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Session 2001- 02
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Standing Committee Debates
Tax Credits Bill

Tax Credits Bill

Column Number: 171

Standing Committee A

Tuesday 22 January 2002


[Mr. Nigel Beard in the Chair]

Tax Credits Bill

Clause 23


Amendment proposed [this day]: No. 101, in page 16, line 21, at end insert—

    'provided that the regulations shall not directly or indirectly require the recipient to hold a bank account'.—[Mr. Flight.]

4.30 pm

Question again proposed, That the amendment be made.

The Chairman: I remind the Committee that with this we are taking amendment No. 113, in page 16, line 21, at end insert—

    'provided that the regulations shall provide that payment shall be through post offices where the claimant elects for payment by such method'.

Mr. Howard Flight (Arundel and South Downs): I welcome you to the Chair, Mr. Beard. At our previous sitting, I was first seeking a clear answer from the Minister about whether the Bill will provide for tax credits to be paid via coupons at post offices in the event that the universal bank arrangements are not up and running by April 2003. In other words, will there be a safety proviso to ensure that tax credits are paid? Secondly, as a matter of principle, if claimants, for whatever bona fide reason, wish to be paid directly at post offices via a coupon process when the new arrangements with the universal bank are in place, can they continue to be paid in that way?

The Paymaster General (Dawn Primarolo): I am happy to clarify those points for the hon. Gentleman. As I have explained, the preferred arrangements in connection with social exclusion, the development of the high street banks and the new types of accounts, and the post office is to transfer the money directly to a point at which the correct person receives it into an account from which he could draw the money. That would take account of a person's choice of using a post office, which was the first major point raised by the hon. Member for Arundel and South Downs (Mr. Flight).

I had misunderstood slightly the hon. Gentleman's second point and I am grateful for his clarification of it today. The Bill provides for regulations that give the Inland Revenue the power to make payment directly to a bank account. That is our preferred option, as it will ensure that we further eliminate fraud when order books are mislaid, lost or used in ways in which they were not intended to be used. However, the regulations are permissive in that, although that is the preferred route, the Inland Revenue will still have the power to pay the person directly by a giro payment. I do not want to leave the Committee in any doubt. However, we shall encourage people to have accounts into which the money can be paid.

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The hon. Gentleman wanted to ascertain whether the Bill provides powers to pay directly into bank accounts and removes the power to pay by the alternative giro payment method. I can confirm that both methods can be used. However, we could not send a brown envelope stuffed with cash. The two traditional methods of payment to which I have referred will remain, although as we progress with the universal bank, the work on the high street banks and the social exclusion agenda, we expect that payment will be made into bank accounts, but obviously there will be some exceptions.

Mr. Flight: I thank the Minister for that clarification. I shall withdraw my amendment, but strongly advise her to get the plans to pay by coupon up and running because no one working on the universal bank—at least not those with whom I am in contact—expects it to be up and running by April 2003. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman: We now come to the Programming Sub-Committee's further programme motion, which has been circulated.


    That the Resolution of the Committee of 15 January be amended as follows—

    (1) in paragraph (1), at end insert 'save that on Thursday 24 January the Committee shall meet between half-past Nine o'clock and half-past Ten o'clock and at Two o'clock; and

    (2) paragraph (4) is omitted.—[Dawn Primarolo.]

Clause 23 ordered to stand part of the Bill.

Clause 24 ordered to stand part of the Bill.

Clause 25

Liability of officers for sums paid to employers

Mr. Flight: I beg to move amendment No. 105, in page 18, line 2, leave out 'or neglect'.

The amendment stands on its common-sense interpretation. The clause puts a liability on culpable officers. Officers could be secretaries and clerks as well as managers and directors, and they would be liable not just for fraud, but neglect. It is not clear what the regulations will do. What does ''liability'' mean under the clause? Does it involve recovering money paid by the Revenue, and does it mean that legal proceedings can be brought?

More important still is the inclusion of the word ''neglect''. No one doubts that people should be pursued for fraud, but neglect is a different matter. First, it is impractical to pursue for neglect as many businesses subcontract their payroll arrangements, so it is not be easy to identify the guilty person when there has been sloppiness. Secondly, ''neglect'' is a loose concept. Thirdly, it is inherently unreasonable for companies to undertake a task for the Revenue when the Government have made it clear that they have no intention of paying the costs thereof. It is inappropriate to pursue people for neglect.

Paragraph 103 to the explanatory notes suggests that in circumstances such as those that I described this morning, in which a company receives funds from

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the Revenue to pay the tax credits and then collapses, the clause might be used to pursue the officers—not just senior members of staff, but officers at all levels—for the money that had gone because the company collapsed. An important point is that neither the Confederation of British Industry nor other representative bodies are aware that the clause can be interpreted in that way. The explanatory note suggests that, substantially, that is why it is there. It is wrong that that should be the intent of the Bill.

Fraud is a different matter. Let us suppose that there is a case of neglect. A company may have gone under due to adverse economic circumstances or being overburdened with Government regulations, its staff having done their best in the circumstances and having certainly not committed fraud. Not surprisingly, if people are struggling to save a business, they may be a little sloppy in administering tax credits. As the whole structure of tax credits is so sloppy anyway, it is unreasonable for the Government to have the power to pursue individuals personally—down to the payroll clerks—to recover money from them for neglect.

We want to know the Government's intention and what is meant by paragraph 103 of the explanatory notes. We are earnest in our belief that neglect is not appropriate.

The Financial Secretary to the Treasury (Mr. Paul Boateng): I join the hon. Member for Arundel and South Downs in welcoming you, Mr. Beard, to the Chair this afternoon. It is a pleasure to serve under your chairmanship for the first time.

Clause 25 allows regulations to be made to hold an officer of a company—in practice, that is usually a director—personally liable for the company's tax credits debts, when it is believed that the debt has arisen through fraud or neglect by that person. The amendment would limit the scope of the measure to cases of fraud and remove from it cases of neglect.

In practice, the Revenue would use the regulations when there appears to have been deliberate exploitation of companies' limited liability and the tax credit system, for a director or other officer's personal benefit. Sadly, there are occasions when unscrupulous directors attempt to use the status of limited liability to enrich themselves. It is necessary always to provide for that possibility.

It may seem, as the hon. Gentleman put it, that only the fraud test is needed, but there are two reasons why it is right to maintain the fraud or negligence test. First, there is an important argument of principle. Neglect simply means a failure to take reasonable care. It is right that, when companies have received significant sums of public money to fund the payment of working tax credit to their employees, the officers of the company should be expected to take reasonable care to ensure that the money is used for that purpose. That is not unreasonable.

Secondly, there are practical difficulties with a fraud only test. There will be cases when it is clear that there has been either fraud or neglect, but it may be difficult

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to demonstrate categorically that there has been fraud rather than neglect.

Mr. James Clappison (Hertsmere): I am grateful to the Financial Secretary for giving way. Of course, we all know how important it is to take good care of public money. I want to give him a slight warning. He did not spell it out, but there was an implication that businesses had asked for the responsibility. The Government are placing the responsibility on businesses. By and large, that responsibility is unwanted by them, and is of no benefit.

Mr. Boateng: I take great exception to the notion that the provision, which is designed to address a real need on the part of our fellow citizens, is unwanted by businesses. There is no evidence to support that proposition. Responsible business people are concerned to ensure that the needs that the measure seeks to deal with are addressed. The measure is in the interests of social cohesion and good business and is welcomed by responsible business people. I do not accept that there is anything inimical to business interests in what we propose. The reverse is true.

4.45 pm

The danger of the amendment is that the deliberately dishonest would be able to hide behind the cloak of negligence, making it more difficult to counter such abuse. There is nothing new in the clause. Opposition Members would have come across such a clause on numerous occasions in the course of their service in the House when debating those who exploit limited liability companies. It is sad but true that some people—mercifully only a few—are unscrupulous and do not hesitate to exploit that particular status.

There is nothing new in the potential application of the clause to cases in which there has been negligence on the part of company officers. The Inland Revenue already has such powers in relation to the working families tax credit, the disabled person's tax credit and national insurance contributions, which go back many years. The amendment would be a backwards step in tackling such behaviour.

In an uncharacteristic display of party political rancour, the hon. Member for Arundel and South Downs suggested that, as a result of excessive regulation by this Administration, more businesses are going under—the implication being that fewer went under during the previous Conservative Government. As the hon. Gentleman knows, the reverse is true. In the four or five years since Labour came to power in 1997, many more businesses have been created than under the previous Conservative Government and their stewardship of the economy. Those businesses have also tended to last longer. In his heart, the hon. Gentleman knows that such a suggestion and his claim that the clause will be damaging to business is not supported by the facts.

Nevertheless, the hon. Gentleman raises a serious point about insolvency and I am happy to deal with that. By the nature of our system of enterprise, there will, quite properly, be some companies that genuinely fail. Directors of such companies will be unaffected by the provision. The power will be used only in cases in which directors have engineered the insolvency of their

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own companies to avoid paying the working tax credits for which they received funding. Such individuals are unlikely to suffer personally, as I hope the hon. Gentleman accepts.


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