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Lord Higgins moved Amendment No. 9:
- Page 18, line 26, at end insert—
The noble Lord said: My Lords, we tabled this amendment at earlier stages, but, for various reasons, we have not moved it.
The Chancellor's Budget included measures that raised a huge amount of extra money from national insurance contributions by companies and individuals. I have always regarded national insurance contributions as a tax, even when I was at the Treasury. In effect, the Budget raised a huge amount in extra taxation. In simple terms, one could say about the overall shape of the Budget that the amount raised from business in national insurance contributions roughly equalled—or provided—the amount of extra money to be spent on the National Health Service. The money raised from individuals in increased national insurance contributions and other taxation effectively funded the payments to be made under this Bill.
If the money was raised in national insurance contributions in order to provide some vestige of plausibility for the Government's previous promise not to increase taxation, how did the Government succeed in getting their hands on the money that they wished to spend in a particular way? The money would normally go into the National Insurance Fund, in certain proportions, and to the National Health Service, in other proportions. I was not mistaken in thinking that the Government had a problem, and we soon found that we had a National Insurance Contributions Bill that changed the allocation between the National Health Service, on the one hand, and pensions and so on, on the other.
I am still puzzled, however. The National Insurance Contributions Bill distributes the extra money into the National Health Service in the way that was intended and changes the balance between health payments and social security payments in the national insurance pot. I am still not clear how the Chancellor can obtain the money needed to meet the extra expenditure envisaged in the Tax Credits Bill. What is the total cost of the Bill now? Originally, I thought it was £2.7 billion, but I think that I am right in saying that it is £1.7 billion. Can the Minister clarify the cost of the Bill?
If we turn to the Red Book, which has grown over the years—it is probably 20 times thicker than the original Red Book with which I was originally involved—we may look in vain for any means of ascertaining where the extra money to fund the Tax Credits Bill is to be obtained by the Chancellor. We
It is clear that, under the Budget, there has been a massive increase in government taxation and expenditure. I would assume, therefore, that since the Tax Credits Bill will impose a massive increase in expenditure for reasons we all understand, it must be related in some way to the corresponding increase in taxation. I hope that the noble Baroness will explain where the extra money now to be redistributed—this one is a real old Labour proposal; I am glad to see the noble Baroness, the noble Lord, Lord McIntosh, and, indeed, noble Lords on the Back Benches behind the Ministers smiling at my remark—is to come from; that is, how those concerned are to receive it and from what source. I beg to move.
Baroness Hollis of Heigham: My Lords, this amendment seeks to explore the Government's thinking behind the funding and accounting arrangements for the two new tax credits. We touched on a similar issue covering the various devices and forms both in Grand Committee and in our debates on Report. Each of us takes our delight in different ways, but I have to say that my delight in rehearsing once again our theological debates on accountancy is now diminishing somewhat. However, perhaps that is because we have reached Third Reading.
The Government's position on funding arrangements for the new credits is clear and consistent. I should stress that the arrangements provided for in this Bill follow the model laid down by the Tax Credits Act 1999, which was also carefully scrutinised and agreed by noble Lords, including the noble Lord, Lord Higgins, and the noble Earl, Lord Russell. On behalf of my right honourable friend the Paymaster General, I brought that Bill to your Lordships' House.
The key point to make is that tax credits form part of the tax system. We have discussed at some length the percentage of tax credits that will offset tax liabilities and the amount of tax credit payments which will exceed such tax liabilities. We have also discussed the ways in which the new tax credits replicate the tax system in the sense that awards will run for up to one year, in line with the tax year; entitlement will be based on income for one tax year; the measure of income for these new credits will be much more closely aligned with that used for assessing income tax; and that the new, more integrated system for support will be available to people whether or not they are in work, but will be in place and able to support them as they move into work.
Given that, I think that it would be wrong to focus only on the numbers, although I shall be happy to repeat for the noble Lord the information that I believe I have already given him; namely, that the additional cost of these proposals, on top of the cost of the existing tax credits, is to be around £2.7 billion. I have no reason to think that the figure has changed. I am
Lord Higgins: My Lords, I took the figure from page 217 of the Red Book. To my surprise, it seemed to indicate that the cost would be around £1.7 billion rather than £2.7 billion.
Baroness Hollis of Heigham: My Lords, this is the one occasion on which I have not brought the Red Book into the Chamber. However, the assurances I have been given, along with the figures that I have quoted during previous stages, confirm the figure of £2.7 billion. We put that figure on the table in Grand Committee.
Because the tax credits will form an integrated part of the tax system they are to be administered by the Inland Revenue, and because the credits will provide a way for the tax system to recognise a family or household's circumstances and responsibilities within the tax year, it is entirely proper for the new tax credits to be funded from tax receipts, just as WFTC, DPTC and the children's tax credit are funded in this way now. We are building on what we already have in place. This is an issue which, as I recall, went through with all-party support.
I have already made clear that the funding arrangements provided for in the Bill follow those set out in the 1999 Act. They do not introduce any new principles. Existing tax credits are already administered in this way.
The noble Lord pressed me about the relationship with the National Insurance Fund. The funding arrangements for tax credits have nothing to do with the National Insurance Fund. These new tax credits, like WFTC and DTPC, will be funded by deductions from tax receipts before they are paid to the Exchequer. In effect, they will reduce the amount going into the Consolidated Fund.
Lord Higgins: My Lords, we know from our earlier discussions on this matter that the amount comprising a genuine tax credit is only around 10 per cent of the total. Some 90 per cent of it will be straight expenditure. What I do not understand is where the money to pay for that additional expenditure has been raised.
Baroness Hollis of Heigham: My Lords, the money is to come from general tax revenues. As I have said, payments are to be deducted from tax receipts before they are paid to the Consolidated Fund, as set out in Clause 2. That is why Clause 2 makes it clear that the amounts are to be deducted by the Board from the gross revenues. I have to say that we have discussed this at length.
I appreciate that there may well be an unbridgeable gap between noble Lords on the Benches opposite and myself as regards whether these are tax credits or benefits and therefore whether the accountancy devices or the modes of funding are appropriate, in the
The accountancy devices regarding which elements should be appropriately recorded under taxable revenues and which should be recorded as payments being made to individuals are entirely in accordance with the ONS and OECD proposals, a matter that we have already discussed at great length. I could discuss on a philosophical level whether tax credits form a part of the tax system or whether only 10 per cent of the credits should be counted as tax forgone. However, I think quite simply that there is no meeting of minds on this.
Ultimately, however, for the purposes of what we are seeking to achieve here, and given that we are following well-established procedures originally set up for WFTC and DPTC, does it matter? We are seeking to ensure that more money goes to families with children in ways that will encourage people into the labour market. The procedures of accountancy are entirely compatible with international standards; they are transparent and available for public scrutiny. There can be no ambiguity about what we are doing. Perhaps I may say to the noble Lord that I really do not understand why he does not let the matter rest.
"( ) Payments under this Act shall be made from the Consolidated Fund."
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