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Lord Saatchi moved Amendment No. 7:

The noble Lord said: My Lords, the amendment seeks to leave out Clause 1. In moving the amendment, I return to the history of tax credits. We still find it troubling that we have not received the assurance we had hoped to receive: that the process over the past five years of the introduction, abolition and replacement of tax credits on a regular basis would not continue. Perhaps the Minister will assure us that the improvements made by scrapping various credits and replacing them with others is the end of the process.

I remind noble Lords of the background to the difficulty in the hope that it might stimulate the assurance we seek. The working families' tax credit had a longer life than its predecessor—the employment tax credit. The latter tax credit never made it on to the statute book, let alone into the pay packet. In his pre-Budget Statement, the Chancellor

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announced that the employment tax credit was to become the working families' tax credit. That was a model of consistency compared with the history of the children's tax credit, with the replacement of which we are also dealing today.

In the 1998 Budget the Chancellor announced the introduction of the children's tax credit. That was supposed to begin in April 2001 but it never made it. In his March 2000 Budget Statement the Chancellor announced that the children's tax credit was to be replaced by the integrated child credit. Therefore the children's tax credit had the distinction of being abolished before it was even introduced. Sadly, since then the integrated child credit has itself disintegrated and we are left only with the child credit referred to in the Bill.

Over the past five years, the family credit which had existed since 1988 has been replaced by the working families' tax credit, the employment tax credit, the working tax credit, the children's tax credit, the integrated children's tax credit and the child tax credit. Looking at it in another way, the average life of a tax credit is six months.

Those changes of mind must reduce confidence in the system. They must also lead to the problems we have seen with regard to take up. They must increase the burden on business by adding costs in order to change systems to deal with the Government's change of heart on the tax credits. They lead also to the problems I described earlier in terms of accounting treatments which are crucial. A period of calm is now required for assessment. I hope that the Minister will assure us that that is the case.

The noble Earl, Lord Russell, reminded us of Keynes' injunction that no man should be condemned for a sincere conversion. However, I hope that he will also agree with my noble and learned friend Lord Howe of Aberavon who has done excellent work with the Inland Revenue in his tax rewrite group. He expressed alarm at the speed and volume of change of tax legislation. While Keynes and the noble Earl, Lord Russell, are right that a man should be allowed to change his mind, there is a limit. I think that the Government have exceeded it.

I shall withdraw the amendment. However, I hope that the Minister will assure the House that the pace of change that we have seen in the past five years will now cease.

Earl Russell: My Lords, the Minister may remember a fact sheet distributed a few years ago by Rowntree under the intriguing title, "The WIS that was"—"WIS" being the working income supplement, the Canadian version of what we are attempting now. The fact that that was withdrawn is a marker that teething troubles over the introduction of this type of measure are not confined to this Government or this country. A difficult and important technical exercise is being engaged upon. We are being offered a considerable improvement on what we have had. I doubt whether it is the final word on the subject even now.

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I take the point made by the noble and learned Lord, Lord Howe of Aberavon, whom I respect very deeply indeed. But between the noble and learned Lord, Lord Howe of Aberavon, and Keynes the noble and learned Lord, Lord Howe of Aberavon, might admit to being slightly more averse to risk taking.

Baroness Hollis of Heigham: My Lords, the primary question was whether this was the end of the process. The noble Lord can predict my answer. It is, "No, not necessarily". It is desirable to have a system which is as stable, predictable and transparent as possible. But against that one learns from experience. As the noble Lord spoke, I was reflecting on my experience in the world of social security. He will know that what we sought to do with this and other legislation over the past five or six years is to tackle poverty and, as one of the keys ways of tackling poverty, to make work pay.

I learned from family credit that when all payments went to the carer at home it meant that work, or entry wages, were often perceived as not worth having because they were relatively low compared with median wages. Therefore one needed a working families' tax credit paid either in full or in part by the employer.

I also learned from family credit that not enough support was being given to disabled people. Experience of the new deal demonstrated that we had to have more generous financial arrangements particularly for single disabled people who would otherwise not be eligible for something like family credit because they did not have children.

Equally, looking at family credit and the new deal for lone parents, we realised that one of the great handicaps for a lone parent moving into work is the lack of affordable childcare. Therefore we have needed to develop childcare support and a childcare tax credit as part of the package.

Since we have introduced the WFTC legislation, we have also learned that lone parents in particular have quite frequent movement in and out of work during the year, possibly coming out of work over the summer holidays and going back into work when the children go back to school. We need a constant system of support which reflects the realities of their lives not the tidy-mindedness of bureaucrats.

The noble Lord mentioned the employment earnings top up. That was a pilot scheme. We learned from that that there is significant poverty, not so much among the under-25s who do not have a disadvantage in the labour market so far as we can tell but for some single people over the age of 25 who remain extremely poor. To target support only on families meant that we could not help those people properly into the labour market and persuade them that work paid.

I call that learning from research, pilots and experience in trying to develop policies that meet the objective, which I am sure all noble Lords share, of tackling poverty, especially child poverty, and making work pay.

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The simple answer to the noble Lord, Lord Saatchi, is no, it cannot be the end of the process, as the noble Earl, Lord Russell, said. I hope that it will be as stable a system as possible because that is the only way we shall make it an effective system.

With those more general remarks, I hope that we try to loop-in learning experience from research, pilots and the effectiveness of the legislation. Every piece of legislation seeks to improve on what has happened previously but produces new pressures and problems which have to be addressed. I hope that we shall be in for a period of stability. That is in the best interests of the people receiving these tax credits. With that explanation, I hope that the noble Lord will feel able to move on to the next amendment.

Lord Saatchi: My Lords, I am happy to accept the Minister's wish that a period of calm should ensue, for the benefit of all the people who are the beneficiaries of tax credits. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4 p.m.

Clause 2 [Functions of Board]:

Lord Higgins: moved Amendment No. 8:

    Page 2, line 11, leave out subsection (2).

The noble Lord said: My Lords, with this it will be convenient to take Amendment No. 9 and starred Amendment No. 8A, which I regret to say was tabled rather late—

Baroness Hollis of Heigham: Exceedingly late.

Lord Higgins: For reasons that I shall explain.

The trouble with this part of the Bill is the draftsman's determination to say that black is white and white is black. The Bill is drafted by reference to 1866 and 1890 legislation. In Committee, I complained that use of the word "gross" was inappropriate. If tax credits are deducted from the rest of revenue, one ends up with net income—not gross income. Curiously, the subsection states that after allowing deductions in respect of tax credits, one goes ahead with gross income—a contradiction in terms.

I have maligned today's draftsman because I find that in Section 10 of the Exchequer and Audits Departments Act 1866, the same situation arises. It states:

    "The Commissioners of Customs, the Commissioners of Inland Revenue, and the Postmaster-General shall, after the Deduction of the Payments for Drawbacks, Bounties of the Nature of Drawbacks, Repayments and Discounts"—

all of which might reasonably cover tax credits—

    "cause the gross Revenue of their respective Departments to be paid . . . to . . . Her Majesty's Exchequer".

Watching Mr. Schama's television programme, "The History of Britain" last night, I noticed that there may have been other preoccupations in 1866 that diverted the attention of the then parliamentary draftsman from that provision but it is clear that after all those discounts, repayments and drawbacks from

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gross revenue, one ends up with net revenue. The 1866 Act was defective and has gone on being defective a long time.

I do not understand why the draftsman decided to refer to the 1866 Act. The Minister, in her usual manner, has courteously written a long letter seeking to defend the Government's position, but it is plain that once tax credits are deducted from revenue one ends up with net revenue—not gross revenue. I am seeking to ensure that the subsection makes sense by correcting the 1866 Act. Then everything will flow through in a beautifully lucid stream. That being so, the amendments are eminently sensible. The Bill would be properly drafted.

I hope that the Minister can accept the amendment. I realise that there may be consequential amendments to other legislation but no doubt they can be covered in later stages of the Bill. I beg to move.

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