Tax Credits Bill

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Richard Younger-Ross: I said previously that I expected a learned member of the Committee to correct my use of the words ''wilful negligence'' and to define them better than I can. However, I used that term before because I worry about people who make mistakes at the boundary—not between negligence and fraud, but between negligence and error. We are dealing with people whose lives may be shambolic and who have difficulty dealing with forms, let alone tax return forms, because they have never had to deal with them before. Most of us are fairly intelligent, but we struggle with tax return forms—I certainly do. I put up my hands and am honest about it.

Some people are on the edges. One person's negligence is another person's lack of understanding. We want an assurance that people will not be hurt or penalised through another's lack of understanding.

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Mr. Boateng: I hope that I have made it clear that we do not intend to include innocent error in the category of neglect or fraud. Everything that my hon. Friend the Paymaster General and I have said reinforces our intention to ensure, with aid of the Revenue and the National Association of Citizens Advice Bureaux, that understanding of the provisions is thorough and that people are aware of their responsibilities and rights. As in every other area of

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life, we must strike a balance between rights and responsibilities.

There is a long-established test of negligence, which will apply to those who failed to take reasonable care in making their claims, or in providing information. Circumstances are relevant: bereavement or family crisis, for example, are relevant to determining the reasonableness of people's responses. There are no penalties for innocent mistakes, and the Revenue has to prove fraud or negligence. If there were a dispute about an accusation of negligence, it would be resolved by the tax commissioners. I know that hon. Members have concerns about the appeals process, but the commissioners are experienced in deciding cases of negligence. They understand the test, and will be well placed to apply it.

In the light of that detailed explanation, I hope that the hon. Member for Northavon will withdraw the amendment, and that the hon. Member for Hertsmere will not press for a vote.

Mr. Clappison: I am not minded to press the amendment to a Division.

Mr. Webb: We are grateful to the Minister for his expertise and comments. Perhaps it was unfair to spring the question on him, but when I asked him what might constitute negligence, but not fraud, the first example that came to his mind was a person who is in a hurry to submit the form and misses something out. If that is negligence, it falls in the scope of the penalties. I would not want such a person to suffer a £3,000 fine.

The Minister gave other examples that more clearly illustrate the definition of negligence. We are in a grey area, but our amendments are somewhat blunt in their proposed removal of all references to negligence. The Minister referred to an instance in which a person had a pay slip but did not bother to look at it. However, we do not want people to reach the stage of appealing to tax commissioners. The clause is too sweeping in scope, and we might want to refine the types of negligence that we want to exclude at a later stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Clappison: I beg to move amendment No. 18, in page 20, line 1, leave out ''£3,000'' and insert ''£5,000''.

The Chairman: With this it will be convenient to discuss the following amendments: No. 19, in page 20, line 10, leave out ''£3,000'' and insert ''£5,000''.

No. 20, in page 20, line 18, leave out '£3,000' and insert '£5,000'.

Mr. Clappison: As I said earlier, the distinction between fraud and negligence is that the fraudulent applicant sets out to deceive the system and knowingly engages in fraud. In our consideration of earlier amendments, I was unable to persuade the Minister that there should be a more serious regime for fraudulent statements, and that those who make them should be prosecuted for fraud. I invite him to consider that there should instead be a more serious penalty under the penalty regime for people who behave fraudulently. A maximum penalty of £3,000 is not sufficient. A maximum penalty of £5,000 should be

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available to cater for the worst cases: those who commit fraud by making fraudulent statements.

Mr. Boateng: I expect the criminal sanction to apply in the worst cases, in which there is serious or organised fraud. Let us be up front about that. However, we are discussing a civil penalty. Although I share the hon. Gentleman's revulsion of fraud of any sort, I am not persuaded that there should be a distinction between the current tax system, in which a maximum civil penalty of £3,000 is set, and tax credits. That is a bit like the old suggestion that social security fraud should be punished more severely than any other form of fraud or theft from the public purse. That is not borne out by proper sentencing policy.

Fraud is unacceptable and must attract a penalty. I am not convinced that the penalty for those who are negligent or commit fraud in relation to PAYE should be less than the penalty in relation to tax credits, simply because PAYE has always existed in its current form and tax credits are a development of the social security system. It would be unfortunate if that were to creep into our thinking. They should be treated alike. As the current maximum penalty is £3,000 for the ordinary tax system, so it should be for the development of that tax system in the form of tax credits. The case has not been made for more stringent penalties for tax credit claimants compared with others who have breached their tax obligations.

Nevertheless, I take the point that it is important to mark any act of fraud or negligence that has caused loss to the public purse through the tax system in a way that is commensurate with the harm done. The good news is that that will be the case under the system that we propose, just as it is under the current system. Because the penalty applies to each claim, if a person has persisted in making incorrect statements over a period, the total maximum penalty will far exceed £3,000. Those responsible for prosecuting such cases—it is not a matter for Ministers—will prosecute the more serious cases using the criminal sanction. For the civil sanction, the penalty should remain £3,000. I hope that the hon. Gentleman is sufficiently satisfied, if not persuaded, not to press the matter to a vote.

Mr. Clappison: We want to treat any case of fraud as a serious matter. I take issue with the Minister about whether public sector benefit fraud is treated as seriously as private sector fraud, when someone who obtains funds by similar deception—making a false statement—from a building society, bank or other financial institution faces a penalty of criminal prosecution. The statistics seem to show that prosecutions for false statements in the benefits system are few and far between. That is a debate for another day. We will come to it when we deal with later clauses.

I will consider carefully what the Minister said. I am far from satisfied with his response as I believe that there should be a more serious penalty for those who commit fraud. Given that I may wish to return to the issue later, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29 ordered to stand part of the Bill.

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Clause 30

Failure to comply with requirements

Mr. Webb: I beg to move amendment No. 71, in page 20, line 28, leave out ''14(2)''.

The Chairman: With this it will be convenient to take amendment No. 109, in page 20, line 28, leave out

    'or regulations under section 24'.

Mr. Webb: Clause 30 introduces yet more penalties, not for incorrect statements but for failure to supply information. Amendment No. 71 would remove from its scope people who are in the process of making a claim. For reasons that we will deal with in a moment, they should not be penalised if they do not supply information that they have been asked for, thereby halting the processing of their claim. That is the significant point.

As the CPAG remarked,

    ''people have liabilities to pay tax but they do not have liabilities to claim tax credits.''

People can decide whether they wish to claim, see through a claim or withdraw a claim that they have initiated. Under the clause, which includes a reference to section 14(2), they can be penalised a £300 lump sum and another £60 a day for not providing information that would facilitate the progressing of a claim.

If someone decides to withdraw a claim, they would suffer a penalty for not supplying information that would facilitate processing it. For example, they may realise that information of a personal nature that they do not want to disclose, perhaps to a partner, would become known. Indeed, there is no obvious facility for withdrawing a claim; again, applicants would suffer a penalty for not supplying information.

The amendment would remove the penalties, not for people who are receiving or who have received money or who fail to supply information that might reduce the amount of the payment, but for people who have only made an initial claim. They should be able to withdraw the claim or give it up by not supplying information. At present, that appears to incur a penalty, which is not appropriate.

Mr. Clappison: I shall speak briefly to amendment No. 109, which concerns information that will be sought from employers under regulations in clause 24. Employers are in a different position because, unlike claimants who provide information in support of their claim for tax credits, they will receive no direct benefit. I do not wish to go over old ground again with the Minister and debate indirect benefits for employers. They face prospective penalties and may also face burdensome regulations. We make a plea to the Government to keep the burden of information that is asked of employers to a reasonable minimum. The Government are making substantial powers by regulation to require information of employers. I will not press the amendment, but I moved it in the spirit of keeping the burdens on employers to a minimum.

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