Welfare Reform Bill

Lord McKenzie of Luton Excerpts

Tuesday 1st November 2011 Grand Committee

[Baroness Meacher]

My Lords, I support Amendment 51EA moved by the noble Baroness, Lady Lister. I was impressed when the Minister mentioned in an earlier debate that providers of support to claimants will be rewarded financially if their clients find a job and remain in it for two years. That claimants should achieve long-term employment is clearly the objective of the Minister and the Government. I have no doubt that it is a fine objective. Certainly it is supported by me and, I am sure, by other noble Lords around the table. However, this clause seems to run absolutely in the opposite direction. It encourages claimants with young children to rush into a low-paid and probably insecure job rather than taking the opportunity to train and prepare themselves for long-term work.

Will the Minister explain the rationale behind the lack of protection for carers responsible for very young children aged five or six while they complete a training course up to level 3? Does he see the apparent inconsistency between the aim of placing people in long-term employment, which we all support, and incentivising them to take low-paid work rather than educate and train themselves in order to better their future? I will be interested to hear what he says about that.

My second point is about the unreliability as an employee of a primary carer of children who are in the first two years of school. Having had four children, I have strong recollections of the childhood illnesses they pick up in the early years: for example, a cold, an infection or German measles. If you have four children, it is not one lot of German measles but four, one after the other. Employment? Forget it. This is a serious point. The strain of working when your young children are starting school and picking up all those bugs has to be experienced to be fully understood. In education and training, one can catch up when life settles down and the kids go back to school. I know because I did it. I did an economics degree when I had three children under seven.

We know that the Minister is under enormous pressure to deliver cuts through Parliament, but perhaps this issue is worth fighting for in terms of the Government's own admirable priorities of encouraging claimants to undertake training in order to improve their long-term employment prospects for the future.

[Lord McKenzie of Luton]

My Lords, I will speak briefly in support of the thrust of the amendment. It raises issues about the right age at which full conditionality should apply, and perhaps takes us back to debates we had on another Bill. Perhaps today is not the occasion to revisit them. However, I am not sure that we have debated thus far in the Bill the basic conditions for accessing universal credit. This is predicated on the fact that somebody is within the system and subject to full conditionality. This is what the amendment seeks to ameliorate. One basic condition for accessing universal credit is that somebody should not be receiving education. I presume that that is meant to cover broadly the same arrangements as exist under JSA. Perhaps the Minister will clarify that.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, we recognise the value of further education and training. In England, the Department for Education is committed to fully funding education and training for all young people up to the age of 19. Everyone aged 19 and over is eligible for fully funded provision to achieve basic literacy and numeracy as a minimum to the equivalent of five GCSEs at grades A* to C. This is funded by the Department for Business, Innovation and Skills.

Higher education, as noble Lords will be well aware, is funded through a system of loans and grants intended to cover the cost not just of courses but of living expenses. Typically, the benefit system does not allow students in full-time education to claim benefits. That is in recognition that such individuals have access to other forms of financial support, either through the education system itself or because they are living at home with their parents. However, the existing system recognises that there are some circumstances where additional financial support is necessary. In particular, in income support, certain young people, for example, those who are estranged from their parents or lone parents with a child under seven, may be entitled to benefit while studying. Students who are themselves parents can also claim child tax credits.

Under universal credit, we are looking to maintain the status quo. I hope that that gives some reassurance to the noble Lord.

--- Later in debate ---

Moved by

[Lord McKenzie of Luton]

51FZB: Clause 26, page 12, line 12, at end insert—
“( ) With respect to claimants who have disabilities, the Secretary of State shall not impose any sanctions without first consulting a disability employment adviser.”

[Lord McKenzie of Luton]

My Lords, I beg to move Amendment 51FZB and speak to the other amendments in this group standing in my name and that of my noble friend Lady Hayter. I make it clear from the start that we accept the need for a sanctions regime to reinforce conditionality, but the issue, as ever, is the detail. These amendments cover four issues: the sanctions where a claimant is disabled; the amount of the sanction; the maximum length of a higher-level sanction; and targets. I wish to set this in context and seek to understand what is happening with regard to sanctions.

The Minister will be aware of earlier press reports which suggested that there had been a culture change in Jobcentre Plus, with a particular focus on tougher action on sanctions. Despite earlier denials by the Secretary of State, it was acknowledged by the DWP that instructions had been misinterpreted—a marvellous euphemism—and that there were no targets for staff to refer claimants for sanctions. A parliamentary Answer in May of this year elicited that from July to September 2010 there was a 42 per cent increase in the number of people sanctioned when compared with January to March 2010. Clearly, this is way in excess of any increase in the client caseload. Can the Minister please provide us with any more current data on what has happened since? If he cannot do that today, perhaps he will undertake to write to us. Will he give us an absolute assurance that targets for sanctions are not in operation, and that they will never feature in the world of the universal credit?

Moreover, what the earlier press report suggested, and, indeed, the DWP acknowledged, seemed to confirm that there may well be the prospect of creating a culture in which the emphasis on sanctions could prevail. So I ask, what is being done to ensure that this is not the case? Has the internal management reporting on sanctions changed in any way over this period? Although we should be cautious about interpreting press articles, a suggestion that vulnerable claimants could be tricked into falling foul of conditionality requirements, rather than supported in their work-related requirements, is at least cause for thought. I am aware that lots of training is undertaken in Jobcentre Plus but I am sure that the Minister will see the need to address these concerns. Perhaps he can summarise for us—I am sure that we have the data somewhere in the volumes of information that we have—the obligation on claimants to comply with conditionality requirements on an ongoing basis during the course of a sanction, whether it be higher, medium or lower level, and when such compliance mitigates the sanction. Is it only the lower level sanctions which can be terminated by re-engagement?

On the specifics of the amendment, the note circulated yesterday helpfully set out the answer to the question about the limit on sanctionable amounts. I thank the noble Lord for that. For claimants in receipt of the maximum amount, it will be fixed at the standard allowance amount. However, as set out in the note, for someone in receipt of income, that income has to be applied to support the housing and other elements before the standard allowance. The three-year sanction seems to be too long. It could mean that an individual is left only with their housing amount, and with housing benefit restrictions that might not meet even the rent level. That is not sustainable over a three-year period. The individual might have brought it on themselves, but how are they possibly to live? “Get a job” is not the answer if there are no jobs. With a one-year provision, as suggested in our amendment, we would be doubling the current JSA maximum in any event.

I acknowledge that our amendment requiring reference to a disability employment adviser before a disabled person is sanctioned might be more suited to Clause 27 than Clause 26 because the high-level sanctions are to apply only to those subjected to all work-related requirements. However, the points remain valid. If individuals are to have a big slice of their benefit removed for a period, it is important that they understand why; know what they have to do to comply with requirements; and be confident that the decision-makers understand the challenges they face continually or from time to time.

Finally, can the Minister confirm that the ability to sanction will not be contracted out to providers or to anyone else?

--- Later in debate ---

[Lord Freud]

My Lords, currently when a single JSA claimant is sanctioned we stop payment of the entire benefit, which is usually around £67 a week. Under the universal credit, sanctions will reduce the award rather than stop payment. The amount of the reduction will be set with reference to the standard allowance.

[Lord McKenzie of Luton]

If the Minister will permit me, is that not simply because the housing component is added in as part of the universal credit? The sanction would not apply to housing benefit currently, it is the core standard amount which is equivalent to the JSA amount.

[Lord Freud]

Yes, the noble Lord has got it precisely right and I am grateful to him for summarising it for me. Where a claimant is in receipt of the maximum amount of universal credit, that universal credit will not be reduced below any amount included in their maximum amount for housing, children, disability and so forth. However, where a claimant is earning money and has other earnings over the disregard levels, the sanctionable amount will be a fixed amount not dependent on the level of the award. In circumstances where a claimant’s award is less than their maximum amount because of earnings, a sanction could reduce universal credit to less than the additional amounts for children and housing included in it. That, I hope, is obvious from the numerical examples I shared with noble Lords yesterday. Claimants’ other income will offset such reductions.

Fundamentally, the sanctions regime is designed to do what it does currently, albeit within the universal credit structure. We want to create a clearer and stronger system which provides clarity about the consequences of non-compliance and a more effective deterrent against repeated non-compliance. I can confirm to the noble Lord, Lord McKenzie, that the sanction regime and a sanction decision will not be contracted out. Clause 29, headed, “Delegation and contracting out”, does not include sanctions.

Clause 26 provides for higher-level sanctions of up to three years for claimants subject to all work-related requirements who fail to meet their most important requirements such as accepting a job offer. Failures sanctionable under Clause 26 clearly damage a claimant’s employment prospects and it is right that we have strong sanctions in place to deter such behaviour. Amendment 51FZD seeks to limit the duration of higher-level sanctions to one year. I can assure the Committee that we expect that three-year sanctions will apply only to a very small proportion of claimants who have repeatedly breached their most important requirements and where earlier sanctions have not worked to change behaviour.

--- Later in debate ---

[Lord Freud]

I shall deal with the second point from the noble Baroness, Lady Sherlock, first. The point that noble Lords are concerned about is whether we are going to have any more private traffic-warden incentive systems—that is the issue. That is why noble Lords are concerned that we do not incentivise people to “clamp” claimants. I make an absolute assurance that we understand how unacceptable that is or would be, and we are determined that there will be no incentivisation in Jobcentre Plus to sanction. We have trained our advisers—the decision-makers, rather—to make these decisions in as neutral and considered a way as possible, in the interests of changing the behaviour of the individuals to make them do something that in the end will be of benefit to them. Getting them into a job is vital, and we are keeping the regime of conditionality. I make that assurance to noble Lords.

On the noble Baroness’s second question—or rather the first one, if I learn to count—we are able to vary the rate of recovery depending on personal circumstances so we would be able to take that into account and, conversely, courts would be able to take that into account.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his detailed response. I am comforted—indeed, I recognise some of the script—about the protections that are in the system to support disabled people, people with mental health problems and particularly those with fluctuating conditions; that has been a long-running theme in our debates over a number of years. I accept that the disability employment advisers are not necessarily the right people to do this, for so long as there is capacity in the system, it is part of the process.

I also accept what the Minister says about no targets or any other incentives to encourage sanctions, but we are entitled to a better explanation of what I understood the figures to be: last year the number of people sanctioned was 490,000, while now it is 760,000. Something is happening out there, is it not? The schedule that I have, which was a Parliamentary Answer that looked at the 40 per cent increase over that period—March 2010 to September 2010—is headed “Sanctions and Disallowance Decisions”, so the switch between sanctions and disallowance that the Minister prayed in aid does not seem to have affected that outcome. It is, in anyone’s language, quite a dramatic increase. We should remain very worried about that. I accept the point that my amendment in relation to people with disabilities was focused on Clause 26 but it is within Clause 27 that their work-related activity falls.

Could the Minister also take us through the various sanctions and say in respect of each what happens to conditionality while the sanction is being applied? Is there an ongoing obligation to comply? What is the sanction if you do not? In what circumstances can those sanctions be switched off—and which of them can be—by re-engagement and rejoining conditionality by individuals? Particularly for the longer sanctions, if there were no obligation to engage in conditionality over that period, what ramifications would that have for, for example, on the job programme? Could the Minister let us have his views on that?

I was going to raise the issue of the £25 additional possible deduction in relation to the next amendment on hardship payments and may revisit that. The Minister made reference to people’s rights of reconsideration and appeal. How would he judge the impact of the impending changes to legal aid cuts, where there will no support to go to an independent tribunal because legal aid for help in welfare benefits is being removed entirely? What compensating arrangements are proposed to address that quite vital withdrawal?

[Lord Freud]

First, one of the drivers of the increase in sanctions was the introduction and phased roll-out first of the jobseeker’s regime and then of flexible New Deal. In one way, we are looking at the history of some of the changes made by the last Government. Secondly, conditionality still applies through the sanctions regime.

Next, the noble Lord asked for a breakdown of the different sanctions regimes. That is rather complicated. I can send him a table of that, rather than going through it in great detail. The summary is that the lower-level sanctions switch off on compliance. Those are one-week to three-week sanctions—rather short by comparison with the higher-level sanctions. Those are essentially grouped around the more vulnerable people. They take those and when they start to comply the sanction comes off and there is a short period. I should remind your Lordships that the table I suggested is sitting there in front of the noble Lord. It is beautiful that he is so far ahead of me. I will not go through that in entire detail. I remember that it took a long time to assemble that table. I spent a lot of time on it.

On legal aid, the point is that one does not need legal issues to be debated here with all the paraphernalia of a legal case. These are practical, fact-finding tribunals where, in our view, one does not need that paraphernalia. It is not particularly helpful.

[Lord McKenzie of Luton]

Will the noble Lord accept that people in those circumstances may need advocacy, which is being withdrawn?

[Lord Freud]

My Lords, they may need advocacy but they can find supporters and bring them along. However, it is not a legal process; it is a fact-finding process.

--- Later in debate ---

[Lord Freud]

I think that I can give good news and bad news. There are two issues here. The first is the person who had a disguised problem which then emerges. We have a solution to that: if it emerges that there was good reason, the decision-maker can reverse the position. The bad news is that we do not have a position where, once someone recants, they are forgiven instantly.

[Lord McKenzie of Luton]

I thank my noble friends for raising additional issues, following on from our earlier debate. My noble friend Lady Hollis seems to have posed a fundamental question which, with respect, the Minister has not fully dealt with. The question was posed to be helpful to the Government, not to try to undermine what they are seeking to achieve.

To the noble Lord, Lord Boswell, I say that no one is talking about being a “softie” in all this. We are upfront; we recognise that sanctions have a role to play in reinforcing conditionality.

The issue about a small group of people who might be sanctioned for three years, with the withdrawal of their benefit unaffected whatever they do in terms of recanting, puts them in a desperate situation. It means that they will be further away from the workplace. I do not know whether they can volunteer or would be involved in the work programme—these are issues that we can pick up in due course—but I urge the Minister to reconsider around this issue because there is something that could benefit the Government in what they are trying to achieve.

Having said that to the Minister and suggested that he might frame his diagram and put it alongside the Pensions Bill that he got last night, I beg leave to withdraw the amendment.

Amendment 51FZB withdrawn.

--- Later in debate ---

Moved by

[Lord McKenzie of Luton]

51FC: Clause 28, page 14, line 20, leave out paragraph (f)

[Lord McKenzie of Luton]

My Lords, this is a probing amendment in respect of hardship payments generally and issues around recoverability in particular. The draft regulations that have been provided to us indicate that hardship payments will be made where a universal credit payment has been sanctioned but where the award has been reduced below a certain level and the claimant can demonstrate that they are or will be in hardship as a consequence of the sanction. It is understood that the regulations will broadly replicate existing JSA regulations. Claimants will be required to continue to meet work-related requirements.

Under existing JSA arrangements, a person can qualify for hardship payments at the beginning of a period of a claim if a decision about eligibility is awaited. Will similar arrangements operate for universal credit? What happens where there is a couple claim but the couple splits up? Does the unrecovered amount attach to the claimant who was sanctioned? Further, when will recovery actually start?

I should have said that there is a key difference between the arrangements proposed for universal credit and the existing JSA regime in the plan to recover hardship payments from some claimants. The notes suggest that this will include everyone who is not in the “vulnerable” category. Is this still the intention? The Minister will be aware of the deep concern that this prospect has raised. It is planned that recovery will be based on existing legislation relating to the recovery of overpayments and payments on account. Will the Minister explain what these are? Using the model for recovery for those who have been overpaid for those who have been in receipt of just 60 per cent of the amount of the sanction reduction does not seem innately to fit well. Over what period or at what rate will the hardship payments be recovered? What if the recoveries themselves push claimants into hardship?

I shall repeat a question I put a moment ago. What happens where there is a couple-claim and the couple split up? Does the unrecovered amount attach to the claimant who was sanctioned? When will recoveries actually start—while the claimant is still in receipt of the hardship payment or after benefit is restored?

The Minister will recognise that to qualify for hardship payments, claimants have to be just that: in hardship, a few steps away from destitution. The Minister may well say that that would be of their own making, but we should not overlook the chaotic lives some people live, compounded for some by mental health and other fluctuating conditions. Too many claimants exist at the very margins of financial solvency, and recovering hardship payments could tip them over the edge.

I want to pick up on a point made by my noble friend Lady Sherlock a moment ago about the announcement of the increase in the amounts which can be recovered for fines to £25. What will be the relative claim in respect of these payments? Will the hardship payment recovery take precedence over these other amounts, and how will that be sorted out? Will the recovery of hardship payments reflect other deductions which are already being taken from benefits? I beg to move.

[Lord Kirkwood of Kirkhope]

My Lords, I am trying hard to say nothing from this end of the table because it is important to make progress. However, I too am very worried about the press reports that have coming since the summer. I said at the beginning of our first session in Committee that some of the language that was being used in relation to these issues and to benefit deductions was extremely worrying. It is getting more acute and more refined. I do not think the Minister can hide behind the defence that he tried to use, although it is absolutely accurate. Changes of this kind would come under the powers given to the courts because these things will be decided in court. But the latest BBC newswire I have seen on this issue described the Prime Minister, David Cameron, talking about benefit reductions for fines up to a maximum of £25 under universal credit. That came from a BBC report. If the Prime Minister has it in his heart and head that universal credit is going to be subject to what I calculate to be a 37 per cent reduction in the standard allowance, I do not think it is fair for this Committee, or indeed the House, to go through all these legislative proceedings, pass this Bill and give it Royal Assent, without some consideration of exactly what that means.

Now I have two complaints. First, as I said in the first day in Committee, a particular language is being used. The Prime Minister talked about the current maximum deduction of £5 as “much too soft”. Indeed, the Secretary of State is not absolved from some of these phrases which really target people on benefits. Of course, we are talking about people in the courts and who have committed crimes. We may even be talking about people who took part in riots—I am not sure about that. That has to be borne in mind and taken into consideration, but to remove up to 25 per cent of £67.50—the level that I understand is being set for the introduction of universal credit in 2013—is a massive reduction for anyone to contemplate. It will simply push people to the margins.

Secondly, what kind of benefits are we talking about? Are claimants to include state retirement pensioners who may find themselves in the courts? Are they contributory benefit claimants who may well have been paying in for all their lives to get that access? Under this new regime, are they likely to be subjected to a £25 benefit deduction? It is not sensible for the Committee or House to contemplate going into universal credit against the background of this being possible without serious consideration of what it is, in detail, that is in the mind of the Prime Minister or Secretary of State. I completely absolve the Minister of any of this stuff, but he must understand that it causes serious concern to people. I guess that this could be introduced by a change in regulations, late at night on a wet Thursday. Unless I get some pretty compelling, better evidence about the provenance of this idea, I will be there, wet on a Thursday, waiting for him. It is unimaginable that we should just pass these things willy-nilly because these benefit claimants riot and need 37 per cent of their entitlement reduced. It is unconscionable and we need a better explanation than the one we have at the moment.

--- Later in debate ---

[Lord Freud]

At the risk of being a little repetitious, I will try to summarise. Obviously, hardship payments are there to ensure that claimants and their dependants are not left in hardship as a consequence of a sanction. We do not want the existence of those payments to make people feel that they can ignore their responsibilities. That is why we are looking at what reform we can make to the current system. We will continue to provide the safety net for claimants and their children.

[Lord McKenzie of Luton]

My Lords, I welcome the Minister's response. I think it indicates some going slow on the issue, and that is the right course of action. The Minister said that there had to be a financial safety net for individuals. I certainly agree with that. If the financial safety net is 60 per cent of the basic amount, just under £40, I suggest that there is really no room to pursue any repayments of the hardship payment. The noble Lord's assertion that they would not start until after the sanction period had ended is to be welcomed, but that rather reinforces the point made by the noble Lord, Lord Kirkwood. It is all very well for the Prime Minister out in Australia to make great pronouncements about docking £25 from people's benefits. That is another example—we see too much of it from some members of this Government; although I certainly do not include the noble Lord in this—of using those sort of issues to get headlines and to berate people on benefits. That is deeply unpalatable.

[Lord Freud]

I cannot let the Prime Minister go undefended. He was emphasising the fact that unless a financial penalty for a crime actually hurts the person and has the impact of a punishment, it is not doing its job. He is concerned that the very modest rate of £5 a week is hardly an impact. Although I glow with delight at the separation that the noble Lord is trying to put between me and notional hard statements, I must say that the Prime Minister is clearly right in this matter.

[Lord McKenzie of Luton]

The noble Lord is secure in his position but, to be honest, he is anyway, given all the good work that he has done on the universal credit. Five pounds may not seem very much, but if, because you have been sanctioned, you are down to 40 quid a week or less, £5 will be very difficult to find; £25 impossible. We ought to have this debate at a much more mature level. Having said that, I beg leave to withdraw the amendment.

Amendment 51FC withdrawn.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I support the very powerful case that my noble friend Lady Donaghy made, and what the noble Lord, Lord Wigley, said. The case of self-employment is clearly very substantial. My noble friend Lady Donaghy spoke about two issues: how the self-employed should be treated, and the problems of those who are not technically self-employed but who are treated as such. I confirm that my noble friend wrote a very important and powerful report that she presented to the DWP. It gave the Minister at the time a lot of food for thought, from which he has not totally recovered.

I will press the Minister on a couple of points that my noble friend raised. What will the process be for self-employment? Will it be based on the accounting profits of the business or on the tax profits? The noble Lord will be aware that they do not necessarily amount to the same thing in the same time period: for example, because of depreciation allowances for plant and machinery. How will that work? For example, if a start-up records a loss in year 1, that will be a zero rather than a minus for universal credit purposes—but does the minus get carried forward to year 2 to reduce year 2 profits? Generally it would be for tax purposes, but will it for universal credit purposes?

The period of assessment that will be taken into account—the reporting process for self-employment—clearly is a significant issue. I am very unclear about the plans, and in particular whether they will specify tax profits or profits computed for tax purposes. Obviously over time the two ought to align, but they will not necessarily align in the same period. How they are treated for universal credit purposes will be of significance.

[Lord Freud]

My Lords, after spending four years writing the Lex column, I am absolutely aware that I cannot answer the question of the noble Lord, Lord McKenzie, off the top of my head. The definition of profits is a knotty and complicated issue that he is absolutely right to focus on. We need to get it right after detailed consideration. Of course it is a long-standing policy that people should be treated as having income or capital in cases of deliberate deprivation. This will continue under universal credit. However, we also think that it is right in principle to apply a minimum income floor to claimants who choose to be self-employed but whose earnings do not make them financially self-sufficient. Because universal credit is a benefit for people in and out of work, the issues around self-employment are different from the issues faced in the current system.

--- Later in debate ---

[Lord Freud]

My Lords, because universal credit is a benefit for people in and out of work, the issues of self-employment are different from those faced under the current system. We need to have clear rules—in particular, on when conditionality requirements do or do not apply to people who are working for themselves and so have a degree of control over their hours and earnings.

Clearly, we need to avoid requirements that will add unnecessary burdens, especially for people who are starting out in business, but we cannot have a situation where people can be treated as being in full-time work for the conditionality purpose but, because they declare no earnings, receive as much benefit as if they were not working at all.

I appreciate that noble Lords have many questions about the detailed rules on the treatment of self-employment income. This is a complex area and we are still working through all the details. The experts in this field are in HMRC and we are working closely with them to develop our proposals. I can confirm that the level of assumed earnings will not be based on the number of hours that the claimant works. Instead, we would assume that a claimant’s earnings are at the level we would expect of claimants with similar circumstances in employed work. In response to the question by the noble Baroness, Lady Donaghy, and the observation of the noble Lord, Lord Wigley, this includes whether they are disabled. As part of our work with HMRC we are considering the assessment of self-employed earnings. It will be important to determine which rules from the current benefit and tax credit systems give the most appropriate framework for universal credit.

The rules on the treatment of self-employed claimants will be set out in regulations and the Bill provides expressly that the regulations on the minimum income floor will be subject to the affirmative procedure in the first instance. The House will have the opportunity to scrutinise the details in this area at a future date.

With regard to the noble Baroness’s amendment, the wider application of notional income capital rules rightly considers whether the claimant has manipulated their income in order to become eligible for universal credit. We believe that different issues arise in relation to self-employment and it would not be right to limit the scope to assume a minimum income in this way. I hope this explanation will allow the noble Baroness to withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, I wonder if the Minister can help us further. In a situation where you have a start-up, where an individual sole trader is working all the hours there are to make a success of the business, doing all sorts of groundwork that often needs to be done, how is an assessment going to be made by the department that this is insufficient? What judgments are going to be made and how is that going to proceed?

[Lord Freud]

My Lords, the noble Lord makes a very important point and it is related to the point of the noble Baroness, Lady Donaghy. There are two areas where we will have to have specific rules. First, in the start-up phase, what are the rules for that and how long does one allow for it? Secondly, in the period when something goes badly wrong, when you have had a business going very well with profits and then you have a sudden collapse, what do you do about that period? That was the example that the noble Baroness, Lady Donaghy, raised. Those are two of the issues that we are looking at very closely and how to get that right.

One of the things we want to get out of this is the most business-friendly suite of support that we can put together. In this sense, working tax credit for the self-employed does become a support for entrepreneurial endeavour, tied with other support for new business such as the new enterprise allowance.

--- Later in debate ---

[Lord McKenzie of Luton]

I do not usually come to the Minister’s aid but if you have two people in business together, that would be a partnership and you would typically look at each person’s share of the profits and presumably aggregate those if they are part of the same household, not if they are in different households.

[Lord Freud]

My Lords, this is one area where a single earner disregard makes life rather easy. I hope that we will be congratulated on that structure.

[Lord McKenzie of Luton]

Can I just make one other point? It is wrong of us to press the Minister as I know that this is embryonic and a lot of work is going on. If the process is to be some early report in that has to be assessed against what is eventually a tax assessment or consistent with VAT accounts, that sort of presupposes that there has to be some look-back or process of adjustment—in a sense the tax credit-type arrangement, which is quite different from the real-time earnings for employed people. Does the noble Lord envisage that as part of the system?

[Lord Freud]

It is clear that we cannot use real-time information for the self-employed. It is another system. It will be much closer to the kind of reporting systems for tax credits in this area—and for that reason.