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Lord Higgins: My Lords, I am not blaming the Minister.

Earl Russell: My Lords, I thank the noble Lord for that correction; I am glad that it is now in the record. It was generous of him.

As I believe the amendments to be thoroughly beneficial and sensible, I do not intend to make any further fuss about them. Anyone who followed the proceedings of another place yesterday will appreciate how vital it is to this House that we do not have a guillotine. They will also appreciate that that freedom depends on the exercise of self-restraint. I shall say nothing more about any further groups of amendments dealing with the late government amendments. However, should there be a Division on any of those groups, those of us on these Benches will vote with the Government.

Lord Freeman: My Lords, I support what my noble friend Lord Higgins said. However, I am sure that all

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those who participated in the Committee share the opinion of the noble Earl, Lord Russell. The Minister was most helpful, clear and forthright in explaining the position. Your Lordships should be grateful to her for that.

There is an important point of principle and procedure involved, however. Does the Minister agree that the proposal—currently under consideration—that a draft Bill be examined before the actual Bill is introduced, in a bid to avoid problems with late amendments, would not cover a Bill such as this, for which there is a definite timetable? This Bill must be completed and introduced by the commencement of the next tax year, and certain constraints apply to such a Bill that would not apply to other Bills. I see that the noble and learned Lord the Leader of the House is in his place. Might not the Government consider whether, in such exceptional circumstances, additional resources might be made available to parliamentary counsel? Alternatively, the priorities of parliamentary counsel might be reordered, which might be for the convenience not only of this House but of Parliament as a whole.

Baroness Hollis of Heigham: My Lords, if I cannot express my appreciation of the fact that the noble Lord, Lord Higgins, has raised this matter, I can, at least, express appreciation of the tone in which he did so. I also appreciate the supportive remarks made by the noble Earl, Lord Russell, and the frank and generous response of the noble Lord, Lord Freeman.

I am happy to repeat the apologies from my department and from the Government. No one wishes to impede, in any sense, the proper scrutiny of legislation by tabling amendments late. What happened was undesirable and extremely unfortunate. I regret that it happened, and, as your Lordships have been kind enough to acknowledge, that regret is sincere, if only because the matter loses me all my moral leverage in trying to bully the noble Lord, Lord Higgins, into putting his amendments down in good time. In many ways, I am the loser in all of this.

As your Lordships have acknowledged, the amendments were entirely technical. I take the point about restructuring in relation to one clause, but the amendments sought, for example, to change the word "revoke" for the word "terminate" or to change the word "entitlement" for the word "award". We were trying to clarify what everyone has acknowledged to be a difficult and technical Bill that seeks to integrate a tax and benefit system. If, on reflection, my honourable friend the Paymaster General thought it sensible to make the amendments, even at that late stage, for the sake of clarity, it was right for us to do so, given that it is a major piece of legislation. I say that even though, as I said, I regret that the changes were not proposed earlier.

I am also grateful to the noble Earl, Lord Russell, for acknowledging the fact that, although the amendments were tabled late, we did what we could to redress the imbalance of information that would otherwise have resulted. I would not wish to be put in that position. Even though the noble Lord,

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Lord Higgins, might take my assurance that the amendments were technical, he and the noble Earl, Lord Russell, needed time to get their heads around the amendments to be confident that they were what I said they were. If I say that something is true because I say so and I am speaking for the Government, it is not always the case that it will be believed automatically. So I provided my speaking notes and offered additional briefing, and, with the co-operation of the Opposition—for which I am grateful—we deferred the first day of Committee. In practice, it turned out that there was a full week between the tabling of the amendments and the first discussion of them, thanks to the co-operation of the Opposition.

Where do we go from here? The noble Lord, Lord Higgins, went on to say that he wanted an inquiry that reported to the House. With respect, I do not think that that would be helpful. There was a mistake, which should not have happened, and I shall certainly do my best to ensure that it does not happen again. I regret it very much. However, I do not think that any report that named individual civil servants and the like would be helpful. If it helps, I am happy to arrange a meeting between the noble Lord and my honourable friend the Paymaster General so that he can air his concerns and discuss with her the issues that have arisen. I have failed to allay the noble Lord's concerns, but she may be able to do so. That would be an appropriate way forward. If the noble Lord is still not satisfied after that, he can, of course, pursue the matter.

I am not sure that I can do any more than I have done, but, if the noble Lord wishes to pursue the matter, I suggest that he allow me to offer him such a meeting with my honourable friend. I ask him not to pursue the option of an inquiry that would name individuals. I cannot do that; I take responsibility at the Dispatch Box. If the noble Lord wants further meetings with officials or any additional briefing—I am happy to snow him under with any amount of paper—I am happy to pursue that line. Having said that, I offer my apologies again and express my appreciation of the tone in which your Lordships have raised the matter.

Lord Higgins: My Lords, as always the noble Baroness has been most gracious. Of course we accept her apology, as well as all that she has said. She has gone to considerable lengths both to put the matter right and to ensure that procedures are carried out efficiently. We are grateful for that because in this House we have a working arrangement which enables us properly to scrutinise legislation. I may well take up the kind offer that she has made. Again, I should like to thank her for her extremely forthcoming response.

One very clear moral may be drawn from this tale: the system of programming in another place is not giving that House the time to do its job properly. Had this Bill not been scrutinised and amended in your Lordships' House, we would have passed, I believe, a completely unworkable piece of legislation. This is an extremely important matter.

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Perhaps I may make a final point. The amendments before us today will go back to be considered in another place. I understand that the original programming Motion will probably cover that as well. For that reason, Members of the other place must be given adequate time—I am sure that they will be—to consider the amendments properly once the Bill leaves this House. I am most grateful to the Minister.

On Question, Motion agreed to.

Report received.

3.30 p.m.

Clause 1 [Introductory]:

Lord Saatchi moved Amendment No. 1:


    Page 1, line 6, after first "credit" insert "or benefit"

The noble Lord said: My Lords, in moving Amendment No. 1, I shall speak also to Amendments Nos. 2, 3 and 4 standing in my name and that of my noble friend Lord Higgins. Before doing so, perhaps I may once again draw the attention of noble Lords to the declaration of interest which I made at the commencement of the Second Reading of this Bill.

The issue touched on by this group of amendments was debated at length in Grand Committee, but I wish to return to it again and to refer to a helpful letter which I have received from the Minister. I shall come to that in a moment.

These amendments relate to the wording of Clause 1, which makes radical changes to the Government's whole tax credit scheme. The amendments suggest that we should insert the words "or benefit" in various places after the words "tax credit". It may be considered by noble Lords that the opening amendments from these Benches turn on a particularly small and pedantic point, or perhaps a "technical" point of the kind referred to by the noble Baroness when moving various government amendments. However, I hope that I shall be able to persuade the House that this matter is neither small nor pedantic.

It could be asked what possible difference could be made by what a thing is called; whether that thing is a benefit or a credit. What is in a name? We believe that a great deal rests in a name if it touches on a hyper- sensitive issue of the moment; namely, the question of accounting treatment. If, by changing the name of an item, its accounting treatment is changed, then the result may be that the picture of a set of accounts is altered, that any comparison made between accounts becomes more difficult, or, more generally, it becomes harder for the reader of a set of accounts to appreciate what is going on.

I shall explain the significance of those remarks. Until around only a month ago, the Government chose to bury the bad news of the impact of tax credits on the public accounts in the traditional hiding-place of creative accountants through the ages; that is, on the last page of the notes to the accounts. I have here the Red Book for 2001. On the last page of the notes we see the words,


    "income tax credits which score as public expenditure under national accounting conventions".

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That was a way of expressing the fact that the Government's treatment of tax credits did not conform with the standard accounting principles of the OECD, the result of which was that perhaps the most politically sensitive figure in the whole of the document—the so-called tax burden—was reduced by the accounting treatment adopted by the Government. However, as I have said, that treatment did not conform with generally accepted principles.

Protests have been made over many years about the Government's treatment of tax credits which culminated, I believe, in strenuous disagreements between the Office for National Statistics and the Treasury. Then, in the latest Red Book covering the last Budget, the Government belatedly repented. In Box C2 on page 216 they announced that henceforth the treatment of tax credits would conform with generally accepted principles.

The problem is that this change is central to what the Bill is all about. The reason why our proposed change of wording—the use of the term "benefit" alongside the term "tax credit"—is so important is as follows. In Committee, several revelations—I would go so far as to say "stunning" revelations—were made to many of the economists and commentators who follow the public accounts in detail. For example, we learnt for the first time that the total amount involved in tax credits is now 15 billion per year, which is a staggering sum. Huge though that sum may be, if that 15 billion was comprised entirely of tax credits and the benefit element was small, then perhaps there would be no need for our amendments. The fuss we are making would then be a genuine waste of time, as the noble Lord, Lord Bach, put it. Unfortunately, however, that is not the case.

The revelation in regard to this matter was made in a generous letter sent to me by the Minister. Of the 15 billion, some 90 per cent is not a tax credit; it is a benefit, by which I mean that the common usage of the term "tax credit" would suggest that it referred to a reduction in tax liability. In other words, if a person's tax liability is 100 and they receive a tax credit of 10, then their tax liability is reduced to 90. Everyone would understand that to be a tax credit.

In order to check that my own understanding of tax credits would be no different from that taught to anyone else, I shall quote from an accounting tutorial that I bought this morning, covering the NVQ level 2 accounting award. The book states that it is suitable for ACCA courses. It is a kind of child's guide to accounting. Under tax credits it states:


    "This money comes from a reduction in the amount of tax which the employer collects from employees and pays to the Inland Revenue. This is why it is called a tax credit".

However, in her letter the Minister stated:


    "The latest estimates are that about 10–11 per cent of the new tax credits will score as negative taxes in 2004-05 and later years and 89-90 per cent scoring as public expenditure".

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That means that 90 per cent of the amount paid out in tax credits will not be a reduction in people's tax liabilities. It will exceed their tax liabilities so that, in effect, it is a benefit. That is why this matter relates closely to how it is treated in the public accounts.

It is important that the word "benefit" is used to make the position clear. When we discussed this matter in Grand Committee, the noble Baroness, Lady Hollis, said that the Government had accepted the distinction between a tax credit and a benefit. They had accepted that in the accounting treatment which from now on will be adopted in the Red Book. If the Government have come to recognise the distinction, will they now go to all the trouble of distinguishing between the 90 per cent that is a benefit and the 10 per cent that is a tax credit? To us it seems only reasonable to put on the face of the Bill words to the effect that the items now known as "tax credits" should be known as "tax credits or benefits". I hope that the Minister will see the amendment in the light of my argument. I beg to move.


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