Benefits and tax credits administration
115. Ensuring that low-income families receive the
benefits to which they are entitled is crucial in maximising the
family income. Take-up of benefits and tax credits varies considerably
by benefit type and by claimant type. For example, take-up of
Income Support is relatively high with between 86% and 95% of
eligible people taking up their entitlement, whereas take-up of
Council Tax Benefit is only in the range of 66% to 72%. Take-up
for both of these means-tested benefits is highest for lone parents.[115]
Take-up is probably lowest for Disability Living Allowance which
is in the region of 40% to 60%.[116]
116. Maximising take-up of the new tax credits is
crucial to their success and to the child poverty target.[117]
CPAG pointed out that although statements from the Inland Revenue
and Treasury claim high take-up figures of around 95%, this may
not be entirely accurate as it is based on the expected number
of those claiming rather than the actual number of families entitled.[118]
This was reflected in the statements of Treasury officials in
oral evidence who told us that they had expected 6 million families
to claim the new tax credits and that 5.9 million had done so
thus far.[119] Although
it should be noted that before implementation, the Treasury expected
90% of families to be eligible for the new tax credits. This would
suggest that more than 6 million families are eligible.
117. The introduction of the new tax credits has
been marred by administrative failure resulting in families receiving
incorrect payments and causing confusion, inconvenience and, in
many cases, significant hardship for some of the families involved.
This was particularly highlighted by Citizens Advice who told
us of the many cases that they had encountered.[120]
One of the biggest potential problems with tax credits administration
has been overpayments. HM Treasury estimated that 750,000 families
a year (12.5% of tax credit claimants) would experience increases
in income leading to a decreased award.[121]
However, to date, the Inland Revenue have been unable to put a
figure on how many people have reported such changes or have been
affected by maladministration generally.[122]
118. A Code of Practice on tax credits overpayments
was published by the Inland Revenue in November 2003 - seven months
after the introduction of the new tax credits.[123]
The guidance states that where a change of circumstance is reported
within the year, the payment will normally be reduced so that
the right amount is paid over the year or payments may cease completely
if the full entitlement has already been paid. Additional 'top-up'
payments may be requested to avoid hardship, although this will
result in an overpayment remaining at the year end. At the end
of the year, overpayments will be recovered from the following
year's award with limits set on the maximum recovery rate so that
those receiving the maximum Child Tax Credit will have no more
than 10% deducted. The guidance states that overpayments will
not be recovered if it was due to official error and it was reasonable
for the claimant to think the award was right; and that some or
all of the overpayment may not be recovered if this would cause
hardship.
119. The Committee remains concerned that we do not
know how many people have reported changes in circumstances within
the year. This means that we do not know how many families are
likely to find they have been overpaid at the end of the tax year.
120. 2004-05 will see new challenges. Many Income
Support and income-based Jobseekers Allowance claimants are to
be transferred to CTC for the first time from October 2004.[124]
'End-of-year reconciliations' are to be conducted to determine
whether the correct award was made for 2003-04. The scale of any
potential problem resulting from overpayment will not, therefore,
be clear for some months. The Committee welcomes the undertaking
given by the Secretary of State to clearly examine the situation
when the data was available so that people are not landed in severe
hardship.[125]
121. It is vital that procedures for conducting end-of-year
reconciliation and transferring new claimants to CTC run efficiently;
that award letters explain clearly how the tax credit or credits
in question have been calculated; that families are protected
from hardship; and are able to get reliable information and advice
from the Tax Credit Helpline. At the very least, robust procedures
must be in place to ensure that overpayments which occurred as
a result of official error are not recovered inappropriately.
Overpayments should not be recovered where to do so would cause
hardship or damage work incentives. The Inland Revenue should
also evaluate whether additional 'top up' payments are an adequate
mechanism for avoiding hardship when awards are adjusted within
year. There should also be a right to an appeal against decisions
to recover overpayments, and a proper appeals mechanism to consider
such appeals. The Committee
recommends that the Government ensures that tax credits administration
and policies and procedures on overpayments support the objectives
of tackling child poverty and making work pay.
Child Trust Fund
122. The Child Trust Fund is a new development in
the 'asset-based welfare' strand of policy. All children born
after September 2002 will receive an endowment which will be invested
and which the child can access at the age of 18. Possible further
endowments will be paid at certain ages and children in low-income
families will receive higher payments. The Child Trust Fund is
sometimes mentioned as part of the anti-poverty strategy, in spite
of the long-term nature of the initiative yet, as NCH states,
"…it is worth noting that the benefits will not come
to fruition until around the Government's target date to eradicate
child poverty."[126]
CPAG argues that the introduction of the Child Trust Fund is less
of a priority than, for example, reform of the Social Fund. The
Committee recommends that the Government attaches a greater degree
of priority to developing the role of the Social Fund than it
does to the Child Trust Fund between now and 2010.
102 Ev 17, 49, 194 Back
103
Ev 59 Back
104
Barnes M et al (2004) Families and Children in Britain:
Findings from the 2002 Families and Children Study (FACS) Back
105
Ev 199 Back
106
Ev 200, Qq 60-64 Back
107
Ev 200 Back
108
Ev 46, 59, 87, 191, 197, 214, 240 Back
109
Social Security Select Committee, 'Third Report: The Social
Fund', 27 March 2001, HC 232 Back
110
Q 522 Back
111
Q 524 Back
112
Ev 197 Back
113
Ev 197, Q 74 Back
114
Q 523 Back
115
DWP (2004) Income Related Benefits Estimates of Take Up in
2001/02, DWP Back
116
Ev 122 Back
117
Ev 190-191, 212 Back
118
Ev 190-191 Back
119
Q 306 Back
120
Ev 190, 196, Qq 47-52 Back
121
HM Treasury and Inland Revenue (2002), The Child and Working
Tax Credits. The Modernisation of Britain's Tax and Benefit System.
Number Ten. Back
122
Qq 306-310 Back
123
Inland Revenue, Code of Practice COP26, What happens if we
have paid you too much tax credit? www.inlandrevenue.gov.uk Back
124
Official Report, 11 March 2004, col 1645W Back
125
Q 467 Back
126
Ev 77 Back
