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Mr. Willetts: I am afraid that that is the sort of example that every hon. Member has encountered and the problem is that enormous personal distress is often caused in that way. Hundreds of thousands of people have received insulting letters about their personal

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affairs and suffered enormous financial problems as a result of their failure to get money that they expected and were entitled to receive.

Andrew Selous (South-West Bedfordshire): My hon. Friend rightly talks about the distress caused to people applying for the credits, but does he agree that those who work in Inland Revenue offices have themselves had to put up with an intolerable amount of stress because of what has gone wrong in the system? We should not forget them in this debate either.

Mr. Willetts: My hon. Friend is right and I want to make it absolutely clear that our motion is in no way an attack on the people working in Inland Revenue, who find themselves in desperate circumstances trying to wrestle with hundreds of thousands, if not millions, of inquiries from taxpayers throughout the country who are seriously worried about their financial circumstances. The source of the problem is not Inland Revenue, nor even software problems and computing systems—though they may be part of the problem. The real source of the problem is the policy decisions taken by Ministers.

To gain a measure of the shambles that people now face—some having to contend with months of delay before they receive their tax credits—let me remind Ministers of the speech given by the Prime Minister to his party conference on 1 October 1996. Those were the days when he could say, in a savage attack on the delivery of benefits under the Conservative Government:

Yet we know hundreds of thousands of people who would be delighted if they could receive their child tax credit within a month. They would look back on that period as one of halcyon days in which the benefit system actually worked. The Prime Minister then went on to say, because he was so shocked at people having to wait one or two weeks:

That is what he promised in 1996. The gap between that rhetoric then and the reality now tells us everything about what has gone wrong under the Government.

Mr. Steve Webb (Northavon): The hon. Gentleman is right to point to the administrative shambles of the tax credit, and we support his motion in that regard. He said that he is concerned about the actual policy, but the motion makes no positive proposals, apart from an emergency social fund. If he were in government, what policy would he adopt to make tax credits work?

Mr. Willetts: I have three practical proposals to try to make the system work better and I hope that Ministers will consider them carefully. I hope that I do not have to superglue my hand to the Dispatch Box to get Ministers' attention.

Mrs. Angela Browning (Tiverton and Honiton): Has my hon. Friend noticed a pattern developing in recent

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debates? The Government make an absolute Horlicks of everything and then demand that we come up with the solutions to their mess.

Mr. Willetts: My hon. Friend is right and I am grateful to her for that point. If I give the House a short summary of the story so far, it will be clear why our system of tax and benefits has descended into shambles. In the four years since 1999, we have seen the abolition of the family credit, then the introduction of the working families tax credit, the disabled person's tax credit, the child care tax credit and the employment credit. [Hon. Members: "Hooray."] Then the Government abolished the married couple's allowance. Then they introduced the children's tax credit and then a baby tax credit. [Hon. Members: "Hooray."] Then the system needed further reform, so the Government abolished the working families tax credit, the disabled person's tax credit and the children's tax credit—some of the very tax credits that they have just been cheering. Labour Members are a bit behind, but some of the tax credits only lasted a year, so they have to be quick. Having introduced the baby tax credit, the Government abolished it after a year. Then they introduced the new child tax credit, abolished the employment credit and introduced a working tax credit. That is what they have done in the past four years, and they ask us why the situation has become such a shambles.

Mr. James Plaskitt (Warwick and Leamington): The combined effect of the changes introduced mean that for the first child in a low-income family the weekly support is now £54.25. How much was it when the Conservatives left office?

Mr. Willetts: At least under our Government, we did not have 1 million families who were not getting any help. It does not matter what the theory is, because if families are not getting the money, they are not getting the money. That is the point.

I have three practical proposals for retrieving the situation. The first is to make better use of the provision that already exists in the social fund to make alignment loans.

Mr. Russell Brown (Dumfries): I do not know what sort of working relationship the hon. Gentleman and his colleagues have with their local Inland Revenue offices, but I have had many people come to my office and had no problem in diverting them to the local revenue office for payments to be made within 24 hours.

Mr. Willetts: Sadly, many of us have found that the Inland Revenue emergency interim payments have not arrived to the timescale that many people have expected, and I shall give examples in a moment.

The social fund includes a mysterious provision for something called alignment loans. They are a special invention whose sole purpose is to tide people over when they are not receiving other benefits to which they are entitled. It is a sad reflection on our social security system that we have to have alignment loans to lend people money while they wait for other benefits. Indeed, alignment loans are an increasing proportion of all crisis

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loans made by the social fund. For the last year for which we have figures, alignment loans were £36 million of the £75 million paid out in crisis loans. So the social security system already contains provision to make loans to people who have not received money that they are owed by Government agencies. It would be right to use those funds in this situation.

I put that proposal to the Paymaster General, asking what discussions had been had with the Chancellor on that point. Her answer, in terms of sheer complacency, breaks even her record. She said:

a good, old seamless transition—

That is what the Paymaster General claimed, but that is not the reality. If it were, we would not need the social fund loans. However, many people on low incomes have not received their money.

The Paymaster General (Dawn Primarolo) indicated dissent.

Mr. Willetts: We all know that hundreds of thousands of people have not received their money, and that is why the social fund loans are necessary.

Several hon. Members rose—

Mr. Willetts: I wish to make progress, because hon. Members on both sides wish to speak in the debate.

Secondly, the Paymaster General should lift the deadline, which falls tonight, after which people will no longer be able to apply for the child tax credit and receive the full year's payments. If one already has children and put in an application for the child tax credit from tomorrow, it will be backdated by three months and, therefore, it will not be for the full year. As every month passes, people will not be able to get the full year's value of the child tax credit. There is no reason why the Inland Revenue should have a rule on the backdating of payments of tax allowances within the financial year. Most tax allowances may be claimed even after the end of the financial year.

The same Inland Revenue and Treasury press officers who were briefing over the weekend that it would be impossible to remove the backdating rule were saying the opposite when it came to the baby tax credit. The baby tax credit is a special, double rate of tax credit, payable for children in the first year of life. It is a record-breaking tax credit—out of 500,000 families entitled to it, so far only 150,000 have received it. That 30 per cent. take-up rate is perhaps the lowest of any tax credit yet, although the Government may yet manage to improve on that performance. When we drew that to the attention of the Treasury, a spokeswoman did not see what the problem was because

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So when there is a low take-up of the baby tax credit, people have until 2009 to claim, but the guillotine is about to drop for people who wish to claim the child tax credit this year. There is no reason for that and we believe that there is a strong case for flexibility.

Thirdly, there is a strong case for compensation. We hope that we will hear authoritatively from Ministers what their policy on compensation will be. People need guidance. They have suffered serious financial losses as a result of the failures of the system. For example, a constituent of my hon. Friend the Member for Chipping Barnet (Sir Sydney Chapman) found that the Inland Revenue was no longer sending payments directly to her account on the dates that it was supposed to. Instead, she was being sent giros irregularly. As a result, she could not be sure that the money would be in her account to pay her direct debits, and she has incurred £129 of bank charges because she has gone into debt because the payments have not been received regularly. In another example, a lady's bank charged her £320 in returned cheque fees after she had written cheques on a promise by the Inland Revenue that the interim payment would be made within 24 hours—as the hon. Member for Dumfries (Mr. Brown) claimed. She did not receive the money, the cheques bounced and she faces £320 in charges as a result. Those are the people who need to know whether they are entitled to compensation, and I hope that we will hear from the Minister on that point tonight.

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