Examination of witnesses (Questions 280
WEDNESDAY 13 DECEMBER 2000
and MR NICK
280. Sorry to interrupt, but does not the Department
of Health have a record of every child born in this country and
their addresses and who their parents are?
(Ms Ghosh) They do and it is one of those interesting
and insoluble issues about accessing data. Everybody has an NHS
number, yes, but in that case, of course, it is about registration
with GPs and so on. It is not necessarily entirely compatible
with the Child Benefit database.
(Mr Macpherson) We may not be rationalising everything
across the whole of government but we are trying to make a start
between the DSS and the Inland Revenue.
281. You were telling us you have got plans
to match up this data between the two Departments?
(Mr Lodge) We will certainly be building links between
the two systems.
(Ms Ghosh) It depends what you mean by "match
up". Clearly if we have got a database and we are working
within our powers (and under the Tax Credits Act we can use data
if it is specifically for a purpose) then that would be a classic
instance where we have data about children and we are trying to
reach this target audience, so we can use the data.
282. The Department of Social Security is notoriousI
will rephrase thatis well-known for looking at issues such
as fraud particularly in relation to cohabitation. We all know
the way in which in the end you attempted to define exactly what
that meant so that it made sense to people who were in grave danger
of losing their benefits. The Inland Revenue, I take it, does
not have similar hit squads going round following people and looking
at bedroom lights and things?
(Ms Ghosh) Toothbrushes is always the example cited.
283. Can I ask what plans you have in order
to ensure that the very serious issue of benefit fraud or fraud
in relation to the ICC is kept to a minimum?
(Mr Lodge) It is certainly something that we regard
as being extremely important, as you would expect. We do have
some experience of compliance work and fraud work within the tax
arena. We also have seen the transfer of a number of DSS staff
to the Revenue over the past couple of years with experience of
the way the DSS approaches these issues, and for the new credits
we will be very keen to learn from best practice in the DSS and
in the Revenue in designing a system to combat fraud. I think
what will be important is striking the right balance between the
upfront checks we want to carry out before payment is issued and
the importance of getting money into the hands of people quickly,
and there are some interesting trade-offs around those issues.
We will certainly be wanting to check the identity of applicants,
for example. We will want to check the existence and ages and
details of children that have to be supplied. We are intending
to do a lot of that automatically through data matching. We will
also want to continue the approach we have taken for WFTC where
we consider each and every claim on a risk-based approach and
if we think there are issues to be taken forward for further investigation
we might well put the payment into effect, but pick up those issues
at a later time. We will want to, as you mentioned, address the
cohabitation issue, which is an important one. We do address that
for WFTC now. We will in addition, I think, want to use IT in
a rather better way progressively so that we can, for example,
look at an address and see for tax purposes how many earning adults
are attached to that address as opposed to tax credit applications
that might be, for example, from a single applicant and in matching
those sorts of details establish whether there are grounds for
further investigations. That is the general approach we will be
hoping to take.
284. The problem with the current interaction
of WFTC with Housing Benefit and Council Tax Benefit is that they
obviously produce high marginal tax rates which discourage people
on low incomes from earning and working. What do you intend to
do to improve incentives?
(Mr Macpherson) We are in favour of incentives so
we will look at this. You are absolutely right, the worst disincentives
in the system arise when different systems of support interact
with each other. You get this multiple taper effect and you end
up with marginal deduction rates in excess of 90 per cent. What
the Government have done so far on this front is put its eggs
into the Working Families Tax Credit basket so for a lot of people
it has floated them off Housing Benefit and Council Tax Benefit
and the extent of the very high marginal deduction has been reduced
quite significantly. I think this will continue to inform our
thinking. The more money is put into these particular credits
the fewer people will be both on these credits and on Housing
Benefit. In principle, you could take a different approach and
integrate Housing Benefit and Council Tax Benefit with the whole
285. Why do you not do that?
(Mr Macpherson) It is something which we do consider.
It would be the most radical reform of all.
286. Are there any technical reasons why it
would not be possible?
(Mr Macpherson) There are technical reasons why we
could not do it by 2003. A lot of the Government's agenda is being
driven by what you can do and at the moment Housing Benefit is
administered by 409 local authorities, and to integrate it with
these new credits you would, in effect, have to nationalise it
and you would have to replace all those systems administering
it at present with a national system. In principle, that is possible.
287. That would have the virtue of simplicity,
would it not, it would be a neater solution?
(Mr Macpherson) It is an interesting idea. Obviously
the transition setting up that national system would be incredibly
expensive. If you went down this route the first thing you would
do is get the DSS or its successor to administer this national
system. You would first get the national system up and running
and then integrate it. If you move direct from a local authority
administered system straight to a fully integrated system with
Inland Revenues credits, that would be a very big step. We were
talking earlier about whether we can get the system up by 2003I
think we canbut if as part of the process we were to integrate
Housing Benefit as well, you would be looking at 2007/2008/2009.
(Mr Macpherson) Possibly. It would be a massive IT
task. You also then have to consider how you calculate Housing
Benefit. Will it be on some flat rate basis or individualised
in each case, in which case the quite simple form-filling we were
talking about in terms of accessing the Integrated Child Benefit
would then become quite a complex system. This particular proposal
remains on the agenda but in the meanwhile there is the issue
of how you improve working incentives. Some steps have been taken
around Housing Benefit in terms of run-ons and so on, but I think
the key priority with Housing Benefit is not so much how neat
the lines look on graphs but how it is administered. If you talk
to peopleI was in Bradford the other dayabout how
it works for them, the worry is not so much the lack of potential
support in work from Housing Benefit; it is more just accessing
it and dealing with the local authority. I understand Bradford
is a very good authority in terms of delivery of Housing Benefit
but even then there is the uncertainty of moving into work and
often because it takes so long to be recalculated that you are
faced with requests for large back payments of Housing Benefit
which can put you into debt, which makes people very reluctant
to move into work in the first place. We have still got to look
at the structures and I do not think that anybody would claim
the existing system is ideal, but we also need to look at delivery.
(Ms Ghosh) There is a wider point about delivery and
it is something we as a Department are realising more and more.
ONE is a good instance. Whatever the technical marginal deduction
rates are, it is the way you deliver the thing to the customer
that makes the real difference. ONE is a perfect example of the
kind of stuff Mary was talking abouta single gateway through
the Working Age Agency and the "better off in work"
calculations, the New Deal for Lone Parents. In all those things
it is delivery that can make an enormous difference. Even if the
Marginal Deduction Rate (MDR) is not as good as we might wish
it to be, with support and a vision for a better career in the
future, that is what makes the difference for individuals and,
again, that is something we are trying to achieve through ICC.
289. Anyway it remains on its agenda which is
good news. Would ring-fencing support for children open the door
to you being able to take a more rigorous line against work shy
people? Would it make it easier to bring in a Workfare type system
because you are ring-fencing the support for children?
(Mr Macpherson) Clearly there are some issues around
rights and responsibilities. I think this is an interesting issue
in that if you are requiring people to look for work, how do you
implement that requirement, and this is something which I think
we should definitely look at. In fact, the way the existing system
works, as I understand it, is if you do get sanctioned and you
are on benefit, on the whole the child payment is protected and
it is only the adult bit that is sanctioned. This clearly gives
this issue a higher profile. Given that this happens already you
are talking about presentation.
290. You say that this gives this issue a higher
profile; in plain English that means it is easy to do, does it?
(Mr Macpherson) What I am saying is that if you have
got a clearly identified adult component and a clearly identified
child component then, broadly, yes.
291. Thank you. For a civil servant to say yes
is unheard of. Have you had a chanceI imagine that you
will have received advice from the people sitting behind youto
see the written memorandum and oral evidence submitted to us on
29 November to this Committee by Mr Beighton and Mr Draper
and particularly their point of view that the present system (particularly
the Working Families Tax Credit and offshoots from it) make a
two parent family worse off than a one parent family. Would you
like to comment on it?
(Mr Macpherson) I am aware of the evidence and I may
have read some of it. As I was saying earlier in reply to your
colleague Mr Robertson, the starting point for this is the system
which goes back to Sir Keith Joseph who introduced family supplement
in the early 1970s. That system paid one adult credit whether
or not you were in a couple so lone parents got more per adult
than a couple. That is the first point. We start with where we
are. I think the next issue is, as I said, not so much about the
child elements, which in a sense are separate, but is about how
you give tax credits to working adults. The Employment Tax Credit,
which we have not really talked about very much today, is going
to be the instrument for doing that, and I think that you could
make a case for giving an additional credit to low income couples
who move into work. It is quite striking if you look at poverty
rates amongst childless families that they tend to be most usually
in couples who are in low wage work in their 50s. It tends to
be an older worker problem. We need to look at that and we need
to look at the incentives to work because fundamental to this
process is encouraging people to work. Evidence from Leonard Beighton,
the former Inland Revenue official, is very helpful in this respect.
292. Can I ask you one or two very brief questions?
Firstly, Karen Buck asked you earlier about the move of the Child
Benefit centre and in fact the Secretary of State himself explained
to us last time he was here that Child Benefit was going to be
moved across to the Inland Revenue. Can you give me an absolutely
categoric assurance (because information technology is so important
in all this) that that move will not take place until the computers
on the Child Benefit side, which we have heard earlier are 21
years out of date, will be able to communicate properly in modern
IT terms with the Inland Revenue system. Promise me, if nothing
else this morning, that that will not happen unless the computers
(Mr Macpherson) First, Alistair Darling said there
was a very strong case for moving Child Benefit over to the Inland
Revenue. No final decisions have been taken on this but it is
one possible way forward which would deal with the point raised
earlier. A key thing here is also to be able to develop the IT
systems so that this happens and, even if it is not moved over
to the Inland Revenue, the Inland Revenue have got to be very
actively involved in the development of those IT systems because
there is no point doing this unless you can integrate those systems
into one IT system ideally, or at the very least so that they
are able to talk to one another. Nick, do you want to talk about
(Mr Lodge) I think the location of the IT system is
probably less important than making sure that it works adequately
to support the new tax credits and continues to support Child
Benefit. We are already building links and are starting to look
at those links between the Child Benefit system and the new tax
credit system, and they can be built. Obviously, ideally, we would
be dealing with a more modern IT system but it is there, it does
work, and we can build links to it that will enable us to support
the introduction of the new credits.
293. I am a bit confused about this. I got a
very clear statement from the Secretary of State when he was here
that the Child Benefit centre would be folded into the Inland
Revenue. I do not think there is a great issue here but you seem
to be saying there is still some doubt about that.
(Ms Ghosh) The point the Secretary of State made when
he appeared before you before was the one Nick was talking about,
that there is a clear logic to it. You want to administer the
two things and you want the income coming in in a single stream
and therefore in a sense that is the thing on which we need to
focus in the first instance and, as Nick said, we need to work
through all the data exchange instances of that. What he did not,
I think, say was that a decision had definitely been made in favour
of transfer. He is focusing on the important issue which is seamless
administration and service to the customer and the single income
294. I am now more confused than I was.
(Mr Macpherson) Alistair Darling, as ever, described
the situation very well and we certainly would not want to disagree
with anything he said. The only point is I do not think a formal
decision with a timetable has been taken. That is all I am saying.
(Ms Ghosh) I think the point he made is that in a
sense the badging is irrelevant to the working together and getting
the administration working together.
295. If we all agree, why are we making such
an issue of it? Your body language is going very negative, Nick!
Seriously, I do not think there is a problem here. It seems crystal
clear and if you are saying to me it is less than crystal clear,
that confuses me. I think it is inevitable myself. All I am saying
to you is that if it does happen we would be looking for some
assurances that IT issues are absolutely gold-plated guaranteed
fixed before it happens.
(Mr Macpherson) There is no point in doing this unless
you fix the IT systems. The precise order of events is a matter
296. That is a better answer. I will settle
for that. A final question very briefly; what happens now? Where
do we go from here? You obviously cannot anticipate the Budget
and I would not want to put pressure on you to do that, but can
we expect to see some more flesh on some of these bones come the
Budget? When should we be looking for further developments on
the issue, apart from our very important report which will be
published early in the New Year?
(Mr Macpherson) I am hopeful that things will begin
to firm up through the beginning of next year and as soon as they
are firm I am quite sure that Ministers will want to share developing
thinking with as many people as possible.
Chairman: Okay. Thank you very much. I know
how much work you put in for these sessions. It has been extremely
useful. It is a very important report for us. Thank you very much
for all your patience and your attendance this morning.
9 See Ev. 29 November, 2000 (HC 951-iii). Back