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Scotland Act 1998 (Transfer of Functions to the Scottish Ministers etc.) Order 2002

Lord McIntosh of Haringey: My Lords, I beg to move the second Motion standing in my name on the Order Paper.

Moved, That the draft order laid before the House on 2nd May be approved [29th Report from the Joint Committee].—(Lord McIntosh of Haringey.)

On Question, Motion agreed to.

Lord McIntosh of Haringey: My Lords, I beg to move that the House do now adjourn during pleasure until 8.30 p.m.

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Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.9 to 8.30 p.m.]

Tax Credits Bill

Consideration of amendments on Report resumed on Clause 24.

[Amendments Nos. 89 and 90 not moved.]

Clause 25 [Payments of working tax credit by employers]:

[Amendments Nos. 91 to 98 not moved.]

Clause 28 [Overpayments]:

[Amendments Nos. 99 to 107 not moved.]

Clause 30 [Underpayments]:

[Amendment No 108 not moved.]

Clause 31 [Incorrect statements etc.]:

[Amendment No. 109 not moved.]

Lord Higgins moved Amendment No. 110:

    Page 22, line 29, at end insert—

"( ) No person shall be liable for negligence under this section unless the Board is satisfied that it is just and reasonable in all the circumstances of the case to hold such person personally liable.
( ) Amongst the circumstances the Board shall consider in coming to a determination as to whether the Board is so satisfied as set out in the preceding subsection shall be—
(a) the extent and degree of the neglect,
(b) whether the neglect is so gross as to constitute a deliberate act,
(c) the degree of personal gain,
(d) any impairment of the health or other reason whereby the neglect may have been occasioned, and
(e) the resources available to the person concerned to be able to comply properly and duly."

The noble Lord said: My Lords, Amendment No. 110 is concerned with the question of negligence by individuals who are administering the tax credit arrangements and suggests that no person shall be liable for negligence under the clause unless the board is satisfied that it is just and reasonable in all the circumstances of the case that it should hold such a person liable.

The amendment specifies a number of circumstances the board should consider in coming to a determination on whether it is so satisfied; namely, the extent and degree of neglect; whether the neglect is so gross as to constitute a deliberate act; the degree of personal gain, if any; impairment of health and so forth, and the resources available to the person concerned to be able to comply properly and duly.

Although it is true that in administering the tax credits the employer faces a considerable burden, obviously he is also preoccupied with running his business. None the less, it is right that if he is negligent, appropriate steps should be taken, and the Bill makes provision for that. Having said that, it seems to us that there is some argument for ensuring flexibility in particular circumstances. I refer, for example, to the proprietor of a small enterprise who suffers from ill

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health and would not otherwise be able to cope not only with his business which would perhaps fall into disrepair, but also with the administration of the tax credit system as far as his employees are concerned.

The amendment is self-explanatory. It seems to us that there is an argument for giving a degree of flexibility to the board as to whether or not the individual concerned should be subject to the provisions of the Bill, particularly as regards penalties and so forth. I beg to move.

Lord Bassam of Brighton: My Lords, I welcome the fact that the amendment is before us. It enables us to clarify a matter which we thought we had clarified in Committee. Having read the briefing from the Child Poverty Action Group today, it is clear that that organisation would welcome clarification.

Clause 31 provides for a penalty to be imposed where a person has, fraudulently or negligently, provided false or incorrect information or evidence. The amendment seeks to place limits on the imposition of penalties for negligently providing false information. The "negligence" test for penalties is a matter that has been given careful consideration both here and in another place.

Neglect means that there has been a failure to take reasonable care. When people are applying for significant amounts of public money, it is only proper that they should take reasonable care. The alternative would be to say that people can deal with their tax credits affairs in a totally cavalier fashion. I am sure that noble Lords would not want that to be the case.

If we are serious about ensuring that claimants receive what they are entitled to, about tackling fraud and about targeting resources where they are most needed, the Revenue must have the power to require additional information to be provided. For those powers to be meaningful there must also be fair but effective sanctions to prevent fraudulent claims or the negligent provision of information. To allow claimants to supply incorrect information with impunity would be a fraudster's dream.

I understand the concerns about imposing penalties on those who have made an innocent mistake. However, that is not what the test of fraud or negligence is intended to allow. The test of negligence is applied to those who fail to take care in making their claim or in providing information that any reasonable person would take, and which any reasonable person would expect them to take. In making a claim it is only right to expect people to act responsibly.

There will also be cases where it is difficult to show categorically that someone has acted fraudulently. However, in such cases it may be possible to show that someone's behaviour amounted to negligence. In practice, many of the matters set out in the amendment will be matters which the Revenue or any appeal body will take into account when considering whether there has been negligence. I do not believe that it is necessary or appropriate to set out those matters on the face of the Bill.

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The test of fraud or neglect is long established in law. It is not an innovation or something we are introducing on a whim. Tinkering with that test, which would be the effect of the amendment, would generate uncertainty. We do not think that uncertainty is in the best interests of claimants or employers. They would be faced with two different tests of negligence: one for tax and national insurance affairs and another for their tax credit affairs. Again, we do not believe that that would be advisable or helpful.

The test of negligence has been used in the tax system for many years. It also applies to the working families' tax credit and the DPTC system. I have not heard anything from noble Lords opposite to suggest that they think that the Revenue is using that existing power in relation to tax credits in a heavy-handed way; one could argue the reverse. In any case, the test of negligence does not allow the Revenue to penalise people who make innocent mistakes, even if it wanted to. The necessary flexibility for which the noble Lord argues is there in the way in which this test can be operated. I hope that the noble Lord will not press his amendment further.

Earl Russell: My Lords, am I right in recollecting that this clause is aimed at what is known as a phoenix company, because if that is correct, that would materially assist me?

Lord Bassam of Brighton: My Lords, I have always had a great desire to materially assist the noble Lord, but I am afraid that on this occasion, much as it might help my own case, I am unable to do so.

Lord Higgins: My Lords, before the noble Lord sits down, I understand the arguments he is putting forward. However, some of the comparisons he draws are not relevant. It is true that the test as regards negligence might well apply to tax affairs. However, the situation here is rather different. It may be that a small businessman, responsible for running his business and so forth, has problems of a short-term nature. It may well be that he is not able, within a matter of two or three weeks, to keep wholly up to date but he might be thought to be negligent if he does not do so.

We suggest that consideration should be given to the various factors which might be the reason for his appearing to be neglectful and for the board taking the view that he was neglectful. It does not compare with the tax situation which, on the whole, is run over a rather longer time period where matters such as illness and so forth would probably not be relevant.

We have also put forward some other suggestions. I do not find the Minister's reply wholly convincing. Unless he can satisfy me further, particularly on the illness point, I am inclined to return to the matter at Third Reading.

Lord Bassam of Brighton: My Lords, I respect the noble Lord's point. I should clarify that negligence

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already applies to tax credit affairs. It includes employees in the working families' tax credit. So we have some experience of the way the test is applied.

The point that the noble Lord makes about innocent mistakes—that is effectively what he is talking about—is covered. There is a degree of innocence if someone is inadvertently indisposed and cannot put his affairs straight in the limited period of time suggested by the noble Lord. I take his point, but if there is an inadvertent error, as suggested by the noble Lord, those matters can properly be taken account of in the way that the test will always be applied. At some point in the dispute those matters can quite properly be tested in a tribunal forum. That is another opportunity to set matters right and have the record put straight.

The flexibility is there. There is capacity and scope for dealing with innocent mistakes and with inadvertent errors caused by people being unable to keep their affairs perhaps correctly recorded. Therefore, what the noble Lord seeks to achieve with his amendment does not take us any further. We think that the necessary flexibility is already there. Going along the route suggested by the noble Lord would only confuse and make matters more difficult.

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