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Lord Higgins: I begin by congratulating the noble Baroness on a record for the course. It is almost impossible for anyone taking it at that speed to comprehend what was being said.
This is an extremely complicated matter. It is also the case that we are talking here of Clause 3, but the Minister referred to numerous other clauses at the same time. One could not possibly have switched back and forth from one clause to another to get any real sense. When we come to the later clauses, we will need to come back to the points which the noble Baroness has made at that stage.
I am not quite clear whether these amendments are what one might call part of the general restructuring of the Bill, about which we complained at the beginning of our proceedings last time, or whether they are normal amendments which might anyway have been necessary on reflection. In any event, these are matters which presumably could have been dealt with in another place. It would be helpful to know on what date the Government became aware that it would be necessary to make these particular changes because, increasingly, we seem to be getting into a situation where these matters are not scrutinised in the House of Commons and the House of Lords is then given the function of sorting out the matters after the Bill has been through the House of Commons.
Having said that, I wish to concentrate on Clause 3. No doubt we shall come in due course to the matters which arise on Clause 5 and later clauses. In essence, the Minister has said that it is important to make the distinction between awards and entitlements. However, I understand that part of the problem is that the entitlement may change during the year. No doubt the noble Baroness will correct me if I am wrong about that. If there is a fall in income during the year, then that is taken into account during the course of the year. I presume that is what she meant when she referred to entitlement. On the other hand, if the income rises by less than £2,500, then no adjustment is made. If it rises by more than £2,500, then an adjustment is made. I am not sure whether the whole of the increase of £2,500 and above is taken into account, or only the marginal amount over £2,500. Perhaps the noble Baroness could clarify that point.
Baroness Hollis of Heigham: Yes, I am happy to give that clarification. It is only the marginal amount above £2,500.
Lord Higgins: This seems to be a very strange arrangement because it is not the kind of allowance—if that is the right word—which would be made by the Inland Revenue. If one's income suddenly rises by, say, £2,700, it is not normally the practice of the Inland Revenue to say that they will only make a charge on the £200. Since this whole matter is being transferred from the Department for Work and Pensions to the Inland Revenue, it is important that some degree of consistency is achieved between one taxpayer/beneficiary and another. The Bill appears to create a situation where that is not the case. Taxpayers, who are nothing to do with the benefit system, are being treated somewhat more harshly than those on a tax credit. This is not very desirable. So much for entitlement.
I turn now to the issue of awards, which the noble Baroness has said needs to be kept distinct from entitlement. Presumably, the award is finalised only after the end of the year rather than during the course of the year. Again, if that is not so, perhaps the Minister could clarify that point. Or does the board make decisions on the award in the course of the year; at the beginning of it; on expectations about what is likely to happen about the individual circumstances; or at the end of the year when the information is available?
Of course, there are some comparisons here with the tax system and the whole issue of self-assessment—although I presume I am right in saying that, as far as the award is concerned, there is not anything comparable to self-assessment in the income tax system. So this is far from being a simple arrangement for those involved in it—either for those who pay tax and get deductions or for those who are merely having a straight benefit paid by the state. We will no doubt give further consideration to this issue in due course.
Again, I am not clear whether the situation we mentioned with regard to changes in a person's circumstances apply equally whether they are receiving a benefit or receiving a tax deduction. So, as an initial run on the points the Minister has made, it would be helpful if the issue could at least be clarified to that extent.
Earl Russell: I thank the Minister for letting us have her speaking notes. As I had already read them several times and found them extremely clear, I am perfectly happy to overlook the speed with which the Minister delivered her speech. It was fairly familiar material. The Minister has, I am sure, read the CAB report by Janet Albeson entitled Benefits and Work. There is a whole chapter in that report which is devoted to the fact that the social security system rests on the premise that people are either in work or out of work. That premise is now very firmly and clearly out of date. Janet Albeson came to the bleak conclusion that there is no solution to that problem, like Hilaire Belloc's doctors who are called to attend Henry King.
Professionally, the Minister cannot of course take that view. I admire the imagination and the ingenuity with which the Minister attempted to tackle this issue. Whether we have the final answer I take leave to doubt. I am sure that the Minister shares those doubts and will be on the alert for any way in which we may not have done quite as much as anybody else. These are minor and technical amendments which are designed to make addressing that problem easier.
When I hear the noble Lord, Lord Higgins, speak about the treatment of an increase in income, I am again reminded that he was not in this House during the Parliament of 1992–97, when we discussed the effects of poverty traps on the incentives to work. The Minister has an imaginative and practical—and I very much hope successful—way of tackling that. I have enough hope in it to be very willing indeed to give it a fair wind.
Baroness Hollis of Heigham: I apologise for the speed at which I spoke. I had thought that my remarks were covered by the speech notes that I had sent in advance. There could be nothing more boring for the Committee than to hear me recite, very slowly, a speech about technical amendments, a copy or a version of which it already had in its hands. I was trying to save the Committee undesirable hardship. Perhaps in future I should expose the noble Lord to the full rigours of a very slow explanation of very technical amendments.
The noble Lord, Lord Higgins, and the noble Earl, Lord Russell, are correct: these are all part of the group of technical amendments separating out award and entitlement. Broadly speaking, the noble Lord, Lord Higgins, was right about the distinction between award and entitlement. Awards are what you get on an almost pay-as-you-go basis. Entitlement is the end of the year balancing of the accounts to see whether the sums are properly paid to you. Entitlement cannot therefore be settled until after the end of the year, but awards can be, and may need to be, adjusted during the year to reflect changes that claimants expect or receive in their annual income, both up and down. It is worth perhaps emphasising that, for the most part, awards would start off being based on the previous year's income—hence the P60. Thus they go into the current year based on a previous year's income but, of course, if their income falls by any amount or, as the noble Lord, Lord Higgins, rightly identified, rises by more than £2500, we would expect them to want to adjust their awards as they go rather than to wait for an end-of-year entitlement.
The second area that the noble Lord, Lord Higgins pressed me on was the asymmetry of the losses and rises in incomes. There are some very good reasons for that. It is clear that of the 5.5 million families to be helped through the new tax credits system, approximately 1.3 million increase their incomes by up to £2000 in the course of a year, while a further 1.3 to 1.5 million will increase their incomes up to the £2,500. Only about 0.7 million will reduce their incomes by a similar amount. Therefore a substantial proportion of people in receipt of tax credits will expect to see an increase in their incomes.
What we have done, and I believe this is wise, is to have a headspace so that we do not seek to claw back the adjustment at the end of the year. However, if the increase in income is substantial—namely; more than £2.500, perhaps because there has been a change of job or a second earner in the family has moved into the labour market—then at the end of that year we will seek to adjust it and use the new income in total, including the increases below £2,500 and increases over £2,500, as the basis of the assessment for the forthcoming year.
I believe the asymmetry is extremely decent, generous and proper. It ensures that if the incomes or hours of work of, for example, a vulnerable man who may have problems with poor health or a lone parent whose childcare arrangements may collapse, suddenly decrease, we can pick them up and offer support without those people feeling the need to drop out of work altogether and go onto benefits in order to get a secure income. Equally, the asymmetry says to people, "If you are able to increase your income in the course of the year, we are not going to be interested in the small sums; we are delighted that you can, and we will use this current year's income in total as the basis for next year. Only if in this year you earn more than £2,500 above your award will we seek to take it into account—and we can do that at the end of the year". In my opinion, it is both decent and generous. It reflects the reality of the amount of income and job churning that goes on for people on low incomes, who very often are in part-time work, full-time work, or no work, according to the circumstances of the labour market.
If I have missed any points then I shall be happy to write in more detail. With that explanation, I hope that both the noble Lord, Lord Higgins, and the noble Earl, Lord Russell, will agree with me that behind the technical amendments is something really important to which we are giving all the support we can. We recognise that this is a grey area. People are not just in work or out of work for tidy periods of the year. They revolve and rotate in the labour market. We want to give them the support and financial security they need to encourage them to stay in the labour market. I believe that the asymmetry of these arrangements does precisely that.
3.45 p.m.
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