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Lord Higgins: My Lords, I beg your pardon. Could the Minister repeat that?

Baroness Hollis of Heigham: My Lords, we envisage that in the majority of circumstances it will be as the noble Lord said. He said that he did not understand why the Board of Inland Revenue would be estimating income rather than the claimant. The board would be responding to information provided by the claimant.

Lord Higgins: My Lords, in which case I presume the claimant is making an estimate which the board goes along with. Is that right?

Baroness Hollis of Heigham: My Lords, the board makes the decision.

Lord Higgins: My Lords, that is not quite the same thing. I assume that in other cases the board makes an estimate that the claimant has not made.

Baroness Hollis of Heigham: My Lords, that would be in the second of the possible fraud cases I offered to the noble Lord.

Lord Higgins: My Lords, as the Minister rightly points out, at the end of the year the actual rather than the estimated income is relevant, so the fraud would be short-lived. The actual income figure may be fraudulent, in which case it is duly caught, but overriding a fraudulent estimate that expires at the end of the year seems rather pointless.

Baroness Hollis of Heigham: My Lords, I tried to give the noble Lord an example where someone dropped down on to benefit the following year and was therefore in no position to repay the overpayment. Equally, someone might go abroad. I have seen child support cases where the moment the maintenance arrears mount up, the person disappears. He may have gone abroad, but he is certainly not around to pay the bill. I hope that such situations will not be frequent, but I can conceive that there the board might have difficulty in recovering legitimate overpayments because the claimant was seeking to avoid them, in whatever form.

Lord Higgins: My Lords, I have a sense of unreality at this point. Here is someone making an estimate that the board believes is fraudulent. As it believes the person will disappear before the end of the year, it makes an estimate and reduces his benefit accordingly.

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I suppose that there may be such cases, but it seems rather a sledgehammer to crack a nut. But we are as much against fraud as the Minister.

Baroness Hollis of Heigham: My Lords—

Lord Higgins: My Lords, if I could continue for a second, I will of course give way to the Minister. The clause goes on to state that the estimate does not affect the rate at which the claimant is entitled to the tax credit. I find it rather puzzling, but I am no doubt slowing down at this stage in the proceedings.

Baroness Hollis of Heigham: My Lords, I am not sure how much further I can go. This is a helpful provision to allow mid-term adjustments where appropriate. It serves also as a stopgap on fraud where people are manipulating the system. The noble Lord says that he finds that in the world of unreality. All I can say is that from my child support experience, one of the most common causes for parents with care to go to the appeals system for a redirection on the amount of maintenance owed them is on the grounds that the non-resident parent—be it him or her—is leading a lifestyle inconsistent with declared income. I know that to be the case in an unfortunately large percentage of those who go for departures on child support arrangements.

You need think only of circumstances where a son is employed in his father's garage—or a similar small business—where all sorts of arrangements for income can be made; in this case to avoid paying maintenance. Often in small businesses the former wife or partner has kept the books and knows exactly what kind of double book-keeping is going on, often in terms of the Inland Revenue, I am afraid, as well as in terms of maintenance payments.

I am just giving examples to show that the issue is not as unrealistic as the noble Lord thinks. In some cases we may be talking about quite high value benefits, particularly if they are being paid in association with housing benefit or others. In such cases, fraud is likely to go across to high value benefits such as housing benefit.

Lord Higgins: My Lords, I well understand the comparison with the CSA. My constituency experience from a former incarnation leads me to believe that many parents behaved in the way that the noble Baroness has described. I am a little unclear about the connection between that case and the one that we are considering here. I shall reflect on what she has said and the extent to which these are likely to be relevant cases. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 30:

    Page 6, line 15, leave out "terminating" and insert "revoking"

The noble Lord said: My Lords, Amendments Nos. 40 and 41 are also in this group. This is another restructuring amendment that refers to the

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amendments made by the Government in Grand Committee. It is in what the noble Baroness described in Committee as category two. The original government amendments deleted "revoke" and inserted "terminate". The reasons for that were eminently sensible. It suddenly dawned on the Government in a fit of inspiration that they could not revoke something that did not happen, so they suggested that a better way of getting rid of the problem was to "terminate" it. We realise that there is more joy in Heaven about one sinner who repents and we do not have any objection to the government amendments made in Committee, but perhaps the noble Baroness can explain their effect rather more precisely than I have done. I beg to move.

Earl Russell: My Lords, I hope that the Minister is going to resist the amendment. It relates to an essential part of the schedule D system about which we have just been talking. The point is not only to prevent fraud—although getting an interim payment on account helps to do that—but to prevent the building up of a liability that becomes such a big capital sum that it cannot be raised all of a sudden. That can be a real problem with an irregular income, from which many people other than authors—builders, for example—regularly suffer. It is a more general problem than is understood.

It is possible for someone to overpay one year because they earn a great deal less than the estimate and then find that, according to the estimate, they do not owe any tax for the next year. That terminates their liability to tax for the time being, but it does not revoke it. If they then receive 10,000, they will find themselves paying quite a lot of tax in the next year. The distinction between terminating and revoking is vital, because once a tax credit is revoked, there is no entitlement.

We warmly welcome the asymmetry in the Bill. We do not want to lose the provision for dealing with the sudden loss of a job. The expenses that have gone with a job never disappear quite as fast as the job does. That seems to be a law of the Medes and the Persians. If someone in that situation cannot adjust their tax credit liability, they will be in a pretty poor situation. They will have to put in a new application from scratch, go through all the paperwork again and make the bureaucracy do all the work again. This system, which is borrowed from a tried and tested procedure that works, will simply let matters rest. It will terminate the payment of the tax credit for the time being, but if it turns out to be due after all, it will not have been revoked and can be got without further paperwork.

This is very good thinking. I welcome it and I hope that the Minister will not agree to delete it.

Baroness Hollis of Heigham: My Lords, the noble Earl, Lord Russell, has made my speech for me. I agree with every word that he has said and I hope that the noble Lord will not press his amendment.

Lord Higgins: My Lords, I hate to say this, but I thought that the noble Earl was on about the wrong amendment. However, we are clear about the point

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that was covered by the government amendments. They overcome the original fault in the drafting, and seem sensible. At least in that respect I can agree with what the noble Earl has said. I shall cogitate on his other remarks and work out—

Baroness Hollis of Heigham: My Lords, perhaps I should have been slightly more serious. The point is that, as the noble Earl, Lord Russell, said, terminating stops the current entitlement to an award, whereas revoking means that it is as though it never happened. That may not be what we wish to see established. That is the distinction. That is why substituting one word for the other seems to me a helpful clarification.

Lord Higgins: My Lords, we are all agreed and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 31 not moved.]

Clause 9 [Maximum rate]:

The Earl of Northesk moved Amendment No. 32:

    Page 7, line 6, leave out subsection (4).

The noble Earl said: My Lords, it is worth reading out the text of subsection (4), which states:

    "The prescribed manner of determination may involve the inclusion of such other elements as may be prescribed".

At first blush, does not that state the obvious, along the lines of "The prescribed determination will be prescribed"? That said, it is an almost infinitely broad provision. In particular, it gives no indication of which elements might be comprised in the "prescribed manner of determination". Accordingly, we would be grateful if the Minister could shed some light on the matter. Specifically, how precisely do the Government intend that the maximum rate of child tax credit is to be determined? I beg to move.

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