Tax Credits Bill

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Richard Younger-Ross (Teignbridge): The Minister used the word neglect when he spoke about companies that, through no fault of their own, find themselves in difficulty and make errors in their tax credit calculations. He referred earlier to hon. Members who had not been in the House for long. I apologise because I have not been a Member of Parliament for long and may not understand everything. Perhaps more learned hon. Members who come from the legal profession know better than me. I come from a simple trade—I do drawings. Is the Minister not talking about wilful rather than simple neglect? There may be a fear that the term ''neglect'' may penalise those who have inadvertently made an error.

Mr. Boateng: I do not think that inadvertent error is caught by the clause. The important point is that people should be able to demonstrate that they have exhibited reasonable care, which is not a concept understood only by lawyers—there is common-sense application of the phrase ''reasonable care''. We all know it when we see it, and the courts are capable of judging whether reasonable care has been taken. With regard to those who exhibit reasonable care, there is no need to inject concepts of wilfulness. That would simply give lawyers a licence to make yet more money by arguing about the difference between wilful neglect and neglect.

Those who take reasonable care have nothing to fear from the provision, but that is not the case with regard to those who do not fall into that category. Some people utilise the status of limited liability for their own purposes and follow a practice that is known as phoenixism. That is an interesting phrase. I had not come across it before but, on reflection, one can see why it is called that—a phoenix rises from the ashes. Those who deliberately engineer the insolvency and winding up of their companies for personal benefit and those who do not take reasonable care will be caught. It is right that that should be the case, and I hope that Opposition Members have been persuaded, by the explanations that they have received, not to press the matter to a Division.

Mr. Flight: Nobody would disagree with the proposition that directors who have used limited liability to engineer an insolvency to purloin Revenue tax credit funding should be pursued—and I take on board the point that full-blooded fraud might not be involved. That is what we want the Bill to do, but that is not what it says. It gives a much wider power. There is a meaningful distinction between neglect and wilful neglect. If a company goes under, it is likely that there will be neglect, because everything will be at sixes and sevens.

The Minister rightly made the point that it is likely that the people whom the Revenue will want to pursue are the directors. However, the Bill employs the phrase ''culpable officers'', and the definition of officer includes managers, secretaries, and any Tom, Dick and Harry.

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It is unacceptable that legislation should prescribe wider powers than are needed, and which could subsequently be used in a different context. With regard to a company that has failed, the Bill currently gives the Revenue wide powers to go after the staff to recover whatever is owing. That is unacceptable, particularly as the Bill forces the task of administering the tax credits on companies, without paying them for the extra work.

We made it clear that it would be better if the Revenue performed that task. With regard to that, my hon. Friend the Member for Hertsmere (Mr. Clappison) was not arguing that businessmen do not support the concept of a fair society; the issue is whether businesses or the Revenue should administer that task.

I consulted a leading counsel on this clause. He forcefully took the view that it was inappropriate for it to contain the bare word neglect. To some extend the Minister's comments have had the effect of putting on the record an interpretation of the clause that can be used in legal proceedings. The Government may have allowed themselves, understandably, to be egged on by the Revenue to give it more powers than are necessary. Such powers should be defined more precisely to address the pheonixism that the Minister accurately described.

We are minded to vote on the amendment because it is a bad principle of law to introduce provisions that allegedly deal with problems, but are not sufficiently specific and consequently can be applied in a wider context.

Question put, That the amendment be made:—

The Committee divided: Ayes 6, Noes 10.

Division No. 6]

Clappison, Mr. James Flight, Mr. Howard Luff, Mr. Peter
Swire, Mr. Hugo Webb, Steve Younger-Ross, Richard

Boateng, Mr. Paul Buck, Ms Karen Casale, Roger Cruddas, Jon Mole, Chris
Pond, Mr. Chris Sheridan, Jim Southworth, Helen Sutcliffe, Mr. Gerry Wright, Mr. Anthony D.

Question accordingly negatived.

Clause 25 ordered to stand part of the Bill.

Clause 26 ordered to stand part of the Bill.

Schedule 1

Rights of employees

Mr. Boateng: I beg to move amendment No. 90, in page 36, line 1, leave out 'claim' and insert 'complaint'.

The Chairman: With this it will be convenient to take Government amendments Nos. 91 and 92.

Mr. Boateng: I hope that the Committee will find favour with these minor drafting amendments. They do not change the substance of the schedule.

Amendment No. 90 is necessary because legislation provides for people to present a complaint, not a claim, to an employment tribunal. Amendment No. 91

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is needed because paragraph 2 relates to Northern Ireland, where the bodies that consider employees' complaints are known as industrial tribunals—as they used to be in our jurisdiction—not employment tribunals. Amendment No. 92 corrects a typing error. The provision that is referred to should be article 71(1)(b) of the Employment Rights (Northern Ireland) Order 1996, not article 70(1)(b). These things do happen. The best laid plans of mice of men are gaen awa', as we say at this time of year, at least in Scotland.

The amendments will ensure that the wording of the schedule is legally correct. They do not alter the meaning of the schedule, and I hope that hon. Members will accept them.

Amendment agreed to.

Amendments made: No. 91, in page 37, line 10, leave out 'claim to an employment' and insert 'complaint to an industrial'.

No. 92, in page 37, line 14, leave out '70(1B)' and insert '71(1B)'.—[Mr. Boateng.]

Schedule 1, as amended, agreed to.

Clause 27


5 pm

Mr. Steve Webb (Northavon): I beg to move amendment No. 67, in page 18, line 44, at end insert—

    'but such a decision may only be made after it has been finally determined (on appeal or otherwise) under subsection 27(2A) that the excess if recoverable.'.

The Chairman: With this it will be convenient to take amendment No. 68, in page 18, line 45, at end insert—

    '(2A) For the purpose of subsection (1) above, an excess is only recoverable if it is determined that, whether fraudulently or otherwise, any person has misrepresented, or failed to disclose, any material fact, and in consequence of the misrepresentation or failure an excess was paid.'.

Mr. Webb: The amendments are a pair. They deal with overpayments and recovery of overpayment of tax credits. They would clarify the scope of recovery and the circumstances in which overpayment would be recovered.

Under social security legislation, overpayments can be recovered if someone is found to have failed to disclose or to have misrepresented a material fact. We wonder whether similar provisions—which we cannot see in the Bill—will apply to tax credits.

Amendment No. 67 would define a category of excess payments that are recoverable by reference to a new subsection (2A), which is introduced in amendment No. 68. It determines that overpayments are recoverable, whether there has been fraud or—I hesitate to use the word ''wilful''—misrepresentation or deliberate failure to disclose. The genesis of the amendments is the problem of people who have to forecast their incomes. When someone's income from a previous year is recorded on a P60, there should not be problem. At the end of year, no reassessment

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should be necessary, because that person's income in the previous year is historical fact, and will be known to the Revenue through the P60. However, if the person had to estimate his income in the current year, or if a change of circumstance has affected his entitlement, resulting in overpayment, what will be the scope for recovery of overpayment?

One case that springs to mind, for the purposes of the working tax credit, is of someone who is on the border of 29 or 30 hours, or 15 or 16 hours. Given that such matters will be determined on the basis of an annual average of hours worked, or the weekly equivalent of the annual average, it would be extraordinarily easy for someone to incur an overpayment, through no fault of his own, because he did not average his hours accurately. Consequently, he would find that a substantial overpayment could arise. For a single person who has to work 30 hours to get anything, who is in low-paid work and who therefore receives a generous tax credit, the amount of overpayment could easily be in excess of £1,000 for a year.

The amendments establish the circumstances in which there will be an attempt to recover overpayment. Will recovery be sought only when there has been fraud and deliberate misrepresentation, or will the Government try to recover money when there has been an accidental failure, or when someone's estimate of annual income is incorrect? The amendments are intended to mirror the social security provisions for recovery of overpayments. We hope that the Government will accept the amendments on that basis. Alternatively, will the Minister clarify any differences in the principles that will be applied to overpayments of tax credits?

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Prepared 22 January 2002