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Lord Skelmersdale: Of course money changes hands. Assuming that the employer does not have more claims than expenditure, he sends a cheque to the Revenue.

Lord McIntosh of Haringey: The employer will send a cheque for a smaller sum. "Money changing hands" implies an additional transaction. That is not an additional transaction. The noble Lord said on the previous amendment that there will be a further transaction. There will not be.

Lord Skelmersdale: One cannot translate part of my argument from the previous amendment to this one. In this case money changes hands. I accept the Minister's statement that it will almost certainly be a smaller amount of money changing hands. In extreme cases, it will be an income from the Revenue.

Lord McIntosh of Haringey: We are talking about burdens. There would be a burden if there were an additional calculation and transaction. There is neither an additional calculation nor an additional transaction. Let me interrupt myself to reassure the noble Lord,

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Lord Higgins, about calculations, and both my noble friend Lord Peston and the noble Lord, Lord Skelmersdale, about lending money to the Government. As far as concerns the calculations, assurances have not only been given by my noble friend Lady Hollis, but I spelt out explicitly on the first day of Committee that the only calculation required of employers will be to convert the daily rate of tax credit and to multiply it by the number of days worked. That is all; no further calculation will be required. There will be a table with 31 days on it, and from one to 31 days will be the figure to be paid out in tax credits.

Lord Peston: Perhaps I may interrupt my noble friend. I hope that he is not saying that it will be impossible for the firm--the employer--to be in credit to the Inland Revenue or for the Inland Revenue to be in debt to the employer. Is my noble friend saying that that cannot happen?

Lord McIntosh of Haringey: I am first addressing the issue of calculation which was raised by the noble Lord, Lord Higgins.

Lord Higgins: The noble Lord seeks to clarify the situation. I quote again from paragraph 5(1) of the statutory instrument, under the heading of,

"Relevant employer's ... obligation to pay tax credits". It reads:


"On receipt of a start notification in respect of an employee the ... employer shall calculate the tax credit to which that employee is entitled", during the period when the employer will be responsible for the payment of tax credit to that employee. It does not say that on receipt of a start notification the Inland Revenue will inform the employer of the calculation.

Lord McIntosh of Haringey: As the bellman said, "What I tell you three times is true". I said it on the first day of Committee; I have said it just now; I say it again: no calculation is required other than converting the daily rate, which is notified to the employer by the Inland Revenue, of the amount to be paid and multiplying it by the number of days worked in the particular period. That is the only calculation required.

Lord Higgins: Then why does not the statutory instrument say so?

Lord McIntosh of Haringey: I think it does. Clearly, if there is going to be disagreement about it we will add to our procedures of consultation. I shall write to the noble Lord if any change in the wording is required. But it is totally explicit as far as I am concerned.

Baroness Knight of Collingtree: Might it not be easier if the SI did not state what my noble friend has just read out to the Committee?

Lord McIntosh of Haringey: I did not say that there was no calculation; I stated the calculation. That is what is set out in the statutory instrument. I really do not know how I can be any clearer.

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My noble friend Lord Peston and the noble Lord, Lord Skelmersdale, referred to delays in payment and to the prospect, as my noble friend put it, of employers lending money to the Government. There is no question of employers lending money to the Government. In most cases the amount of money which is due to the Inland Revenue in the form of payment of PAYE and NICs will be reduced by the amount of tax credits.

The noble Lord, Lord Higgins, used the word "suffer" for that. All I can say is that since PAYE was introduced in 1949, it has been the case that employers have had a short-term cash-flow benefit which will be marginally reduced in most cases. But they have had no right to that cash-flow benefit and it has never been queried that it happened because of the administrative convenience of the PAYE system both for them and for the employee. All that will happen is that there will be a slight reduction in that cash-flow benefit. I do not call that suffering.

There are other cases. We recognise that. We estimate that between 50,000 and 70,000 employers will have more to pay out in tax credits than they pay out in the form of PAYE and NI contributions. In those cases, all they have to do is to notify the Revenue in advance of that fact and, depending on the form of credit transfer--whether they use automated credit transfer or otherwise--they will receive the money in good time to make the payment to the employee. In the worst of all possible cases, when someone messes that up, the Revenue has the power to intervene and make emergency provision.

Lord Peston: My noble friend's argument is decisive and basically satisfies me. However, I am puzzled as to why paragraph (f) on interest payments should include,

"interest on sums due from ... the board". On my noble friend's argument, that cannot conceivably happen because the board will always be paying up. Surely the parliamentary draftsman must have been advised that it was at least possible that the board would end up owing some money to the employer. Although I accept entirely what my noble friend said, if employers are owed sums they should get a proper rate of interest on those sums and not a derisory amount like the current Treasury discount rate.

Lord McIntosh of Haringey: Clause 6(2)(f) merely provides that if money is owed the appropriate rate of interest will be specified in regulations. I can confirm that if something went wrong and the employer failed to make the application in time there would be a rate of interest. The regulations have not yet been drafted to specify what it would be, but I am sure that officials will have listened to my noble friend's point about the rate of interest that would be relevant. The point I have to make is that this has nothing to do with compensating employers for forgone interest or anything else. That is not the purpose of Clause 6(2)(f).

I believe I have made clear that there is no question of lending money to the Government and there is no question of elaborate calculations other than the very simple, straightforward, arithmetical calculation of the

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number of days worked, to which I have referred. Perhaps I may be slightly more explicit about the way in which employers will apply for funding, although, again, I said this on the first day of Committee. Employers will be able to apply for funding from the Revenue in advance. The Revenue will provide funds where they are needed to ensure that employers do not have to dig into their own funds in order to pay tax credits on time. Applications for funding will be made on a special form which the Inland Revenue will provide. From April 2000 this form will be sent to an employer who has been asked to pay tax credits for the first time, and from January 2001 onwards the form will be included in the Inland Revenue's annual employers' pack, so all employers will be prepared in case they need to apply for funds.

This is a simple mechanism for funding. It means that the cumbersome arrangement of money passing backwards and forwards, as envisaged by Amendment No. 30, is both unnecessary and inappropriate. I hope that the noble Lord will feel able to withdraw the amendment.

Lord Higgins: I do not find convincing the noble Lord's answer on the statutory instrument and I should be grateful if he would write to me well in advance of Report stage so that we can consider carefully whether change is required.

Lord McIntosh of Haringey: I give that assurance without hesitation.

Lord Higgins: Perhaps I may say in response to that intervention that it shows some of the advantages of publishing statutory instruments in draft. I pay tribute to the Government for going ahead and doing that.

Perhaps I may turn to the substance of the argument. Instead of the company simply being told what to pay to the employees and being given the money, which is a quite separate operation, what is proposed means that the company will have to integrate that calculation with its existing PAYE one, even though it is quite unnecessary to do so.

Lord McIntosh of Haringey: New confusions arise each minute. There is no integration with PAYE. The amount will be notified by the Revenue to the employer who will pay out the tax credit on a separate line from PAYE. The only integration is on the total payroll where they are netted out. That is not integration in the terms that the noble Lord seems to imply.

I agreed to write to the noble Lord on one point. Before I do that, perhaps I may draw his attention to Regulation 4(2)(d), which says that the employer will be told the daily rate.

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