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Lord Higgins: My Lords, will the noble Baroness kindly read the last paragraph again? It really is quite

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difficult to catch it. In particular, can she indicate how many people at the moment receive passported benefits? That will give us some idea of where we are in relation to that 1 million or 1.5 million people.

Baroness Hollis of Heigham: My Lords, at the moment everyone on family credit and disability working allowance receives passported benefits. That is about 800,000 people. We are going up to a total client load of 1.4 million. The low-income scheme would break at about 1 million. Because WFTC is much more generous, particularly with childcare help, and very many more people come into it than come into family credit, we are saying that an estimated 1 million of those will be eligible for passported benefits and that 400,000 on WFTC will not be eligible. Does that help the noble Lord? I am sorry to throw figures at your Lordships, but I hope that you will understand that because we are moving to a differently structured but very much more generous scheme, more people will come into the scheme even though those on higher incomes will not. We believe that this will represent help to low-income families broadly analogous to family credit figures without taking up resources which would be better spent elsewhere.

I am sure that your Lordships will want to press me on how in practice such a scheme would work. From October 2000, the tax credit award notice will include a simple paragraph notifying recipients whether they qualify for help with passported benefits. In the interim, we are proposing that tax credit recipients will be able to establish their eligibility for passported benefits on the basis of the figure on the WFTC award notice showing the amount of tax credit withdrawn. That will work as follows. The notice will, as family credit notifications do now, show the maximum tax credit to which the recipient is entitled and how much of that has been withdrawn on the basis of the family's net income. The maximum credit a family is entitled to depends on factors such as age and the number of children. However, for a given net income the same amount of credit would be withdrawn for every family regardless of their maximum entitlement. The amount withdrawn, therefore, provides a unique proxy for any given level of net income.

So, for a cut-off point of £11,250, tax credit recipients would have lost £70 of their maximum entitlement, and their maximum entitlement could go well beyond that if, for example, they had a large number of children and heavy childcare costs. But they would lose £70 of their maximum entitlement. That is why it is being done that way round. Where the award notice specifies that they have lost less than that £70 cut-off figure, they would qualify for passported benefits; where they had lost more than £70, they would not.

Earl Russell: My Lords, I thank the Minister for giving way. Can she give a commitment that the cut-off figure will be annually uprated for inflation?

Baroness Hollis of Heigham: My Lords, I cannot give a commitment but I would expect that to be

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sympathetically considered. That is all I can say at this point. It is not a matter on which I have any authority. It is for the Chancellor to determine in his Budget, in discussion with the appropriate Secretaries of State, what he will do with all such benefits. But the figure would be sympathetically considered and reviewed, as are all other figures at the time of Budget Statements. The noble Earl knows what the Government's policy on family credit has been in the past.

On the form there will be a figure showing the loss from maximum entitlement--and £70 is the cut-off figure in practice. If you lose more than £70, you would not qualify; if you lose less than £70, you would. This kind of negative image serves to allow people to know what their entitlement is. The noble Lord, Lord Higgins, looks baffled. Does he wish to intervene?

Lord Higgins: My Lords, it is merely the paradoxical way in which what is now proposed will operate. Does the Treasury expect to gain or lose with regard to passported benefits?

Baroness Hollis of Heigham: My Lords, this will cost extra by virtue of the fact that another 200,000 people are coming into the scheme. We expect the cost to be anywhere between £10 million in the first year, increasing to £40 million subsequently. Noble Lords can see that the scheme is more generous and more people are brought into it. That is why we are trying to get the right balance between how far up the income scale it goes while trying to avoid creating the situation that was feared by the noble Baroness, Lady Carnegy.

I go on to explain how the system will work in practice. A tax credit recipient who wants a prescription will go to the pharmacist with an award notice, as he or she is now obliged to do theoretically with the family credit form. The pharmacist will check to see whether the amount of tax credit withdrawn is greater or less than the specified amount. A table will be available and the figure of £70 will be known to every pharmacist in the country. The pharmacist will decide whether or not to give a free prescription on that basis.

Where the patient has physically lost the award notice a duplicate can be obtained from the Inland Revenue. Where the patient does not have an award notice at the point of seeing the pharmacist--perhaps he or she has forgotten it, or whatever--the pharmacist will tick the box on the prescription entitled "Evidence not seen". To combat false claims to exemption the Prescription Pricing Authority will carry out post-dispensing checks in appropriate cases. Checks of this kind are nothing new; they are carried out now for recipients of social security benefits who do not have evidence of an award at the point of dispensing. Those interim arrangements will last for only one year. From October 2000 tax credit recipients will receive notification automatically on their award notice of whether or not they will get help with passported benefits.

Lord Freeman: My Lords, the Minister has explained the position very clearly. Can she give noble Lords any indication that she will ask officials to look

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again at bringing forward to the beginning of the tax year, when employers take on responsibility for payment of working families' tax credit, what appears on its face to be a complicated arrangement rather than wait until October 2000, which is almost a year and a half from now? I would have thought that it was possible to save the double complexity between commencement of the obligation on employers and full integration of the system.

3.45 p.m.

Baroness Hollis of Heigham: My Lords, I hope to be able to come back to that point. These arrangements last for one year. From October 2000 tax credit recipients will receive notification automatically on their award notice as to whether or not they will get help with passported benefits. All they have to do is show the pharmacist the relevant paragraph of their award notice. We must ensure that the arrangements are properly and clearly explained to tax credit recipients, especially in the interim period. The Revenue will be discussing with the various departments how best to provide such information.

I respond to the point raised by the noble Lord, Lord Freeman. The matter has been explored. The best advice that I can give the noble Lord is that the practical arrangements cannot be brought forward before October 2000. Given that, I am afraid that I cannot give the commitment that he seeks. Obviously, I shall pursue this further with officials. If in the course of the next year there is any possibility of this being done obviously it will be a sensible and worthwhile point with which to deal. If we can do it we shall do so, but I am not now in a position to give such a commitment.

The arrangements for income-limited passporting that I have announced will not, however, apply to Social Fund maternity and funeral payments administered by the DSS. At the time of the Budget the Chancellor announced that maternity payments would be doubled as part of the Government's commitment to supporting families when they need it most. These payments are made to help parents meet the essential costs of new-born children when they are at their most vulnerable. It is also the time when families are likely to experience a considerable drop in income as parents take time out of work in the months immediately following the birth. In addition, the Social Fund operates separate capital rules which restrict eligibility for these payments even among families in receipt of qualifying benefits or tax credits. Therefore, I am happy to say that the Government have decided to continue to make all tax credit recipients eligible for these Social Fund payments.

To conclude, the Government believe that the arrangements that I have outlined will provide a simple and fair scheme to identify the appropriate target group for passported benefits targeted specifically on low income families. Their strategy will not undermine the message that work pays, impose extra administrative burdens or require more forms to be filled in by either tax credit recipients or the Government; in other words, it builds on the paper practices that currently exist for

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family credit. It will provide transparent and fair support to those families that need it. I hope that all noble Lords will agree that the Government have struck a decent and fair balance in trying to devise a scheme that protects those on low incomes without passporting those, going all the way up WFTC, who might otherwise be eligible. In the light of that, I hope that the noble Lord, Lord Higgins, will feel able to withdraw his amendment.

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