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House of Commons Hansard
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State Benefits and Taxation Rules
06 March 2007
Volume 457

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I am grateful for the opportunity to raise an issue of particular concern to one of my constituents that may, in broader terms, affect many other people. I am mildly surprised, although delighted, to see that the Paymaster General will be responding on behalf of the Government. I had expected a Minister from the Department for Work and Pensions, because I believe that this is an issue dealt with by the DWP rather than the Revenue. The right hon. Lady may be relieved to know that I do not intend to dwell on tax credits––that will happen in about a fortnight’s time. I make no apology for saying that this issue is emotive and personal. It is not personal to me, but there is animosity towards the Government. I hope to convey the frustration that has been felt by my constituent.

Let me start with some background. Elizabeth—not the name by which this young lady is ordinarily known, although it is her middle name—was born in May 1985 and is nearly 22. She was born with muscular atrophy and was in hospital––not all the time, but regularly––from 1985 to 1996. She was in hospital in 1991 and in 2001 was diagnosed with thyroid cancer and had her thyroid removed. From 2001 to 2004, she was again in hospital. She has been seen by eight consultants and, sadly, is currently in King’s College hospital where the prognosis is not good. She is a very sick young lady.

Elizabeth’s mother, who is well known to me as a constituent, is an extremely brave woman who has sought to care for her daughter for the whole of her relatively short life. Elizabeth’s mother was the manager of a retirement home, but gave up her job to look after her daughter and, because her flat went with her job, also gave up her flat. She gave up her home and her livelihood to look after her daughter, who because of medical incompetence was incorrectly diagnosed. In fact, that was not entirely surprising because she had a condition that was one in a million. We now know that it is two in a million because one other person with the same condition has been found. I do not pretend that the medics should not be forgiven for getting the diagnosis wrong, but they did get it wrong and, as a result, Elizabeth was denied disability living allowance and her mother was denied carer’s allowance.

Elizabeth’s mother spent her time looking after her child and went to the jobcentre for help where she was told that she must go back to work because she did not qualify for benefits. To qualify for jobseeker’s allowance, someone must be working or be available for work, but Elizabeth’s mother could not be available for work because she was looking after a very sick girl. She set up a business because that was the only way that she could survive, which shows that she is a woman with real guts. She established a design business, which I will not identify because I do not wish to identify the lady concerned.

The Government abolished the annual review for tax purposes in April 2004. The previous review was in December 2003 when, for benefit purposes, Elizabeth’s mother declared her design business as having a nil income because it was an embryonic business that was making a loss, not a profit. The conflict between Her Majesty’s Revenue and Customs and the benefits system began at that point. There was no review in 2004 because the Government had abolished it. The next review that she was subjected to was in August 2005—just over a year later—by which time the design business was failing. In order to hold the body and soul of herself and her daughter together, she went into the care business and established a care services enterprise that made a modest profit. The design business went out of business in December 2004.

Elizabeth’s mother received a letter from Thanet district council about her housing benefit in 2005. It stated that her housing benefit had been cancelled with retrospective effect from 2003 because she had made a profit on one business—the care business. The “massive” profit accepted by the Inland Revenue amounted to just under £8,000. The regulations do not allow for the losses of the design business to be offset against the profits of the care business in the same way as they do for tax purposes. Thanet district council informed me in a letter dated 28 November 2005 where a

“claimant is engaged in self-employment and also engaged in one or more other employments as either an employed earner or self-employed earner, any loss incurred in one cannot be offset against earnings in any other of his employments, Regulations 31(10) and 22(10) respectively. This, again I understand differs in Tax Credits where a business loss can be offset against other income, any income of a spouse or partner, and even carried forward to set against the profits of the same business in the next tax year.”

On the one hand, a loss can be offset for tax credit purposes, but it cannot be offset for benefit purposes.

Thanet district council, which it now transpires acted entirely properly and within the regulations, informed me that

“The additional income from her second business was added to her claim from 4 October 2004.”

That has left my constituent in a black hole.

I wrote to the Minister for Local Government to inform him that my constituent was doing her utmost to remain self-sufficient and at the same time provide support for a severely handicapped child while the system was doing its utmost to confound her best endeavours.

A letter from Thanet district council dated December 2005 states that my constituent’s

“rent account is falling further into arrears. I would strongly suggest that she increases her payments.”

That was written about a woman with virtually no income who is caring for a sick child. Those responsible for the benefits system have told her that she must find some money from somewhere.

The Under-Secretary of State for Work and Pensions, the hon. Member for Warwick and Leamington (Mr. Plaskitt), who I thought might be here this morning, wrote to me on 11 January 2006 and stated:

“deductions which may be allowed against tax liability are not allowed as deductions when calculating benefit entitlement.”

He helpfully goes on to say:

“The calculation of self-employed earnings is not always straightforward and whatever evidence is required by the decision maker will depend on the circumstances of the individual case.”

In this individual case, my constituent has been told that she has made a profit—a net loss in revenue and customs terms—of £7,337, which added to everything else puts her outside the housing benefit margins. The council wrote to her and told her that according to the regulations, she has been overpaid housing benefit by £2,622—riches beyond the dream of avarice. This woman does not have 2,622 pence, never mind pounds, but the council wants her to begin to repay the money, because the regulations require that.

Thanet district council wrote again on 18 January 2006, citing

“Regulation 31 of the Housing Benefit Regulations and its equivalent in the Council Tax Benefit Regulations”.

It again said—quite correctly, apparently—that those specifically exclude

“any loss incurred in any one self-employment”

being offset

“against the earnings in another employment. There is no discretion that the Council can exercise.”

Thanet district council is bending over backwards, trying to keep the bailiffs out. It wants to help a woman who is trying to help herself and her child.

I wrote to the Under-Secretary on 27 January 2006, saying:

“As I have already indicated in previous correspondence this lady is doing her absolute utmost to look after herself and to provide a living for herself and for her very disabled child. I believe that it is quite wrong that she should be penalized in the way that she is apparently penalized by the Regulations. Either some way has to be found to make an exception in this case or the Regulations have to be changed.”

That was on 27 January 2006, and at the end of the letter I said that, although I did not want to do so, unless an answer was found the case would have to be raised in public in an Adjournment debate. That is why I am here today. I have waited a year. I also wrote to the leader of the council, saying that unless we did something, the family would be brought “to its knees”—the family is on its knees.

The Under-Secretary wrote back to me on 13 February 2006, saying that

“the rules for calculating social security income-related benefits and tax credits are different because they differ in nature”

and that local authorities

“do not have the discretion to make an exception in individual cases.”

You bet your sweet life they don’t. The Under-Secretary says that he “fully” understands that my constituent

“is doing her best to care and provide for herself and her disabled child and I do appreciate that there are times when the rules may not seem to have the flexibility to meet…special circumstances”.

Well, they do not.

The leader of the council wrote back to me, saying that

“any remaining overpayments will be dealt with sympathetically.”

The bottom line is that we are dealing with a lady who has a dying daughter; who is deprived of benefit; and who is being told by the council that she has to increase her repayments. She has got the amount that she owes down to £660. She is being told that she has to increase her payments to £15.95 a week out of her pitiful income to repay a debt that should never have existed in the first place. That is what is so iniquitous about this case.

Revenue and Customs understands that business loss is set against business profit for tax purposes. I understand the argument that it is not up to Revenue and Customs or the benefits system to allow one business to subsidise another, but we are not talking about Rolls-Royce. We are talking about a woman who is struggling to bring up, to survive with, a very sick, very disabled child.

I raised the case with the Under-Secretary a year ago. Earlier this year—last month—I wrote him a letter in which I said:

“I write with some bitterness to say that I trust that you and your Government will take pride in the manner in which the system—which you described as ‘not seeming to have the flexibility to meet special circumstances’—disadvantages some of the most already disadvantaged people in the country!

A year has gone by since…13th February 2006 but I cannot perceive any beneficial changes whatsoever in these regulations.”

I cannot, which is why I am here today.

Just before I came into this Chamber, my constituent rang me because she knew that I would be here, raising the issue not only on her behalf, but on behalf of some of the most disadvantaged people in the country, who find that the tax regime is not compatible with the benefits regime and that therefore they are disadvantaged. My constituent rang to tell me that she had just seen figures provided to her by Macmillan Cancer Support on the basis of an Opinion Leader Research programme, showing that one in 17 people suffering from cancer lose their home, that 11 per cent. of those are self-employed, like my constituent—we are talking about people who are right at the bottom of the pile and are penalised for trying to help themselves—and that 28 per cent. of parents who have children under 18 suffering from cancer experience problems with mortgage and rent.

The Minister has 15 minutes to explain to me why the two systems are incompatible and what the Government will now do practically to ensure that the tax system, which seems to me to be eminently sensible in this regard—the Minister may be surprised to hear me say that, but I am prepared to say it on this occasion—is no longer in complete conflict with the benefits system. Perhaps only a very few people are affected, but as a result of the current situation some of the most needy, some of the poorest, some of the most desperate people are denied the very modest benefits that for them would make the difference between survival and going under.

If my constituent loses her home—it is a rented home, by the way—the local authority will have to provide a home for her and for her daughter, who will require, until she dies, a monumental level of care. I do not know how any local authority could be responsible for that.

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Having heard the description that the hon. Member for North Thanet (Mr. Gale) has given of the case, I apologise to you, Mr. Amess, and to the hon. Gentleman because, frankly, I, too, am surprised that I am here. None the less, I will make a number of points—it will not take me 15 minutes—with regard to the case that the hon. Gentleman has raised this afternoon.

Hearing about the case for the first time, I have tried to follow the complex details and the points about interaction with the tax system—the self-employed side of it—and the benefits system and, in particular, housing benefit. We are specifically focusing on the role of carers, which continues to be an area that the Government are working on. Whoever looked at the title of the debate thought that the hon. Gentleman would be raising a slightly different point today. That is why I am here. I shall not pretend that I can answer the detailed points that he has raised. He is right to highlight the fact that, with regard to the tax credits system, the purpose was to remove some of the contradictory rules as between those receiving payment from the Government and those making payment to the Government. That is why the tax credits system is placed within the tax system. As he rightly pointed out, for tax credit purposes, the situation described would not have occurred, because the tax rules are followed.

I shall not ask the hon. Gentleman questions across the Floor of this Chamber. I need to speak to my colleagues in the Department for Work and Pensions, but it seems to me that there are a number of points for further exploration both on the DWP side and on the HMRC side. I am thinking particularly of the interaction involving the self-employed rules. The hon. Gentleman may want to answer this: I wondered why his constituent was not, perhaps, in receipt of the working tax credit. Was it because she was working for less than 16 hours a week in her business? If she was working for 16 hours a week or more, we would need to look at the interaction.

I have never been in this position before, and I must apologise to you, Mr. Amess, and particularly to the hon. Gentleman. I shall not ask him to write to me, because the issue will be set out clearly in Hansard. However, I give him—and, if necessary, you—a personal assurance that I shall take the matter away with me, even though it is not strictly within my remit. I undertake to get back to him as quickly as I can to see what can be done and what proposals have been made to take forward the important points that he identified. The tax and benefits systems should support people and encourage them to make the choices that they want to make, not force them into activities that have consequences for their receipt of benefits or their entitlement to tax relief.

As I said, I cannot apologise enough to the hon. Gentleman: this is a serious and tragic case, and I agree with all the points that he made about his constituent’s endeavours, against all the odds, to do the best for her family, and particularly her child. I shall certainly do my level best during the rather interesting conversations between the two Departments about how we might resolve the issue.

Again, I can only apologise, and I hope that the hon. Gentleman and you, Mr. Amess, accept that. I cannot add any more, given that I am not fully aware of the interaction with housing benefit, which seems to be the crucial issue for Thanet district council. As the hon. Gentleman rightly said, the council is doing its level best, but within rules that do not necessarily facilitate helping this particular individual.

I thank you, Mr. Amess, and I thank the hon. Gentleman for his tolerance on this matter.

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This is very unfortunate, and I feel sorry for the hon. Gentleman, who has waited a year for the debate. However, the problem is certainly no fault of the Paymaster General’s. I suspend the sitting until 1 o’clock.

Sitting suspended.