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Lord Freeman moved Amendment No. 43:
The noble Lord said: The tax and benefit systems in this country are complicated and perhaps necessarily so because they have to provide a sophisticated and equitable system for beneficiaries. My contention is that the impact on the beneficiaries of our welfare state should be simple and clear to understand. It is the duty of this Chamber, and indeed of legislators in both Chambers, to make sure that not only the primary legislation but also the secondary legislation--the regulations that stem from it--are clear, easy to understand and maximise the legitimate take-up of those benefits. Amendments Nos. 43 and 47, which are probing in nature, are designed to elicit from the Government a commitment at least to control the degree of bureaucracy and the bureaucratic complications that inevitably sometimes stem from well meaning legislation.
The new clause which I propose places certain requirements upon the Inland Revenue. This Bill presents us with a transference of responsibilities from the Benefits Agency, with a different culture, to the Inland Revenue, which of course places a great deal of emphasis and importance upon checking the veracity of claims and ensuring that the Exchequer is not unnecessarily pre-empted upon. However, the Benefits Agency has a culture of giving help and support as quickly as possible to a beneficiary and then subsequently in certain cases seeking to ensure through sample checks that the benefit has been appropriately claimed. In the transfer of responsibility from the Benefits Agency to the Inland Revenue there is an excellent opportunity to ensure that the best of the procedures of the Benefits Agency and the Inland Revenue are adopted. The new clause that I propose provides an opportunity to ensure that the best procedures of both agencies are adopted to promote take-up.
I refer to the definition of profit for the self-employed. This may seem a rather arcane point to the Committee. However, as regards the self-assessment form for the self-employed, the definition of profit relies on the use of capital allowances rather than depreciation in an accounting sense. That is an important point because when we transfer from the claim forms used by the Benefits Agency to the claim forms to be administered by the Inland Revenue, I believe it will be helpful to self-employed claimants--perhaps 10 per cent of those claiming working families' tax credit will be self-employed, some of them in very small businesses--if the definition of profit is the same as they use for the self-assessment of tax.
As the Committee will know, there are simplified procedures for self-assessment by the self-employed if their turnover is below £15,000. Just three items have to be reported on the claim form: turnover, costs and profit. I ask the Government to consider at the earliest opportunity--I believe this can be done before the commencement of the new tax year, 2000-2001--using the simplified reporting system already in place and used by the Inland Revenue as regards claims for the working families' tax credit. A broader point attaches to this matter. The Inland Revenue would be well advised
Thirdly, I am grateful to the Minister for drawing my attention to the fact that already some changes have been made to the working families' tax credit Form 1 and Form 502 to ensure that the declaration made by a claimant of working families' tax credit is the same as the one used on tax forms. I should like the Inland Revenue to carry through the same welcome changes to Forms 500 and 501. I am not aware that that has yet been carried out.
Fourthly, I am sure that the Committee is familiar with the guidance notes used to complete one's own tax forms. Guidance notes similar to those used for self-assessment would be of great help to claimants. Sensible and constructive changes have yet to be made. They will be made, I am sure, by many groups interested in improving the guidance notes.
Finally, when Mr. Gordon Brown, the Chancellor of the Exchequer, replied to the Select Committee on Social Security in another place, he said that the Inland Revenue would continue to provide "better off" calculations. Better off calculations simply help the claimant to understand whether to apply for the working families' tax credit, for example, and whether the claimant would be better off or not as the case may be. The noble Baroness the Minister has indicated that it is very unlikely that one would be worse off if one did not claim the tax credit. Will the better off calculations be performed by the Revenue? It does not do so at present. Will they be carried out centrally at Preston or locally in individual tax offices? How quickly will they be carried out?
The changes I have recommended to the Committee in the new clause could be achieved by April 2000 when employers take up their responsibilities. The noble Baroness was kind enough to tell me that the tax credit application forms, to paraphrase her words, will necessarily need to build on the current family credit claim form. She argues that this is necessary to ensure that they continue to fit with the Benefits Agency administrative and computer systems. We have a great opportunity here to simplify procedures and use the best of the Inland Revenue's procedures. Bureaucratic systems should be the servant of legislation, not the other way round. I beg to move.
Lord Higgins: The Committee will be grateful for the points made by my noble friend Lord Freeman. It is not very often that accountants and economists agree--I believe that he is an accountant and I once made my living as an economist--but on this occasion we can reasonably do so. There is perhaps a growing concern in the Committee about the question of timing. The noble Lord, Lord McIntosh of Haringey, listed the many preparations which are being made, but there is some concern on the issue, as reflected in earlier amendments. It is very important that we get the forms right--my noble friend moving the amendment knows more about that than I--but I am a little hesitant as to whether the guidance notes for filling in one's self-assessment form
My noble friend was right to make the point about the difference in ethos. We need to get the best features of the two departments operating in this area. One's fear is that one will be in some danger of getting the worst features. Certainly as concerns timing, in many respects the DSS is remarkably efficient--leaving computer failures on one side of course and keeping one's fingers crossed for the future of the computer system. On the other hand, the Inland Revenue can be extremely slow. Even with my own simple tax affairs I find that it may be many years before one gets an answer from the Revenue as to what is one's liability. We look forward to what the noble Lord has to say about the very important points raised by my noble friend.
Lord McIntosh of Haringey: I should say straightaway to the noble Lord, Lord Higgins, that I have just put together all the papers for my next year's tax return. I thought for some time that it might be possible to polish them off during the parts of the Bill being dealt with by my noble friend Lady Hollis. But we are acting so expeditiously and efficiently and in such a friendly way--except when we are beaten--that I shall have to save completing my tax return until I sit on the Front Bench during the House of Lords Bill.
I am grateful to the noble Lord, Lord Freeman, for proposing the amendment and for the manner in which he did so. It gives me an opportunity to say more about the way in which the Inland Revenue develops the forms and the guidance and the constraints on it in producing them. I had intended to say how grateful I was for his recognition in the amendment of the quality of the Inland Revenue's forms and guidance, but he slightly spoilt matters by contrasting the Inland Revenue with the Department of Social Security. It is my duty to defend the Department of Social Security as well. I think the noble Lord, Lord Higgins, is right: there are virtues in both organisations. The DSS has a culture of helping and using sample methods for checking, whereas the Inland Revenue, as a matter of accountancy procedure, has to ensure that every single record with an employer and an individual is, in the end, correct. The noble Lord is right to say that our objective should be to secure the best of both cultures and not risk ending up with the worst of both cultures. Mrs. Patrick Campbell said to George Bernard Shaw that if they had a child she hoped that it would have her beauty and his brains. He said, "What would happen if it had my beauty and your brains?" The affair did not develop in quite the way some might have expected.
The forms and guidance which the noble Lord, Lord Freeman, would like emulated by the tax credit application forms are very good--but they are not perfect and the Inland Revenue would be the last to say that they were. That is why the Inland Revenue continually seeks to improve all its forms and why it has a rolling programme of review. However, there are
I say that because, for the reasons that have been put forward, the tax credits will be built from the benefits that they replace. That means that the administrative and computer building blocks are those that were served by the old benefit claim forms. We have emphasised on other issues how that is the best for customers and carries the least risk. But it must mean that fundamental and radical redesign of the forms is not possible at this stage. We want an incremental approach that builds on the tried and tested systems and we will need to have the same incremental and evolutionary approach to the application forms.
Perhaps I may deal in turn with the four parts of the noble Lord's substantive amendment. I appreciate that the definition of "income" used for tax credits--I shall deal with profits on the second point--remains the one used for benefits from which the tax credits were built. Making the income definition the same as that for tax would clearly reinforce the message that the tax credits are part of the tax system. But in practice there are arguments for retaining the current definition of income, at least at the outset. I have already explained that making incremental changes helps customers and limits risk. Most particularly, keeping the current definition of income helps customers to compare what they would get on other income-related benefits with what they will get from working families' tax credits, where the income calculation would be the same. But I have listened to what the noble Lord said and I can assure him that we shall be keeping this under review.
As for simplified reporting procedures, the simplified procedure for tax returns allows self-employed people with low profits to report annual profits by reporting annual income, expenses and profits in a standardised format without the need for accounts. They are, however, still required to have the documentation that supports these figures and to supply it when requested. As a small businessman, at one stage I looked forward to the relief from the obligation to produce annual accounts which the previous government introduced, but I was never able to make use of it because one always
The tax credit application asks for this information in substantially the same way in relation to the short, snapshot period but the form needs to collect other information about whether the period is representative, to confirm that the application was within the other rules and to make some special adjustments. So the purpose it serves is not quite the same as the tax return. But I can readily accept that the current family credit form has its difficulties. It is prone to error and the replacement form, while better, is high on the list of Inland Revenue forms for rolling review. I can assure the Committee that the Inland Revenue will be looking carefully, in consultation with representative groups, at how the new form performs in this function and how it can be improved.
I turn to the third part of the noble Lord's amendment, which is about declaration. I am glad to say that the issues on declaration are easily disposed of. As noble Lords will have seen, in the latest version of the application form, which was placed in the Library last week, the declaration has been changed, as the noble Lord, Lord Freeman, wished, and it now follows the format used in the tax return.
On guidance, I hope that the Committee is pleased by the content, look and feel of the draft guidance note that accompanies this version of the draft application form. The aim has been to make it acceptable and helpful, which is the same aim behind the tax return guidance notes. But target audiences are different and, arguably, they do not need precisely the same thing. So, like me, other noble Lords will have had their tax return, complete with entreaties not to put it away behind the clock and forget about it, which is the right thing to do for a form which one is obliged to complete within a time limit. But we want to encourage potential applicants to pick up the application pack, open the application form and read the guidance notes. The balance is different. It needs to be comprehensive and it needs to be helpful, but to replicate the approach used for the tax return would be wrong. What we want to do is to learn from how the tax return was developed through a process of consultation, iteration and usability trials. That is what the Inland Revenue has done and is continuing to do.
The noble Lord asked a specific question about where it is decided who is better off under working families' tax credit. The answer is that there is no change here. The IBIS and Ferret computer programs which are already in use will be used for this purpose.
I hope that the noble Lord and the Committee will feel that, although we cannot accept what is admittedly a probing amendment, we are thinking along very much the same lines and want to achieve the result that the noble Lord wishes.
Page 4, line 17, at end insert ("if the requirements of section (Preparation of forms, etc.) are satisfied, and otherwise on such day after those requirements are satisfied as the Secretary of State may by order made by statutory instrument appoint")
7 p.m.
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