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Lord Swinfen: My Lords, passing this amendment will not delay the Bill further. The Bill has been amended in this House already and, therefore, must go back to the other place and be discussed there. It will be an ideal opportunity for right honourable and honourable Members in the other place to discuss it. However, I hope that the Minister will be able to give us an answer this evening.

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I support everything said by my noble friend Lord Higgins when introducing the amendment. It is important for those currently on family credit, for the very poor and for those with disabilities whose disabilities cause them additional expense.

Lord Freeman: My Lords, I support my noble friend Lord Higgins in Amendment No. 1. I follow the noble Earl, Lord Russell, in asking the Minister to enlighten your Lordships about the policy towards passporting.

If the Minister would allow me to widen the question slightly by raising the issue of what the ultimate aim is, on 27th May the Chancellor of the Exchequer was reported to have said to the Institute for Fiscal Studies that there is now a new mission for the Treasury which includes the further integration of tax and benefits, guaranteeing a minimum income for those in work and paid through targeted tax cuts and tax credits.

The principle of a negative income tax will be supported by many of your Lordships. However, the whole issue of passporting and integration raises fundamental questions which at earlier stages of this Bill your Lordships have addressed and to which we will doubtless return. For example, what are the implications for housing and child benefit? Are they to be paid via the working families' tax credit, as is mooted, certainly for housing benefit? Will the burden of administration be on employers from the beginning of the new financial year, 2000-01? Will the Treasury, as the Chancellor is reported to have said, work towards minimising the workload for businesses in paying passported and other benefits? Will the Government address the complicated issue of different tapers and different thresholds for different benefits--an enormously complicated area which will cost money to resolve? Finally, there is the element of compulsion. When we talk about "no benefit without work", is that really a principle that should be applied without due care and attention?

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, I recognise the concerns expressed in the House this afternoon, particularly those of the noble Lord, Lord Higgins, and the noble Earl, Lord Russell, on behalf of the Opposition Benches, which have been joined by others of your Lordships.

I very much hope that the statement which I am about to make outlining the Government's proposals will fully address your Lordships' concerns. We are at Third Reading, and I realise that the convention is that when the Minister finishes it disposes of the issue. But, if the House agrees, I shall be happy to take a more relaxed view, because we have not had an opportunity to discuss this matter. Therefore, if any noble Lords wishes to come back to me, with your Lordships' consent, I shall be happy to seek to respond. I am in the hands of the House. If that would be helpful, it would allow the House a little more flexibility than would normally be the case at Third Reading.

First, we are not disregarding the parliamentary process. As I said at both the Committee and Report stages, the passporting issue is a consequence of the

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Bill. However, any legislation would still come before the House. Equally, any changes carried by regulations, which is the more usual way, would come before this House and the other House and would in the normal way be debatable.

What I was seeking to say was not that this is not an important issue, but it is not an issue handled by putting words on to the face of the Bill. In other words, it is consequential, not primary. That is the distinction that I was seeking to make.

We are all now familiar with the fact that recipients of income support, income-based jobseekers' allowance, family credit and disability working allowance qualify for help with certain other benefits, which we call passporting. The other benefits include, as the noble Lord, Lord Swinfen, told the House at Report stage, the NHS low-income scheme; welfare foods; the home energy efficiency scheme; the social fund; maternity and funeral payments; legal assistance and advice; court fees and remissions; and travel costs to visit relatives in prison. Of course, by far the most significant of these is the low income scheme for prescription charges. The income related benefits act as a proxy indicator of low income households.

WFTC and DPTC tax credits will replace family credit and DWA from October this year. The Tax Credits Bill will simply substitute references to family credit and DWA legislation for a reference to either WFTC or DPTC. This will have the effect that, unless amended, where other departments' legislation specifies that recipients of family credit or DWA should qualify for help with other benefits, the reference will in future specify that WFTC and DPTC recipients should qualify for help with those benefits. In other words, if one does nothing, the current status quo becomes imported into the new tax credit scheme.

However, the introduction of WFTC is a considerable policy change which, compared to family credit, leaves families very much better off. In that respect, with all courtesy, I challenge the noble Baroness, Lady Carnegy, when she suggests that families could be worse off. In fact, by moving on to WFTC, families will on average be £24 per week (or over £1,200 per year) better off.

Baroness Carnegy of Lour: My Lords, I say to the Minister that I did not suggest that they would be worse off if they received all the benefits that they already get. If passporting was withdrawn, the working families' tax credit might have a negative effect. That is what I meant, although I may be wrong. I was not assuming that all the other benefits would continue.

3.30 p.m.

Baroness Hollis of Heigham: My Lords, it would be hard to conceive of a situation in which even if someone moved on to WFTC or came on to WFTC for the first time and did not receive passported benefits, he or she would be worse off. In any one week, in exceptional circumstances, there could be someone, I suppose, but the structure is so much more generous that that seems extremely unlikely.

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There is no direct read-across to the income levels of those on family credit and WFTC. Simply and straightforwardly passporting all tax credit recipients would have extended the help provided by passported benefits much further up the income scale. In other words, had one done nothing or had one simply replaced WFTC and DPTC for the existing family credit and DWA, one would have taken free prescriptions well up the income scale to levels which most of your Lordships would think inappropriate. That would have been unfair on other households with low incomes not receiving passported help. That would be costly and the money could be used in other and, in my view, better ways.

The issue, which I think your Lordships have accepted from the beginning, is where to draw the line between tax credit recipients who would receive passported help and those receiving WFTC who, by virtue of a relatively high income, are not given childcare credits and are not in the same financial need, and to do so in a way that is fair, identifies the appropriate target groups, is simple to operate and does not impose extra administrative burdens on the public or government. The issue is how to strike that balance.

Our proposal is that tax credit recipients with net incomes of less than £11,250 a year or, gross, £14,300 a year will have rights to passported benefits while those with net incomes above that point will not. I shall go on to explain why we have decided on that figure in a moment. This will ensure that tax credit recipients with less than half the average family income will be guaranteed rights to passported benefits broadly replicating the existing system under family credit. In other words, the figures that currently apply in family credit will be broadly replicated within the new tax credit scheme. We expect other departments, in terms of the other passported benefits, to take this as the same income indicator.

The new scheme will work very simply. Households in receipt of tax credits and with a net income below a specified level will continue to receive passported benefits. Those with net incomes above the specified level will not. The net income point will not depend on family size. There will be a single cut-off point, because of course the benefits do not concern children, as all children receive free prescriptions anyway, but affect only adults. It is the provision of free prescriptions for their parents that we are concerned about. We are proposing that the cut-off point will be set at £11,250, which represents a gross income of around £14,300 and broadly replicates the financial passporting figures within family credit.

A cut-off at this point will mean that more than 1 million people of the WFTC caseload of 1.4 million or 1.5 million will receive passported benefits. However, it is fair to add, so that the House has a full account, that just under 400,000 of the full WFTC caseload will not receive passported benefits--those comprise families with moderate incomes but also include those families with relatively higher incomes who are eligible, because of high childcare costs, for WFTC.

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