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The Deputy Speaker (Lord Ampthill): My Lords, I presume that the House is aware that the noble Lord has pre-empted himself in his Amendment No. 8A.

Earl Russell: My Lords, the noble Lord, Lord Higgins, has a sublime faith that the world is divided into black and white and never the twain shall meet. Unfortunately, most of real life happens in varying shades of grey. One of the best things about the Bill is that it allows us to recognise those shades of grey for what they are and to deal with them in a much more accurate way than could be done by the precise definition of black and white that the noble Lord would prefer. To paraphrase Charles II, all tax credits are grey in the dark.

Baroness Hollis of Heigham: My Lords, the noble Lord, Lord Higgins, took my best point. I too studied the words of the 1866 Act. I tried to seek help from the noble Earl, Lord Russell, because I think that was a Gladstonian measure, as opposed to a Conservative Bill. I cannot believe that even the noble Lord would think that Mr. Gladstone could be in error in his assessment of government revenues—since his has been the guiding hand on the Treasury for the past 150 years.

It is clear that "gross revenues" in the 1866 Act means the sum left after all deductions. Intrigued by the same point, I checked the Oxford English Concise Dictionary last night—regretting only that I did not have the full dictionary. One of the meanings of "gross" at the time of the 1866 Act was the greater portion, as opposed to the complete, non-net portion. That may be why "gross" was appropriate in 1866. I am not sure but that is the best that I can do in the time available. I shall check with some of my etymological friends, to see whether they can do better. The noble Lord is obviously right about our current understanding of the word "gross".

Section 3(4) of the Social Security Contributions (Transfer of Functions, etc) Act 1999 provides that the reference to "gross revenues" in Section 10 of the 1866

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Act is not taken to include sums payable into the National Insurance Fund. That provision would be disturbed if the 1866 Act were amended.

I agree that it should be made clear in primary legislation that tax credit payments are to be deducted from tax receipts before they are paid to the Exchequer but that is made perfectly plain in Section 5 of the Tax Credits Act 1999—and in Clause 2(2) for the future. That is a better approach than trying to interfere with the established reference to "gross revenues" in the 1866 Act.

The 1866 Act contains no reference to net revenues. That term is not used at any point. If we were to follow the noble Lord, consequential amendments would be needed to rectify something like 150 years of finance legislation. The phrase "gross revenues" accurately refers back to legislation that gives the appropriate enabling powers. If the meaning of those words has changed, that may be for a future consolidation Bill. The words in the Bill have the same meaning as those used in 1866. I hope that the noble Lord accepts that we are not about to redraft back to Gladstone's period and that he will withdraw his amendment, tempted though he may be to pursue it.

Lord Higgins: My Lords, I find that response very sad. If the use of the word "gross" has changed in the dramatic way that the Minister suggests, there must be total confusion as to today's meaning. It seems clear that I am right and that the change ought to be made but I shall not pursue the point further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 8A and 9 not moved.]

Lord Higgins moved Amendment No. 10:

    Page 2, line 17, leave out "include" and insert "exclude"

The noble Lord said: My Lords, this amendment deals with a somewhat similar point. I have great trouble with this part of the Bill. We are suggesting an addition to subsection (3):

    "For the purposes of the Inland Revenue Regulation Act 1890"

in this case—we are making progress!—

    "the definition of 'inland revenue' in section 39 of that Act is to be taken to include tax credits".

That section of the 1890 Act lists a series of things which are to be taken as "inland revenue"—for example, taxes and so on. But they are all items where the Government receive revenue. Clearly, in the case of tax credits, the Government are not receiving revenue; they are paying out benefits—in 90 per cent of cases, as my noble Lord, Lord Saatchi, points out—or are deducting the tax credits from the revenue that they would otherwise receive. Therefore, one cannot include, with any sense at all, in the definition of "inland revenue" a tax credit. It is not revenue; it is expenditure—or, at the very least, it is a reduction in revenue. Therefore, to rely again on the 1890 Act is quite wrong.

There are other means of getting round this point in terms of the drafting. As I understand it—and the Minister wrote me a most helpful letter—the purpose

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of all of this is to ensure that the responsibility for tax credits is transferred to the Inland Revenue. That is what it is all about. In that case, all that has to be said is that the Inland Revenue should be responsible for tax credits, but one should not get into this convoluted, and in my view totally wrong, way of drafting the subsection.

There is no problem in dealing with the basic point that the Government apparently seek to achieve; namely, that the responsibility for these matters will not be with the Department for Work and Pensions but with the Inland Revenue. We are running into trouble here because, of course, the traditional function of the Inland Revenue is not to give money away. That is not what it is there to do. It is now being asked to fulfil a function which it has previously not fulfilled; namely, to give hand-outs or, at the very least, to reduce the amount of money that it receives from people. If that is so, then the matter ought to be dealt with in the way I have described and not by means of this convoluted idea that the definition in the 1890 Act should be perverted—that is the only word that I can use—or reversed, or turned upside down to meet the point that the Minister is trying to achieve. I beg to move.

Baroness Hollis of Heigham: My Lords, I suspect that I shall be no more helpful than I was on the previous point. The noble Lord is right: Clause 2(3) provides that, for the purpose of the 1890 Act, the definition of "inland revenue" is to be taken to include "tax credit". This is necessary in order to ensure that the same general statutory framework under which the board operates is appropriately applied to new functions. Thus, the reference to "inland revenue" in this context is simply a reference to the matters falling under the administrative responsibility of the Board of Inland Revenue.

Because the responsibilities of the board are changing—so that its role is no longer confined to the traditional one of collecting taxes—the scope of the 1890 Act, which set up the Inland Revenue commissioners and determined their powers, and which provides the statutory framework under which they operate, also needs to be extended. There is nothing sinister about this. Equivalent provision is currently made in both the Tax Credits Act 1999—which the noble Lord, along with myself, saw through this House and, as he said, improved, so this is possibly one area that bypassed him—and the Social Security Contributions (Transfer of Functions, etc.) Act 1999.

I have spoken at some length. It is simply that the term "inland revenue" means basically the handling of the matters that the Inland Revenue is now deemed to perform, as conferred by parliamentary authority. That is why the wording is in its present form.

Lord Higgins: My Lords, I still find this an extraordinary way for the draftsman to proceed in terms of what the Government want to achieve. All that need be said is that the Inland Revenue should be responsible for tax credits instead of going about the matter in this roundabout way—a way which, in my

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view, is positively wrong. I shall give further thought to the matter and consider whether we should return to it at Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4.15 p.m.

Lord Higgins moved Amendment No. 11:

    Page 2, line 26, at end insert "and the amounts deducted by them from inland revenue"

The noble Lord said: In moving this amendment, it may be convenient to take also Amendment No. 14. Clause 2(5)(a) reads:

    "the amounts of the several payments made by them of or in respect of tax credits".

I seek to add the words,

    "and the amounts deducted by them from inland revenue".

It seems to me that there are two aspects of tax credits: the part concerned with payments outwards, and the part concerned with reducing the amount of tax that the Inland Revenue will collect. It seems appropriate that we should deal with both.

Amendment No. 14 suggests that we should leave out paragraph (c) at line 28, referring to,

    "the amounts received by them in respect of tax credits".

The reference is to the amounts of tax credits received by the board. I simply do not understand that. The board will not receive any tax credits; it will either pay out tax credits, in the form of benefits; or, alternatively, it will reduce the amount of tax which it collects. But, I repeat: the board will not receive tax credits. Tax credits will be going out; they are not revenue that is coming in. Therefore, I do not understand why Clause 2(5)(c) is drafted in this way.

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