Examination of witnesses (Questions 260
WEDNESDAY 13 DECEMBER 2000
and MR NICK
260. Who are they?
(Mr Orhnial) A lot of the people who have come to
you: the Low Pay Unit, the Child Poverty Action Group, the Low
Income Tax Reform Group. We have a lot of these people in regular
contact with us because they sit on a special committee of the
Working Families Tax Credit implementation programme where they
are helping us to see how well that is being delivered. There
is a continuing dialogue. Despite the fact that detailed proposals
have not been published as yet, we are doing things, if you like,
in an incremental way, gathering evidence up which then informs
our thinking. People volunteer that evidence and a lot of the
submissions that have been made to you have also in different
terms been made to us.
261. Just a final subject, I understand that
the adult credit within the Working Families Tax Credit is only
given to parents. Will there be a conflict with the Employment
Credit? How do you view that?
(Mr Macpherson) I think the Adult Credit in the Working
Families Tax Credit would be absorbed in the Employment Credit,
so the Child Credit would just be about the payments around children.
As I say, the only issue there is whether you have a higher payment
for the first child or some sort of family credit or premium.
The issue around the Adult Credit then relates to the Employment
Tax Credit and we are working on that. You inherit a system which
goes all the way back to Family Income Supplement where if you
are a lone parent you got the full Adult Credit, exactly the same
credit as two parents get. So there are issues there and we need
to look at that in the light of the effects on couples, but also
taking into account relative costs for a lone parent of moving
Mr Robertson: Thank you very much.
262. Helen Ghosh earlier on talked about one
of the main reasons for all the changes associated with ICC, which
was to improve customer service and to make it easier for people
to access the system. I want to ask a few questions about that
because what this amounts to is means-testing and we will probably
end up with means-testing for more people than are means-tested
now. It is important to get it as simple to understand and access
as possible. First of all, in some of the consultation documents
that have come out you have talked about setting annual awards
for ICC and basing awards on income during the year. Do you envisage
basing awards on income in the previous year as happens in Canada
or income in the current year as happens in Australia? Or have
you not got as far as thinking about the details of that?
(Mr Macpherson) We are thinking about that and first
I take your point about assessing payments on an income-related
basis. If you are having a lot of people assessed on that basis
you need to make it easy for the customer to access, and we hope
to get away from overly complicated forms. On the issue of the
period of assessment, you are absolutely right. First, we are
tending to home in on the idea of an annual assessment, although
clearly you want to have a safety net as well so that people do
not fall out of the system. The issue then is, do you assess it
on the previous year or the current year? I think that we clearly
need to look, and indeed have looked, at the Canadian and Australian
systems. It is worth saying how their experience is different
from ours. For example, in Australia everybody files a tax return
and their system, I think, is going to involve end year reconciliations
where people might have been overpaid to quite a large extent
and might have to pay back money to their revenue service. If
they were still on very low incomes, that could be a problem.
263. I am sorry to interrupt but this annual
reconciliation could mean introducing increasing complexity into
(Mr Macpherson) Exactly. If you look at the Canadian
system, where it is done on the previous year a lot of the information
is pretty out of date. If you had a good year last year, and you
were a couple both of whom were working you might be eligible
for very little payment, but your economic circumstances might
change the following year and under the Canadian system there
would be no redress; that is just rough justice. It is these sort
of issues that we are looking at and Tony from the Inland Revenue
is looking at this most of all.
264. Before we bring in Tony, Andrew Dilnot
gave us some evidence
in which he said there were likely to be some "awkward corners"
in matching up weekly benefits with annual income returns.
(Mr Orhnial) I am not entirely sure of the sense in
which Andrew meant that particular point. What we have currently
is a collection of different vehicles, some of them based on annual
income like children's tax credits, and assessed on an annual
basis, others like WFTC, which are based on a short snapshot which
determines your entitlement which then is fixed for six months,
and entitlement to Income Support, which is based on a very much
shorter period. What we will be looking to for the ICC is having
a common basis across all of those. I think what we need to get
clear is the distinctionthis may be where Andrew was coming
at it frombetween the basis on which you assess entitlement
to something, whether it is your income for a year or six months
or six weeks, and the frequency with which you make any payments.
I think what Andrew was particularly concerned about was the frequency
of payments and there are a range of options open to us. Some
of the systems we have looked at overseas essentially involve
payment in lump sums after the end of the year as an option; others
involve weekly or fortnightly payments.
265. Do you think there will be much take-up
for payment at the end of the year?
(Mr Orhnial) My personal guess is no, because our
system does not work well that way for most people. Lump sum payment
works well with a system where most people have annual tax returns,
where you have a pay-as-you-earn type system which over-deducts
tax during the year and where people expect a repayment. So what
you are getting at the end of the year is X pounds repaid in overpaid
tax plus Y pounds reflecting entitlements to tax credit for this,
that and the other. Lump sums at the end of year do not really
go with the grain of our system for most people. Fortnightly or
monthly payments might well go better with our tax system. Going
back to the point Nick was focussing on earlier, we have looked
quite closely at both the Australian and Canadian systems because
in a sense they represent opposite ends of the spectrum, with
the Canadian system being relatively inflexible and underpinned
by a safety net, essentially at the provincial level.
266. To come in on the Canadian system, one
of the reasons why you are right, it is more inflexible, is because
the taper starts at a much higher level than is likely to be the
case here. Do you think that is a good thing, that you start higher
up and that obviates the need for all these adjustments? Even
if they are annual adjustments it still involves a lot of adjustments
and at six months it is worse, and at shorter intervals it is
even worse. The Canadian system, as I understand it, increases
when the taper starts to come in and it is fairly generous.
(Mr Orhnial) Again it is a trade-off which our ministers
will need to look at to see precisely where the taper begins and
ends. I do not think the Canadian system just relies on that.
It relies also on people, when they have a big fall in income,
not readjusting tax credits to get more money, but falling back
on a social security system of some sort. With the ICC, remember,
we are integrating the whole of the child payment system, so they
will not be able to fall back on Income Support for child payments.
Therefore we have to design an ICC that can deal within the system
itself with sharp falls in income.
(Ms Ghosh) I think Andrew Dilnot was talking about
precisely that point, what happens if you are swimming along in
a low-paid but reasonably comfortable position and you then you
lose your job and for the remaining weeks of the year your income
is extremely low? If you looked at the whole year you would still
look reasonably comfortable. At that point the person would be
caught in that case by moving on to Income Support/Jobseeker's
Allowance where they would get their passport automatically on
to 100 per cent ICC. So in that case the system provides an immediate
267. What is the thinking nowadays in the Department
on changes in family composition over a period?
(Mr Macpherson) Although you start on the assumption
that you want to have a fairly light touch, an annual approach,
you also need to have a system which is responsive. There are
certain key changes such as giving birth to an extra child where
for WFTC at present you have to wait until your current time period
expires. It is inflexible in that respect. We want to be able
to ensure that the system responds to that and we also want the
system to respond to precisely your point about changes in family
circumstances. Say you are a mother and your partner walks out
on you, you want to ensure that you get the maximum child credit
(assuming your income is consistent with that) as quickly as possible.
That requirement of a safety net is central to this system. The
challenge is to come up with a system which is sufficiently simple
for everybody to buy into it, in a sense, but also provides the
necessary targeting for when key life events happen, and I think
we are on our way to developing an answer to that conundrum.
268. So you are fairly optimistic then that
you will be able to crack that?
(Mr Macpherson) We are fairly optimistic because in
a sense if we did not think we could solve that problem we should
not have announced this proposal in the first place.
269. The Treasury discussion document on tax
credits says that "the next phase of modernisation offers
an opportunity for a thorough review of the treatment of income
and capital." That is really very far-reaching in terms of
(Mr Macpherson) It is.
270. Jane Millar, who has already been quoted,
talked about "means testing with a light touch". Those
two things, I imagine, are closely intertwined and both very important?
(Mr Macpherson) I think that is a very important point.
It is very striking that the income tax system does not recognise
capital. It taxes you on your income and if you choose to tie
your capital up in low-yield activities then you are not taxed
more. The key thing here isand the Treasury has been responsible
for this in the past so I can claim my fair share of guiltthere
is an obsession with targeting systems in ever more elaborate
ways. Clearly in one sense that is efficient; it gets money to
the people who really need it, but it carries a very big cost
in terms of complexity to the point in many casesand I
think Housing Benefit is quite an interesting examplewhere
it becomes virtually impossible to administer in an efficient
way. The Government has just announced proposals on the new pension
credit. The consultation document sets out proposals that the
capital rules will be abolished and in time will be replaced by
some sort of income test, so what you look at is income. Clearly
we have that as a starting point because the other important objective
here is to encourage savings. If you want people to become more
independent you have got to let savings pay. In a lot of areas
over the last couple of decades savings have not paid. You are
mad to save if you are in low-paid employment because at every
twist and turn you will be penalised by the system.
271. It is something that every MP gets reinforced
at every constituency surgery, the fact that you come along with
a little bit of savings which stops you accessing any kind of
(Mr Macpherson) All I am saying is that this is an
area we are looking at from the point of view of savings as well
as everything else and in terms of the administration. Equally,
we want to have a system which generally does not come up with
perverse results. All I can say is that we are on the case.
272. Just one final quick question, and seeing
as we have got three different Departments represented can we
have an answer from all three, even from Mr Lodge who has been
sitting there. We are always hearing about how forms are being
simplified. You talk about how in hospital after a confinement
a mother is given a form and gets quick access to Child Benefit.
Can we really have forms that are simple and straightforward and
easy to fill in?
(Mr Lodge) I think I had better come in first! We
are very keen to make sure that our systems are as accessible
as possible and we are very keen to make sure that our forms are
as simple as possible and as easy to understand as possible and
as easy to complete as possible. It is important to outline some
of the things we are doing to enable us to achieve those important
goals. Principally, we will need to consult with the people who
are going to be completing them to make sure.
273. How often does that take place and how
much people testing takes place before forms are introduced?
(Mr Lodge) We do do quite a bit of that under controlled
conditions and we will certainly want to do that for the new tax
credits. We do concept testing to make sure people understand
what the form is about. More importantly than that, probably,
once we have understood the data and information we need to capture
in order to decide whether to award or not we put that data in
front of people and try to work with end users, with people who
complete the forms, to make sure that they understand the information
that we are seeking from them, that they understand, importantly,
the guidance we want to provide to help them to complete the form
and provide the information. We do that under controlled conditions.
On a voluntary basis of course, we video people completing the
forms. It is all standard testing arrangements and processes and
we do an awful lot of that. We will want to do an awful lot of
that given the lead in time we have got for tax credits to make
sure that the forms are as user-friendly as possible.
(Mr Macpherson) One of the objectives underlying these
new tax credits, certainly in relation to the tax system, is to
use information you have already got. A good example of this is
the self-employed where Nick and others have been amending the
whole application process for the Working Families Tax Credit
so that instead of having to provide lots of different information
you can pick up on a lot of the information they would provide
for tax purposes, and certainly over time we will want to make
more and more use of traditional tax information in order to make
this system work.
(Ms Ghosh) Obviously there is also a close link across
to the e-government agenda and for some people, particularly when
we can move into sophisticated interactive form filling, that
would be a way of helping them. Certainly in the DSS, what we
are doingand I think the creation of the client groups
has helped thisis embarking on a serious exercise of looking
at all our groups of customers and seeing what kind of service
would suit them best. For pensioners we are setting up models
where it is basically a telephone and there is someone on the
end of the phone to help people fill them in and so on. Again
we are building e-capability not only into tax credits but a whole
range of benefits, given the Prime Minister's commitment on that.
There are some people we will still want to see walking through
274. It is not the people who are e-literate
who have the problem; it is those who are not. It is important
to do what you are doing but do not forget the others as well.
(Ms Ghosh) Because we do not forget themand
it sounds bureaucratic but I am a civil servantwe have
set up a group with the other key deliverers to the lowest income
groupsthe DfEE, the Inland Revenue, the local authoritiesspecifically
looking at the people who are least likely to have access to e-government
to see how we can make access easier for them. It may be that
digital television is the way into that group because the reach
of that may be greater in that group. We do not want to create
another form of financial social exclusion through e-government.
275. I would like to ask Mr Lodge, what his
thoughts are in terms of any choice that should be given to people
in terms of how the payment of ICC should be made to them. Should
it be in fortnightly payment to them or an annual tax refund?
(Mr Lodge) There are a range of options and clearly
this is something that Ministers will have to consider. The Prime
Minister has made a very clear commitment that benefit and tax
credit payments will continue to be available on a weekly basis
at the Post Office and so we will be designing the new tax credit
system in line with that commitment and we will want to consider
the frequency of payments. Will it be a weekly payment or will
it be a fortnightly payment or will it be available on an annual
basis. Those are all options that need to be considered and Ministers
need to consider them.
276. I am glad to hear that there is a commitment
to the Post Office as we all share that concern. Social Security,
have you given consideration to this aspect of it?
(Ms Ghosh) It is the Inland Revenue who will be making
the payments. We will not be making payments of either of the
tax credits. Clearly we have our own payment modernisation programme,
which I am sure the Committee knows more about than I do, which
is to roll out payment modernisation through Automated Credit
Transfer (ACT) from between 2003 and 2005 and again, as Nick Lodge
said, we are working within the Prime Minister's commitment to
the availability of cash payments and we are working with the
Inland Revenue on, for example, developing the Universal Bank
to enable that to happen.
277. We have heard earlier about Jane Millar's
thoughts to the Committee about various aspects of this. Her view
is that it does not feel like much of an integration to families
who are going to be recipients of this because of the myriad of
other benefits which people are going to have to claim from different
agencies. Will the Integrated Child Credit make that much difference?
(Mr Macpherson) I think it will make a difference.
A good example, more from the Inland Revenue perspective, is how
on the one hand you get support for children through the Children's
Tax Credit system, which happens through the more traditional
PAYE arrangement, but you also get support through the Working
Families Tax Credit. Although the Inland Revenue is responsible
for both, the two systems are still very unintegrated. You have
to ring up Preston if you have got some problem around WFTC and
you probably have to ring up your local tax office if you are
not getting your Children's Tax Credit. So I think that that does
represent progress and, of course, if you land back inside the
more traditional welfare system you will have to access support
through Income Support or indeed Housing Benefit. Hopefully, as
far as that group is concerned, with the new Working Age Agency
there will be this single front-end where you come in and discuss
all your benefit needs as well as how you might move back into
work, assuming you are capable of working.
(Ms Pattison) And another thing to bear in mind is
that as the ICC will probably stay with people through the life
of their children in the way Child Benefit does now, many people
coming onto Income Support will bring ICC with them already so
what we are looking at there is making sure that the safety net
kicks in rather than it being about filling in lots more forms
because they have claimed Income Support. The point about Housing
Benefit is a good one and we are working to look at how the new
tax credits interact with Housing Benefit. We are very conscious
of the Government's commitment around Marginal Deduction Rates
(MDRs). We are also not looking at creating additional burdens
on customers or indeed the local authorities, who could do without
it. In the context of that we are looking at income tests between
the two benefits, the responsiveness between the two areas of
provision, and Housing Benefit indeed is included in the review
of income and capital that was announced by the Chancellor.
278. Thank you. This is an Inland Revenue question.
Currently you do not collect data in terms of children in families.
Do you have any plans to change that in the future in order to
assist in making this a much more efficient operation and making
sure that people do not miss out in terms of benefits?
(Mr Orhnial) We are increasingly collecting data about
children and families. We have always had information about children
in the context of the additional personal allowance that went
to lone parents until quite recently. With the Children's Tax
Credit that starts to run from April this year we are collecting
information about children, so that we will have data about children
and the families they belong to. We, of course, do so for purposes
of the WFTC. For the new tax credits certainly we will be building
a system that will bring together the information we need on families
(Ms Ghosh) On the point we made earlier about pulling
together closer integration on administrationChild Benefit,
although it has got a 21-year-old computer system, has got some
good data and a nearly 100 per cent take up, so most of the children
who exist are in there somewhere, and again we can work on that.
279. So you do have plans to data match between
the two agencies?
(Mr Macpherson) Definitely. This lies very much at
the heart of the system. We do not want to have lots of agencies
having their own data. We want to have one source of data on children
so that you know who they are, where they are, who they belong
to and you can use that system to provide the Child Support they
are entitled to.
(Ms Ghosh) Being a relative newcomer to the DSS I
am always astonished at how expensive these things are, but it
is a very good way of reaching everybody. I do not know whether
you have seen recent Child Benefit notification forms but they
are already advertising WFTC, and I am sure in due course they
will be advertising Integrated Child Credit in the same way. So
it is a very good way of reaching people. There is a captive audience
8 See Ev. 29 November, 2000 (HC 951-iii). Back