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Earl Russell: The noble Lord's arguments are extremely persuasive and reasonable. He made a very useful statement about the limiting purposes for which the Government would use the clause where it was deliberate abuse of the system just for personal benefit. It would satisfy me if he would say that that statement was made with the case of Pepper v Hart in mind.

Lord McIntosh of Haringey: I do not say that when any Minister stands up we do not bear Pepper v Hart in mind, but we acknowledge, if we have to, that Pepper v Hart exists. If there is not to be a Clause 25 stand part debate, I should perhaps say a little more about the issue that concerns the noble Earl, Lord Russell. It is important that it be clear in what circumstances it is intended the powers should be used.

We are talking about something called "phoenixism", which is the practice of exploiting limited liability by carrying on what is effectively the same business through a series of companies, each of which builds up debts before becoming insolvent. Anybody who has heard me talk about my career in small business knows how violently opposed I am—and I do not believe Pepper v Hart is going to cover this bit—to people who go bankrupt owing me money, and then reappear with a slightly different name. The same directors still owe me money, and I am not able to get it. However, it does arise—it has to arise—with tax

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credits, as it does with national insurance contributions, and indeed with PAYE. A company receives national insurance contributions and PAYE from its employees before it has to pay it out. Under those circumstances, if the company chooses that time to go insolvent, the public purse is left in deficit.

We have already discussed the way in which tax credits are either funded from money that is already held by a company for the purposes of PAYE and national insurance contributions or, if not, are funded in advance by the Revenue. The words "in advance" are critical. The company could apply for funding from the Revenue, but then become insolvent before any working tax credit has been paid over to the employees. Clause 25 allows us to recover the unpaid tax credit from the officers of the company. I have discussed enough the issue of who are the officers of the company, and I have made it clear, I hope, that the powers already exist in relation to working families' tax credits, disabled person's tax credits and national insurance contributions.

Earl Russell: We on these Benches are satisfied with the Minister's reply.

The Earl of Northesk: I am extremely grateful to the Minister for his response, from which I draw some encouragement. I am also grateful, to the noble Earl, Lord Russell, for his sympathy so far on the amendment. Indeed, I have taken note of his helpful suggestion, albeit that those on the Liberal Democrat Benches are now content.

None the less, I agree with the proposition that an alternative would be a more precise form of drafting of the distinction between neglect and fraud. It is our fervent belief that legislation should say what is the Government's intent rather than leaving it rather woolly. I have no doubt that we will want to return to the matter on Report, but in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 162 not moved.]

Baroness Byford moved Amendment No. 163:


    Page 18, line 18, at end insert—


"( ) for the Board to waive claims under subsection (1) where the body corporate consists of voluntary, unpaid persons"

The noble Baroness said: I apologise to the Committee for my absence last week when I was unwell and away from the House. I thank my noble friend Lord Northesk for moving two or three of my amendments in the course of the procedures.

Amendment No. 163 relates, in particular, to school governing bodies, but I am sure there are many other organisations employing small numbers of staff that may come under the same general heading. Depending on the nature and classification of the school in question, the governing body employ either a few people, maybe their own clerks, or as many as the total staff of the school. Day-to-day administrative and management roles are delegated to the head teacher,

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while the governing body remains responsible for a strategic and monitoring role. Its primary duties concern pupil performance and achievement.

The governors, as noble Lords will know, are normally paid nothing, not even reimbursement for phone calls, stamps or travelling expenses. The job that they do has been acknowledged by the Government as an important one, and indeed the Government have piled on extra responsibilities. Their function, however, does not normally enable them to carry out the detailed monitoring necessary to ensure the sort of compliance required in the Bill. Hence, finance committee chairman should not be liable to pay the shortfall due to the negligence of—perhaps—the school bursar.

It would be a travesty of justice were the Bill to pass containing a clause that could penalise volunteers for the ill-doings of others. I should be grateful if the Minister would consider wording Clause 25 to make it clear that, where an employee is negligent, no financial liability will accrue to the culpable officer, if a governor. I beg to move.

3.45 p.m.

The Earl of Northesk: I have sympathy with my noble friend's purpose. Without assurances on this point it is entirely credible that the Bill could inadvertently discourage people from giving freely of their time to the charitable and voluntary sectors. Such an unforeseen consequence would be undesirable.

That aside, we are, at least in part, concerned about the problems created by the failure of the Bill to distinguish as precisely as is required between neglect and fraud. Surely it is invidious to expect someone working unpaid in the educational sector, to use my noble friend's example, to be wholly liable for sums recoverable by the board in circumstances where he or she has made an honest mistake in administering the payroll.

Lord McIntosh of Haringey: Any of us who have been involved in voluntary organisations which undertake trading activities must be sympathetic to what the noble Baroness, Lady Byford, says. Of course we understand the position of trustees, who are responsible people and may be employing somebody else, who is in turn responsible for money. This amendment would require the regulations provided for in Clause 25 to include provisions for the Revenue to waive claims where the body corporate in question consisted of voluntary unpaid persons.

In practice, as I said in response to the previous group of amendments, the Revenue would only use the provisions in regulations made under this clause in cases where there appears to have been a deliberate exploitation of a company's limited liability and the tax credit system for the officer's personal benefit. The amendment refers to the officer and not, for example, to a school bursar, who is not an officer.

My notes say that we expect it would be very unlikely that these powers would be used in respect of voluntary unpaid officers. I cannot imagine a situation

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in which a voluntary unpaid officer would be using these restrictions to his personal benefit unless there were something quite deliberate and fraudulent about it and he or she would benefit from it. Most voluntary unpaid officers, as the noble Baroness, Lady Byford, said, do not have any financial benefit. There is no personal benefit available to them and therefore they could not possibly be caught by this clause.

Any organisation that employs staff has responsibilities for the collection of PAYE and the paying of tax credits. If it receives funding for working tax credit, it has a responsibility for ensuring that the money is correctly paid over to the employee. The fact that it may be voluntary and unpaid does not affect that principle.

Only a person who has been fraudulent or negligent can be held liable for a debt. As I have made clear, the regulations will in turn extend that to say that it is a deliberate exploitation and that it is for the officer's personal benefit. I believe that that will be restriction enough to protect people in the kind of case to which the noble Baroness, Lady Byford, refers.

Baroness Byford: I thank the Minister for his response. Unfortunately, I have missed a week's proceedings and I am having to catch up very quickly. I listened intently to the Minister's response. I accept what he said and the way that he said it. The Minister considers that if a problem were to arise the procedure would be activated only if there was evidence that the actions were deliberate and fraudulent. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 25 agreed to.

Clause 26 agreed to.

Schedule 1 agreed to.

Clause 27 [Overpayments]:

Lord McIntosh of Haringey moved Amendment No. 164:


    Page 18, line 40, leave out "period under an award made" and insert "tax year"

The noble Lord said: In moving Amendment No. 164, I shall speak also to Amendments Nos. 165 to 171. This group of amendments makes changes to Clause 27 which is about overpayment. These amendments are needed in consequence of changes earlier in the Bill, which we have already discussed, whereby final decisions about entitlement after the end of the year are now in a new clause after Clause 17, called "Decisions after final notice". There is nothing new about them other than that. I realise that they result in a series of complex changes to Clause 27 and I hope I have succeeded in arranging for a keeling schedule, in other words Clause 27 as amended, to be supplied to the Opposition parties. I hope that will provide sufficient assurance for me not to speak at further length to these amendments. I beg to move.


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