Firms pay £1bn to do Brown's work

FIRMS will be forced to spend £1bn over five years for the doubtful privilege of running the tax credits system, it has emerged. The company cash will go on administering Gordon Brown's ever-expanding range of benefits.

Business leaders said at the weekend they were 'bitterly resentful' at being compelled to do the Government's work without compensation. The scale of industry's bill for the Chancellor's radical shake-up of the welfare state has not been released before. It has emerged in a new analysis made possible by the release of key Treasury documents following the Comprehensive Spending Review.

The Chancellor has steadily shifted the emphasis away from handing out cheques to poor and jobless people at benefit offices. Instead bosses have been compelled by law to insert State cash subsidies directly into their employees' pay packets. They get nothing for doing this costly work. Brown argues this is a better way of tackling poverty because it makes it worthwhile for the jobless to take low paid jobs.

But company chiefs complained that, while this has saved the Government from having to employ extra civil servants, it has turned them into unpaid social security clerks. The analysis of the £1bn cost of time, money and resources firms are forced to put into running the tax credits system was compiled by Tory Work and Pensions spokesman David Willetts.

The document shows the cost of administering the main payroll benefit, the Working Families Tax Credit and its counterpart for disabled people, will be £500m between April 2000 and April 2003, when they will both be abolished. The Children's Tax Credit, which was introduced in April 2001 and will be phased out in April 2003, will cost £200m during its short life.

Meanwhile the new Working Tax Credit, which will be introduced in April 2003 to replace the Working Families Tax Credit, will cost a further £300m to administer up to April 2005.

Willetts said: 'This is a huge sum that companies can ill afford. Gordon Brown's tax credits have burdened businesses with enormous costs.'

Sally Low, acting head of policy at the British Chamber of Commerce, expressed deep concern at the revelation. She said: 'Businesses bitterly resent the time and money they have to put into running the benefits system for the Government. It is not fair. Firms are not compensated for this work, and we certainly do not wish to take any more on.'

Much of the true cost has been concealed behind Treasury confusion and evasion. In December 1999, the Government estimated that the total cost to employers of administering the Working Families Tax Credit, for example, would be £ 105m a year, with an additional £ 44m initial cost. But that missed out the closely related Disabled Person's Tax Credit. When it is added the total cost to employers between April 2000 and April 2003 reaches around £400m.

Brown claims that the administration costs for the new Working Tax Credit will be £11m a year less than for the Working Families Tax Credit. But many Working Tax Credit payments will have to be constantly adjusted, whereas the old Working Families Tax Credit was fixed for six months. So the predicted savings are unlikely.

A Treasury spokesman said the Government 'did not recognise' Willetts' figures, but she said Ministers did not wish to give their own estimate for the cost. She insisted, however, that an independent assessment had suggested that the introduction of the new Working Tax Credit would reduce the burden on firms by £11m a year. These savings would be achieved from moves to cut red tape, mainly reducing the amount of form filling and record keeping bosses must do.

Asked to explain why companies should be compelled to do the Government's work, she said: 'It is the central plank of the Government's policy to make work pay. We have done everything we can to keep the burden on business to a minimum.'