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Baroness Hollis of Heigham: My Lords, I am grateful for that reception. Given the number of detailed questions that could have been put to me about the meaning of these regulations, I am even more grateful for the brevity of the reception.
If I understood him correctly, the noble Lord, Lord Freeman, said that it would be unfair if someone earning £5,000 had to repay some of the tax credit topping up that income when his or her partner started work on a salary of, say, £30,000 per year. He said that they would not appreciate that they would have to repay the credit, which was calculated on an annual basis. However, as the noble Earl, Lord Russell, said, the alternative could be much worse. For example, one person could earn £5,000 for April to May, after which he or she is joined by a partner earning the equivalent of £30,000 per annum. If there were no requirement to repay, they would be receiving taxpayers' money as if their household income was £5,000, whereas in fact the family income was perhaps £32,000 or £33,000. That clearly cannot be reasonable. We shall make clear to clients of the tax credits what the situation is. We have gone some way to soften the problems that occur when there is a modest increase in income by having the £2,500 head space so that people do not have to repay money. I believe the noble Lord would agree that his possible solution, which is to ignore huge increases in income, is worse than the problem that he has identified; namely, that assessments are based on an annual income and it is not unreasonable in the following year to take the previous year's income as the basis with any repayment to follow, give or take the £2,500 head space.
I turn to the points made by the noble Lord, Lord Higgins. I believe that the noble Earl, Lord Russell, answered the point about bank charges. I refer to the practice for income assessment that already exists for WFTC and DPTC. The noble Lord asked about extra statutory concessions. He was kind enough to give me notice of that to enable me to provide what I hope will be a more helpful answer. This is an important procedural point. I believe that I may be able to give the noble Lord the assurances that he seeks. If there were to be a change in the extra statutory concessions reflected in the regulations, for example, if the Inland Revenue wished to add to its list, the tax credit regulations would have to be amended. Such amendments would be brought before this House through the ordinary procedure for regulations, probably through the negative system, as regulation changes to the Tax credits Act. Were the Inland
Revenue to change its extra statutory concessions for tax purposesI understand that it does not now have to seek parliamentary approval for thatwhere that had a read-across to tax credits, the regulations for tax credits would have to be amended. There would be proper parliamentary scrutiny of such read-across into tax credits. I hope that that answers the point made by the noble Lord with regard to tax credits.
Lord Higgins: My Lords, I understand what the noble Baroness is saying but I am not sure that I am reassured. The situation is satisfactory as regards the Tax Credits Act in one sense, but we are none the less effectively writing into statute extra statutory concessions. I think I am right in saying that in many cases the definition of those has never been clearly established. Therefore, there is a degree of uncertainty over the situation. That is worrying. As far as I knowI may be wrongthis has never been done before. We need to be careful what we do. I am not clear to what extent the list of extra statutory concessions has any statutory basis.
Baroness Hollis of Heigham: My Lords, I cannot help the noble Lord on the second point. However, it seems to me that what matters is that the Inland Revenue extra statutory concessions are on parallel tracks with what is disregarded for income purposes and tax credit purposes. The point of that is to seek to align as far as possible the determination of income within tax credits along the lines followed by the Inland Revenue. Should the Inland Revenue seek to change what it regards as an extra statutory concession, as far as I am aware that is not enshrined in the legislation for the Inland Revenue. As far as I know it is not enshrined as such in the legislation that we are discussing, merely that we should replicate what is in the list by specifying in regulations what would be disregarded.
Were there to be any subsequent changes made by the Inland Revenue to its list, we should have to specify that in additional regulations. The terms of the extra statutory concessions are published by the Inland Revenue. The regulations refer to the terms of the concessions as published at a particular date. I believe that Regulation 2(4)(c) was published on 1st July 2002. The point I seek to make is that we are talking about parallel paths. There cannot be any extra statutory read-across from Inland Revenue to tax credits without parliamentary scrutiny intervening between those two steps.
If the noble Lord needs more help from me or from the Inland Revenue on the status of the extra statutory concessions, I shall be happy to write to him. However, I give him an assurance that if there were to be any wish to enlarge the scope of disregarded income for tax credits purposes in order to align tax credits with any changes made by the Inland Revenue for tax purposes, that could be done only as a result of changing regulations which would be scrutinised by this House through the negative procedure, if your Lordships so wished. I am not sure that I can help the noble Lord further but I am happy to try.
Lord Higgins: My Lords, I realise that it may not be possible to help me further this evening. However, it appears that the introduction of the measure inhibits the ability of the Inland Revenue to act flexibly with regard to extra statutory concessions in the way it has hitherto.
Baroness Hollis of Heigham: My Lords, I hope that the noble Lord has accepted my assurances as regards the read-across from the Inland Revenue to tax credits. However, what he is now worried about is the loop back from tax credits to the Inland Revenue. Rather than try to hypothesise, it is better to write to the noble Lord on that point, if I may.
I am sure that noble Lords will understand why the algebra is complex. In the course of the year some of the relevant premiums might change. For example, as regards the premium for working for 30 hours, a lone parent might decide to work for 20 hours. That means that one has, first, to gross up all the entitlements, then to disaggregate down to a daily basis for each period of entitlement and then to reaggregate before one then starts to set against income and work the taper. That is the reason for the complexity and the reasons that the formula appears so mechanistic.
Lord Freeman: My Lords, I am most grateful to the noble Baroness for giving way. I thank her for her earlier comments. While she is on this specific point, I apologise to her that I did not express my arguments as clearly as I should have done. I do not seek to be profligate or to suggest that families being supported by tax credits should receive more than their due. I refer to a specific point which perhaps in the fullness of time the noble Baroness may consider; namely, when a family's circumstances change during the year could we please use averaging rather than time apportionment? If we do that, no problem of overpayment arises and at the end of the tax year a family does not have to be asked to make repayment. I do not suggest that we should spend more of taxpayers' money; it is a mathematical pointto use the phrase of my noble friend Lord Higginswhich I ask the noble Baroness to consider.
Baroness Hollis of Heigham: My Lords, I believe that both averaging and time apportionment are taken into account. The following year's entitlement will be based on the preceding year's income. What one cannot do is cherry pick and have the advantages of the tax systemwhich the noble Lord will welcomewhile also seeking to maintain the continued income assumptions without repayment which currently exist under the six month rigidity of the working families' tax credit. As I understand it, the noble Lord, Lord Freemanalthough I suspect that he would not own up to thisis seeking to cherry pick the two together. What is important is that we ensureI shall seek to do sothat the literature and the leaflets we send out to clients and the advice we give them are absolutely clear. There is no solution apart from the onewhich I think would be profligateof public money.
The noble Lord, Lord Higgins, asked me about absolute numbers. The figure of £5,060 is a real figure. It represents the income threshold under which one gets the maximum entitlement to working tax credits and above which the taper starts to kick in. It will be reviewed in upratings which are carried into practice by further regulations under the affirmative procedure. Therefore, there will be plenty of opportunity for parliamentary scrutiny.
I welcome the welcome given by the noble Earl, Lord Russell, to the disregards on maintenance, student loans and royalties. I am absolutely delighted about that. I am sure that like me he will welcome the fact that for this Parliament the children's element will be uprated in line with earningshe required me to be clear on that point in the Houseand the working tax credit will be uprated at least in line with prices for the rest of this Parliament.
At the end of the day, we get down to quite techy detail about who gets what and how much. The small details about how much extra disabled children and severely disabled children receive will transform people's lives. I am delighted by the response of noble Lords to the regulations.
On Question, Motion agreed to.
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