Examination of Witnesses (Questions 60
WEDNESDAY 25 APRIL 2001
MONTAGU CB, MISS
CB, MR JOHN
YARD CBE, MR
60. I would not like to think I owed the Inland
(Mr Montagu) I would not like to think you owed us
much either, Mr Steinberg.
61. Let us move on. I want to talk about working
families tax credit, paragraph 4.2. I want to talk not about specific
constituency issues but ones that have been raised by people in
my constituency, small businesses. This is the payment of working
families tax credit. Is it fair to burden small businesses with
the administrative work of carrying this out?
(Mr Montagu) I want to be helpful to the Committee,
Mr Steinberg, but I have to be a bit circumspect. The decision
that the working families tax credit should be paid via the employer
was a major plank of government policy. As I see it our task since
then has been to try and make it as easy as possible for small
businesses and others to meet that obligation.
Mr Steinberg: So you will not answer the question?
Chairman: Order, order. The witness is in order
62. Fair enough. Let us try to put it a different
way. If there are some small businesses that have one or two people
working for them on a part time basis and they are having to administer
the working families tax credit, do you see that as being burdensome
on the administration of a small firm?
(Mr Montagu) I have to give you the same answer, Mr
Steinberg, that if these are people who are entitled under the
law to the working families tax credit and if under the rules
the employer has the obligation, then what we will do is to try
and make it as easy as possible for the employer to meet that
63. How many complaints have you had from small
businesses about the burden of the administration?
(Mr Montagu) We have had quite a few because this
is a new scheme; it is something totally new.
64. When you say "quite a few", how
many do you mean? Two, three, a hundred, a thousand?
(Mr Montagu) No. We have probably had more than that,
but what is very noticeable is that our Employer's Helpline is
now, having had something like, from memory, ten per cent of calls
being complaints, finding it is down to half that. Inevitably
new tasks for employers are ones which they will find difficult
and, as inevitably, small employers tend to lack the resources
of the big ones to help mitigate that so that disproportionately
we tend to hear from them and for that reason disproportionately
we tend to concentrate on them through the Business Support Teams,
through targeted Helplines, through targeted workshops and so
65. If a small business has to pay out more
in tax credits than they are actually taking in in tax and national
insurance contributions how quickly do they get their money back?
(Mr Montagu) Very quickly indeed.
66. How quickly is that?
(Mr Montagu) Within days, to the extent that if they
find themselves in that position our Accounts Offices will actually
take a telephone call or a fax as a formal request and will put
them in funds.
(Miss Chant) And the money is automatic
cash transfer and it is through in four working days.
67. I have not got the answers I wanted but
never mind. On page 17, paragraph 4.10, it is talking about risk
management for the application of the tax credits, and it says
that the main risk effectively in the actual awards includes the
accidental or deliberate mis-statement of information by applicants
to tax credits. How widespread do you believe that to be?
(Mr Montagu) What? Fraud and evasion?
(Mr Montagu) First indications are that it is not
very widespread. What we have been trying to do (it is a bit analogous
to what I said to the Chairman about employer compliance) is to
refine our indices of risk so that we can concentrate our enquiries
and action on cases where we have reason to believe that a claim
for whatever reason is wrong or in some way non-compliant.
(Miss Chant) Would it help you, Mr Steinberg, if I
said that from last August to this August we are carrying out
a sample of several thousand cases which will be checked in every
respect, which will therefore include any incorrect statements
for a whole variety of reasons, and by November or so this year
we will have had that to give us a sort of bench mark as to what
the proportion is of cases that for a variety of reasons will
not have given us the correct information?
69. Would it surprise you to be told what I
was told recently by (I think they call them) whistle blowers?
One wrote to me and contacted me by telephone and told me of an
establishment where there were dozens of women claiming working
families tax credit by stating that they were lone parents when
they were not.
(Miss Chant) I would be interested to hear of that
because they would of course have to give details of their employer
and they would have to give their wage details, so what is it
that this one establishmentit sounds fascinating, does
it not? There is one establishment, several dozen women, where
all say they are working
70. I was also told that not only is it taking
place in this particular establishment but in another one as well
where it is now common knowledge that when you claim working families
tax credit and you claim to be a lone parent or your partner or
your spouse is not living with you, no check is made, it is just
written on the form and claims are being agreed.
(Miss Chant) Not correct. I can give you strong authority
on that. That is not correct. I am not sure where this busy establishment
is with several dozen women
71. I can tell you it put me out.
(Miss Chant)who are working, and that is the
big thing with working families tax credit: you have to be working
and you have to produce wage slips and we do thorough risk analysis
and checks, but I am just not quite surenever mind where
they live. They are working, the evidence is produced, the fraud
isit does not really matter if they are all living in the
same place, does it?
72. I beg your pardon?
(Miss Chant) Where they live is not necessarily relevant.
You said they were all in the same place.
73. They are working in the same establishment.
(Miss Chant) Oh, they are working in the same establishment?
74. Yes. Sorry; did I not make that clear? They
are working in the same establishment and they are claiming working
families tax credit by stating on the form that their spouse or
partner no longer lives with them and therefore their salary is
not taken into consideration and they are being paid working families
tax credit, and there were supposed to be over 12 in one establishment.
If this is right, and I do not know whether it is right or not,
and there are 12 in one establishment doing it, this sort of fraud
must be widespread throughout the whole of the country.
(Miss Chant) If that were the case, and I now understand
it is where they are working, not where they are living, certainly
the non-declaring of a partner's earnings is something that would
particularly be looked at and would rate on our risk assessment.
As I said, by the time we have done random sampling over a year
we will have a much better bench mark of what the level of fraud
or abuse or straightforward mistake might be and we will target
our risk checking accordingly.
75. In figure 5 on page 18, that outlines, does
it not, some of the measures that you are taking to stamp out
(Mr Montagu) Yes.
76. Would that sort of fraud be picked up with
your risk score card?
(Mr Montagu) Yes, and the whole aim of the risk score
card is to refine the indicators of risk and what risk means so
as to target more accurately as our knowledge of the system increases,
and I repeat that it is a very new system, which claims look dicey,
which ones we should follow up, which ones it is most worth investigating.
77. But presumably, if that is the case and
somebody is telling a lie, a very simple lie if you like, "Are
you living alone?", and I do not know what the question is
on the form, it is going to be very difficult to pick up, is it
not, if not every single person who claims to be a lone parent
is not actually checked out?
(Mr Montagu) If you are saying that we will never
succeed in stamping out working families tax credit fraud then
I would be very rash to disagree with you, but I think that we
will find as we go on, as we do in a number of areas, that a risk
score card points to a number of suspicious indicators. We have
already looked into something like 29,000 cases. We have come
up with a certain number where fraud of the sort you have mentioned
is going on.
78. What worries me, Mr Montagu, is that we
are told in the report that the risk score card would be not sufficiently
focused, which means that it would result in too many cases being
identified for investigation. If that is saying that there are
too many cases being looked at to identify fraud, and I am saying
to you that if this information is correct that there are thousands
more which are not being, how do you reconcile that?
(Mr Montagu) If there are thousands more, Mr Steinberg,
but actually what you have said is quite interesting because,
while the risk score card is important, it is also important not
to get too hung up on it. It is not our only tool. The sort of
thing you have been talking about, such as third party information,
is important. So is data matching. We do a lot of data matching
with DSS data and with our own data from our other records systems.
79. The information that has been given to me
may well be an absolute load of rubbish, I do not know, but if
it is accurate then there is a worry there.
(Mr Montagu) Yes, and that is why, as Ann said, it
is information we would very much like to have too. We use and
take very seriously third party information.
Chairman: This is exactly the sort of thing
I had in mind when I was talking about elusive fraud and the weaknesses
of risk assessment.
8 Note by Witness: Where employers believe
that they will have insufficient tax, National Insurance etc,
deductions in hand to cover the payment of tax credits, they may
apply for funding in advance of the due dates for payment. So
employers do not have to fund tax credits from their own resources
and then seek reimbursement. Back