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Lord Higgins moved Amendment No. 16:
- Page 2, line 24, at end insert "and the amounts deducted by them from inland revenue"
The noble Lord said: This is a related amendment and seeks to clarify the position. Earlier the noble Baroness referred me to Clause 5 in order to reassure us with regard to subsection (2). In fact, we say here that, in expressing,
- "the amounts of the several payments made by them of or in respect of tax credits",
Baroness Hollis of Heigham: These amendments relate to the accounting requirements on the Board of Inland Revenue in relation to tax credits. Subsection (5) requires the board to show how much it has paid out by way of child and working tax credit, its administrative costs in respect of those credits and how much it has received by way of tax credits.
Amendment No. 16 continues the theme of Amendment No. 15, which we have just been discussing. If we do not know whether it comes from the Red Queen or Humpty Dumpty, always trust my noble friend Lord McIntosh. He knows more quotations and their sources than anyone else—from fictive sources as opposed to non-fictive sources; I make that distinction. The amendment would prevent tax credits from falling within the definition of "inland revenue" for the purposes of the Inland Revenue Regulation Act 1890. Consistent with that, the amendment of Lord Higgins seeks to make payments of tax credits be accounted for as deductions from inland revenue. Since, however, for the reasons we have just explored, it is necessary for tax credits to fall within the definition of "inland revenue" for the purposes of the Inland Revenue Regulation Act, the board will not have made any deductions from inland revenue for which it needs to account.
Amendment No. 19 probes the requirement for the board to account for tax credits it has received. This may look odd at first sight, but it is aimed at requiring the board to account separately for recoveries of overpaid tax credit, as it does for recoveries of tax underpaid. The idea is that amounts of tax credit recovered paid out and amounts recovered should be
accounted for separately in the interests of transparency. In light of that explanation, I hope that the noble Lord will warm to the provision.Amendment No. 16 makes a point which we have covered in some detail on other amendments. It is not an amendment that could have any substantive effect and therefore I urge noble Lords to resist it.
Lord Higgins: At least the recovery of overpayments might conceivably be regarded as inland revenue, having previously been expenditure for which they did not account. I do not want to persist with this. It is related to the earlier amendment and perhaps, if the noble Baroness is writing to me, she could refer to this as well. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Saatchi moved Amendment No. 17:
- Page 2, line 25, after "expenses" insert "of the Board"
The noble Lord said: In moving Amendment No. 17, standing in my name and that of my noble friend Lord Higgins, I shall speak also to Amendment No. 18. The Government propose to impose on employers, regardless of their size or profitability, the whole burden of administering the tax credit scheme. I believe that large companies have the machinery and the people to handle this very well and can generally look after themselves. So my remarks are directed at employers who may be small or very small businesses, sometimes just one person.
Smaller employers do not have and cannot afford the substantial departments to administer this scheme. That is why our Benches in this Chamber and, I believe, the Liberal Democrat Benches also on previous occasions, have attempted to mitigate these burdens or to seek compensation for them from the Treasury in one form or another. There have also been many attempts during the passage of the Bill in another place to attempt to reduce, mitigate or seek compensation for these burdens but the Government have remained unmoved. Therefore, we have given up on the notion that the Government might consider help for small businesses in these matters and, instead, we propose what I hope the Minister will agree is a very modest amendment indeed.
The amendment seeks only to require the Treasury, at the very minimum, to assess and to record the estimates of the amount of the cost to employers or, if the Minister prefers, the cost to small employers, of carrying out the new tasks which the Bill will require of them. Why do we ask for this? Because we believe that such a responsibility being placed on the Treasury will have the healthy effect of focusing the Treasury's attention on the issue of the cost of the Bill to small businesses.
It is not only our Benches which have raised this point. During the investigation of the new child tax credit by the Social Security Select Committee in another place, similar concerns were expressed. It was said there that businesses should not be treated as a social welfare arm of the Government, and speakers
pointed to the risk of invasion of employee privacy and also to the risk of distraction from the wealth-creating activity of those small companies.I believe it is also true that the Government's own Better Regulation Task Force recognised the regulatory burdens associated with the predecessor, working families' tax credit. In that case, in a report on payroll burdens, they said that,
- "businesses now see themselves becoming unpaid benefit offices".
Most of the local businesses I know employ that number of people, yet those businesses represent the bulk of employment in the economy and are the true engine of its growth. Any government which wants that growth to continue should want those companies to employ more people. Yet there are fears that the Bill, as it stands, could act as a disincentive to employing people because it invites extra cost and red tape for doing so.
Members of the Committee will forgive me if I say that, if we put unacceptable burdens on the businesses that support those people, we risk destroying the mechanism that creates those jobs. Those jobs lie at the heart of any government's ability to generate wealth which is where the resources for all our public good come from.
This is not a matter of great principle between the Opposition Benches and the Government but it is a matter of balance. Therefore I look forward to hearing that the Minister takes the point.
The contrary view would be that the Government can see the very great charm from the Treasury's point of view of making employers free suppliers to the benefit system. The problem is that the fine and worthy aim of the Bill, to which I referred earlier, of helping people move from welfare to work, will not be achieved precisely because of the burden that the Bill places on business. For example, a report entitled Work in Progress on the working families' tax credit from the National Association of Citizens Advice Bureaux found that employers have sacked workers entitled to a pay boost, or cut their hours, because they want to avoid the red tape of paying WFTC through the wage packet. Apparently this report was based on more than 700 cases involving people affected by that new tax credit. The study cited an example of a lone mother with three children who lost her job when the tax credit was put in her pay.
According to those who are familiar with the situation in small companies, some people have found that receiving the tax credit from their employer is not worth the trouble it can sometimes cause. Some employers apparently consider the administrative burden to be too great for them to manage and, in a small number of cases, people have been sacked merely for claiming tax credits. We may think that that is
monstrous, but it is an illustration of the pressures that small businesses are sometimes under. Other staff have put pressure on employers to reduce their hours so that they do not qualify for these credits and avoid being threatened with dismissal.The House had previously voted by 161 to 121 for a Liberal Democrat amendment to allow small employers to opt out of the system. On that occasion, it was decided not to risk a confrontation with another place by insisting on two amendments on which this House had defeated the Government. During that debate—although I was not present—I believe that the Minister urged this House to accept the decision of another place to reject the amendments. One of those amendments would have allowed employers with fewer than 10 employees to be exempted from paying the tax credit to their employees, payment being made instead by the Inland Revenue itself. On that occasion, the Minister said that that amendment would strike at the heart of the tax credit policy and was therefore unnecessary and inappropriate. In response, the noble Lord, Lord Goodhart—while agreeing that this was not an appropriate issue on which to force a battle between the two Houses—made clear that he had called for an "opt-out" and not an exclusion. The noble Lord said that it would have prevented small employers having to fund the cost of administering the new system.
I have spoken at length because our Benches certainly have given up the hope of persuading the Government to compensate or find ways of dealing with this issue other than by requiring small companies to do the work for them. I do not know what is the view of the noble Earl, Lord Russell. We shall hear that in a moment.
I hope that the Minister will at least accept this very modest amendment, which, after all, seeks only the publication of regular information about the scale of the burden that is being placed on business so that people can focus on it as an aspect of the working of the Bill. I beg to move.
6.15 p.m.
Earl Russell: The noble Lord, Lord Saatchi, is right. We on these Benches feel a considerable sympathy with this amendment. My honourable friend, Mr Webb, in the debate in another place, attempted to achieve the same end by the much more far reaching device of giving up the method of paying through the pay packet. There is a whole range of issues here in which—as the noble Lord, Lord Saatchi, rightly said—there is a problem of balance.
When you are dealing with a small business which employs, perhaps, three or four people, and it has to take on an extra person simply to understand the paperwork, which is quite complicated, that may make a real change to the finances of the business and possibly even threaten its viability. We do not want to diminish the number of small businesses in this country because they are one of the vital parts of the economy and one of the sectors which are capable of growth. The Exchequer will be as much a loser as the small businesses if we do not get this right.
Though I have sympathy with the small business, I have also perhaps even more sympathy for those who are dismissed by businesses—some of them businesses which, if I may so put it, are big enough to know better—for either claiming working families' tax credit or still claiming statutory sick pay (cases of that are still coming in 12 years after the Bill went through), or, in spite of the fact that it is illegal, for pregnancy. The fact that dismissal for pregnancy is illegal seems to have done surprisingly little to deter employers from continuing to do it. One wonders whether either the enforcement is sufficiently rigorous or the penalties of sufficient size to act as a necessary deterrent.
Talking of employers who are big enough to know better, the last case of this sort that came to my attention was a threat of dismissal to somebody short of 12 months' service for taking one day off work with a slipped disc. I do not think that sort of thing is in employers' interests any more than it is in employees' interests. Labour is one of the raw materials of business. One would not treat one's other raw materials with that degree of indifference. If one does, it costs. Maybe the Minister will look again at my honourable friend Mr Webb's suggestion for moving away from the pay packet as the vehicle of delivery. They have gone a little way in that direction; possibly there is a little further that they could go. Possibly also before Report stage of the Employment Bill, the Minister might have a quiet word, of which I shall not need to know anything, with her noble friend Lord Sainsbury or Turville.
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