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Baroness Hollis of Heigham: Again, I can give a full reply, but I wonder whether we are making somewhat heavy weather of this. Most of those coming over to the new benefits will either be existing recipients of benefits, as the noble Earl, Lord Northesk, identified when he talked about automaticity, or will be currently claiming WFTC or DPTC, and therefore we will be able to help them. We will also know of course the case load for children's tax credit. Given that, we will be able to send claims forms to all of those households. The number of new and additional families which are currently unknown by the system will be relatively modest. If I can help your Lordships with the stats on that, I will do so.
Alongside that, we will also be running a publicity campaign. Once that is in place, people will be able to make their claims on line, over the phone or, at their request, in an interview at either a DWP job centre office or an Inland Revenue office. It does not seem sensible to impose an interview on people who do not want it. What is important is that anyone who wants it has access to it. When they fill in their forms—particularly if they make inquiries over the telephone—if it is clear that they would find a face-to-face interview helpful, then that will be made available to them.
Do I need to go on much beyond that? If I do, I shall happily come back to it. I am thinking about the procedures of the House and trying to expedite matters if I can.
Lord Freeman: I am grateful to the Minister. There is a difference between what the Minister explained, which is that there is a panoply of ways in which the rights of a claimant can be explained, and Amendment No. 237 which says that every claimant who wishes it has the right to a face-to-face interview with officials from the Inland Revenue. That is different.
Baroness Hollis of Heigham: Anybody who wishes an interview—either with the Inland Revenue or, if it is more appropriate, at the job centre club—will be encouraged to have an interview. I do not see that there is a problem here. It is not the sort of thing we put on the face of a Bill but whether it takes place with the DWP or with the Inland Revenue depends where they are coming from.
Going back to the automaticity, it is indeed as I suspected. The only two groups for whom we will not have some information already are those who are newly eligible for child tax credit, because they are single earners over about £41,000—there are not many of those—or indeed those receiving just WFTC, the single adults or the childless couples, of whom there are some 300,000. Given that we can get information to well over 5 million or so of the 5.7 million who will be eligible for child tax credits automatically; given that we have an extensive publicity campaign; given
that people can fill in their forms online, over the telephone or in an interview; and given that there will be a helpline that people can call which will certainly make it clear that they can come in for an interview, I wonder whether the noble Lord will agree that there is abundant information and help for potential claimants.
Lord Freeman: I am sorry to labour the point. If the Minister is saying that every claimant does have the right to a face-to-face interview with an official from the Inland Revenue, that takes us a long way forward.
Baroness Hollis of Heigham: The proviso I made there was DWP. Many people will currently be receiving benefits and their natural home will be the Job Centre Plus rather than the Inland Revenue. Without exception, anyone who seeks an interview will, I am assured, be offered one.
Lord Higgins: With whichever department they prefer?
Baroness Hollis of Heigham: With whichever one is appropriate. If somebody is on benefit and will be receiving the child tax credit because they are on income support, and they are not a taxpayer and have no dealings with the Inland Revenue, it would not be particularly sensible to suggest that they went along to the local tax office. Their natural point of contact would be DWP. However, if there were some peculiar circumstances in which they felt it was more appropriate, I do not see why that would be a problem.
The Earl of Northesk: I thank the Minister for that reply. That assurance is extremely useful. The substantive point I was trying to tease out with my amendment is that my perception of the structure of the Bill is that it is weighted very much in favour of the Revenue, rather than understanding that the Revenue sits there with a duty of care, almost, to claimants. That was the substantive point I was trying to get at. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Saatchi moved Amendment No. 32:
- Page 3, line 13, at end insert ", provided that no tax credit claim form shall exceed a single page of A4 paper"
The noble Lord said: In moving Amendment No. 32 I shall speak also to Amendments Nos. 33 and 236. These amendments, and particularly Amendment No. 32, lie at the heart of our concerns about the Bill. I shall give a moment's background to the amendments if I may.
Amendment No. 32 obviously seeks to replace the present formidably complex claims systems with something simpler. Amendment No. 33 seeks the Minister's thoughts on the fact that BUPA and many other insurers have abandoned the old-style claim form approach and replaced it with making claims by speaking to an operator with a computer, who asks them the necessary questions and inputs only the necessary answers. The modern approach of large insurers involves having someone of experience and
knowledge asking only the relevant questions and directly putting the answers onto the computer system. The Government could do this by providing either an interview with an official, as my noble friend suggested in a previous amendment, by telephone or by e-mail. Ultimately the savings to the Government could be great if they can make their computer systems live up to their promise.Our main point, also made by my noble friend on the previous amendment, is that this procedure would help the applicant. Amendment No. 33 seeks a response from the Government and asks what is the stumbling block to the introduction of such a system for tax credit.
I would like to dwell for a moment on Amendment No. 32 in order to put it into context. Although the amendment concerns simplicity, I am afraid I shall have to speak to it at some length. I am embarrassed about that. My only comment in defence of the length of what I am going to say is to repeat a line Winston Churchill liked to quote from Mark Twain's letter to a friend:
- "I wanted to write a short letter, but I didn't have time".
Perhaps I may try to put Amendment No. 32 into context. Most people believe that the tax system now takes around 39 per cent of GDP, but that is just the end result of the system. The total system collects a staggering total of 53 per cent of GDP. The citizen is then obliged to claim back 14 per cent of GDP, around £143 billion, by navigating a mass of over 250 complex tax allowances, reliefs, exemptions, credits—the subject of the Bill—tapers, indexations, disregards and so forth. I have details of some of the means by which the citizen makes those claims. I have here a pile of the claim forms used by the Department for Work and Pensions, amounting to a total of 1,158 pages.
The charm of such a complicated tax system, from the point of view of the Government, is the scope it allows for hidden tax increases via reduced allowances or, in the case of the Bill, the reduced value of tax credits. Under this structure the Chancellor can increase the tax burden without ever announcing a tax rise. People simply wake up and find they are in a higher tax bracket, with the result that tax as a percentage of national income creeps up invisibly.
Economists call this "fiscal drag", and it is part of the reason why, over the past three years, the Government's tax revenues have risen three times faster than average earnings. The basic tax allowance of £4,365 should now be £10,000 to keep pace with earnings growth. We have to remember that this is no longer a problem affecting only a small minority of people. As my noble friend Lord Freeman said a moment ago, it affects a very large number of people and concerns a very large sum of money.
The Bill will ensure that around 40 per cent of all families in this country will be on means-tested benefits of some kind. Tax credits will go to 56 per cent of those in retirement. The introduction of the pension credit will further extend means testing amongst pensioners. By 2025 it will increase the proportion of people being
means tested to approximately 65 per cent of single pensioners and 51 per cent of couples. In fact, 90 per cent of all households in the country are now eligible for a credit or benefit of some kind.Let us consider pensioners for a moment. In response to the Government's pension credit proposals, this is what Age Concern had to say:
- "The good intentions behind the pensioner credit could yet be thwarted by its complexity . . . Older people already feel lost in the means-tested maze, resulting in up to three-quarters of a million families failing to claim their income support. Unless people feel encouraged to claim it will simply not reach those it is designed to help. It is far too complex and over-elaborate. We need a system which is simple, understandable and which accords a proper dignity to pensioners".
The difficulty that Age Concern describes about its pensioners is not an aberration, and it is not a condition which applies only to the pensioner credit. The problems that it describes are central to the system with which the Bill deals. That is because the requirements for income tax have never reached so far down the income scale. So today people suffer not just because their incomes are too low, but because even people on low incomes have their already low income further reduced by tax.
Under the present system, the Government first taxes people on their income; then it means tests their income; then it offers them a 40-page application form to claim credits or benefits. Yet every year billions of pounds—that is the point of this amendment—of budgeted expenditure on tax credits go unclaimed by millions of citizens who cannot fathom out how to claim them.
We should remember that the working families' tax credit had a take-up of 62 per cent. Only 72 per cent of entitled families with children had claimed the children's tax credit by December 2001. This year it is estimated that £2.6 billion of budgeted expenditure on tax credits will go unclaimed.
That is why we believe it is incumbent on us here in Parliament to simplify the procedure wherever we can. We all know about stealth tax. That is a tax charge which is unknown or incomprehensible to its victim. I put it to the Committee that without Amendment No. 32 or something like it, the Bill is in danger of introducing us to a new and even more insidious form of tax raising; that is, the non-payment of a tax relief or tax credit. One might call it a stealth credit or tax relief which, by accident or design, are unknown or incomprehensible to their beneficiaries.
There is one crucial difference between a stealth tax and a stealth credit which I should like to draw to the attention of the Committee. The stealth tax is unerring in its reach. It achieves 100 per cent "take-up". The stealth credit, on the other hand, reaches only 60 per cent of its beneficiaries.
The table on page 154 of the Red Book illustrates to the Committee the importance of this point. This table shows, very helpfully, the impact of Budget changes. It shows a £4.6 billion tax rise—namely, national insurance contribution increases and personal tax rises—and a £4.6 billion tax reduction in the form of tax credit. The problem is that, unless the take-up of
the tax credit is as high as the take-up of the tax payment, the £4.6 billion of tax rise in the last Budget from NICs will be paid to the Government. However, our fear is that the £4.6 billion of tax reductions from tax credits will not be paid by the Government. That is unfair, and this amendment will help to correct that injustice.Perhaps I may continue for a moment on what we believe to be the crucial nature of the direction of this amendment. The Government, I am sure, do not wish to be accused of taking advantage of the poorest and neediest people in our society and there is no need for them to put themselves in that position. The noble Lord, Lord McIntosh of Haringey, said—I am sure the noble Baroness has said this also—that child and pensioner poverty is an obscenity in the 21st century, especially in a country like ours with the fourth largest economy in the world. I do not need to labour the point.
The Government are right to put poverty at the centre of their social and fiscal policies and I can see that tax credit legislation like this can be an important tool to achieve that end. However, if the Government are sincere in that wish, they should heed perhaps not the words of the Opposition Front Bench on this amendment, but their own Members in another place. For example, the Member for Hampstead and Highgate, Glenda Jackson, said in another place:
- "There is a gap in people's understanding of the working families' tax credit, how they can apply for it and the benefits that it can bring."—[Official Report, Commons, 12/2/02; col. 31WH.]
Diane Abbott, the Member for Hackney North and Stoke Newington, the constituency with the highest number of single parents in the country, commented in another place that as an Inner London MP she found that the working families' tax credit had not had the impact on her constituents that she would have liked. She went on to draw attention to the disparity between what the Government had said about the new schemes and the experience of her poorest constituents:
- "There was a mismatch between the bulging files of press releases announcing new Government initiatives in my office and people's perception of what was being delivered".—[Official Report, Commons, 12/2/02; col. 34WH.]
I know the Minister will say that she and the Government are looking at the problem of take-up, that they are very conscious of it and are consulting various stakeholders. I gather that the Government are carrying out a wide-ranging evaluation programme on the problem of take-up. Perhaps she will confirm that point. No doubt her officials will continue their dialogue with key groups which can help. I hope that she will tell us about the status of that work so that we can learn from the results. We would very much like to know the views of the Minister on how to tackle the problem of take-up, if not via this amendment, then something like it.
In closing, I offer an area that she might want to address in her response. Many Members of another place said that in their constituencies, when they spoke to people about tax credits, they found that there was profound ignorance, for example, of the WFTC. People simply did not know whether they were eligible
for it. The quality of advice given in employment offices was often variable, and not many people went to the Employment Service or other agencies to receive better assessments. They simply did not have the figures to show them whether they would be better off with the credits.This point was underlined by the publication of the latest Government statistics on benefit take-up. As other noble Lords have done in our debates, it drew attention to the root problem of complexity. For example, the report entitled Income Related Benefits: Estimates of Take-up in 1999/2000 showed that the take-up of income support was lowest for pensioners at between 64 per cent and 78 per cent by caseload, and between 74 per cent and 86 per cent by expenditure. There was also evidence that the percentage of entitled pensioners taking up income support fell between 1999 and 2000.
The report also showed that last year, 500,000 eligible pensioners were not receiving income support; this year, the figure has risen to 580,000. Last year, 150,000 eligible pensioners were not receiving housing benefit; this year, that figure has grown to 210,000. Last year, there were 1,070,000 eligible pensioners not receiving council tax benefit; this year the figure is 1,215,000.
I apologise again for the length of this introduction to the amendment. Our starting point for Amendment No. 32 is a tax system of "paralysing complexity" according to the editor of the Financial Times. "A monstrous thing" says the editor of the Economist. In our opinion, simplicity, such as the simplicity we seek in a claim form, is the outcome of technical subtlety. It is the goal, not the starting point. It requires what I believe the noble Earl, Lord Russell's father called,
- "the painful necessity of thought"
5 p.m.
Lord Freeman: I wish to speak to Amendment No. 236, which has been grouped with Amendment No. 32 and with which I am in full agreement. I shall take up the point made by my noble friend about the degree to which individual citizens with rights properly claim them and take them up. I suspect I might be pushing at an open door here, but I invite the noble Baroness to look through the other end of the telescope at the semantics used by the claimant, the individual.
There is a difference between an "application",—a word used in the draft forms from the Inland Revenue, which I am sure she has read and on which her officials will have briefed her—referring to an application form, which implies discretion, and a claim, which is on the face of the Bill, which implies not a discretionary matter, but an absolute right.
It seems to me that all the literature that will emanate from this legislation when it becomes an Act—as I hope it will after proper reform of the Bill—will refer to the "right" to a claim and not to an
"application". Perhaps I should remind the Members of the Committee that when you draft—or when your accountant drafts—your tax refund form, you are not making an application but an absolute claim. I believe that that is the word we should use.
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