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Lord Higgins: The Committee will be grateful to the Minister for the so-called keeling schedule, which helps to clarify matters in as much as it brings the whole set of changes together. We have already

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discussed various categories of what I have described as restructuring amendments—those designed to put right the wrong drafting of the Bill. Am I right in thinking that these amendments come in the first category, on awards and entitlements? It would be helpful to know whether that is so. Am I also right in believing that these amendments make Clause 27 compatible with the rest of the Bill, which it was not originally? The two sections as drafted—the earlier part and Clause 27—are contradictory, or at any rate incompatible. In the interest of speeding matters up, perhaps the Minister could confirm which of the various categories this comes under. We do not need to go over the same ground that we have already discussed at some length. No doubt we shall wish to return to it on Report.

Lord McIntosh of Haringey: The noble Lord, Lord Higgins, is largely correct. Most importantly, these amendments refer to the first of the four categories into which the government amendments fall, which draws the distinction between the award of tax credits, under which payments are made during the year, and entitlement, which is settled after the year end. There is an element of the fourth category as well, which divides the end of year statement provisions from the decisions the board makes on entitlement after the year. That is why a number of the amendments refer to the new clause which does not yet have a number. In principle, however, that is correct.

Lord Higgins: So it affects Clause 17 as well as the other clauses concerned with award and entitlement.

Lord McIntosh of Haringey: As the new clause which is provisionally called "Decisions after final notice", which was introduced by earlier amendments.

Lord Higgins: Which number amendment was that?

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): It was new Clause 17A. The clause was split in two: Clause 17 deals with notices and new Clause 17A deals with decisions. As my noble friend said it is category one primarily, but also category four.

Lord McIntosh of Haringey: And it will be renumbered with the Bill as amended in Committee.

Lord Higgins: I am grateful for that clarification. I can only say, "What a mess". We shall have to try to sort it out later.

Earl Russell: Before we leave this, I wish to thank the Government for the care and trouble they have taken to explain these amendments to us. I see no reason to object to them.

On Question, amendment agreed to.

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Lord McIntosh of Haringey moved Amendments Nos. 165 to 171:


    Page 18, line 41, leave out "or they are entitled for the period" and insert "entitled, or they are jointly entitled, for the tax year"


    Page 18, line 43, leave out "17" and insert "(Decisions after final notice)"


    Page 19, line 1, leave out from beginning to "is" in line 2 and insert "For overpayments made under awards on single claims, the person to whom the tax credit was awarded"


    Page 19, line 4, leave out from beginning to "are" in line 5 and insert "For overpayments made under awards on joint claims, the persons to whom the tax credit was awarded"


    Page 19, line 9, leave out "(or part of a tax year)"


    Page 19, line 11, leave out from "or" to "; but" in line 12 and insert "any other award of any tax credit made to the person or persons"


    Page 19, line 13, leave out "on the award is taken under section 17(6)" and insert "is taken in relation to the person or persons for the tax year under section (Decisions after final notice)(1)"

On Question, amendments agreed to.

Lord McIntosh of Haringey moved Amendment No. 172:


    Page 19, line 13, at end insert—


"(6) Where the Board decide under section 16 to terminate an award of a tax credit made to a person or persons on the ground that at no time during the period to which the award related did the person or persons satisfy—
(a) section 8(1) (if the award related to child tax credit), or
(b) section 10(1) (if it related to working tax credit),
the Board may decide that the amount paid under the award, or any part of it, is to be treated for the purposes of this Part (apart from subsection (5)) as an overpayment."

The noble Lord said: This group of amendments deals with overpayments and underpayments. Amendment No. 172 will enable the board to recover overpayments before the end of the year where an award was initially made to a person who, in fact, never met the basic qualifying criteria for the tax credit.

Amendment No. 174 makes clear that the board is under an obligation to pay any extra tax credits to claimants in cases where there has been an underpayment. This is not an oversight, but again is something caused by the changes which have already been agreed. Amendment No. 201 provides for interest to be charged on an overpayment which is attributable to fraud or negligence, and Amendment 232 is consequential. I beg to move.

Lord Higgins: I am not entirely clear whether this is part of the restructuring or whether it is something which is a normal amendment in the sense that the Government thought of these points after the Bill had come before the House of Commons. If it is restructuring, again it would be helpful to know what category it comes into and in what way it affects the Bill.

I come back also to the final amendment to which the noble Lord referred, which I believe to be Amendment No. 201. It concerned the question of interest on underpayments as a result of fraud.

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I presume if it is a case of fraud the individual concerned will be prosecuted. I am not sure to what extent this provision reflects normal Inland Revenue practice and whether it is different from social security practice. Is it normal, on top of whatever penalty—presumably a criminal penalty—is imposed for fraud, for interest to be charged on the amount of underpayment? If so, will it be done on the Inland Revenue basis? I am not sure to what extent any interest is chargeable on underpayments in relation to work and pensions provision; that is, social security provision. If we are suddenly introducing an interest penalty into what has formerly always been social security affairs, that would be helpful to know, not least because on this side of the Chamber we remain of the view that many of these payments are social security payments and not tax credits.

Lord McIntosh of Haringey: The answer to the first question is that it falls into category one; that is, the distinction between awards and entitlement, which include overpayments and underpayments.

The second question relating to Amendment No. 201 arises perhaps because I was being a little elliptical. Amendment No. 201 is about overpayments, not about underpayments. It is designed to ensure that interest can run on the overpayment from the date the decision to terminate the award is made, rather than having to be deferred until the end of the year. The amendment does not change the fact that interest on overpayment can only be charged if overpayment is attributable to fraud or neglect.

The noble Lord, Lord Higgins, is right in thinking that that basically follows Inland Revenue rules rather than social security rules. Indeed, on the question which he asked but which is not related to Amendment No. 201, provision for interest to be charged on underpayments of tax is included, and has always been included, in the Taxes Act and is not changed by this amendment. Tax credits interest will only be charged where there is fraud or neglect.

Lord Higgins: That would seem to be a tightening of the regime compared with what normally applies in regard to social security. I shall need to consider that. I am somewhat puzzled by the exact wording which the noble Lord—I think improvising—used. Presumably there is no interest on overpayments. Or is he saying the Revenue will add interest to any reimbursement of overpayments and, if so, at what rate?

Lord McIntosh of Haringey: It will be set out in regulations.

Lord Higgins: Presumably there is some point of principle as to what rate of interest is charged. If it is the same as the normal interest paid by the Revenue— which has always been absolutely miserable—at least can the Minister clarify whether the interest paid on overpayments will be less than the interest charged on underpayments?

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Lord McIntosh of Haringey: I shall have to write to the noble Lord, Lord Higgins, on that matter.

On Question, amendment agreed to.

4 p.m.

Lord Freeman moved Amendment No. 173:


    Page 19, line 13, at end insert—


"( ) Where it appears to a person or persons in receipt of an award of tax credit that there is likely to be an overpayment of tax credit for a tax year (or part of a tax year), they may serve a notice on the Board at any time during that tax year after the expiry of the first six months specifying, or estimating, the amount of their income for the tax year in the prescribed manner, in which case no overpayment shall arise in respect of the first six months of the tax year, but the Board may decide that any overpayment arising in respect of the rest of the tax year shall be repaid to them."

The noble Lord said: This is a probing amendment which contains some novel ideas. We are dealing with a certain category of overpayment and I am asking the Minister to think about the principles underlying this amendment. It has been drafted by the Low Incomes Tax Reform Group and addresses the particular problems of low income workers who qualify for tax credit but whose income rises above the tax threshold during the course of the tax year. In those circumstances, the amount above the threshold is repayable. If the board is not told immediately—and that could be for reasons of either ignorance, innocence or inability to calculate the higher and current rate of income of the claimant—then the adjustment is made in the next tax year.

The basic anomaly is that the tax credit is calculated on the basis of the preceding year's tax income, but when the current year's tax income has been calculated for qualifying income an adjustment may or may not have to be made.

The problem is that for certain categories of very low income taxpayers the money may well be gone by the time the overpayment above the threshold has to be made. That in itself can cause hardship. I quite accept that the drafting of the amendment does not specify precisely the amount above the £2,500 threshold which, as the Minister explained, is already ignored when an overpayment calculation is made, but my intention is that it should be very modest in terms of an overpayment—for example, a few hundred pounds.

The amendment suggests, therefore, that if the claimant takes action in the middle of the current tax year—and I am suggesting at a very precise moment in the middle of the tax year—and states, "My income has gone up and I need the board"—the Inland Revenue—"to recalculate the tax credit", the tax credit overpayment can be recovered, either as a lump sum or during the course of the remaining part of the tax year. That would be of advantage to the Inland Revenue because the position of the claimant becomes more current. It would also be to the advantage of the claimant because the claimant would be making his or her position more current much more quickly.

The amendment proposes that the anomaly is stopped earlier, the tax credit is reduced and, in return, the overpayment for the first part of the year is

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foregone. I stress that this should be a fairly modest sum so that the incentive to become current is not disproportionate to the burden for the Treasury.

I conclude by pointing out that income may vary, and vary constantly, for some people, particularly the self-employed on very low incomes who qualify for tax credit. This may push them into a position during the course of the current year where they face a significant, for them, repayment to the Inland Revenue. The amendment seeks to introduce a mechanism, which needs to be fine-tuned, to correct the anomaly much earlier on—partly at the expense of the Inland Revenue and partly to ensure that the individual outgoings are properly matched by the resources available. I beg to move.


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