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Earl Russell: I think this is the appropriate place to raise what is a fairly major question, of which I have given the Minister notice; that is, whether this Bill is in accord with the provisions of European law. Within the terms of this Bill, nationals of other European Union countries working in this country are eligible for the tax credit but British subjects working elsewhere in the European Union are not eligible for the tax credit. The Minister will I hope, before we go further, confirm that that is the correct understanding of what the Bill does.

I understand why the Government may have wished to do it in this way. The question is whether the Treaty of Rome actually permits it to be so done. I have been looking first at Article 7 of the Treaty, which states:

"Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited".

One may say that this is a discrimination on grounds of location and not on those of nationality.

I looked then at the section on freedom of movement. At Article 48.2 of the Treaty it states:

"Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment".

So, if I have read that correctly, it means that it is not legal to pay the tax credit to EU nationals working here and not to British subjects working elsewhere.

Article 51 of the Treaty also bears on this point. It states:

"The Council shall, acting unanimously on a proposal from the Commission, adopt such measures in the field of social security as are necessary to provide freedom of movement for workers; to this end, it shall make arrangements to secure for migrant workers and their dependants:

"(a) aggregation, for the purpose of acquiring and retaining the right to benefit and of calculating the amount of benefit, of all periods taken into account under the laws of the several countries;

"(b) payment of benefits to persons resident in the territories of Member States".

Article 51(b), in particular, seems to bear very directly and explicitly on the provisions in the Bill to ensure the payment of benefits to persons resident in the territories of Member States.

When one thinks about the constitution of the labour market within the EU at the moment, it is very difficult to divide it according to the old traditional national categories. Most people in today's labour market are not merely neither regularly in work nor regularly out of work; they are also neither regularly working in one country nor regularly working in another.

Consider, for example, someone who is employed by one of the holiday tour firms. They may be regarded as resident in this country if they come home for the winter, but every now and then these tour firms need

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someone to stay over the winter in the holiday place abroad to oversee building work, repair work, furnishing work and so on. If such a period of absence should be over 12 months, as it may well be, then some difficult questions may arise under the Bill.

If one considers the Tower of Babel that was the rebuilding of Berlin, which gave rise to a great many cases under the habitual residence test—which members of the department may well remember—there again, saying that someone was a national of one country and therefore working in that country tended to lead one very much astray.

One only needs to look at those who are working in the Gatwick Airport Hotel, to take an example that comes into my mind at random, to realise that globalisation has, to a very large extent, come to the labour force as well as to capital. In fact, looking at the situation, I am beginning to wonder whether the national state is as out of date as the forum for fixing laws on these matters—and, indeed, for the management of economic policy—as the parish now is for the operation of poor relief. It may indeed have been out of date by 1601, but the Minister and I can keep that to discuss in private.

I like the Bill. This is a serious question and I should like to see it answered. But I do not at present see, other than by agreeing to pay the tax credit to British subjects working elsewhere in the EU, how it could be answered to the satisfaction of the European Court of Justice.

4.30 p.m.

Baroness Hollis of Heigham: I wonder whether I would be answering the question of the noble Earl, Lord Northesk, first if I were to say that it will; that Clause 3 provides that to claim tax credits a person must be in the UK—in other words, ordinarily resident. That is the first point.

The second point was about couples. The situation depends whether we are talking about someone under immigration control. A partner who is not subject to immigration control can make a claim, but no second adult element is available in respect of the partner. However, income from both partners is taken into account. I hope that addresses the two specific points that the noble Lord raised. If not, I shall come back on that.

The noble Earl, Lord Russell, was kind enough to give me notice of his concerns relating to the Treaty of Rome. I am not sure that I am using the appropriate Home Office language—I hope Members of the Committee will forgive me if I am not—but we are talking about three categories of person: British nationals resident in this country; EU nationals working in this country; and people who are subject to immigration control who are working in this country. Those are our three starting categories.

A claimant, of whatever nationality, who is an EU national and is resident and working in the United Kingdom will be eligible for child tax credits at the moment, on the grounds that it is a family benefit

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under EC Regulation 1408/721. That is what we presume, although it is still being consulted on and my comments should have a lot of health warnings attached. Working tax credit is outside the scope of Regulation 1408/721, but we believe that it may be within the scope of Regulation 1612/68, which protects the rights of migrant workers. Our regulation will co-exist with these rules. I do not know whether that is helpful to the noble Earl.

Insofar as there is a family benefit involved, EU nationals are treated in exactly the same way as British nationals. Equally, if someone is subject to immigration control at the moment and working in this country, there is no expectation. They may be seeking asylum or they may be from a country such as Australia and be working here with a work permit and have come here on the grounds that they will not have any recourse to public funds. At the moment they are not eligible to WFTC or DPTC. I expect that situation to continue. I do not know whether that addresses the points raised by the noble Earls, Lord Russell and Lord Northesk, but I shall come back on that if necessary.

Lord Northbrook: Would there be any advantage in using the words "resident" or "ordinarily resident" in the United Kingdom, which I understand to be income tax jargon? Would that be of any help?

Baroness Hollis of Heigham: That would be different. This system uses the phrase "habitually resident", and the tax system, I understand, uses "ordinarily resident". Although in practice the two are virtually the same, habitual residence assumes that someone was here at the point at which the investigation was made. "Ordinarily resident" might cover some of the examples that the noble Earl, Lord Russell gave—that, at that point of inquiry, they might not have been habitually resident for the previous six weeks, but there is no doubt that this is their ordinary home.

Earl Russell: The Minister has taken us a little further forward, but the odd man out in the Minister's three categories is the British subject working in other EU countries. That person's freedom of movement within the EU is undoubtedly being discouraged by the fact that he will lose the tax credit on going abroad. The Minister cannot very well deny that if she regards the tax credit as an incentive to work within this country, which is, after all, the basic purpose of the Bill.

Time has not permitted me to follow the Treaty of Rome down into the provisions of the Single European Act. This is the examining season as well as the Bill season. However, I have no doubt that, were I to look at the Single European Act, I would find a whole range of material intended to discourage people from discouraging people from working as migrant workers within the EU. One must not discourage the free movement of labour within the Community.

Because this Bill is currently very likely indeed to have the effect of discouraging the free movement of labour within the Community, I hope the Government

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will take the maximum possible amount of advice on European law before letting the Bill go ahead. I wish the Bill to succeed and I do not want it to crash down in flames in the European Court of Justice.

Baroness Hollis of Heigham: We have taken quite considerable advice on this. The test for what I call the high value benefit—child tax credit—is residence in the UK, not nationality within the EU. That is why we avoid discrimination; we are treating like for like. So an EU national working in the UK is treated in the same way as a UK citizen. If a UK citizen is abroad for more than a temporary period—obviously that has to be determined following consultation and guidance; we are not trying to get at somebody who is away for a matter of a few weeks—we would treat them as a national of another country working in their own home. That is the basis. It is residence and not nationality.

I am advised that that is what the Treaty of Rome provides for; that a worker moving abroad will be entitled to support from the host state on the same basis as a national of that host state. It is residence and not nationality that counts.

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