WEDNESDAY 29 NOVEMBER 2000

MR A DILNOT and MR M MYCK

  Chairman: May I welcome from the Institute for Fiscal Studies Andrew Dilnot, a well-known and trusted friend of the Committee? I do not think there are many inquiries where he has missed appearing before us. We are grateful. He is the Director of the IFS. He is accompanied this morning by Mr Michal Myck, who is a research economist at the IFS. You are both very welcome. We have some questions to address to you in relation to the use of the tax system to deliver financial support.

  172. Looking at the whole issue of using the tax system to deliver financial support for children, as I am sure you are aware, over recent years, most support is being delivered through the benefits system. To what extent do you think that the advent of the new Integrated Child Credit represents a true integration of tax and benefits? Could it not be argued that simply renaming financial support a tax credit is a cosmetic exercise?
  (Mr Dilnot) That is a very important question. I have said before that I feel as though integration is a word used with respect to tax and benefit changes which has now been used to describe so many different things that it has almost become empty. It is so overcrowded, it is almost meaningless. Rather than saying this is or is not full integration, I suppose another way of asking the question is whether this will move us towards a more integrated system or not. It certainly will move us towards a more integrated system. The most important way in which it will be more integrated is that in using the same administrative mechanism to pay benefits we hope, whether people are out of work, in work on very low incomes, or in work on rather higher incomes, we shall deal to some extent with the barrier, the uncertainty between being out of work and being in work. There is a case to be made that that barrier could have been overcome by having a single benefit which was paid within the benefits system instead of a single benefit paid within the tax system. However, the use of a single administrative mechanism to pay regardless of situation is a move towards a more integrated system; it is not simply relabelling. While that argument might have been made about the shift from Family Credit to Working Families' Tax Credit, the next stage to an Integrated Child Credit really will be a pretty substantial increase in integration.

  173. Do you think that simplifying that system and taking into account that it would be paid across the board whether people are in work or not, is perhaps the most positive attraction for using the tax system to pay financial support to people on low incomes? Or do you think there are other positive aspects to this scheme?
  (Mr Dilnot) It is certainly one of the more positive aspects of the scheme. There might be some other attractions to paying through the tax system. One is that it may well be an effective way of dealing with stigma. One of the concerns, which even those of us who have been enthusiastic about the ability of means-tested benefits to tackle poverty have always been concerned about, is the stigma associated with a means-tested benefit. It is possible that by paying a form of support through the tax system we can reduce that stigma, which ought to increase take-up. It is also possible that by using a single mechanism we shall increase take-up in other ways, that people will be more confident that they will get it, that we shall be able to shift some of the onus onto the Inland Revenue to identify those who are likely to be entitled and that way we might improve take-up.

  174. At the risk of being naughty—and I shall not use the word "redistribution"—do you think that there might also be a benefit for the Government in the way that it presents this because it is also an opportunity for the Government to increase support substantially, especially to low income families and doing it this way and the accounting methods the Government uses will have its presentational advantages?
  (Mr Dilnot) I am sure it is a plausible thing to argue that it is easier to get popular support for tax reductions than it is for social security spending increases and that is certainly something that many people in the United States have argued quite strongly. To the extent that the Integrated Child Credit is seen as part of the tax system it may make it easier for governments of either political persuasion. We ought to remember that both of the main parties in the last 20 years have substantially increased support for low-paid families with children. It might be possible for whatever party is in government more easily to direct resources if it can be described as tax rather than spending, but it is worth remembering that in the pre-budget report document and the budget documentation in March of this year, all of the figures are made available so that we can present the tax burden either on the Government's preferred measure or we can adjust it and treat Family Credit, the Working Families' Tax Credit and eventually the Integrated Child Credit in just the same way.

  175. That prompts a question in passing. Do you have a view about the OECD concerns about the way the accounts are now being presented? Is there a substantive point there?
  (Mr Dilnot) There is a substantive point. Within one country, as long as all the numbers are available, we can now choose whichever version of the numbers we want. When you are making cross-country comparisons, it really is very important that you are able to compare like with like. The OECD statistics, which are just about the only comparative statistics, are made less useful if countries—and it is not only the UK—insist on providing numbers in only one particular format which may not make them comparable.

  176. When Sue Middleton gave evidence to the Committee she was very clearly in favour of abolishing differentials and not loading benefits towards the first child. She was very clear on that. Do you agree that Integrated Child Credit is an opportunity to rethink this view? Do you agree with Sue Middleton? Is she right?
  (Mr Dilnot) I certainly think it is the case that the Integrated Child Credit does give an opportunity to Government and indeed the rest of us to think about what the relationship between support for the first child, for subsequent children, should be. It is the case that in the current arrangements the Working Families' Tax Credit, Child Benefit, Income Support, the first child typically brings a much larger increase in benefit entitlement than others. It is also the case that most of the economic evidence looking at the costs of children does point to the fact that the cost of a child increases with its age, so older children tend to cost more. It is also the case that it is the mere presence of children which tends to make it harder for one of the parents to work. There are arguments pulling you in both directions on whether you should pay more for the advent of children, for young children or for older children. This is an opportunity to evaluate those again. I do not feel myself that the evidence tells us very clearly what the answer to what we should do is.

  177. The Government is proposing to have a Children's Credit and a separate "adult" Employment Credit payable to those on low earnings. Do you think it is possible to separate out the costs of children accurately from the costs of adults simply in this way?
  (Mr Dilnot) It is certainly not possible to do it simply. It is also important to recognise that so far the Government has not told us a great deal about precisely what it does have in mind. There is really not much more than a single page in the pre-budget report document over a year ago and a little bit more at the time of the budget this year. In the example they give, there is an Employment Tax Credit for adults and the scale of that appears to be the current Working Families' Tax Credit non-child credit. There is an entirely different way of thinking about the Working Families' Tax Credit which says that is not the right way of thinking about the non-child elements. You cannot get the Working Families' Tax Credit unless you have children, so a perfectly plausible way of interpreting the Working Families' Tax Credit is to think of the basic credit being family premium within the Working Families' Tax Credit and then Children's Credit on top of that. There is nothing about the way the current system is structured which implies that if you go down an Integrated Child Credit route you are left over with an amount that you have to pay to adults whether they have children or not.

  178. Low income families tend to have incomes which fluctuate rather more than other income groups. Allegedly also they have rather more fluid family structures, a rather greater proportion of which change more frequently than other income strands. Jane Millar told us therefore in order for Integrated Child Credit to work, there would have to be means-testing with a light touch in order to take account of these circumstances. Do you have any idea what that might mean in practice?
  (Mr Dilnot) This points to some issues about the time period over which benefits or tax credits are assessed then over which they are paid. I shall ask my colleague to tell us in a moment a little bit about what we know about transition rates in income and in family type on which he has been doing some work. Let me talk first a little bit about what the consequences of the transition would be. In moving towards an integrated credit, we are bringing together three quite different regimes: an Income Support regime, a Working Families' Tax Credit regime and a tax regime. Those regimes assess liabilities or entitlements and make payments over different periods. The income tax regime for example calculates your tax liability over the whole of your tax year, but it tries to get your tax payment right each week. That is very rare. Most other countries in the world do calculate your income tax liability over the year but they do not try to get your payment right week by week. They have a cumulative assessment, accumulated over a year, but a non-cumulative payment. You pay roughly a right amount each week and then at the end of the year things are adjusted to take account of changes in income over the year. We do not do that with the Working Families' Tax Credit, for example. It would be quite difficult in some ways to do it for the Integrated Child Credit, to have a payment where you got in some money in weeks when you had low income but then we worked out your entitlement over the whole year so that if you had had high income in some weeks you would end up with an overpayment which you would be liable to pay back to the Government at the end of the year. In the Working Families' Tax Credit and in its predecessor Family Credit and before that Family Income Supplement, we worked out an entitlement looking backwards and then we said we were going to pay this amount of money for the next six months pretty much regardless of what happens. That is in a way means-testing with a light touch. In the Income Support regime and its predecessors, that is not what went on. We calculate an entitlement looking at your very recent and current income and then, if your current income changes, in particular if your income rises, we take Income Support away from you. As we bring these three different regimes together, we are going to have to make some trade-offs. If the choices about the balance between cumulative and non-cumulative payment and assessment which we have made in the past have not been capricious, if we did them for good reasons—and we have—then there are going to be some awkward corners. We can do some means-testing with a lighter touch, but the consequence of that will be more expenditure. If we do not want to spend more then some of the means-testing we have to implement will in certain circumstances seem a little more aggressive than we might otherwise want. Those are some of the sorts of decisions which Government has to make.

  179. Do you see that the distinction here is the technical one of how best you get that balance right? There is also an ideological one, this issue of means-testing with a light touch. If low income families tend to have more fluid family structures, it begs the question of whether they are low income because they have more fluid family structures or whether they have more fluid family structures because they are on low incomes. If it is the former, it raises the question of whether the taxpayer should fund a lifestyle of which most taxpayers would properly disapprove. There is that element to it as well.
  (Mr Dilnot) It does raise that issue and I shall come to Mr Myck in a moment to get some numbers. It is important to remember that the fluid family structures and incomes of low income families could be because they are raising themselves out of low income. Indeed we would certainly want there to be fluid family structures in at least that direction for low income families. We are very keen on transitions in these areas. We are very keen on low income families becoming not low income families; it may be the case that we are keen on lone-parent families re-partnering and becoming two-parent families. Fluidity is not necessarily always a bad thing but let me pass to Mr Myck and get some real information.
  (Mr Myck) You are certainly right in pointing out that there are many dynamics in incomes, family structure, employment and non-employment among low-income families. It is difficult to follow families in time to track this dynamic behaviour but we have some data sources which make it possible. For example, we found that over a seven-year period among families with children, 47 per cent of these families—both lone parents and couples—lived in poverty or in households with no work. Certainly many families experienced this low income. It is also true that there are many dynamics in terms of being in and out of work. Over a year and also over shorter periods we found that about four per cent of lone parents moved in and out of work within a three-month period and roughly two per cent of individuals in couples with children. There is a lot of that and some form of safety net would have to be provided for these families. It is now provided in the form of Income Support which is a means-tested benefit which looks at family income very closely on a weekly basis. Some form of that may be necessary within the Integrated Child Credit structure as well.

  180. Our experience is that in Canada the system for child support is worked out on the basis of last year's income. In Australia it is an assessment of this year's income with an annual reconciliation. How would you see it being best achieved in the United Kingdom?
  (Mr Dilnot) You can only decide that once you have a clear view of what your objectives are. The way to minimise administrative burdens, to minimise expenditure, will be to have an annual assessment of some form, but that is not the British tradition. One of the things which has characterised both the British tax system and the British benefit system has been a commitment to get things right at the time. In North America the earned income tax rate in the United States, for example, is an annual payment. We find it remarkable that you could have an annual payment which is meant to be about tackling poverty and the same is true of the tax system. I shall bore you with a story, if I may. It is a lovely, no doubt apocryphal story of where pay-as-you-earn cumulative income tax came from. The assertion is that pretty early in the war, as the number of income tax payers rose dramatically from fewer than four million before the Second World War to 12 million by the end, the then Prime Minister Mr Churchill called in the Inland Revenue and said they could not go on doing what was done in the past, which was to send people a tax bill at the end of the year. It was just unfair. As the tax liability was extended further down the income distribution, it was getting into groups who were just not used to this kind of budgeting. If they were to tax these people, it could not be done. The right amount of tax had to be taken away from them every single week or month so they did not have to deal with the Inland Revenue and they did not have to save. The Inland Revenue went away for a little while and they came back and went in to Mr Churchill and said they had looked at it and had to say that it would be impossible. The Prime Minister told them to get knotted and go away and do it. They have been showing that they were right ever since. Seriously, we do have a tradition in this country of getting things right week by week, month by month and it would be a very substantial change to go to a system where at the end of a year those on low incomes identified as being low income by having received some entitlement during the year were asked for a repayment. If we are not going to go down that road, then we shall end up paying benefits to people, which if we were to measure their income over a longer period, we might well not think they were entitled to. These issues are very important and I am delighted the Committee is focusing on them. This is one of the areas where I very much hope the Government comes forward with some more proposals before we get to a final description of what the system is because these are subtle and difficult choices and they are deeply political.

  181. Do you have a view on how Integrated Child Credit should be withdrawn as income rises?
  (Mr Dilnot) I do not have a view: I have some views about it. The initial picture of the Integrated Child Credit simply mimics the current regime. Certainly that could be done and some of the advantages of the Integrated Child Credit, in terms of greater transparency and certainty, would be achieved with that. Is the current regime of essentially still very high marginal tax rates on those with low incomes the right one? It may be. Indeed you can imagine a world and a set of objectives where the right thing was to increase the marginal tax rate. One of the crucial features of the Working Families' Tax Credit as opposed to the Family Credit regime was a reduction in the taper rate. The consequence of that was extending entitlement to a means-tested benefit quite a lot further up the income distribution, therefore imposing potential work disincentive effects on people at higher and higher incomes. If our principal concern is child poverty, then it is reasonable to think that you might want to focus Income Support help further down the income distribution. It may well be that a world with even higher marginal tax rates than we have now, so that we get out of the benefit region more quickly, would allow us to be even more generous to those at the very bottom without extending the potentially bad consequences of means-testing further up the income distribution. On the other hand you might take a view that it is simply iniquitous that people should face these very high marginal tax rates and so seek to reduce the taper rate even below the current taper rate. The trouble with that is that because of interactions with income tax, national insurance, the Housing Benefit and Council Tax Benefit regimes, to make a really big difference in the aggregate marginal tax rate people are facing means either extending entitlement to means-tested benefits into the higher rates of income tax or making the benefit much less generous at low levels of income. There is no escaping that conundrum and therefore there is no absolute right answer to how you should do the tapering.

  182. On that very point, do you think the Treasury has given sufficient thought to the issue of marginal tax rates and work incentives, given the interaction that Integrated Child Credit will inevitably have with Council Tax Benefit and all the others?
  (Mr Dilnot) I suppose what one has to say at the moment is: I do not know. I expect so. They are extremely able and well-informed people and it would be very surprising if public servants had not given a great deal of thought to this.

  183. Given what we have seen in policy so far, how would you expect it to develop: with sharp increases in marginal tax rates or with extending the benefit up the income scale? Do you see it as proceeding in the same way that Working Families' Tax Credit did, with people on increasingly comfortable incomes in receipt of benefit? That seems to be the way they have jumped already, so one would assume that that will be the way the policy will progress.
  (Mr Dilnot) Forecasting is a difficult business, one where forecasting is to say what we expect in the next period is more of what we had in the last period, but there are always turning points. It may be that Government at some point will think we have pushed things far enough and push in the other direction. As far as the Integrated Child Credit is concerned, it is important to remember that no necessary radical redistribution is associated with its introduction, it can be introduced simply as a change in the way policy is delivered and it does not require a change in redistribution. Certainly as far as I am aware, there is no explicit indication that there will be a change in redistribution when it is introduced apart from the change for the Children's Tax Credit and joint income assessment of that.

  184. Is it realistic to have a common definition of income for the purposes of income tax as well as for the tax credit?
  (Mr Dilnot) It is, but it would be a different definition of income. My guess is that if we were to move down that road we should be likely to stay with something quite similar to the income tax definition of income, which is a more complete definition of income than that used in the benefit system, in particular with respect to income from capital. The biggest difficulty in bringing the definitions of income together is the treatment of capital and income from capital. In the tax regime we necessarily tax what we think people's income really is. In the benefit system at the moment, as far as capital is concerned, we remove entitlement if you have capital over a certain amount and if you have capital below a certain amount we deem a very high income from that capital. There are all kinds of problems with that, problems which the Government alludes to in its pension credit reforms. That is the principal area of difficulty. We could move towards a more similar definition of income, but this is another example where we then need to apply the kinds of standards of evidence and the difficulty of accruing evidence on income from capital, a difficulty we necessarily require in the tax system, compared with what we do in the benefit system—which is actually that we have somebody on low income in need and just get an answer. If we are to have the same sort of measure for income tax and this credit then that is another area of some difficulty and some quite tricky choices to be made.

  185. May I pick up on one or two of the things you were exploring with Mr Swayne? First of all the complicated interfaces between Inland Revenue and the Child Benefit Centre and the new Working Age Agency and the Child Support Agency. Putting all those links together, do you think 2003 is a rather ambitious target to bring in ICC?
  (Mr Dilnot) Yes. I was talking with colleagues this morning about what we thought about precisely this question; we thought you might ask it. We reflected on the Working Families' Tax Credit. The Working Families' Tax Credit was announced in the March 1998 budget, but with a great deal of work already done and some pretty clear ideas about how it would go, sort of introduced in October 1999 but at that point really largely the relabelling aspects of the Working Families' Tax Credit. It was only in April of this year, two years after the announcement, that it started to be paid through the pay packet. The Working Families' Tax Credit took two years. If the Government were to announce in the budget next March completely finalised proposals, they would still only have as long to get them in place as the Working Families' Tax Credit and this is a much more significant administrative and restructuring reform. The Working Families' Tax Credit was in large part taking an existing transfer mechanism, making it more generous, which is not really a structural reform and shifting its administration to another agency and then the precise pattern of its payment being changed. This is a much larger thing than that. Two years would anyway be hard and I do want to say again that I should personally be disappointed if the budget were to announce final details of a new reform of this scale without a little bit more opportunity for some public discussion of a bit more detail of the ideas the Government has in mind. Yes, 2003 is now looking like a brave target.

  186. So you think we might just need some rebranding, or jiggling around with existing arrangements. To what extent, for example, are we going to have to await more detailed IT modernisation to make it work?
  (Mr Dilnot) I have to say that is something I do not feel expert enough to comment on, although it is clear that some fairly substantial IT is going to have to be put in place to deliver this. There is less scope for doing things which are largely relabelling and calling them this new thing, because the core of the new Integrated Child Credit is a new relationship between payments in and out of work. You have to have this integration before you can call it an ICC.

  187. Again on the integration issues, who do you think should be responsible for tackling income? Should it be the Inland Revenue's duty to hassle people and track it down or should it be the family's duty to report income over whatever period?
  (Mr Dilnot) When an application is first made for entitlement to this credit, clearly it will be up to the applicant to provide evidence to the Inland Revenue (if it is the Inland Revenue which is delivering the benefit), of what income has been over the relevant period. Thereafter it is still reasonable to expect applicants to notify the administrative authorities when significant changes in their circumstances occur. It may be that we can use some administrative mechanisms which are in some way related, some of the PAYE mechanisms, to deliver to the authorities what is happening to people's earned income. As far as non-earned income is concerned though, it is not really an issue for the Revenue to do that tracking. Non-earned income is unlikely to be a very important part of many of these applications, so that may not be too much of a problem. In the end we still have to have it be the case that it is the applicant who is responsible for notifying changes of material circumstances, but it may be that we can use administrative mechanisms such as PAYE which does, despite my comment about the Inland Revenue demonstrating they were right all along, actually work extremely well. PAYE income tax succeeds in taking the correct amount of money week by week away from the huge bulk of taxpayers in this country so that most people do not need to fill in a tax return. That transmission of information about earned income and its fluctuations to the Revenue and back does seem to work pretty well. So it may be that we can use that administrative mechanism to do some of the work for us.

  188. One of the other issues you raised was the frequency of payment. You talked about the earned income tax credit in the US being an annual thing and of course the traditional benefit delivery here is fortnightly. Do you think that really is a question for policymakers or do you think it is something the person claiming the credit should be entitled to nominate and is that practical?
  (Mr Dilnot) We could allow some choice for the recipient, but there is also a key decision for policymakers here. The tradition of UK social security in contrast to most of the rest of the world has been a tradition where we ascribe enormous significance to the safety net. The DSS has traditionally put enormous weight on being able to get money to people when they really need it; when circumstances change and somebody finds themselves on very low income, getting money there very quickly and getting it there regularly. As far as those on low incomes are concerned, that is going to continue to be a very important feature, so I would be surprised if we could accept a system which did not pay with pretty high frequency to those on low incomes. It is also going to be the case and is the case even now with WFTC, that a reasonable group of families is receiving Working Families' Tax Credit who are not grindingly poor, who have a number of regular commitments, mortgage payments and so on, which they are probably dealing with monthly, who could perfectly well budget and might prefer to have payments made monthly. There may even be people entitled to this benefit who would actually like the money in a lump sum at the end of the year. It turns out that in some of the countries where that does occur, it is a rather popular thing. It is a kind of form of forced saving. One could allow some choice in payment but whilst allowing choice in payment it is also the case that Government will need to ensure that for those on the lowest incomes payments can be made pretty frequently.

  189. You were also exploring earlier on some of the take-up issues. What do you think we could do to try to maximise take-up if you think that is going to be a problem?
  (Mr Dilnot) Publicity tends to be pretty good for take-up. If there is a lot of publicity surrounding the announcement of this new measure, that will probably help. Increasing the size of entitlements is a good thing for take-up. That does not mean necessarily spending more money overall but if we can reduce the number of benefits being paid so that it is one large lump then that can help a great deal as well. That raises the question of why we are going to continue to treat Child Benefit separately from the ICC. If we are trying to integrate things, why not really integrate things? The larger the lump the higher the take-up will tend to be. It would be disappointing, given that we are going to be using the tax system to deliver some of this, if there were not things we could do which would integrate knowledge about the number of children people had into their tax records and then prompt the sending of a form saying look, we do not know what the income of your partner is or whether you have a partner, but if you either have no partner or the income of your partner is less than X, we think it is likely that you have an entitlement to the Integrated Child Credit. There are ways in which we could try to mechanise some of these things.

  190. The last point I wanted to explore with you was the point you raised about the joint assessment rules. Obviously the Benefits Agency are quite geared up to exploring cohabitation fraud and things like that and pursuing it. Do you think the Inland Revenue are up to that job?
  (Mr Dilnot) When we look at what happened in the Working Families' Tax Credit, by and large we simply took the relevant bit of the Benefits Agency and made it the Inland Revenue. To the extent that the Department of Social Security was good at that activity, that goodness was embodied in its staff and practices which had been carried across. It certainly has not traditionally been the case that the Inland Revenue has sought to be particularly engaged in that type of activity and members of staff who are employed by the Inland Revenue who will have to be engaged in that activity already are because of the Working Families' Tax Credit. While it would have been a legitimate criticism four years ago to have said as we look at Inland Revenue tax inspectors we are not sure that their comparative advantage would be in dealing with the changing family circumstances of those on the lowest incomes, but by shifting a large group of ex Benefits Agency staff into the Inland Revenue we have delivered to the Inland Revenue some of that capacity. Clearly senior management in the Inland Revenue also has to experience something of a mind change but my sense, having spoken to them, is that they are very aware of that and by and large feel that the Working Families' Tax Credit transition has gone pretty well.

  191. Your comment about Child Benefit excited me there. Back in the 1970s when we had the old style tax allowances, the big debate was purse versus wallet. The Government of the day decided to abolish the child allowances in the tax system and increase the amount of the Family Allowance and we got our Child Benefit system. That similar sort of debate continued with the introduction of the Working Families' Tax Credit. Do you think that is still an issue for us here within the debate on the Integrated Child Credit or would you think that it would only arise if the Government were going to look at the status of Child Benefit and do something about that?
  (Mr Dilnot) The issue is very much here with us still. At the time of the shift from the Family Credit to Working Families' Tax Credit, an argument which was put for that shift, although not always very loudly, was that by putting the money in the pay packet of the person in work—in the case of couples frequently the man—we would make clearer the benefits of going to work, therefore we would give an incentive for people to go to work. That would therefore shift money away from the purse into the wallet and the argument was that this would encourage people to go to work. The Integrated Child Credit very plainly asserts that one of the advantages of the Integrated Child Credit is that we are now going to be able to pay that money to the carer again. We have moved money with the introduction of the WFTC from the purse to the wallet and with the introduction of the ICC we are going to be moving it back again. It is fair to say that after some debate, under the Working Families' Tax Credit it is now up to the couple to make a decision about who receives the money. That is a reminder that this debate is certainly still there and as the Integrated Child Credit comes around, a decision will have to be made about precisely who receives the money and although the economic and statistical evidence is not very clear, it does look as though there is evidence that who gets the money has some impact on levels of consumption of goods which might be thought of as being particularly focused on children.

  192. Do you think that the debate is still as relevant, given the changes in the nature of the workforce, with more women in employment and the Government encouraging more women into employment, including lone parents and people having periods of part-time employment, unemployment, full-time employment? Is it still important and is there any advice that you would like to offer us to then give the Government on this as an issue?
  (Mr Dilnot) It certainly is the case that there are far more women and particularly mothers and mothers of very young children in the labour market. That means it is less of an issue. It is also the case that for lone parents this is not an issue. I suppose what one wants to say about this is that it does not have to be an issue for very many families for it to be quite an important issue. You would not have to think there were very many families where one of the adults was drinking the money which was meant to be buying food and clothing for the children for you to be quite concerned about it. However, the evidence on this is not very significant. One issue to address is that if a decision is to be made about which way to go on this, it would be quite nice to see what evidence the Government felt demonstrated that the issue either was or was not a concern.

  193. Do you think there is any case at all, in terms of the benefits which would accrue from it, for requiring people to fill in an annual income tax return?
  (Mr Dilnot) There certainly are some benefits, but there are also fairly significant difficulties. If we were to do it, if one were to require an annual return, my inclination would be to require a much, much simpler return than the return we have at the moment. An annual return which asked how many children you had, what your relationships with other adults were, whether you had income from sources other than your main employment, would be a way of getting useful information from a large group of the population. It would not be enough to decide people's income tax liabilities, nor even necessarily their credit entitlements, but it might be enough to get us quite a long way down the road of dealing with some of the take-up problems we have talked about.

  Chairman: Very interesting. I am very grateful to you. Thank you very much for your written evidence and thank you for your appearance.