Tax Credits Bill

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Dawn Primarolo: The clause applies to tax credit fraud and two sets of powers that apply in relation to serious tax fraud. The first set of powers involves the production of documents, and is applied to all tax credit fraud. The second set of powers involves the entry of premises with a warrant to search for documents and applies only in respect of serious tax fraud. The amendment seeks to apply the second set of powers in all cases of tax fraud. I want to explain to members of the Committee why the amendment should be rejected.

The powers in the clause to enter with warrants are new powers that do not currently exist in relation to working families tax credit. However, when considering the totality of the compliance regime, we felt that they should be added for the most serious cases, such as where organised criminal gangs were engaged in systematic fraud.

I do not need to remind the Committee that these are significant powers. I thought carefully before agreeing to give them to the Inland Revenue, because the tax authorities should be given the power to enter premises with a warrant only in extreme cases. The powers will be used only by specially trained officers from the Inland Revenue's special compliance office and never in normal tax credit inquiries. I do not agree with the hon. Member for Hertsmere that they should be.

As with any extension of power, there must be a strong justification for the extension that is sought and for Parliament to agree them. All fraud is serious, whether it is tax fraud or tax credit fraud. I wanted to make it clear that a poor tax credit claimant does not have to fear that, if they make a genuine error, there will be a sudden knock at the door and the Revenue special compliance unit will be there. To addition of the word ''serious'' limits the powers to cases involving

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large amounts of money. Because there are natural limits to an individual's tax credits entitlement, we do not think it right that the power should depend on the seriousness of the fraud against the public purse.

However, we need the powers to require the production of documents in such cases, and I have left those in place. That is because there may be factors in an individual claim that are indicative of organised fraud, but the sums of money known to be in question at the time that the documents are required to be produced may not warrant the tag ''serious''. That is the point about prosecuting somebody for a crime that has not yet been committed. Not unreasonably, the courts take a strong line on the matter, and claimants must be in receipt of tax credits, as the hon. Gentleman, who is a barrister, may know.

The position is different for search powers, and I make no apology to Parliament for that. It is my job as Paymaster General to ensure that where there are extensions to powers of this type they are fully justified, and they are not justified in respect of tax credits.

3.45 pm

It is clearly more intrusive to enter someone's premises and search for documents, than it is simply to require them to produce documents. We have been cautious about extending these powers, and I make no apologies for that proportionate approach. The powers allowing entry to premises should apply only if the sums of money involved are such that the Inland Revenue is in a position to demonstrate to a judge that there are reasonable grounds for believing that there is serious tax fraud. It is right that the Inland Revenue should be subject to checks and balances, which it rightly sought.

These are not clear-cut decisions, and this is an area in which we should move with caution. We have to balance the reasonable rights of the citizen against the need to tackle those who deliberately set out to cheat the tax credit system in an organised way. We feel that the provisions in clause 34 strike the right balance, and I therefore hope that the hon. Member for Hertsmere will be reassured about the way in which the Bill is framed. If, however, he feels unable to withdraw the amendment, I shall have no hesitation in asking my hon. Friends to oppose it.

Mr. Clappison: I am surprised by the strength of the Paymaster General's response when we were trying to help her. A few moments ago she criticised us for not doing enough, but when we try to help her she takes a trenchant line. Perhaps she has strong views on the subject.

I shall give the Paymaster General an example of where her attitude will create difficulties in practice. She says that in the case of suspected tax fraud it is sufficient for the Revenue to have the power to require documents to be produced. That is all well and good, but requiring documents to be produced relies on the honesty of the person concerned to produce them. If they do not produce all the documents, there will be little that the Inland Revenue can do about it. Of course, it is the honesty of the person concerned that is in question in the first place. In order to prosecute

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these cases it is important to have the documents to consider as evidence.

The Paymaster General speaks as though the power to enter premises and search for documents is out of the ordinary, and she takes a strong view on it. I shall go away from the debate and study provisions that are made elsewhere in criminal law to generate powers for authorities to enter premises and search for documents because I suspect that those powers are more widely available than she seems to believe. I shall be concerned if I find as a result of my investigations that the Government are placing those who investigate tax credit fraud under a handicap that people such as the police, who investigate other types of fraud or offences in the private sector, are not.

We do not want unnecessarily to handicap the authorities in the investigation of tax credit fraud, and we do not want to draw a distinction between tax credit fraud and other types of fraud. I shall examine this carefully and reflect on it, and I may return to it. On that basis, and the need to make progress with the Bill in the relatively modest amount of time that is available given the many important issues that we need to discuss, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 34 ordered to stand part of the Bill.

Clause 35 ordered to stand part of the Bill.

Clause 36


Mr. Webb: I beg to move amendment No. 73, in page 23, line 8, leave out 'and'.

The Chairman: With this it will be convenient to take amendment No. 74, in page 23, line 9, at end insert—


    (e) any decision under section 27(1) or section 27(2A).'.

Mr. Webb: This is a test to see whether anybody is keeping an eye on what we are up to. Amendment No. 74 seeks to include within the scope of things against which one can appeal the matters covered by clause 27(2)(a). Perceptive Committee members will have noticed that there is no clause 27(2)(a), but had amendment No. 68 been agreed there would have been. The amendment remained on the Amendment Paper because the Chairmen were so confident that amendment No. 68 would be accepted. Let us regard it as a probing amendment.

Within the scope of decisions that can be appealed against, it would seem from my aided reading that the recovery of overpayments—a decision that an overpayment has been made and that it needs to be repaid—is impossible to appeal against because it is not within the scope of clause 36. The purpose of the amendment was to see whether that was the intention, or whether one can appeal against overpayments. If one cannot appeal, we feel that one ought to be able to.

On the subject of appeals and related matters such as penalties, I ask the Minister to reply on record to a

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question of which I have given her prior notice. On Tuesday, the Financial Secretary responded to one of my questions about cases in which people can face penalties for not supplying information:

    ''The initial penalty under the provisions is not at the Revenue's discretion because only the commissioners may impose it.''—[Official Report, Standing Committee A, 22 January 2002; c. 201.]

I have been advised that that may not be consistent with the rest of the Bill. It seems that penalties for not supplying information are at the board's discretion because it imposes them, and penalties will only get near the commissioners if there is an appeal, which we are discussing in clause 36.

It has been put to me that that was probably an inaccurate statement of the position regarding the imposition of penalties, and it would be helpful if the Paymaster General would clarify whether her right hon. Friend meant what he said in that case because the transcripts of what we say are sometimes used in appeals and court cases, and it would be unfortunate if an inaccurate impression had been given.

The guts of the amendment are that one should be able to appeal against a decision on an overpayment.

Dawn Primarolo: I can politely refer to this as a consequential amendment to clause 27. The hon. Gentleman withdrew amendment No. 68, and I suppose that he will withdraw today's amendment, but I shall not refer to that because he has been gracious in his comments.

The hon. Gentleman asked for clarification on the statement made by my right hon. Friend the Financial Secretary in Standing Committee on Tuesday. I shall put this on the record, but it may be helpful if I write to the hon. Gentleman as well given his point about ensuring clarity. My right hon. Friend's statement was not incorrect, and I shall explain why. The discussion was about penalties for failing to provide information, which are set out clause 30(2), and the initial penalty to which he referred is set out in clause 30(2)(a).

Paragraph 3(1) to schedule 2 makes it clear that the board must commence proceedings for a penalty to be imposed under clause 30(2)(a). In other words, it must ask the commissioners whether they are prepared to impose such a penalty. Only the commissioners can impose it. The board cannot impose a penalty for continued failure to provide information under clause 30(2)(b) unless, and until, the commission has imposed an initial penalty under clause 30(2)(a). The board's action is consequent on the commissioners' starting the process. As the provision references across the Bill, it would help not only if I put that explanation on the record, but if I wrote to members of the Committee.

On appeals and overpayment, I want to double-check that there is not a semantic difference. In an assessment on overpayment, the claimant can appeal against the decision on entitlement from which the overpayment arises, so the difference is one of semantics. It is decisions on entitlement that will produce either the underpayment or the overpayment.

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