must understand that this might tempt people not to declare changes in their circumstances that could have a profound effect on their income and standard of life.

We must also be aware that we are dealing with people who are not used to the tax system and filling in self-assessment forms, and who do not have famous firms of chartered accountants advising them.

Mr. Hugo Swire (East Devon): Does my hon. Friend agree that insufficient distinction has been made between fraud and inadvertent fraud?

Mr. Clappison: My hon. Friend makes a valuable point. The risk in these circumstances, as has been proved with other forms of benefit, is that people become aware of a change to their circumstances and conceal that fact. When they take the decision to conceal the change in circumstances, they are moving from inadvertence into fraud because they are concealing a material fact. We want to avoid putting them in that position and exposing them to temptation.

The Minister and the Government will have to monitor how many families have a problem with this because there are significant changes and fluctuations in their income over the course of a year. This is the group that the Government must watch because, and again I quote the Institute for Fiscal Studies:

    ''Financial uncertainty and hassle will also be higher for this group of families. The success of the new credits will therefore partially depend on how many families experience these changes and on how good families are at estimating current-year income.''

I do not want to anticipate the next group of amendments because we are coming on to them with the next clause, but there is a warning for the Government. There is no room for complacency, the system is not entirely straightforward and we want to avoid the risk of making it more complex than it already is.

As the Minister has said, a balance must be struck. However, the Government initially chose the balance of the six-month system, and they are changing from a system that they chose so we must be aware of the risks.

6 pm

Mr. Webb: I shall briefly respond to the Minister's comments. On amendment No. 64, I accept his reassurance that we do not need to insert the words

    ''or is treated as being made''

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if, once the process has occurred, references incorporate the date of the claim.

The Minister rightly discerned the scepticism of my hon. Friend the Member for Teignbridge. I can imagine the scene in all our surgeries. Someone who has claimed tax credits the week before the start of the financial year will say, ''I filled in all the forms, I gave them all my details and by return of post I received another form asking, 'Have your details changed?''' As I understand it, that is how it will work. That seems unnecessary. We were trying to be constructive in our amendments, and I hope that the Minister was hinting that there might be scope for looking at the matter again. If an amendment to the same effect were to find its way into the Bill in another place in this building, we would have no objections.

I turn to amendments Nos. 45 and 46, which seek reassessment after six months rather than a year. I was disappointed that the Minister hardly addressed the issues of in-year reassessment, whether people will understand how big a change must prompt a claim for reassessment and the suffering that they could face, possibly for 11 months, if they failed to make such a claim. I was disappointed, because those are fundamental issues.

Our debates have made it clear to me that the people for whom we seek quick reassessment are those on low incomes who correspond to the current working families tax credit group. If there was automatic roll-over for the income support people and some sort of quasi-automatic roll-over for those on higher incomes, whose tax credit entitlement is not affected by a big change in income because they are in the flat bits of the system, the only people who would need an extra reassessment involving some detail would be those on rather low incomes who could suffer if the wrong assessment were made and whose circumstances were likely to fluctuate.

In many ways, the debate has strengthened the case for our six-month proposal, and nothing that I have heard from the Minister reassures me that it is not necessary. I am still, even after four years, slightly hazy about the process, but if the opportunity to divide the Committee on amendment No. 45 arises, I wish to take it.

Mr. Boateng: I shall respond first to the hon. Member for Hertsmere. I have had the pleasure of sitting opposite him, listening and responding to him in a number of incarnations—all of them welcome in my case, although I do not know about him—and I know that he lives in a state of perpetual unease. In some circumstances, that might be a healthy, albeit rather uncomfortable, state of affairs in which to find oneself. I do not mean to be complacent, but I believe that in this respect his unease is not justified.

Of course we must be vigilant; vigilance is certainly justified. We are making a major change, and I hope that I have acknowledged the scale of it. That is one reason why we are ensuring that NACAB, the Institute for Fiscal Studies and others who have expressed a view about these matters are involved as we prepare the regulations and draw up the detail of the system. It is right that they should be involved and also that we

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should be able to reflect, as hon. Members have, our constituency experience. However, we must consider how the system proposed in the Bill builds on what already exists.

The hon. Member for Hertsmere said that in relation to the working families tax credit we initially chose the six-month period. We did, and we are moving on from that. We did not believe that that was the last word. This is a process of reform. The burden on claimants to report changes is a real one and is not to be sneezed at. The hon. Members for Teignbridge and for Northavon as well as some Conservative Members have referred to it.

We must remember, however, that the principle is not new. Both income support and JSA claimants need to respond, and are required to respond, to changes in their circumstances and to report those changes. However, this is new territory for tax credits, which encompass a wider population. It is therefore important to make sure—and we will make sure—that the responsive nature of the credit does not mean that we end up imposing excessive requirements to report changes.

We plan to consider the area carefully. We shall introduce detailed proposals in the form of draft regulations in due course, and there will be an opportunity to discuss them then. There will also be an opportunity for us to hear and incorporate the concerns of bodies like NACAB, which have day-to-day responsibility for providing advice and information to claimants. We shall need to address the risk of concealing changes, to which the hon. Member for Hertsmere referred, by monitoring those changes closely, as in income support or JSA, or by introducing fixed awards.

Our aim is to strike a balance between continuity and flexibility. It is a challenge, but we shall work out the details of the framework in a way that strikes the balance between preventing abuse and not deterring take-up—because that, too, is important. That point has been forcefully brought home to me and to my hon. Friend the Paymaster General by hon. Members of all parties who are concerned with poverty reduction—not least my hon. Friends—and I assure the Committee that we have it very much in mind.

With those assurances and having listened carefully to the contributions of those on the Liberal Democrat and Conservative Benches, I hope that hon. Members will not press their amendments.

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