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Lord Higgins: I am grateful to the noble Lord for his clear exposition. He said that the money will be paid three days before the employment date. Will refunds be paid by cheque and will those cheques be paid three days before? Secondly, the noble Lord said that there will be an adverse effect on the cash flow, or, more accurately, a reduction in the favourable effect on the cash flow, of the employer's relationship with the Revenue for some small firms and for a small number of firms. I am not clear why that does not apply to all firms. Thirdly, he said that the individual recipient of the payment--I use a neutral term--will be informed as to how much he is entitled to and that the employer will be informed. Will the Revenue tell the recipient and the employer? If it is both of those, part of the argument that one can see it in the pay packet is presumably somewhat eroded. We need to consider that point. We shall need to consider carefully what has been said on the administration of the system--

Lord McIntosh of Haringey: I would like to answer those three points, so that they do not arise again. The timing of the payment from the Revenue to the employer, where one is due, depends on whether or not automatic transfer is available. If not, notification will have to be made quite a lot earlier, because cheques will have to clear through BACS in a rather more complicated way. The number of days required depends on how efficient is the firm's credit transfer system.

When I said not all firms will be affected, I meant that not all firms would have employees receiving tax credits. Clearly, all firms which have tax credit employees will be affected--but that is not all firms.

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The notification to the employer will be as I described in detail. The notification to the employee will take the form of an entry in his or her pay slip.

Lord Higgins: I need to study carefully what has been said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment 21:


Page 3, line 14, leave out subsection (5) and insert--
("(5) The amounts--
(a) of the several payments made by the Board of or in respect of tax credit;
(b) of the expenses of paying and managing tax credit; and
(c) received by the Board in respect of tax credit,
shall be set forth in the accounts of the Department of Social Security, distinguishing in each case between amounts relating to working families' tax credit and amounts relating to disabled person's tax credit.")

The Deputy Chairman of Committees (Lord Dean of Harptree): If this amendment is agreed to, I cannot call Amendments 22 and 23, by virtue of pre-emption.

Lord Higgins: Amendment 21, with which it would be helpful to consider Amendment 23, is one to which I thought the Minister had given an answer earlier. It suggests that the number of payments,


    "made by the Board of or in respect of the tax credit; [or] of the expenses of managing and paying tax credit; and [the amount] received by the Board ... shall be set forth in the accounts of the Department of Social Security, distinguishing in each case between the amounts relating to working families' tax credit and amounts relating to disabled person's tax credit". It is simply an argument for transparency and I hope that the Minister can give a reasonable response. I beg to move.

Lord McIntosh of Haringey : I am glad that I am not being invited to go over the philosophical argument again. If we are concentrating on transparency, I can give the noble Lord the assurance that he seeks.

The amendments would remove the tax credits from the accounts of the Inland Revenue and place the information in the accounts of the Department of Social Security or in a separate report that is to be laid before the House of Commons. Neither option represents a sensible way forward in properly reporting tax credits.

The noble Lord thinks that because credits build on the benefits they replace, they are benefits in another guise--but they are not. The noble Lord argued on Second Reading that because the credits do not go as far as they would have done under the Green Paper with which he was involved in 1972, they are not proper tax credits. The difference is that these credits are going to work and the noble Lord's Green Paper did not take effect.

In the hands of the employer, the tax credits will be intimately entangled with PAYE. Employers will be pooling tax and tax credit and remitting the net amounts to or from the Inland Revenue. The employee's pay slip will of course show tax and tax credit separately, which provides recipients with the transparency they need to be

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certain that tax credits are coming through to them. I agree that tax credits are not being incorporated in the PAYE code. I will not return to our debate on Amendment No. 1 but, as my noble friend Lady Hollis made clear, we could not achieve the objectives through incorporation in the PAYE code. So we do not agree that the proper place to account for tax credits is in the accounts of a department that does not administer them. If the tax credits are not appropriate for inclusion in the accounts of the Department of Social Security, and we would argue that they are not, the second amendment suggests that the details should be published in a separate report and not in the accounts of the department that administers and has policy responsibility for them. That seems somewhat perverse.

I have explained how the practical handling of tax and tax credit goes together, and the accounting systems follow, with tax credits being tracked and accounted for alongside PAYE. The natural and logical result would be for the tax credit figures also to be dealt with alongside those for tax and for them to appear in the accounts of the Inland Revenue. The Inland Revenue has policy responsibility for them; they are under the Inland Revenue's care and management; and they should be there to reflect that part of the Inland Revenue's business. Nothing would be gained by separating them out from other parts of the Inland Revenue's business. Tax credits will be shown separately by the Inland Revenue and in the board's report in the same way as MIRAS is presently shown. The obligation to keep adequate accounts of these items will be the same wherever they are to be presented. The figures will be no more accurate for having been presented outside the Inland Revenue's own accounts.

I seek to persuade the noble Lord that the resulting reporting mechanisms will be at least as transparent as those that he proposes and much more logical in that they appear in the accounts of the responsible department.

10.45 p.m.

Lord Higgins: I think we are saying that we disagree on the principle and therefore these amendments would be in line with what we are suggesting and the opposition to them reflects the Government's view on whether this provision is or is not a tax credit. I certainly do not wish at this late hour to go over Amendment No. 1 again, although that is where the matter rests. At this stage I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 22 and 23 not moved.]

Lord Higgins moved Amendment No. 24:


Page 3, line 22, at end insert--
("( ) The duties of the Treasury under section 155 of the Finance Act 1998 shall include a duty to set forth in the Financial Statement and Budget Report a table showing--
(a) the amounts of the several payments made by the Board of or in respect of tax credit;
(b) the amounts of the expenses of paying and managing tax credit; and
(c) the amounts received by the Board in respect of tax credit,
distinguishing in each case between amounts relating to working families' tax credit and amounts relating to disabled person's tax credit.")

26 Apr 1999 : Column 129

The noble Lord said: This amendment is concerned with the Finance Act and setting forward in the financial statement the amount of several payments made by the board in respect of a tax credit and the amount of expenses and so on which are incurred.

We have been discussing transparency. This amendment stems from our concern which we debated at length the other evening with regard to how these matters should be presented in the Red Book and other related government documents. In Table B14 on page 160 of the Red Book, working families and disabled person's tax credits appear under the heading, "Accounting and other adjustments." It seemed to us to that to put in £5.4 billion by 2001 and term it "Accounting and other adjustments" was, to say the least, not frightfully transparent. Our view is that the amount ought to appear under public expenditure as part of the budget of the Department of Social Security, although I suppose that we must now consider whether it appears as expenditure of the Inland Revenue. It would be rather strange if the Inland Revenue had such expenditure. That takes us back to the point of principle. All we are saying is that to describe this expenditure as "Accounting and other adjustments" is clearly wrong.

Earlier, I understood the Minister to say that the Government were meeting this point, although that was in the context of the European conventions on the matter. It would seem more appropriate to abide by the accounts and conventions of the Office for National Statistics and UK national accounts. If they are the same, I am not clear why this appears as an accounting adjustment. I beg to move.


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