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Lord Rix: Before the noble Lord, Lord Higgins, responds, he asked for a blackboard to receive suitable communications. I hope that the gesticulations by the Minister sufficed. I can only say that from the rear, I imagined that I was in the Albert Hall listening to Mahler's third. It was a most pleasurable experience!

Lord Higgins: I prefer the adagio to the fifth! We can certainly agree that this is not a partisan issue at the level at which it is now being debated. The partisan issue is whether or not more people are born into the dependency net and whether, in that respect, the Government have hit the right balance between the opposing elements of the taper. I have to say, quite sincerely, that I was lost in admiration for the way in which the noble Baroness managed to explain that without any notes. I could not possibly aspire to that. What she said was extremely helpful. We will need to consider it and, more particularly, in the absence of a blackboard, to read it before we come to Report stage.

I also accept the technical deficiencies she mentioned as far as concerns linking it to the top rate of income tax. However, I have some considerable doubts about

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whether, at the income levels we are discussing--that is, the upper end--it will either encourage people into work as clearly they are already in work, or whether it will encourage them to work harder. I would have thought that it is the least arguable: that, if you are in that kind of income bracket and suddenly find that you come into family credit and working families' tax credit, you do not work rather less and perhaps play rather more golf than you otherwise would. However, we agree that these are all stereotypes.

Nonetheless, these are difficult problems. There are some doubts as to whether the Government have really got it at exactly the right point. One must always worry when the poverty trap is actually being made worse which, for the reason the Minister has mentioned, it looks as though we are doing. We shall study carefully what she has said and consider whether there is a point where one could suggest a somewhat different taper with rather less increase in the number of people who are dependent on welfare payments. Subject to that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 2 shall be agreed to?

Lord Goodhart: Perhaps I may start by clarifying--for the benefit of the noble Lord, Lord Skelmersdale, if for nobody else--our position on Clause 1 because it has a bearing on our views on Clause 2. The noble Lord, Lord Higgins, was absolutely right, as I said when giving him my support on Clause 1, that the working families' tax credit is not a tax credit; it is a benefit. However, what it is called is not the point that really matters. That is why we do not seriously object to Clause 1 referring to it as a tax credit.

The problem here is that the Government are making actual administrative changes to make the working families' tax credit look more like a tax credit when those changes are in fact inappropriate and have real disadvantages. One of those inappropriate changes which has disadvantages is the transfer of responsibility for family credit from the DSS to the Inland Revenue. That is why we object to Clause 2.

The culture of the Inland Revenue is entirely different from that of the Department of Social Security. The Inland Revenue is concerned with ensuring that everyone pays at least what they are due to pay in taxation. It does not seek to investigate whether or not everyone claims all the reliefs to which they are entitled. By contrast, the job of the DSS is to ensure that everyone receives the benefits to which they are entitled, though no more than that. That may involve the prevention of fraud, but it also involves checking that the people seeking help obtain the correct help to which they are entitled. That is why the way in which claims are dealt with is much more investigative and much less confrontational than the way in which the Inland Revenue deals with tax issues.

The Inland Revenue has no experience of doing casework with poor or relatively poor people. In many cases those people do not have enough income to be taxable, and in many more cases for those on relatively

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low incomes the tax liabilities are paid entirely through PAYE and the Inland Revenue has no direct contact with the taxpayers.

When we come to these two tax credits, the claims procedure will have to be--and is, in the draft regulations--based on very much the same sort of practice as in the case of other means-tested benefits such as income support. But that relates not only to the claims procedure; it relates also to the procedure for making decisions on claims and the procedure for revising those decisions when they have been made, which again have no equivalent in the Inland Revenue's procedure on taxation.

Those procedures have to be the same for tax credits as for other means-tested benefits. But the procedure is completely different from anything done by the Inland Revenue. That is recognised by the fact that it is still proposed that appeals from decisions will have to go to the new unified tribunals under the social security Acts and not, at any rate for the time being--I hope never--to the commissioners of income tax who deal with entirely different matters.

Many of the regulations at present apply both to family credit and to other types of benefit. For example, the Social Security (Claims and Payments) Regulations 1987, some 38 pages long, lay down the basis on which claims are made and they apply to family credit as they apply to other kinds of benefit. Those regulations, with certain consequential amendments, will continue to apply in basically the same form. It is desirable that rules about claims should be, as far as possible, the same in relation to all these means-tested benefits in order to avoid confusion when somebody switches from income support to family tax credits. But from now on, when changes need to be made, they will have to be agreed by two departments and presumably enacted by two separate statutory instruments. In fact, I wondered who drafted the draft regulations we have now seen to bring the working families tax credit into operation. Were they drafted by the Treasury or, as I suspect--perhaps the noble Baroness can tell us one way or the other--were they drafted in Richmond House?

One ends up with a situation where one is shedding one type of benefit off the DSS into the Inland Revenue when the work regularly done by the Inland Revenue is entirely different from the work regularly done by the DSS. Why not leave the administration of these tax credits where they belong; that is, with the Department of Social Security?

7.15 p.m.

Lord Higgins: My Lords, I am glad to see that, contrary to his earlier remarks, the noble Lord, Lord Goodhart, is now anxious to improve the Government's position on these issues. I agree with everything he said.

In this Parliament, now almost half-way through, we have seen an increasing tendency for the Treasury to take over the Department of Social Security. One of the reasons why we are stuck with what is a very unsatisfactory mechanism for the working families' tax credit is that rather than saying, "We failed to make it a proper tax credit system", the Government are saying, "It is now our flagship; we must go ahead regardless".

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The noble Lord, Lord Goodhart, drew attention to an important problem. There is a real difference in culture between the Inland Revenue and the Department of Social Security. We know that that is the case because the Inland Revenue, as the noble Lord rightly said, hitherto has been concerned with collecting money rather than giving it away. The two functions put one into a different frame of mind. It is true either way that the taxpayer has an interest; nonetheless, the attitude is very different.

It is also strange that, the Inland Revenue having finally pushed through a system of self-assessment which transfers massive burdens from the Revenue to the taxpayers, a burden is now to be switched over from the Department of Social Security to the Inland Revenue who will do all the calculations for those who are to receive the benefit. So we have the self-assessment argument going one way and the benefit argument going in the opposite direction. Many people will now deal with the Inland Revenue who were not previously affected by it and it will be interesting to see how they cope with the extra information of a quite different kind with which they will now have to deal.

What also gives me considerable cause for concern is the extent to which the Inland Revenue will be able to switch a lot of people over and add other people to the present Department of Social Security staff in an expeditious manner. In relation to cash flow, for instance, the department is asked to do things very quickly, and that is not something which even in simple cases the Revenue has been good at. The delay in the Revenue deciding what one's ultimate tax liability is is often measured in years and sometimes numbers of years rather than a month or something of that order. Bearing in mind that we have had problems with computers elsewhere, can the Minister say to what extent she believes that the present computer structure in the Inland Revenue is able to cope with these issues? That is a particular cause for concern when one considers the massive problems that arose in the Department of Social Security computer structure.

For all those reasons I share the concerns expressed by the noble Lord, Lord Goodhart. This is a major change and largely an unnecessary one. We would have been better to stay with the previous structure. If the Government wish to allocate more funds to it, as we said earlier, that is all to the good. But changing the structure in the way they have will cause considerable problems and not result in any improvement in the service which the taxpayer and those in receipt of benefits receive.

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