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The noble Lord said: This amendment has virtually nothing to do with the previous amendment, in an important respect. Many of our debates have turned on the virtue or otherwise of paying the working families' tax credit directly to the employee or through the payroll. There have been considerable divisions of opinion on that matter. This amendment is different. It is predicated on the assumption that perhaps the Government's plan will go ahead. Given the majority in another place, that may be the case.
This amendment seeks to minimise the disadvantages of the Government's scheme. As far as I can establish, this point has not been considered by the Government.
I raise my next point as the noble Baroness laid great emphasis on it in the debate we have just had. I refer to a statutory instrument which we are considering. Throughout our discussions the noble Baroness has told us not to worry about employers having to do calculations in this regard as that will all be done by the Inland Revenue, who will tell employers precisely how much they have to pay to each individual. The noble Baroness has made that point time and time again. I am therefore puzzled by the Draft Tax Credits (Payment by Employers) Regulations 1999 which the Government were good enough to lay before the Chamber.
Unfortunately the pages of the draft statutory instrument are not numbered, which is a shame. That is rather foolish when I come to think about it. About halfway through the statutory instrument is the following heading,
Perhaps the Minister will tell us whether my suggestion has been considered. The noble Lord, Lord McIntosh, has great experience of the operational end of business. I am sure he will realise that if there is to be a quite separate system of payments, it should not become involved with the PAYE system in this unnecessarily complicated manner. That poses a far greater burden on business and a problem for all concerned. I hope that we shall be given clarification with regard to the point I made about the statutory instrument. I hope the Government will also say that my suggestion is a possible way of approaching the matter which has obvious advantages. What is now proposed by the Government has obvious disadvantages. I hope the Minister will say that the Government will consider my suggestion and return to the matter at Report stage. I beg to move.
Page 3, line 35, at end insert--
("( ) The Board shall be responsible for paying to each employer with employees entitled to any tax credit the total amount due to their employees at the end of each week.")
"The Board shall be responsible for paying to each employer with employees entitled to any tax credit the total amount due to their employees at the end of each week".
As we have already discussed, part of the problem with this scheme is that it is not a true tax credit scheme. A separate arrangement will be required alongside the PAYE system whereby the working families' tax credit is passed from the Government to the employer and on to the employee. The Government have told us that it is important that the payment should be made through the payroll rather than otherwise. We do not agree with that and I do not accept for a moment that that should be the case. However, if that does occur, we want to see a system established with as few disadvantages as possible.
When we discussed this matter while debating earlier amendments, the noble Lord, Lord McIntosh of Haringey, accepted that all businesses will suffer disadvantageous effects as a result of this proposal as regards their cash flow position compared with the present situation. That is common ground between us. We on this side of the Chamber believe that that is one of the disadvantages of what the Government propose. We would like to see that position improved. The noble Baroness has told us time and time again that the measure will not impose a burden on employers because the Inland Revenue will do the necessary calculations and will inform employers how much they need to pay to each employee.
"Relevant employer's ... obligation to pay tax credits".
Paragraph 5(1) states,
4 May 1999 : Column 572
"On receipt of a start notification in respect of an employee the ... employer ... shall calculate the tax credit to which that employee is entitled to be paid in each pay period during which the employer will be responsible for paying tax credit to that employee".
I suspect that others who have followed this debate will be as puzzled as I am at that because it would seem to be clearly inconsistent with what the noble Baroness has told us throughout our debates. I should therefore be grateful if the noble Baroness will tell us whether the clear assurance she has given--or perhaps the noble Lord, Lord McIntosh, can tell us this, although the noble Baroness has given us the assurance up until now--is correct. We can also consider this amendment on later occasions. Therefore, for the sake of argument, I shall assume that the noble Baroness's assurance was not only made in good faith--which of course it was--but was also correct. However, we need to be clear about why the statutory instrument seems to conflict with that assurance.
Given all the problems and the pages of statutory instruments relating to the mechanics of the matter which the Government now envisage, the whole process is unbelievably complicated. I refer to clawing back part of the money through the PAYE system and the company working out, from its recovered national insurance contributions, its recovered tax payable under PAYE and the deduction of the working families' tax credit, the net amount which it must remit in each tax period to the Revenue. In my view it is unnecessarily complicated. If the Government are really anxious that this provision should be paid through the pay packet--as I say, we dispute that--as the calculations are to be done by the Inland Revenue, the Board should simply pay each employer the amount due to his employees. I do not understand why we are contemplating this chaotic process of deducting sums from this, that and the other rather than implementing the simple process I have just suggested.
4.30 p.m.
Lord Peston: The noble Lord, Lord Higgins, did not say this is a probing amendment. The amendment raises interesting and important questions. Therefore I hope that it is a probing amendment. The noble Lord mentioned all kinds of matters which are too complicated for me to consider. Therefore I shall concentrate on one simple point which occurred to me when I saw the amendment; namely, the matter of cash flow. We know that the overwhelming characteristic of a small business is that it is in hock to the joint stock banks. Problems arise as it often appears that small businesses are working for the banks rather than for themselves. Therefore we must take this matter of cash flow seriously.
I had assumed that Clause 6(2)(f) on the payment of interest would cover this point; namely, that it appears to me not to be right that the business itself should essentially advance money to the Government in order
to finance this reform--it is a reform which I strongly support. In other words, the business concerned should not pay out sums and then wait several weeks for the Government to compensate it for that. I had assumed that was what the amendment was about. That seems to me to be an absolutely fundamental principle. I hope my noble friend the Minister will reassure us on that point.I believe there are two aspects to this matter. First, as the noble Lord, Lord Higgins, says, there should be no delays in payment. That seems to me to be essential. As regards my next point, I assume that we shall not know the details of this matter until we see a statutory instrument, or at least that is my reading of Clause 6; namely, that regulations will be issued. Secondly, if in practice some firms are essentially lending money to the Government to run the scheme, they should at least be compensated with a rate of interest that they themselves have to pay. In other words, that should be included in the regulations. It should not be the case that the Government say, "Oh! We are only willing to pay this much interest even though you pay twice as much to your bank". The noble Lord, Lord Higgins, is right to raise the question. I am confident that my noble friend will be able to answer at least that part of it. I hope that he can reassure us that, whatever else we have said--we disagreed about burdens earlier, although we lost the vote, not the argument on that occasion--this is a question well worth answering and that the Government are not expecting businesses in general, and small businesses in particular, to subsidise the scheme in that sense.
Lord Skelmersdale: Irrespective of subsidy, it seems to me inevitable that, certainly at the beginning of periods of payment, the small business, for example, or any business which calculates its NICs monthly, will for the first three weeks necessarily be paying; then it will take the money off what it owes on NICs and tax. Essentially, it is reclaiming the money even though the Revenue as such does not get involved.
What worries me about the whole scheme is what the Revenue does now. The Revenue is now responsible for claiming tax through the PAYE system. When one first goes into employment without a P45--in other words, without any previous earnings during the course of the year--one is put on an emergency tax code. Eventually, that code is translated into one's proper code. But "eventually" can be a very long time; it can be anything up to six or even eight weeks. If this is to happen with family credit, it does not bode well for the whole system. That worries me tremendously. As far as it concerns casual workers, if this procedure is followed they may never get the money before they leave the employment and they may well go back to a period of unemployment. That is also extremely worrying. I support my noble friend's amendment.
4.45 p.m.
Lord McIntosh of Haringey: I am grateful to the noble Lord, Lord Higgins, for his opening remark. He said that perhaps the thing is remotely possible, as Lewis Carroll would have said, and that the Government's
scheme will go ahead. Indeed it will. The Government fully intend to pursue the scheme and we have not been persuaded otherwise by any of the arguments against it.The purpose of Amendment No. 30 is to oblige the Inland Revenue to pay to employers each week the total amount of tax credit payable to their employees. That would certainly involve a huge amount of paperwork for both the Revenue and employers. However, I am glad to assure the noble Lord that, because of the way in which we have designed the employer payment scheme, that is quite unnecessary. Not only is it unnecessary, but it would give rise to the absurd situation of employers receiving a weekly cheque from the Revenue only to pay some or all of the money back in the form of a monthly or quarterly payment to the Revenue of PAYE taxes and NICs deducted from employees' pay.
The noble Lord said that his amendment would minimise any disadvantage to employers. I am afraid it would very much increase the disadvantage to employers. All employers asked to pay tax credits through the payroll will be already operating a PAYE scheme. Therefore, they will all have some PAYE/NICs liability to the Revenue. That is why we are providing in regulations for employers to set off the tax credits they have to pay against their tax/NICs liability. When paying over the PAYE, tax and NICs--and, incidentally, student loan recoveries--to the Revenue, employers will simply reduce the total by the amount of tax credits they have paid. In many cases that will involve one straightforward transaction between the Revenue and the employer instead of two, as would be the norm if Amendment No. 30 were accepted.
Perhaps I may refer back to what the noble Lord, Lord Skelmersdale, said on the previous amendment. He said that in the end money will change hands. It will not. All that will happen is that a smaller payment will be paid to the Inland Revenue as payment for PAYE and NICs because the tax credit will be netted off against it.
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