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Baroness Noakes: My Lords, we shall have to agree to differ. I shall think about the matter but still see no reason why the principles on which the department seeks to exercise its powers should not be laid before the House for debate. The Minister has explained today but that is not in the Bill—which would allow almost anything, without restraint. I shall carefully read the Minister's remarks and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Noakes: moved Amendment No. 28:
- Page 9, line 36, leave out paragraphs (c) and (d).
The noble Baroness said: My Lords, Clause 15(6)(c) allows the Government to treat a pensioner's income as capital and paragraph (d) allows capital to be treated as income. The Minister believes that the same argument used against Amendment No. 27 applies here but I suggest that the Government do not need such powers. In Committee, the Minister said that such provisions were commonplace in social security legislation from time immemorial—so I am challenging a well-settled orthodoxy.
In Committee, the Minister stated that Clause 15(6)(c) would be used,
- "when a payment that is regularly received, or is made in relation to a particular period, should not be treated as income; for example, a pensioner may have loaned a relative some money which he or she is repaying monthly by instalments. Although it would be regular monthly income, it clearly would be in respect of capital and, therefore, we would want it treated as such".".—[Official Report, 29/1/02; col. 192.]
I do not know of any tax, trust or company law that regards repayment of a loan as income—and all have to grapple with the distinction between income and capital. All would come up with the answer that a loan repayment is capital. If it is relevant, accountancy would come to the same conclusion. My proposition, therefore, is that the Government do not need a power to say that it is capital because it already is capital. In Committee, the Minister gave no examples of how paragraph (d) would be used. Paragraph (d) states:
- "capital is to be treated as income".
Baroness Hollis of Heigham: My Lords, Amendment No. 28 seeks to remove paragraphs (c) and (d) from Clause 15(6). We had a fairly long discussion on what we used to call "Humpty Dumpty" clauses. Perhaps I may remind your Lordships of the purpose of the subsections.
Paragraph (c) contains the power to prescribe in regulation the circumstances in which income is to be treated as capital. Paragraph (d) does the reverse. Your Lordships, led by the noble Baroness, were exercised in Committee as to the circumstances in which the department might exercise those powers. I obviously cannot say what powers future governments may use. However, I can describe what this Government propose to do with them.
The powers already exist within income support and social security legislation and each use is detailed. There is no intention to do anything other than what is set out in the Income Support (General) Regulations. I can assure your Lordships that the Government simply intend to carry forward those provisions. There are no secret or sinister uses. I understand that the noble Baroness is drawing on her considerable experience in tax law. However, tax law has a different history from social security legislation. It is based on individual assessment, and so forth. We are rooting these provisions in terms of social security legislation and carrying forward provisions that are well known and well understood for income-related benefits.
The provisions are there so that we can deal with the strange situations people sometimes find themselves in. The powers are rarely used within income support and will probably rarely be used within pension credit. However, that does not mean that they are superfluous. I was pressed for an example of where income could be treated as capital. I refer to payments for discharged prisoners. The payment can be around £90 and is given to prisoners on discharge. It is ignored
as income from income support. That enables the ex-prisoner to be entitled to income support immediately upon discharge. If we do not have that clause in similar legislation, that prisoner might be denied one or, more probably, two weeks' income support, which I am sure that your Lordships would not want.
Baroness Noakes: My Lords, is the noble Baroness saying that that, treated as capital, should be disregarded?
Baroness Hollis of Heigham: No, my Lords. I am saying that we are treating it in that situation as capital where it is actually a form of income. If we did not, that person would not be able to receive income support because that £90 would be effectively a week, or indeed two weeks, treatment of income. Otherwise, that person would lose entitlement to income support. I am surprised that the noble Baroness is baffled by that. It seems to me to be fairly straightforward.
Baroness Noakes: My Lords, I have no problem with that being disregarded. Indeed, there is a power in paragraph (b) to disregard. What I am querying is when income would be treated as capital.
Baroness Hollis of Heigham: My Lords, I shall come on to when capital should be treated as income and when income should be treated as capital. I shall give further examples of where what may appear to be income would be treated as capital, which is what I understand the noble Baroness to be querying.
Similar circumstances would be if a younger partner were to receive an advance of earnings or a loan from an employer, or interest accruing on a building society account. Paragraph(d) contains the power to prescribe in regulations the circumstances in which capital is to be treated as income. As I said in Committee, it is intended that regulations made under this power will provide for the treatment as income of a payment that has the nature of an income although it could, as a result of general law, be viewed as a capital holding; for example, it is paid regularly or in relation to a period.
We envisage that this power will be used less frequently than the power to treat income as capital. The most frequent use of this power will include regular payments from an annuity. We will ignore the value of the right to receive an annuity and take only the actual payments from it. A further use would be receipt of a tax refund paid to a younger partner on return to work after a trade dispute, and so forth.
The uses to which these powers are put will be fair and transparent.
Earl Russell: My Lords, I thank the Minister for giving way. I think I have heard the Minister more times than I have had hot dinners defend the regulation-making power on the ground of the Government's intention. I often find her persuasive when she does so. However, does she understand that the House must concern itself not only with the present
intention of the present Government but with the extent of the power being created? Therefore, will the Minister direct her mind to the point made by the noble Baroness, Lady Noakes; that is, that these powers are rather widely drafted for the intention ascribed to them.
Baroness Hollis of Heigham: My Lords, the noble Earl, Lord Russell, has been dealing with social security for many years. Perhaps I may ask him whether in his experience he has not accepted the need for such a provision in almost every Bill dealing with an income-related benefit that he has done from the Opposition Benches and I have done from the Opposition Benches.
The first time this arose I was filled with the same—I shall not say "synthetic anger"; I do not mean to be discourteous in any way to the noble Baroness—shock, horror and intellectual dismay at such a "Humpty Dumpty" form of words. On further scrutiny I have been persuaded how wise and benevolent such provisions are. I hope, as a result of the Bill, that the noble Baroness will share my perceptions on that. We need these powers. Otherwise, junior staff in departments could easily treat income as capital when that is inappropriate and capital as income when that is inappropriate. All the ways I have suggested are ways of handling the matter which will be to the benefit of the person concerned—unless alternatively there is a deliberate intent to defraud—and therefore will increase entitlement to a benefit, which would not otherwise be the case.
I can keep trying to produce more and more examples for the noble Baroness. However, in all the income-related social security legislation which I have ever dealt with, clauses were needed to this effect to prevent manipulation or to prevent what would be unfair treatment of a resource.
Baroness Noakes: My Lords, I thank the noble Baroness for that reply. I believe we are at cross-purposes. I was trying to suggest that she simply did not need the powers. I know that she says she has had them all the time in social security legislation. That does not mean that she needs them. I was not drawing simply on tax law. I do not believe that there is any branch of the law which would have treated the loan in the way she has suggested. I believe we were discussing proper guidance to her officials down the line rather than any power which may be needed to treat something in one way or another.
All the examples she gave of how she would use paragraphs (c) and (d) seem to me to be either capable of being dealt with by general law or by disregard. I do not think she gave a single example of where she would treat income as capital; capital being something on which she would then calculate the deemed income. She told me about things she would not take into account. I fully understand that that is the purpose of paragraph (b). However, to change its nature into the reverse is something else.
I hope that the noble Baroness might reflect further on the subject. However, I shall not press the point today. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 19 [Regulations and Orders]:
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