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Session 2006 - 07
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Public Bill Committee Debates

Tax Credits (Claims and Notifications) (Amendment) Regulations 2006

The Committee consisted of the following Members:

Chairman: Mrs. Janet Dean
Abbott, Ms Diane (Hackney, North and Stoke Newington) (Lab)
Alexander, Danny (Inverness, Nairn, Badenoch and Strathspey) (LD)
Brennan, Kevin (Lord Commissioner of Her Majesty's Treasury)
Evennett, Mr. David (Bexleyheath and Crayford) (Con)
Francois, Mr. Mark (Rayleigh) (Con)
Gauke, Mr. David (South-West Hertfordshire) (Con)
Johnson, Ms Diana R. (Kingston upon Hull, North) (Lab)
Laws, Mr. David (Yeovil) (LD)
McKechin, Ann (Glasgow, North) (Lab)
MacShane, Mr. Denis (Rotherham) (Lab)
Mallaber, Judy (Amber Valley) (Lab)
Moon, Mrs. Madeleine (Bridgend) (Lab)
Neill, Robert (Bromley and Chislehurst) (Con)
Simpson, Alan (Nottingham, South) (Lab)
Skinner, Mr. Dennis (Bolsover) (Lab)
Timms, Mr. Stephen (Chief Secretary to the Treasury)
Tyrie, Mr. Andrew (Chichester) (Con)
Hannah Weston, Committee Clerk
† attended the Committee

Second Delegated Legislation Committee

Wednesday 13 December 2006

[Mrs. Janet Dean in the Chair]

Tax Credits (Claims and Notifications) (Amendment) Regulations 2006

2.30 pm
Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): I beg to move,
That the Committee has considered the Tax Credits (Claims and Notifications) (Amendment) Regulations 2006 (S.I., 2006, No. 2689).
It is a pleasure, as always, to serve under your chairmanship, Mrs. Dean. It is good to have the chance to debate the regulations. We do not seek to overturn them because we well understand the need to ensure that changes in circumstances are reported adequately. We also understand that they are part of the package of measures on tax credits that oblige complainants to report changes in circumstances in a shorter time scale and that extend the range of changes in circumstances that must be reported.
I want to probe the Chief Secretary about the implementation of the regulations. They appear to be clear, but we are concerned that there are likely to be a number of hard cases caught by the regulations in which it might be useful to have discretion. I would like assurance from him about such cases.
The regulations extend the range of changes of circumstances that claimants will be obliged to report to include: changes to the hours that claimants normally work that take them below the 30-hour or 16-hour thresholds for entitlement to various elements of working tax credits; ceasing to be responsible for a qualifying child or young person; a child or young person ceasing to qualify for any reason; and, of course, the death of a child or young person that therefore causes the loss of entitlement to tax credits.
The regulations will also reduce from three months to one the time limit for notifying changes in circumstances that it is mandatory to report. It is important to note that any failure to notify within that period may result in a financial penalty. The regulations make that clear and I am sure that the Chief Secretary will confirm it. Any such financial penalty would, of course, be on top of any overpayment that might accrue. Given that changes to the disregard rules are also being introduced as part of the package, overpayments might be less likely to accrue in some of those circumstances.
I am concerned about several aspects of the regulations, particularly the uncertainty about the nature of the obligations that they create. For example, there are 600,000 agency workers in the UK economy with no normal working pattern. In my constituency, in the highlands of Scotland, significant numbers of people, such as those who work in the tourist sector, work on a seasonal basis. As far as I can see, the tight period of one month for notifying changes in circumstances would apply to such people, but how are they to judge whether their normal working hours have dipped below 30 or 16 hours a week when there is sometimes no way for them to establish what their normal working hours are in the first place?
Groups that might be disadvantaged in that way include those who the Government would normally expect to support, such as student nurses who work for agencies between their studies. If the regulations are taken at face value, fluctuations in the hours worked by people who fall into that category could lead to them feeling that they must report their circumstances almost on a weekly basis for fear of being caught out by the regulations and, perhaps, fined as a result.
Mr. Mark Francois (Rayleigh) (Con): Does the hon. Gentleman accept that there is something of a parallel with the Child Support Agency here? One difficulty in getting accurate assessments in CSA cases is caused by absent parents whose income tends to fluctuate—often because they work part-time. That has been a particular problem for the CSA. Is the hon. Gentleman, like me, interested to hear how Her Majesty’s Revenue and Customs thinks that it can get around that problem given that the CSA has not been able to?
Danny Alexander: The hon. Gentleman makes a sensible point and I look forward to hearing the Chief Secretary’s answer. If he is confident that HMRC can get around problems that the CSA cannot, that may be another reason why giving more powers over child support to the HMRC might have been a better way forward than that which was announced today. However, as I do not wish to test your patience, Mrs. Dean, I shall not pursue that further in this brief discussion.
There are cases in my constituency of people who work on a seasonal basis and who may not be able to predict when the next bit of work is coming. They might work in the summer or autumn, or there might be a couple of weeks in October when there is work. In the course of a one-month period, there may or may not be further weeks of work. It is hard for them to be clear about whether they have dipped below or risen above the 16 or 30-hour thresholds, particularly if calculations are done on an annual basis.
I am sure that everyone on this Committee has experience of constituents coming to see them with a blizzard of correspondence from HMRC about tax credits. There are numerous award notices that require different bits of information to be provided, details to be checked, small print to be read and so on. An unintended consequence of the regulations couldbe that what is at present a small snowstorm of correspondence becomes a veritable blizzard for many people in the categories to which I draw attention today. I hope that the Chief Secretary can reassure us on that point at least.
The regulations will also make mandatory the reporting of changes in average weekly child care costs. There are concerns for people in that group, not least in making a judgment within a month about when a cohabitation relationship starts or ends, given the uncertainty that they may have about whether the relationship will continue.
People are asked to predict how long an overseas visit will last, but there is often no clear answer to such a question until long after the one-month period, yet that is the mandatory time for giving notification of any change. The solution offered in the regulations to start the time running from the date of the change or from the date when the claimant first knew about the change, whichever is later, may serve to create more uncertainty and may, of course, lead to further unfairness in the system.
A particularly difficult case for the Committee involves circumstances in which a child has passed away. Again, the regulations make it mandatory to report that information to HMRC within a month, and failure to do so may result in a fine being levied. One can understand that the reason for that is to deal with potential overpayments, but I would be interested in the Chief Secretary’s response on this point. In many cases, the last thing on a parent’s mind if such an unfortunate event occurs is to get in touch with HMRC.
The Chief Secretary to the Treasury (Mr. Stephen Timms): I want to pick up on that point, because the hon. Gentleman is right to say that it is important. I can assure him that Revenue and Customs will not pursue a fine if the change is the death of a child.
Danny Alexander: I am grateful to the Chief Secretary for that reassurance. That is the sort of flexibility that I am looking for in the application of the regulations to hard cases such as the ones that we are discussing.
On the reduction of the time limit for reporting changes of circumstances, a three-month deadline was originally chosen for the reasons given by the then Financial Secretary, who I believe is now a high commissioner to South Africa. He stated:
“We must recognise that the times when one first qualifies for a working tax credit or a child tax credit—when one starts a job, or one has a new arrival in the household—are often particularly busy and stressful...There is a balance to be struck, and we must offer flexibility and recognise the everyday practicalities of real life.”—[Official Report, Standing Committee A, 15 January 2002; c. 39.]
That common-sense approach has generally been supported since.
In that context, concerns have been expressed about the effect of the proposed reduction when events happen over a period rather than all at once, such as changes in child care costs, working hours and household changes, and temporary absences abroad. If there is a series of changes, when does the time limit begin? When does the one-month clock start ticking in such circumstances?
I seek clarification from the Chief Secretary on one final point. HMRC offers guidance to claimants, but whatever efforts have been made to try to ensure that claimants understand that there is a three-month deadline, I expect that all hon. Members have come across constituents for whom that is not a well understood fact. Will the Chief Secretary explain how he proposes communicating effectively to the population, particularly those who may simply not have grasped the point so far?
What new obligations are being imposed on claimants now that shorter deadlines exist? I draw attention to the self-employed. They have no adequate guidance on how to compute their working hours, particularly in the early days of building a business. Where on the HMRC website and in its official literature are the rules set out in enough detail and in a manner that will make it easy for those affected to find the guidance and to understand it?
It is at least questionable—I wonder what the Chief Secretary thinks—whether a penalty should be levied until guidance is available in sufficient detail bothin hard copy and online and in a helpful and comprehensive form so that citizens, particularly those in complicated circumstances such as the self-employed, know what is required of them. Will the Chief Secretary explain what plans his Department has for issuing such guidance, so that people will know about the new obligations, and will he ensure that that information is widely available, particularly to the self-employed? I look forward to his response.
2.42 pm
Mr. Timms: I too bid you, Mrs. Dean, a warm welcome to the Chair of our Committee. I acknowledge the inquiring tenor of the questions posed by the hon. Member for Inverness, Nairn, Badenoch and Strathspey in introducing our debate.
Along with the remarkable new stability that we have seen in the economy over the last few years, plus the national minimum wage and the new deal, tax credits have been an important instrument in ensuring the reduction in child poverty that we have seen over the past few years. Some 700,000 children were lifted out of poverty between 1997 and 2005, nearly a quarter of the 31 million in poverty at the start of that period—that is before housing costs were taken into account—and it represents good progress towards our goal of reducing child poverty by half by 2010 and eradicating itby 2020.
Over the past year, we have been working to address the administrative problems that we have had with tax credits, particularly overpayments. Too many people have been affected by those difficulties in the past, and the statutory instrument before the Committee is the latest step in addressing those difficulties. We haveto strike the right balance between certainty and flexibility. Some have argued that the flexibility provided by the system as we constructed it should be removed. It is certainly true that it creates the possibility of overpayments. However, it also enables us to respond quickly by giving extra help through tax credits when, for example, a family suffers a drop in income.
Our view is that such flexibility is particularly important given today’s modern labour market, in which 3 million people change jobs each year. Flexibility in the system plays an important part in assuring people that it is worth taking on a job. We do not want to lose that flexibility. In 2004-05, something like 700,000 families benefited from extra help through tax credits when their household income fell.
Mr. Francois: I apologise for interrupting the Minister so early in his comments. Under heading7 on policy background, the explanatory notes that accompany the instrument state in paragraph 7.4(a) that one of the changes that the regulations require to be notified to HMRC is when someone is not entitled
“because they become, or cease to be, a member of a couple, or where they leave the UK permanently or they are no longer treated as being in the UK”.
There have been many press reports about people claiming tax credits in the UK. Non-UK citizens come here from the EU, claim the money from HMRC and pay that money outside the UK into other EU countries. Does the Chief Secretary have an estimate of the number of cases of such behaviour in the last financial year?
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Prepared 15 December 2006