Examination of witnesses (Questions 199 - 219)
WEDNESDAY 28 OCTOBER 1998
MR GABS
MAKHLOUF, MR
TONY ORHNIAL,
MR GEORGE
ROWING and MS
SUE WALSH
Chairman
199. Good morning. I declare the formal
public evidence session open. I welcome Mr Makhlouf and his team.
This morning we are involved in the final phase of our inquiry
into tax and benefits. As is well known to those who watch the
proceedings of this committee, witnesses who appear here and work
with the Committee get promoted very quickly. The reason that
our numbers are slightly depleted this morning is that we are
awaiting the fickle finger of fate to fall on three new Labour
Members as several of our past squad have been promoted to various
dizzy heights. Our membership is small this morning because of
that and not due to any lack of interest. Today's subject is an
important policy area and we are anxious to produce a report as
quickly as possible. I believe that it is in everyone's interests
that we complete the tax and benefits work. We have already made
two Reports on earlier phases of our inquiry. We had a run round
the interest groups and pressure groups in phase one a year ago.
We focused on one or two aspects of the Budget statement in the
run-up to the Budget and now we are trying to focus on the implementation,
operational and logistics questions. We are grateful to you and
your colleagues for joining us. Would you introduce the members
of the team so that we know what you all do now. I shall then
move on to general questions about progress and implementation
of the reform.
(Mr Makhlouf) I am Gabs Makhlouf. At the moment
I am head of work incentives policy at the Treasury, a function
that will cease immediately after this hearing. To my immediate
left is Tony Orhnial, assistant director in the Revenue's personal
tax division, which is responsible for policy and legislation
on the Working Families Tax Credit and the disabled persons tax
credit. On my right is Sue Walsh, who is the project director
in the Revenue, responsible for the implementation of tax credits.
On my extreme left is George Rowing, policy adviser in the Revenue's
personal tax division, again working on policy and legislation.
Perhaps I could give some background information. Since you met
my predecessor a year ago, the Chancellor has announced some important
changes to the tax and social security system. The working families
and disabled persons tax credits are the subject we have come
to talk to you about today. The reform of National Insurance contributions,
which comes into effect next April, deal, in part, with the Government's
strategy to take people from welfare into work. The team here
is deliberately balanced to focus on implementation of the Working
Families Tax Credit, but I want to stress that the Working Families
Tax Credit plays an important part in the wider work incentive
strategy that the Government has set in train.
200. Could you tell us where we are in the
planning process? We noticed that there were some written answers
put into the public domain yesterday at the hands of ministers.
Perhaps it would help to set the context if you could explain
the position. We know that there is phase one followed by phase
two. Where are we up to at the moment?
(Ms Walsh) As regards planning, we have set up
a joint project team with members from the DSS and the Inland
Revenue, working closely together. Specialist work has been identified
throughout both departments that needs to be done. Both departments
are working closely together to scope that work, to start putting
it in place and to progress the work. Obviously, we have two key
dates to aim for, the first being the introduction of tax credits
in October 1999 and the second being payment via the employer
in April 2000.
201. There was quite an ambitious programme
in order to get things done and dusted both properly and in time.
Is that original timetable still on track?
(Ms Walsh) Yes, it is. It is, of course, a complex
process that we are going through. We have dedicated people from
both departments who are working together closely and work is
progressing and is on schedule to deliver on those dates.
202. I understand this question is a matter
for the business managers and the Government, but is it the intention,
or is it your understanding that there will be a specific free-standing
piece of legislation as opposed to clauses being attached to the
normal social security annual piece of parliamentary programme?
(Mr Makhlouf) I think it would be inappropriate
for us to give a view on that. We would be pre-judging the Queen's
Speech. The expectation is that there will be legislation in order
to enable the Working Families Tax Credit to be introduced in
time.
203. Are there any plans to publish draft
regulations or guidelines or any ancillary background that will
support the primary legislation in advance so that people can
study the fine print and the detail? It is known that the devil
is often to be found in the detail.
(Mr Orhnial) If there were to be secondary legislation
on any of this, it has become our custom in recent years, certainly
on things like employer legislation, to publish the detail in
advance and to give people the opportunity to comment on that.
An example of that is self-assessment where we published the draft
regulations. If there were any secondary legislation that is what
we would intend to do.
204. With regard to the consultation that
you have had with prospective interested parties, particularly
groups representing disabled people, obviously it is in everyone's
interest to make this as user-friendly and as practical a measure
as possible. Have there been efforts made to consult widely with
disabled interest groups?
(Mr Orhnial) I shall start my answer somewhere
else and come on to your specific question. As you will appreciate,
the key change in Working Families Tax Credit and the disabled
persons tax credit is in the fact that it can be paid through
employers in most cases from April 2000. We had to carry out some
consultation and discussions because a lot hung on that. That
started in May on a confidential basis. I think that you have
interviewed a couple of the participants in those discussions.
More recently, we have been talking, either at public briefings
or in private meetings, to a wider audience. We held a briefing
in July for members of groups representing people who claim currently
and who will be claiming the credits in the future. We also held
a similar briefing earlier this month for people from the Disability
Benefits Forum. About 20 or 25 organisations were invited and
a number of them attended. The intention is that as we progress
we shall have regular briefings to let people know where we are
and give them the opportunity to comment.
205. I do not want to make a big issue of
this, but why did you have "confidential" consultations
with some of the interested parties? Presumably these are private
meetings and you do not advertise them or issue press releases.
Why are they described as "confidential"?
(Mr Orhnial) Some of our consultations are on
the basis of a more public consultation document. Some of them
are on the basis of trying to thrash out the detail in a small
forum before going public. "Confidential" is possibly——
206. ——too strong a word.
(Mr Orhnial) Yes. We were trying to distinguish
between meetings we have with a group of people who helped us
to thrash out the detail, where we do not publish the detail until
we have arrived at a point where we think that we can go no further
in those discussions, and situations where we have a more public
exercise.
Chairman: The timetable
is really quite tight. Edward Leigh has some questions about the
difficulties of delivering on time.
Mr Leigh
207. We went to Preston last week. I cannot
remember the exact question, but I think it was about fraud, and
there was an answer from one of your social security colleagues
saying that it is over to the Inland Revenue now. Some of us detected
a slight feeling of resentment on the social security side that
this issue was being taken away from them. Have you detected that?
(Ms Walsh) I am quite surprised to hear you say
that. We have developed an extremely good working relationship
with people in the Benefits Agency, and particularly in the Family
Credit Unit. We both have great regard for each other. I know
that they have been working closely. When work moves from one
department to another I suspect that there may be people around
who wonder about that, but certainly my experience has been, working
directly with people in the Family Credit Unit, that we have a
very close working relationship.
208. The timetable is quite tight. There
has been criticism from the Institute of Directors and the Federation
of Small Businesses, who think that the time for delivery is too
quick. Can you guarantee that the system can be delivered to the
satisfaction of employers and employees?
(Ms Walsh) We have been working on this for some
months now. I have been working directly on this project since
the beginning of this year. We have been working together closely
with the Benefits Agency and although the work is complex, we
certainly have not come across anything yet that makes us think
that it is not possible to deliver.
209. You can guarantee delivery to people's
satisfaction?
(Ms Walsh) Yes. It depends what people would state
as being to their satisfaction.
210. Perhaps that is something that we can
delve into as the morning progresses. We were told also at Preston
that there is a surge of work every October. Apparently the Working
Families Tax Credit will bring in another 400,000 eligible claimants.
Is there any way in which you could stagger demand?
(Ms Walsh) It is probably unlikely that everyone
will claim on the very first date. That is one thing to bear in
mind. Certainly we can look at publicity and make sure that we
closely target the people involved, so that the right people are
claiming, and so that we make sure that we are not getting many
unsuccessful claims.
211. How will the publicity be organised?
Is there going to be a massive national campaign? How will you
discourage people who will be ineligible?
(Ms Walsh) There will be a national campaign.
The details of that have not yet been decided, but we shall look
to an outside firm to help us with that and we shall carefully
target publicity and make sure that we are using the right medium
to ensure that we are reaching particular audiences.
212. In the past sometimes there has been
difficulty when introducing new schemes, particularly in social
security and Jobseeker's Allowance, in communicating with people
and often there is a problem with computer-generated material.
Are you satisfied that you can simplify it to make sure that it
is user-friendly?
(Ms Walsh) We are, of course, building on the
experience of Family Credits, and using the people who have, for
ten years, been used to dealing with this similar group of people.
We shall be using their experience and building in our own experience
of other areas within the Inland Revenue. I see no reason why
we should not be able to do that.
213. Given the complexity of the issues,
would you like to have been given more time by the Government?
(Ms Walsh) We have said that we can deliver this
within the time scale. As I said before, having worked on this
for some months now, I see nothing that means that we cannot deliver
within that time scale.
214. Does delivering "within the time
scale" mean that there will not be tens of thousands of people
kept waiting?
(Ms Walsh) That is one of the issues at which
we are looking very closely, namely, the need to understand the
likely volumes and the flows of work and how we can make sure
that we shall be in a position to deal with those volumes.
215. Is there any way in which you can resolve
the issues apart from just making people queue?
(Ms Walsh) Yes, I think there are. There are several
issues which we are looking at now, ways in which we can organise
the work and the work force in order to deal with these volumes
of claims. We are working extremely closely with the Family Credit
Unit. They are used to dealing with these volumes of claims because
Family Credit was introduced in a similar sort of way, on a particular
date, and over a similar time period. They are used to dealing
with peaks and troughs of work in that way. We shall be building
on that experience and the experienced that we have had in dealing
with peaks of work in the Revenue, and there are various others
areas in which we have had to deal with that and manage that.
We shall be combining the experience that we have had in both
departments to tackle the peak of work that we shall get with
the introduction of tax credits.
216. In relation to the work force, when
we went to Preston I felt that the working conditions were not
ideal. The adjudication officer was paid £11,000 for a full
time job with a lot of pressure, and we heard that there is a
high turnover of staff. The people to whom we spoke were looking
forward to working for the Inland Revenue because they felt that
the Inland Revenue staff were treated a lot better than the social
security staff. Is that true?
(Ms Walsh) I am not sure that it is for me to
comment on that. We are certainly looking forward to people coming
into the Revenue, bringing with them a wide range of experience
and skills, which will be beneficial to all of us.
217. Are you satisfied with the quality
of the work force?
(Ms Walsh) Very much so. The work force has an
extremely high background of delivery. They have won several quality
awards and we are very pleased to bring such skilled and experienced
people, which such high quality credentials, into the department.
Chairman
218. One group of people not looking forward
to the change is the employers. The Institute of Directors said
to us in evidence that this involved such a huge amount of hassles.[1]
I would like to spend a moment or two satisfying ourselves that
everything that can be done is being done to deal with the administrative
burden on employers, particularly small employers, considering
the cost of implementation. What can you tell us about that?
(Mr Orhnial) As I mentioned earlier, we are talking
to employers including those representing the smaller employers,
the Federation of Small Businesses in particular, to try to find
the lowest cost approach to dealing with the Working Families
Tax Credit from the employers' point of view. We are talking to
them and trying to find the approach that places the minimum burden
on the employer, while at the same time protecting the interests
of the person receiving the tax credit. It is a difficult balance
to strike. We have made a lot of progress with those discussions.
The central headlines were exposed yesterday in answer to a parliamentary
question. If you like, I can remind you of what they were. Essentially,
the process will be one in which the Revenue will notify employers
when to start paying the tax credit in order to give them time
to adjust their payrolls. It will tell them how much tax credit
to pay and when to stop. A point of particular interest to the
groups representing the disabled is that there will be no identifier
that distinguishes between the Working Families Tax Credit and
the Disabled Person's Tax Credit, so confidentiality will be maintained.
Once notified, the employer will start to add the tax credit to
the employee's net pay. As you know, in July the Financial Secretary
answered a question about the use of PAYE codes.[2]
This builds on that. The presumption is that employers will continue
to pay until the end of the award when they are told to stop.
At all other times we will have responsibility for dealing with
payment of tax credits. We shall be trying to fill in some of
that detail in the next few weeks. As the Financial Secretary
said in answer to a PQ yesterday[3]
the details will be published in due course.
219. It is a hassle, is it not?
(Mr Orhnial) It is additional work certainly.
Nobody has denied that it is additional work. The objective is
to keep that additional work to a minimum.
1 HC 827-ii Session 1997-98. Back
2
HC Deb 9 July 1998, vol 315 col 576w. Back
3
HC Deb 27 October 1998, vol 318 col 92w. Back
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