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Lord Northbrook: I appreciate what the Minister has said. What extra costs might be incurred in terms of Inland Revenue manpower in adjusting PAYE codes to take into account changes in circumstances during the year? There could be some extra work involved.
Lord Higgins: We are grateful to the noble Baroness for her further explanation. Our objective on both sides of the Committee is to improve the legislation. To that end I have repeatedly thanked the Minister, and indeed do so again, for the help which she has given as far as that is concerned. It was helpful to be given some indication by way of the speaking notes. However, the speaking notes to which the noble Earl referred had only a few lines on this particular set of amendments;
the rest of them were related to later clauses. Of course I accept that there is also a relationship between the two.
Baroness Hollis of Heigham: I apologise to the noble Lord. Before the Committee meets on Thursday, if it would help our proceedings, I shall circulate my speaking notes on the remainder of the technical amendments so that noble Lords can follow them as I speak.
Lord Higgins: That is an interesting innovation and in some ways helpful. At the same time, however, it is important to put on the record all the various relevant arguments for the benefit of those who may subsequently read our proceedings.
Perhaps I may pursue one or two points. First, I am still not clear on what date it became apparent that these amendments were necessary. One of the reasons why I did not refer to her speaking notes was that, in some which she has circulated—but did not read out today—the views expressed on the original drafting of the clauses were perhaps a little critical.
On the substance of the matter, the noble Baroness refers to the proposals relating to increases and decreases in income of the individuals affected as "generous". Of course, that generosity is paid for by other taxpayers, so one needs to keep a balance on that. If we could all spend vast extra sums on people who are in relatively poor circumstances, that would be fine, but one has to take into account the fact that someone will have to pay for that generosity. One cannot simply say that this is something about which we can all be happy and generous.
I am not quite clear about the adjustments. The noble Baroness says that if there is a change in income it will be taken into account at the end of the year. I presume that does not mean it will be clawed back at that point. I presume there will be an adjustment for the next year, but if someone has gained from an increase of, say, £1,800 in the year, that will remain as a gain for them.
Baroness Hollis of Heigham: For that one year, the £2,500 headspace will not be clawed back. In other words, it is headspace. Only money that someone earns over and beyond that £2,500 will be clawed back the following year. However, the next year's income basement on which the award is made will include both the £2,500 that has not been clawed back and any money beyond that.
Lord Higgins: I understand that, but if someone continually, year after year, gets an increase of £1,800, then each year they get the benefit of that. That is, no doubt, a highly desirable situation for them, but it is not the situation for income tax. We are treating people in receipt of tax credits in a quite different way.
I am also still not clear as to whether this generosity, as the noble Baroness called it, applies to those for whom the tax credit is a deduction against tax or simply to those who are receiving benefit. We now know that 90 per cent of the total spending will
effectively be benefits and only 10 per cent will be deductions against tax. Do the proposals affect both groups: those who are genuinely in receipt of a tax deduction or tax credit, and those who are in receipt not of a tax credit, but of a benefit payment? No doubt, as we go through these successive clauses, the situation will become a little clearer. We need to know at what stage the Government changed their mind on these proposals.
Baroness Hollis of Heigham: On the substantive policy point, there will be a number of people who are on benefit or who stay in the same job with the same income and same hours, whose previous year's income and current year's income remain the same. Therefore, their award and their entitlement will not change. Those will be people on benefit or people with steady work—perhaps a lone parent working 16 hours a week on the minimum wage. Their income and award entitlement will not change.
Secondly, there will be a group who will be in work and whose income will increase. We have gone through those figures. Up to £2,500 will not be affected and money over £2,500 will be clawed back. When they go on to the following year, they will start on their full income base of the previous year as the basis of the new assessment.
The third group are those who have run out of the working tax credit and the children's tax credit, who will get just the family premium, which at the moment we call the children's tax credit. That kicks in, according to family circumstances, between £15,000 and £20,000, depending on size of families, and will go up to about £50,000, at which point it starts tapering out to £58,000, when one is left with child benefit. Between that figure of about £20,000 and about £50,000, it does not matter what happens to a person's income, they still receive the same amount of money, because they get the children's tax credit—now, of course, the family element—as well as the child benefit. So we have people whose award and whose previous year and current year does not change; we have people whose award does not change, although their income has changed; and people whose incomes have changed substantially and therefore attract further changes. Finally, we have those at the upper end of the income scale who will be receiving the children's element and who, whatever happens to their income between the range of £20,000 and £50,000, it will not affect the award and therefore the entitlement that they will receive from the Government. I hope that that is acceptable to the noble Lord, Lord Higgins.
It will depend on which of the awards one is receiving—working tax credit and children's tax credit, or only the family element—as to how much headspace there is and how much movement up and down the income there can be without it affecting one's award and entitlement.
The noble Lord, Lord Northbrook, then asked me about the implications for staffing where payments are administered by the tax credit office. Claimants will be able to telephone the Inland Revenue and changes can
be put into effect. The Inland Revenue will be expanding the network of advice and contact centres to deal with any changes of circumstances in tax credits. However, I cannot tell the noble Lord how many extra staff are to be employed. I will write to him with that information if I obtain it.Finally, the noble Lord pressed me on when we found out that we needed to change these amendments. It became clear that some amendments would be needed to correct technical problems with the end-of-year provision after the Bill had finished its passage through another place. The noble Lord—who, I think I am right in saying, may be the only Member on the Front Bench who has spent time in the other place—is thus uniquely positioned to criticise the other place for its possible lack of scrutiny to that effect. The rest of us have no such authority to comment.
Lord McIntosh of Haringey: There is the noble Lord, Lord Freeman.
Baroness Hollis of Heigham: I apologise to the noble Lord. He has had a very distinguished Front Bench career. However, the amendments required to resolve this problem were complex and all of a piece. Because they hinged on changes to Clause 17, it took some time to prepare them. The amendments are inter-related and had to be worked on as a whole. There has been no change of mind here, merely that these were complex amendments. I have apologised for their late arrival but, if it would be of help to give Members of the Committee my speaking notes—as re-cast, now that we have re-grouped these amendments—I shall be very happy to do so. It is important that the Bill is as transparent, accurate and clean in its drafting as Members of the Committee can help it to become.
Earl Russell: I should like to make a very small point. Am I right in saying that criticising another place is not open even to those of us who have been Members there, or Members of Front Benches in another place? When there is a quarrel between the Houses, no authority can adjudicate upon it since both Houses are sovereign over their own procedure.
Finally, am I summarising the Minister's underlying premise correctly if I say that she is arguing that incentives matter to the poor as well as to the rich?
Lord Higgins: There has been a slight misunderstanding on the issue of the relationship with the House of Commons. In no way did I seek to criticise the House of Commons, but it appears that the Government have raised this matter only at a very late stage. I sought merely to establish the Government's position, not what happened in the House of Commons. That is a legitimate point to make.
Lord McIntosh of Haringey: For the benefit of good order, there is no objection whatever to criticising the House of Commons in this House. Adverse personal criticism of an individual is undesirable, but anything else is fair game.
4 p.m.
Lord Higgins: That will worry the noble Earl, Lord Russell, more than it worries me.
I should like to raise two points. First, so far as concerns the relief—that may be the best way of putting it—for increases below £2,500, am I right in thinking that, if children are left totally on one side, this may benefit those with incomes up to a very substantial level; that is, over £50,000? The noble Baroness will tell me if I am wrong.
Secondly, she mentioned it will be possible to telephone the Inland Revenue for a very rapid adjustment. I am concerned throughout these deliberations about the fairness between a person receiving a tax credit and a taxpayer not in receipt of a tax credit. If one fills in a self-assessment form and one's income changes during the year, can one telephone the Revenue and say, "I am sorry, my self-assessment was wrong. Can you make an immediate adjustment to my payslip next week?". That appears to possible with a tax credit. However, I do not think that that is the case with regard to income tax.
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