(pt 1)

Westminster Hall

Tuesday 7 June 2005

[Mr. Joe Benton in the Chair]

Tax Credits

Motion made, and Question proposed, That the sitting be now adjourned.—[Joan Ryan.]

9.30 am

Mr. Graham Allen (Nottingham, North) (Lab): It is evident from the numbers present this morning that tax credits are a matter of great interest to hon. Members—and not only because of the constituency casework that we do. As national politicians, also, we have seen the development of a welcome change in the way in which we try to assist people, and particularly try to help them back into work. It is a tribute to the efforts that the Government have made in recent years that colleagues from all parts of the country, and the House, are here this morning. If it will help hon. Members to get their points made, I am keen to take as many interventions as possible, as an alternative to many speeches.

I have a few thoughts, as I am sure we all have, on how the tax credit system should be improved, but I think that I should give the right perspective by saying straight away that since 2003 my constituents in Nottingham, North have massively benefited from the new tax credit system. I shall not regale hon. Members with the statistical basis of my findings of deprivation in my area; I think that they are aware of that. However, rather like your constituency, Mr. Deputy Speaker, it is an area in need of assistance from the Government, particularly in the matter of helping people to stay in work or get back into work. The new tax credit system has been a great boon in that respect.

My constituency has traditionally had high unemployment, and tax credits are helping to encourage parents and low earners back into work. They contribute significantly to the lowering of child poverty. They show that the Government have taken action to help families who need support with the responsibilities that come with parenthood. It is a great credit to the Chancellor, and the Minister present today, who is a long-serving Minister dealing with this area, that they have fought through to bring about many of those changes from the beginning of the Labour term in 1997. They worked to move the machine; whether one approves of the way in which it was moved will, I am sure, be debated today in the Chamber, but it took tremendous political will and leverage.

I want to chide the Minister in the gentlest way. The word credit reminds me of the idea of taking credit, and I do not think that my hon. Friend or the Government have taken the credit for the proposals. The change that has taken place has been almost quiet and private, instead of an occasion for claiming credit for great things that have happened. Many people in my
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constituency think, somehow, when they get an additional payment, that the tax man has made a mistake.

Hon. Members : He has!

David Taylor (North-West Leicestershire) (Lab/Co-op): Will my hon. Friend give way?

Mr. Allen : Shortly; I shall set up my hon. Friend with a nice line before I do.

Many people who benefit from the tax credit proposals feel that they have got something for nothing, and that it came out of thin air, rather than being a result of the Government moving to make sure that they would be better off. Perhaps we need to take credit, as well as give tax credit.

If my hon. Friend's joke has passed, I shall continue, but if he insists on telling it, I shall give way.

David Taylor : My hon. Friend, and regional colleague, is right to say that we have a great deal to be proud of in the way that child poverty in particular has been relieved by the introduction of working tax credits. He said that many people feel that the tax man has made a mistake; are not there far too many cases in which the so-called tax man has done that? There are almost 2   million families paying an average of about £1,000 back because of errors made by the newly merged department. That cannot be allowed to continue, can it?

Mr. Allen : As always, my hon. Friend's thought processes are at least 10 minutes ahead of mine; I shall reach that set of difficulties in my speech. None the less it is important to offer the perspective that despite problems—which will, of course, arise—a major step forward has been taken for most families and most children living in poverty. This month in my constituency 7,900 in-work families are receiving tax credits. In those families, 12,700 children benefit from the extra money. The statistics are staggering, and they are a tribute to the work that has been done.

There has been a massive improvement in the take-up of tax credits, compared with the old working families tax credits and disabled persons tax credits in 2002; there are now 1,300 more families receiving support via income tax and through tax credits, and 2,000 more children in those families benefiting from the extra support. All in all there has been a 33 per cent. increase in tax credit recipients in less than three years in my constituency. A question that we all raised early on was about the level of take-up. It is far from perfect, but the figures from the past three years suggest that serious steps are being taken in the right direction.

It is the role of the House to jump on to the case when Ministers do not do all that should be done; we are all, no doubt, happy to do that. Equally, it is important to pay appropriate tribute to Ministers who listen and take action when Members of Parliament make representations. I have made representations over the years and want to record my thanks to the Minister for listening and, in particular, for taking action on the way in which the new tax credits are paid. That is creating a positive impact in my constituency. Now that awards can be changed in-year, constituents who have had a
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sudden fall in income can receive more, instead of having to wait until the end of the tax year, as they did previously.

Many of us also raised with the Minister in the past the matter of tax credit being paid to the main carer rather than the wage earner. Many mothers can now budget for their family more efficiently. The working tax credit offers, for the first time, in-work support for people who are in work and who are without children. It therefore helps ever larger numbers of low earners in Nottingham, North.

The tax credit system is giving much-needed assistance to families in my patch who previously felt stigmatised by claiming benefit, but who now have the opportunity to go to work, with 70 per cent. of their child care paid for. Families and individuals feel supported when they return to work, rather than having all their support snatched back when they begin to earn. Unemployment in my constituency is down by 44 per cent. and the results of the policy, combined with the minimum wage, vocational training and a strong economy, are plain.

As you would expect, Mr. Benton, with such a large new system, many hon. Members still receive distressing letters from people who have had problems. The final part of my speech is about that.

Angus Robertson (Moray) (SNP): I congratulate the hon. Gentleman on securing this debate on an important subject. In many of the problem cases that he alludes to, people depend on advice from the citizens advice bureau. People who go to the CAB must overcome bureaucratic hurdles that they do not encounter if they go to see Members of Parliament. Does the hon. Gentleman agree that that situation could easily be resolved, allowing the CAB to perform its vital role in this area of work, without the need for such bureaucratic hurdles?

Mr. Joe Benton (in the Chair): Order. Before the hon. Gentleman replies, I want to mention a minor detail. Officially no Deputy Speakers have yet been appointed for this Parliament, and although it might sound like a trite, technical point, I should prefer to be addressed as Mr. Benton for the remainder of the sitting.

Mr. Allen : I am glad to oblige, Mr. Benton, but frankly, we all know that it is just a matter of time. I hope to catch your eye when that long-overdue promotion is made.

To return to the valid point made by the hon. Member for Moray (Angus Robertson), I noted that the Minister was shaking her head while he was speaking, and I would be keen to give way if she wanted briefly to respond.

The Paymaster General (Dawn Primarolo) : I shall explain the point to the hon. Member for Moray (Angus Robertson) during my allotted time rather than taking up time now. I shall explain the process for advice agencies, but also explore some of the ways in which it could be improved.

Mr. Allen : I look forward to hearing the answer to the hon. Gentleman's important point.
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Before I get on to my set of questions, I want to place on the record my thanks to all those in my constituency who ensure that families on low incomes have the support that they require to earn a decent wage and bring up their children properly. They include people such as Alison Boyd of the Bulwell Sure Start, and my local citizens advice bureau, which does sterling work. I could not let this debate go by, however, without paying a special tribute to Kate Jarman, who works in my office. She works ceaselessly to secure for my constituents the help that they deserve, and her success generates yet more work by word of mouth. Many of us rely on such people in our offices; they understand the complexities of tax credits far more than I could ever hope to. The harder they work, the more work they make for themselves, because word gets around by word of mouth. As the hon. Member for Moray suggested, it would be preferable to have a system that worked without the intervention of Members of Parliament. However, we have a vital role to play while the edges are being knocked off some of the teething problems, and we often depend on those who support us in our constituencies. Perhaps, therefore, I can pay tribute on behalf of all hon. Members to those who serve us.

I also thank the civil servants connected with the MPs' hotline, who are often first in our firing line, but who invariably deliver a courteous and superb service in trying to resolve individual cases.

Finally, I welcome the Minister's statement last week, which set out precisely what she expects from Her Majesty's Revenue and Customs in the way of improved customer service.

Mr. David Drew (Stroud) (Lab/Co-op): My hon. Friend makes a very balanced argument, but if I have a criticism of the support given through the helpline and, in particular, of how it locks into the help given at local Inland Revenue offices, it is that staff have been somewhat overwhelmed. We need more people dealing individually with what we all accept are some very desperate people, who have found themselves in debt that they did not anticipate. Will my hon. Friend comment on that?

Mr. Allen : I hope that the Minister will also comment on that. People appreciate dealing with a human being, and nothing is designed to irritate them more than being put on hold, made to listen to Vivaldi, being given 10 different choices and finding that someone does not have the right information on their screen. Those are procedural and organisational issues, which I know the Minister is concerned about and wants to address, and she would certainly have the support of colleagues in all parts of the House if she did so.

Susan Kramer (Richmond Park) (LD): I am a complete novice at this and I appreciate the opportunity to intervene. As a new Member of Parliament, I was shocked by the stack of cases that was handed on to me involving people who had been overpaid tax credits and who had consequently found themselves in debt. When I go back through the history, I find that they seem to have informed the authorities right from the beginning that an overpayment has taken place. I am looking at one case—the person has asked me not to name them—that goes back to May 2003. From the beginning, there
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is a clear track record of information about the overpayment being made available and of reassurances from the tax office that there was no overpayment, and the whole matter continues to rumble on two years later. It is clear from some of the phrases used that that is causing stress and hardship. Would it be possible to have some genuine focus on sharpening up the administrative procedure, ensuring that papers are not lost and using clauses that require people to be compensated when their cases have not been treated appropriately?

Mr. Allen : The hon. Lady's comments belie her novelty. She has anticipated several of my points, and I am sure that she will be supported throughout the House by constituency MPs who have had similar problems. I know that the Minister will seek to address them.

On the back of my experience as a constituency MP who deals day to day with such casework, I propose—which MP could not?—a seven-point plan to improve the operation of tax credits, although I have a feeling that it may be a 10 or 12-point plan by the time I sit down. However, I introduce it in the spirit of, I hope, constructive criticism and in the certain knowledge that the Minister is more aware than any of us of the difficulties that certain constituents have. Again, I shall be keen to take interventions as I go through my points, if colleagues would find that helpful.

First, we need to reduce the problems brought about by the claims system itself. The annual system of payment can cause problems, particularly for low-income families who budget from week to week or month to month. Claims are initially based on the previous year's income, and the claim form asks only for income figures for the previous tax year—there is no space on the claim form to give expected current-year income. As eventual entitlement is calculated on actual current-year income, the system ends up overpaying many people, and repayments are then requested from families who are often ill-prepared to budget for them. We need to do two things. First, there needs to be much more awareness-raising to encourage claimants to notify in-year changes of income and so avoid overpayments building up. Secondly, we should consider amending the claim form to allow an estimate of current-year income to be given.

Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): Is the hon. Gentleman aware that in the most recent period for which figures are available, 7,800 families in the highlands of Scotland were overpaid an average of £1,000 each and that that has now been clawed back? In the case of one constituent in Aviemore, a payment of £225 a month was reduced to one of £60 a month to claw back the overpayment. As a consequence, the person, who worked in a low-paid job, had to move out of their private rented accommodation and back in with their parents. That is a thoroughly unsatisfactory situation for that person. The system is having the perverse consequence of causing real instability in income and real hardship for the people it is designed to help.

Mr. Allen : We could all raise similar cases, although the perspective to bring to bear is that most cases are dealt with effectively and efficiently. All of us—above all
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the Minister, I am sure—want to ensure that there are fewer and fewer such cases. That is why I hope that we shall all operate in a constructive way this morning to bring points to her attention.

Anything that puts people off or increases fear—be it the bureaucracy or dealing with authority—must be tackled through our system. Citizens Advice recently suggested that the quality of the administration of tax credits is actually undermining some families' confidence about returning to work. Work incentives are affected by far more than whether claimant households will be financially better off in work or whether claimants will work more hours. My constituents need to understand their entitlement and to feel in control of their income, and that can be particularly true for claimants returning to work after long periods off sick or after having children. All the psychological disincentives that come with a change to a big system need to be worked at almost daily to ensure that people are not afraid to use that system, which has been put in place to help.

My second point is about award notifications. Comprehensive award notices and quick, clear administrative processes are vital if claimants are to get the payments to which they are entitled at the right time. The award notices sent to claimants are complex and confusing, especially where there has been an overpayment and adjustments have been made to the award. Constituents have reported that they have spent more than half an hour on the phone to the tax credits helpline trying to get an explanation of the figures on a notification sent to them after they have been overpaid—a point alluded to by my hon. Friend the Member for Stroud (Mr. Drew). The helpline staff were unable to explain all the figures and my constituents eventually had to write in for a detailed breakdown. It is ridiculous to expect the average claimant—who, in a constituency such as mine, might not have high literacy or numeracy skills—to comprehend the process, let alone the figures. More user-friendly and accessible notification is needed.

Claimants must fully understand their award notice. They need to be able to see how much they are being paid and why. Adequate information should be included in the award notice or in an additional sheet. Recipients of the award notice should be able to see clearly which figures they need to check. As there is no calculation on the award notice, claimants should not be expected to notify the Inland Revenue if their award changes without warning, as they would have no reason to believe that the Inland Revenue had made a mistake, unless any of the obvious details on the award notice were incorrect, such as the number of children or income.

Claimants need to be shown how they came to be overpaid; otherwise, they do not know whether the Inland Revenue has a valid claim. Without that, it takes more time for claimants, case workers, or Members of Parliament or our assistants to discover the reason for the overpayment before they can even judge whether they should ask for a reconsideration of repayment.

When claimants receive a number of award notices, it is unrealistic for them to make an assessment of which is correct if each one is different. It is especially hard that claimants can then be blamed for overpayments as a result of an Inland Revenue error that they should have spotted
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and reported. If a number of in-year adjustments have been made, the claimant can reasonably expect the award notices to change each month and might miss an Inland Revenue error. Additionally, when award notices are sent out erratically, as they sometimes seem to be in Nottingham, North, claimants find it difficult to identify which notice corresponds to what they actually receive and the most up-to-date information. I welcome the Paymaster General's commitment to reduce unnecessary duplication of award notices, although the issue needs continual review.

A redesign of the award notice is necessary to make it more user-friendly and comprehensive. That would be positive for both sides, as the claimants would find the notices less intimidating and easy to understand, leading to fewer overpayments where claimants fail to spot Inland Revenue errors. Perhaps a panel of claimants could be assembled to assess the readability of the award notice—perhaps even some hon. Members present could give up a couple of hours to go through such award notices in a non-partisan way. With our experience in dealing with constituents' problems, we could spot things in a way that our good friends in the civil service may not always be able to.

David Taylor : My hon. Friend makes a powerful case for highly desirable reforms. Has he had the opportunity to assess the value of a reform that a number of people have suggested, which is to abandon the in-year reassessments and return to a fixed-term award? Would that not simplify matters, despite the associated costs?

Mr. Allen : My hon. Friend makes a sensible suggestion, as always. However, although the proposal would resolve some of the problems that he has pointed out, it might lead to greater inflexibilities. I am sure that that is something on which the Minister would want to comment when she replies.

Dawn Primarolo : I am grateful to my hon. Friend for giving way, because I would not like him or other hon. Members to go away with the thought that the award notices or the application forms were dreamed up by civil servants and not consulted on. The award notices were drafted in consultation with the community, the voluntary sector and the anti-poverty lobby, and were tested before use. At that time there was a clear consensus on those forms. On the points raised, I am more than happy to say that, with experience, we see that we might like other things. However, let us not run away with the idea that civil servants and Ministers dreamed the forms up. They were fully consulted on and accepted at the time. People can change their views, but they cannot blame civil servants for not consulting.

Mr. Allen : Let me put the record straight immediately. I certainly did not intend to cast any blame on civil servants, who have been remarkably adept at helping my office in a number of such cases. Their good will is beyond doubt. However, as the Minister points out, we can always continue to learn. It could be of assistance to bring together a panel of claimants or even interested MPs. I do not think that it would hurt and
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may help, as colleagues may be able to suggest one or two improvements to the form on the basis of their constituency experience.

John Barrett (Edinburgh, West) (LD): I am listening intently to the hon. Gentleman's seven-point plan, but before he winds up will he press the Minister on the scale of the problem? In Edinburgh, a relatively wealthy city, more than 10,000 people are affected and in Scotland as a whole more than 160,000 people are affected. Whereas individual cases are often tragedies in themselves, the overall problem in the UK should not have reached its current scale.

Mr. Allen : I shall let the hon. Gentleman's eloquent remarks press the Minister; otherwise, I am afraid that since I have not even reached the third point in my seven-point plan she may have no time to reply. I am allowing hon. Members to make interventions so that the Minister may then take up their points. I hope that that is a helpful way to proceed.

My third point concerns Inland Revenue decisions to recover overpayments. In Nottingham, North there have been numerous problems with constituents who have been told that they been overpaid child or working tax credit. To some extent that is inevitable because of the intended flexibility of the scheme, which relies on a check of families' income at the end of the year—a point raised by my hon. Friend the Member for North-West Leicestershire (David Taylor). However, it is still confusing for claimants to be told that, despite giving all the correct information and keeping the Inland Revenue informed, they have accrued an overpayment that they will have to repay.

There is an additional problem when overpayments are recovered, where families are put into real hardship as a result of their lower income arising from that. There is a discretion under section 28(5) of the Tax Credits Act 2002 as to whether to recover an overpayment. In practice, however, in Nottingham, North the Revenue seems to recover all overpayments automatically, regardless of how that affects the family involved.

In one case, a constituent whom I shall call Miss B, a single mother of two, was judged by her local Sure Start unit in February to have essential outgoings of £128.41. However, she was receiving only £120, owing to the fact that she had received a reduced child tax credit award, which was the result of an overpayment—which she disputed—from the beginning of the 2003 tax year. Even when that was put in writing to the tax credit office, it refused to consider the recovery of the overpayment. We continue to pursue the case from my office.

There is guidance outlining circumstances in which an overpayment may not be recovered, such as where there has been an official error and it was not the responsibility of the claimant to know that they were being overpaid. However, the Revenue appears to be applying that test only when a claimant requests a reconsideration rather than adhering to the guidance as a matter of course. Even where the Inland Revenue acknowledges its error, claimants must dispute the recovery and demonstrate that it was reasonable for them to have thought that their award was correct before the Inland Revenue will consider writing it off.

Two of my constituents, Mr. and Mrs. Dickinson, were in the position of having to repay £3,796 as a result of an Inland Revenue error marking them as disabled on the
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computer. They carefully explained that they had never told the Inland Revenue that they were disabled and that they had also not received an award notice, despite contacting the tax credit office six times by phone and letter. Although that may seem a reasonably open-and-shut case, it took numerous letters from Mr. Dickinson and two requests from my office for information to be re-examined before the Inland Revenue conceded that the couple did not have to repay the money that they could never have known was not theirs.

Even that was not the end of the matter. Although the Inland Revenue took responsibility for the mistake and sent Mr. and Mrs. Dickinson a cheque for the money that was recovered from them last year, Mr. Dickinson phoned me last Thursday to say that they are still receiving letters saying that they have been overpaid, and they have yet to receive an award for this tax year. Apparently, that is due to a computer that is not up to date, and the whole process has so far taken more than a year. Judging by the murmurs of agreement from all parts of the Chamber, I suspect that the problem is encountered widely. I am allowing plenty of time for interventions so that all colleagues can speak.

Mr. John Grogan (Selby) (Lab): Is that not the sort of administrative error in relation to which the independent right of appeal suggested by the CAB would really speed up the system?

Mr. Allen : I hope that the Minister will deal with that.

Many constituents have contacted me on the issue that I have just alluded to, and my office can usually help them. However, for every one of them, several people, perhaps dozens—perhaps they do not know better or lack confidence—do not contact their MP and pay back the overpayment regardless of whether it resulted from their error or that of the Inland Revenue. The process rightly places a high degree of responsibility for action on the claimant. However, one result of that is that those claimants least able to understand their awards and least able to express themselves are the ones most likely to have their overpayments recovered in full, whatever the original cause.

The fourth matter is the recovery of overpayments while reconsideration is pending. Deductions for overpayments continue to be made while requests for reconsideration are pending. In the case of other benefits, it is possible to suspend recovery while the decision is under appeal. Given the length of time that it is taking the Revenue to respond to requests for reconsideration, many overpayments will have been recovered before discretion has been applied. Some families in my constituency are falling into debt while they await a decision from the Inland Revenue.

There should be a minimum level below which a family's weekly income should not be allowed to fall even if it is repaying an overpayment. It is essential to cap all reductions in payments so that families are not left with payments below 90 per cent. or 75 per cent. of their entitlement at any time during the tax credit year, regardless of whether the overpayment is discovered within or at the end of the tax year. In a system designed to help low-income families, whatever the reasons for an overpayment, it is essential that recovery should not cause hardship. However, at the moment automatic
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award adjustments can mean that families lose all their payments without warning due to relatively small overpayments resulting from delays in reporting changes of circumstances. Such adjustments cause huge problems for the families in my patch who are on the lowest incomes. They can find themselves pushed well below basic benefit levels and into acute hardship, because they received too much early in the year.

Fifthly, the length of time taken to respond to complaints can be excessive. One lone parent in my constituency first queried her overpayment in October 2003, and did not receive a substantive reply until October 2004. The matter is not yet resolved, as she still disputes the decision. Another working lone parent living in my constituency queried her overpayment in October 2004, and has still not received a response. There is no time limit within which the Revenue is required to deal with complaints. In the time it takes for complaints to be dealt with, my constituents have to get by on reduced means. One constituent, Miss Elizabeth Lloyd, was still waiting in May of this year for an arrears repayment of £471.39 from February 2004. Having gone past two tax year boundaries with no joy, she was told that if she were sent a manual payment the computer would register it as an overpayment and her awards would be reduced—despite the fact that that money is owed to her. A week ago, she contacted my office to say that even if her awards were reduced, she needed the money to pay her monthly bills. She should not be put in that position.

Although it is comforting for Miss Lloyd and others in the same position to know that they should get the money eventually, in most cases they need money immediately to fulfil their financial commitments. This is not some long-term middle-class financial speculation, with a return due in several years; it is often a matter of being able to feed the kids. Claimants have recourse to their MPs or the ombudsman, but that is not what our constituents need. They need a swifter system so that we need never be involved.

The same excuse seems to be given to my constituents and my office when they contact the Inland Revenue—that the computer is behind in its processing. It is unacceptable that my constituents have to wait for over a year for the computer to catch up. I welcome the Minister's statement that HMRC will improve the speed with which it identifies IT system problems and processing errors so that they can be resolved more quickly, and I would appreciate her assurances today that those who have already experienced problems will have their cases dealt with quickly and sympathetically.

Sixthly, some families experience delays in receiving other passported benefits, including milk tokens and reduced-price baby milk. Those benefits are, by definition, available only to families on very low incomes. Delays are often due to a time lag between the establishment of a claim and a name being passed on to the health services. The names seem to be passed on on a four-week cycle. A speedier system is necessary if we are to deliver full entitlement to the people in greatest need, particularly those with babies and young children. A swift and responsive system is needed for relating tax credit awards to entitlement to passported benefits and immediate notification of claimants. Failing that, there should be cash payments in lieu until passporting can be activated.
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My seventh and final point concerns the accuracy of the Inland Revenue. The Inland Revenue annual report for the year ended 31 March 2004 gives an accuracy rate for decisions of 78.5 per cent. Many of my constituents believe that the Revenue is always right and does not make mistakes. That leads them to believe any letter that arrives, regardless of its content or how much hardship it will cause them; they just get on with it. The very families who are under the most stress, and least able to deal with form filling, filing, letter writing and badgering people on the telephone are those we need to encourage to query and challenge decisions that affect them and their families.

Some aspects of the administration of the current tax credit system undermine the Government's attempts to tackle child poverty and make work pay. I have seen far too many cases in which claimants are in the dark as to how their awards are calculated. The result is that when overpayments do occur, they are not picked up. Unfortunately, those are not isolated incidents; they continue to this day, and indicate the need for a more serious review to tackle system errors.

The annual system of tax credits, under which entitlement is often not finalised until several months after the end of the financial year, is different from that for other benefits, entitlement to which is established according to actual circumstances at the date of claim. Tax credits may also be reduced during the year or in the following year if there has been a change in income or an overpayment. That can lead to uncertainty about the level of income that can be expected from tax credits. It can be very difficult for families on low incomes to budget and plan if their tax credits are unpredictable. I applaud the goal of flexibility and responsiveness, but that has to be balanced against stability and predictability.

I hope that the Minister will accept that there needs to be serious review and reform in order to put some of these matters right. I would ask her to implement changes to solve some of the problems that I mentioned in the latter half of my contribution. They might well be teething problems, but they affect people severely, and deter hard-working families in my constituency from applying for tax credits.

The tax credit system is one of the most significant and positive improvements for my constituents that the Government have introduced. I congratulate the Minister and the Chancellor on all that they have done to establish it, and I hope that they will take from this debate not an attack on the whole tax credit policy, but the fact that many colleagues in all parts of the House have serious concerns about making the policy work in the way that the Government intend—for the benefit of their constituents.

I apologise again for having spoken for a considerable time. I do not normally do that, as you know, Mr. Benton, and I hope that colleagues benefited by being allowed a chance to intervene.

Several hon. Members rose—

Mr. Joe Benton (in the Chair): Order. Before I call the next speaker, may I point out that a number of points
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will have to be replied to? For the sake of good order, I will call winding-up speeches some time between 10.45 and 11 am. I ask hon. Members to be as brief as possible, because I would like to allow everybody to speak in such an important debate.

10.10 am

Sir George Young (North-West Hampshire) (Con): I commend the hon. Member for Nottingham, North (Mr. Allen) for his choice of subject for the first Westminster Hall debate of the new Parliament. He may know that the penultimate Westminster Hall debate in the previous Parliament was on tax credits, and there are some survivors from that debate in the Chamber this morning.

The fact that Back-Bench Members of Parliament are applying for, and securing, debates on tax credits at such regular intervals indicates the problems that confront our constituents and that arise from a complex and rather dysfunctional benefits system. When I was last called to speak, I was asked to compress my remarks into five minutes. I shall try to exercise the same self-discipline this morning.

It is as if one is trying to run a large number of appliances from one small three-pin socket. The plugs are overheating and the fuses are blowing all over the place. In the previous debate, I presumed to give advice as to how we might resolve the problems. I said that in the next Parliament—in other words, this one—we would need to stand back and examine the financial interface between citizen and state to see whether there was a better way to achieve the principle to which we all subscribe.

Can the interface be reduced by raising the tax thresholds? Can we do more on the universal benefit front? Would a universal taxable child benefit do the trick? Can the system be simplified in some way? I suggested that we should, in the next Parliament, stand back and examine what I described as a top-heavy, complex system, and asked this basic question: is there a better way to achieve the goals that we all want to achieve?

Had the Conservative party done better in the election, I am sure that the review that I wanted would now be under way and that my hon. Friend the Member for West Suffolk (Mr. Spring) would be about to tell us all about it. We have, however, the human face of the Treasury to reply to the debate, and I hope that she can go a little beyond the brief that was read out in the previous debate. That brief was apologetic about the mistakes but basically unrepentant about the system.

Dawn Primarolo : I apologise to the right hon. Gentleman in that I could not respond to that debate and the then Economic Secretary to the Treasury, now the Financial Secretary to the Treasury, had to step in. That was because unfortunately I was admitted to hospital that day and, as friendly as I may be, it is not possible to address the House from a hospital bed after an operation.

Sir George Young : We all understand why the right hon. Lady was not there, and we are delighted that she has recovered from the indisposition and can reply to the debate this morning.
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To demonstrate the continuing need for reform, I shall briefly mention two cases that have cropped up since the previous debate. What is disturbing is that in each case that has come to my attention a different thing has gone wrong. It is not as if one component in the system is malfunctioning. I believe that the problems are more systemic.

Miss S of Andover has a seven-year-old disabled son and receives £160 a week in working tax credit. She pre-notified the Inland Revenue of a change of circumstances: she was going to move in with her partner. She told the Revenue that her partner had a temporary national insurance number, and she was assured that that did not matter. It did matter; the number was not recognised, the working family tax credit was stopped, and she was told that it would be two weeks before an interview could be held and a new national insurance number issued. She was also told that it would be five weeks before that number was recognised at Preston. Being £160 short for five weeks is a lot of money for a low-income household. Some £1,300 was put into her account on Friday. She told me yesterday that the whole saga had been an absolute nightmare, and that she had been given different advice each time she rang. Once, she was told to contact her MP as that was the only system that really worked. She was also told to go to the Inland Revenue office to ask for cash to tide her over, although the Revenue does not provide that facility. Miss S eventually obtained the money, but what she will say to her friends who are thinking of moving on to working tax credit will not be very helpful.

The second case involves Miss S of Whitchurch, who wrote in an e-mail:

When I eventually took up the case, I received an answer from the Inland Revenue:

As the whole purpose of the working tax credit system is precisely to make payments into people's bank accounts, the failure of the computer system to do so seems to me slightly more than a technical fault.

I was told:

Before 9 May, the system had been broken for five weeks—that was how long it took to sort the matter out. Those are only two families whose lives have been turned upside down by the tax credit system. My experience is no different from that of colleagues.
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The debate coincides with renewed media interest. Headlines last week stated that Chancellor Gordon Brown has been urged to reform the tax credits system and that he is under increasing pressure to revamp the Government's flagship tax credits. Figures released yesterday show that nearly half of all awards were overpaid in 2003–04, and, according to HM Revenue and Customs, some 45 per cent. of the awards proved to be wrong in the first year of operation.

The day before yesterday, the money section of The Sunday Times contained an article with the headline, "Victims of tax credit fiasco face hardship".

A Child Poverty Action Group leaflet that arrived on all our desks last week says:

I was struck by another paragraph in the leaflet, which stated:

That may well be a key to the solution.

There are two schools of thought: "one more heave", to which I believe the Government subscribe, or "back to square one", the philosophy to which I adhere. The whole structure is unstable, incomprehensible and unworkable, and I ask the Government to initiate a fundamental review of the system. I also ask that the Select Committee on Work and Pensions, when it is set up, carries out a parallel inquiry. Our constituents deserve better than what they are getting today.

10.17 am

Mr. Kevan Jones (North Durham) (Lab): I congratulate my hon. Friend the Member for Nottingham, North (Mr. Allen) on securing the debate. Like the right hon. Member for North-West Hampshire (Sir George Young), I am a survivor of the debate on 6 April. It was a good debate, and was initiated by the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso), who made a very good speech. Sadly, he is not in the Chamber today. In that debate, I talked about four cases in my constituency. They are four of many such cases; time does not permit me to go through the almost 100 cases with which I have dealt.

In that debate, the then Economic Secretary to the Treasury, now the Financial Secretary to the Treasury, gave a very helpful commitment to consider those cases and to make a general effort to sort them out. Alas, even those cases have not been sorted out. If an individual waiting for money was not so tragic, the way in which these cases have been dealt with would be on a par with an Ealing comedy.

I agree with my hon. Friend the Member for Nottingham, North that we should be proud of this policy. I said so in the previous debate, and I say it again. When it works, it alleviates poverty in my constituency, North Durham. It is helping people to move from the
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benefit culture into work, and we, as a Government, should be proud of that. Likewise, many voluntary organisations, including the National Association of Citizens Advice Bureaux, have welcomed it. Bungling incompetence, however, is damaging it. As I believe I said in the previous debate, I am coming round to the point of view expressed by the right hon. Member for North-West Hampshire when he says that the policy needs a fundamental root-and-branch review.

Today's debate and the debate on 6 April have highlighted the fact that there are two problems. The first is that problems are being created. The second lies in trying to get them sorted out, which is difficult for most constituents. I do not accept that Members of Parliament should be treated any differently from members of the public. The problems of members of the public should be dealt with efficiently and properly when they try to contact the tax office. Alas, they are not.

I am glad that the Paymaster General is in the Chamber today, and that she has recovered from her illness. I was also pleased to hear her give her genuine commitment on "Moneybox" on Radio 4 to sorting out some of these problems. It was clear from the tone of her voice that some of the problems are as frustrating to her as they are to us.

The Paymaster General and others have made the point that the problems affect a small percentage of people. That may well be, but those people do not look on this money as pin money. It is not an additional sum to be spent on luxuries; it is money to live on from day to day, and the problems are leading people into debt. Most of those people, rightly, have an abhorrence of debt. They do not want to be in debt—and why should they be in debt through no fault of their own?

I welcome the Paymaster General's commitment to listen, to sort out the problem and to change the system where necessary. I want briefly to refer to two of the cases that I raised last time, which, in all genuineness, the then Economic Secretary gave a commitment to sort out. In fact, in the last debate he gave a commitment to hon. Members to look at all cases. Interestingly, there is a difference between what he said in this place and how the civil servants are interpreting it.

Just after the debate, my office received a phone call from a civil servant called Alison Dyer, who asked my assistant for details of the four cases that I raised. He pointed out, quite rightly, that she could in fact have all the cases that we were going to refer to the Economic Secretary. She disputed that; he then read to her over the phone the passage from Hansard in which the Economic Secretary had said that he would take on all cases. Lo and behold, three months later the four cases that I raised have been dealt with, but I am still awaiting a reply on the other 11 or 12 that I put forward. So the Paymaster General may give commitments in this place, but I suggest that she also makes sure that the civil servants do as they are told if Ministers give commitments in the House.

I want to raise two cases that I raised last time. One was the case of Mr. and Mrs. Armstrong of The Gardens, Chester-le-Street. The couple were honest
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with the Inland Revenue and completely up front. One month, they received two payments. Mrs. Armstrong contacted the tax office and said, " I'm sorry, I'm not entitled to this money." She was assured that she was and that it was because of an earlier underpayment. Lo and behold—we all have such stories—she was told that she would have to repay the money.

I raised that case in the last debate, and I was pleased to get a letter on 29 April from the then Economic Secretary. It highlighted the case and stated:

Finally, it says:

That is a great outcome and we might think that Mr. and Mrs. Armstrong could go off into the sunset and that that would be the end of a happy story. Alas, that was not the case.

On 13 May, I received a letter from an individual I would love to meet—I am not sure whether he exists, but his name crops up quite often—Mr. Barrie Rushton, assistant director of customer relations at the Inland Revenue. He said that the money was not now being written off:

Alas, he goes on to say that he realises that that will be a disappointment to Mr. and Mrs. Armstrong. Who is in charge: Ministers or civil servants?

Every time I write to the Paymaster General—I put her on notice today—I do not want replies from civil servants but from her. In future, I will not accept any replies from civil servants; they will be returned to her so that she can give a reply. It is important that she knows what is going on, because she clearly does not in some cases.

The second case to which I want to refer is that of Julie Simm, which I raised last time. She too was a constituent who had been open and honest with the Revenue and told its staff that she was being overpaid. Forty-two days later, she was informed that she had had an overpayment because they had clearly not rectified the system. I wrote to the Paymaster General on 19 January and received a reply in late March—another problem is the time that it takes for replies to come through. She stated that Miss Simm should have noticed that she had been overpaid, and that the overpayment would therefore have to be repaid in full. That seems to be a standard response: "Yes, we did make a mistake on behalf of the Revenue, but you should have noticed our mistake so it is your fault." I am sorry, but that is not acceptable. I have written back to the Paymaster General on that.
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As I said earlier, I am proud of the system. It was designed in the right way to ensure that it helps some of the poorest in society. However, as a result of such cases the credibility of the system is falling down. I also worry how many people are not complaining and are just paying back the money. I think that there are a lot of such people. One of the issues raised by the CAB and others is that the system was designed to help people leave poverty, but it is actually leading them into poverty. They are sitting quietly paying back the money and, in some cases, facing huge hardship.

Some suggestions have been put forward by the CAB and others, and some have been put forward today by my hon. Friend the Member for Nottingham, North. They need to be considered. Some of the problems are clearly computer problems. I have one case, that of a Mr. Alan Clarke—I could go on all day with such cases—where the problem was a simple computer error that took his child off the system. Could they reinstate the child? Could they hell. It took a year to resolve and the anguish that that gentleman had to suffer is unacceptable.

Finally, the suggestions that have been put forward today need to be taken on board. A more fundamental review, such as that referred to by the right hon. Member for North-West Hampshire, needs to take place; otherwise, what should be a flagship policy of which we should all be proud will be further discredited. I fear that people will not apply for the benefit because they will feel that they may get into debt. If they have never been in debt in their life, they do not want to be led into it by Government and they should not be so led.

10.27 am

Mr. Mark Todd (South Derbyshire) (Lab): I congratulate my hon. Friend the Member for Nottingham, North (Mr. Allen) on securing this important debate. I will make a brief contribution, focusing on two narrow issues, not because I do not have a lot of feelings about the merits of the system—I endorse my hon. Friend's comments—and not because I do not have a wide variety of experience of cases that have gone wrong, but because I want to drill it down to a couple of simple points.

I will refer to one case in particular—that of Christine Onion who lives in Shelton Lock, a suburb of Derby. She, like many people, changes job from time to time. She had the misfortune to change jobs at a time when the Inland Revenue was introducing the tax credit system at the beginning of 2003. Amazingly, her then employer is still shown as her employer on the Inland Revenue system. Indeed, it has been credited with a substantial amount of tax credits, supposedly paid direct to her through her employer even though she has not actually worked there for two and a half years. I cannot justify that level of incompetence.

I do not want to sound like a saint, but I deal personally with all tax credit concerns raised in my office. I have therefore developed quite a strong personal relationship with some of the people who come to me. In this instance, I will quote Christine, removing the name of the member of Inland Revenue staff who kindly
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phoned her on the last occasion. It is a large file, so I will not go through the full details. She says that the member of staff

well, I do not—

which was when she first heard about and identified the problem,

the man involved

That is a consistent message, and it is also a flattering one; Inland Revenue staff regularly say, "Please do contact Mark again if this goes wrong," which, regrettably, happens rather frequently.

There was a similar case. An overpayment was conceded—we won that one—and accepted in writing, but it has recently resurfaced on the computer. We thought we had cracked it, and the couple involved were thrilled about that, but they are now being troubled yet again with historical information that they thought they   had cleared. The only way to prove that the overpayment was not a legitimate recovery item in that case was for me to go through the telephone log of all the calls made to the helpline and identify two calls that I had made in which I asked, "Are you sure this payment is correct, because the people involved do not believe it to be so?" and I was assured that it was. That was demonstrated after a long period—this matter was not, of course, resolved quickly. Eventually, the people involved received an assurance that that overpayment would not be recovered from them. They were honest people, as are most of my constituents who bring such cases to me; they had queried something that they had found strange straight away and they had expected the matter to be resolved, and I had also raised the matter on their behalf.

The management of the technology that supports the staff involved in this area has been woeful. I noted the statement made in the papers when the larger stories about the management of this system came up, in which it was said, "Oh, we have cracked the computer problems." That is simply untrue. I used to work in the IT sector, and I would be interested to know how many fixes remain to be addressed. I would also love to meet some of the people who have responsibility for managing this system, to discuss some of their processes with them.

I want to make one further narrow point. I have a women's refuge in my constituency—many other Members may have one in theirs, too—and I have found there to be particular problems in dealing with some issues related to it. People move into it rapidly, often in very strained circumstances, and they then move out rapidly as well, because such refuges are short-term residences. Those people's tax credit issues must be resolved within that short period. I noted the reference made by the hon. Member for Moray (Angus Robertson) to the interface with advice services; if the
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advice services do not have a quick way of contacting the Revenue and resolving matters, many such people can end up in tremendous distress. I have dealt with a number of cases in that refuge, and none of those experiences has been wholly satisfactory. The narrow point that I wish to make is that we must look at how we deal with people who, because of the strain of relationship breakdown and violence, move rapidly around the country to escape their problems. I am unsure whether we have a system that is flexible enough to respond to those particular circumstances.

10.33 am

Mr. David Laws (Yeovil) (LD): We have had an excellent debate on an issue that is incredibly important to people throughout the country, and I congratulate the hon. Member for Nottingham, North (Mr. Allen) on raising it and on the way in which he did so. He gave fair credit to the Government for the amount of money that has gone into tax credits, but he also raised legitimate concerns about the way in which the system has operated.

I have taken some reassurance from hearing the same criticisms that I have heard from my constituents echoed by Members of all parties. Before I became responsible for this issue as my party's spokesman on it, I raised it a number of times with the Paymaster General. She was always very constructive, but she was also inclined to lead me to the view that something odd must be going on in my constituency—that some aberrant individual was dealing with the south-western region.

Dawn Primarolo : That is not fair. The hon. Gentleman will remember that the repeated meetings and conversations I had with him about this matter were intended to find out whether any systemic issues could be drawn from his casework. That is the point that the right hon. Member for North-West Hampshire (Sir George Young) made, with regard to examining what Members of Parliament were saying to me and what that meant for the system, and I will return to that point. However, I never trivialised or tried to push away the points raised by the hon. Gentleman.

Mr. Laws : We have our own memories of those meetings. I am grateful that the Paymaster General took the time to meet me to address those matters, but I must say that when she did so she rather gave the impression that there were exceptional problems in my area. We have now heard from other Members, including Labour Members, and I hope that she will listen more closely to their experiences than she has to those of Members of other parties.

Astonishing figures were released last week, when Parliament was in recess. They revealed that 1,879,000 awards were overpaid, out of a total of 5.6 million, and that almost £2 billion was overpaid last year. Those astonishing figures underline not only the impact of these problems on individuals, but the extent of their impact. I agree with what the hon. Member for North Durham (Mr. Jones) suggested; I am sure that the problems to do with tax credit that Members and those responsible for tax credit have picked up are only the tip of a very large iceberg.
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The hon. Member for Nottingham, North—and, I think, the hon. Member for North Durham—made the point that these problems impact on individuals on very low incomes, for whom the effects of accumulating debt through tax credit payments are very serious. A number of Labour Members have commented that the Government have not received full credit for the huge expenditure that has gone into this project. I am sure that there are a number of reasons for that, but I will mention one of them; many of the people I see who are experiencing these problems with tax credits tell me that they wish they had never claimed them in the first place because although they were better off at the start they have now been forced into debt. That is a serious criticism of the Government's policy, and it comes from the very people whose lives it was designed to improve.

The other problem with the scheme is that it involves not only people who are vulnerable because they have a low income, but people whose circumstances typically frequently change; they might be in part-time work, or be receiving overtime payments, or take up a number of different jobs in a short period, and their family circumstances might also change. The Government's system is therefore inherently unstable and likely to lead to the type of overpayments and underpayments that we have heard about.

I welcome the seven-point plan laid out by the hon. Member for Nottingham, North, which is no doubt mentioned in his press release which is going out as we speak. I wish also to mention the one-point or two-point plan of the right hon. Member for North-West Hampshire to address more fundamental reform of the tax credit system, because I believe that some elements of the existing system can be tinkered with and that that will lead to important improvements; however, I do not know whether that will remove all the problems. I am sure that the Paymaster General will not give us undertakings about that today, but she ought to be willing to look at whether the system is inherently unstable and inherently likely to lead to huge overpayments and underpayments.

Mr. Kevan Jones : Will the hon. Gentleman give way?

Mr. Laws : If the hon. Gentleman will excuse me, I will not, as there is little time left and I must leave enough time for the debate to be wound up and for the criticisms that have been made to be answered.

It is vital that the Paymaster General examines the system that we have, and whether there are inherent problems in it. Family credit was a fixed award, and of course there are problems with fixed awards, but, as we have learned, there are also problems with this system. The Paymaster General will be aware that a system that is rather similar to ours was introduced in Australia. Way back in February 2003, the Commonwealth ombudsman reported on the Australian scheme; at that time, 33 per cent. of the awards had been overpaid. That is almost the same figure that was reported last week by the Government. I do not have the time to list the Commonwealth ombudsman's criticisms of the Australian scheme, but they are precisely the same as those that are being made now of the British scheme.

The Paymaster General must look at the potential to go back to fixed awards. They were present not only in family credit under the previous Conservative
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Government, but also in the working families tax credit when the current Government initially introduced the change. My first point is that there needs to be a more fundamental examination of the system. I agree with the right hon. Member for North-West Hampshire, and the hon. Members for South Derbyshire (Mr. Todd) and for North Durham.

My second point is that I entirely agree with the criticisms of this scheme and the award notices made by the hon. Member for Nottingham, North, and in particular with those about the difficulty of individuals getting a serious appraisal from the Inland Revenue of who has caused any error. If it is not reasonable to recover the amount, because the Inland Revenue has caused the problem or because the constituent could not reasonably have figured out for themselves that there was a problem, we should not recover the money from those individuals. I hope that the Paymaster General will acknowledge that that is a problem and take substantive measures to change it, not simply change the design of the forms.

I shall not go through all the points that the hon. Member for Nottingham, North made, but I welcome them all.

I shall make my final point, as I am conscious of the limited time left, and we must leave the Paymaster General and the Conservative spokesman enough time to make their comments. The figures released last week were for 2003–04, so I would be grateful if the Paymaster General updated us on the current situation—whether the overpayments in the year 2004–05 are likely to be as significant, and what percentage of awards continue to be inaccurate.

We are talking about the expenditure—whether deliberate or not—of almost £14 billion of taxpayers' money on one of the most important schemes that Labour Governments have introduced since 1997. One reason why the Government have not received political credit for the scale of that expenditure is that major parts of the system are not working. The Paymaster General must take that seriously and address the problem.

10.41 am

Mr. Richard Spring (West Suffolk) (Con): I, too, congratulate the hon. Member for Nottingham, North (Mr. Allen), who is a fine and thoughtful parliamentarian. He has made some constructive suggestions, such as his call for major consideration of the reform of the whole system—a point that was taken up most effectively by my right hon. Friend the Member for North-West Hampshire (Sir George Young). However, there was an almost Mandelsonian quality to the hon. Gentleman's comments about the good works that the Government have undertaken, which I thought were a little over the top.

Whatever the worthy objectives of the tax credit system, there is no doubt that it has its weaknesses—we all recognise that, and this morning several hon. Members gave examples of problems. We know from the Institute for Fiscal Studies that household incomes, after tax and benefits, have fallen over the past two tax years. As the hon. Member for North Durham (Mr.   Jones) accurately put it, for many families tax credits are not pin money, so this is a serious issue.

I was pleased to note that two key New Labour thinkers, Anthony Giddens and Patrick Diamond, have done some work on the matter. The whole philosophy
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behind the implementation of tax credits is a benefit system—this is what they say—that relies more and more on means-testing and complicated tax credits. Since October 1999 the Government have introduced, on average, a new tax credit for families every six months. That is part of the difficulty. We have heard about the implications of that through the examples that have been given this morning.

Whatever the cause, there have undoubtedly been problems. There have been newspaper reports about fraudsters targeting tax credits using identity theft. Apparently, taxation experts have said that Inland Revenue staff are struggling to cope and that helpline staff are not trained to handle inquiries. Given the huge sums of money involved, will the Paymaster General tell us what is being done to address the threat of fraud, which is now quite serious?

We are aware of the terrible difficulties that have been faced by constituents who have received overpayments: when the Revenue decided that mistakes had been made, it recalled overpayments, causing people financial hardship and mental anguish. That has happened in my constituency.

It is extraordinary that in April and May 2003 there were overpayments to 455,000 households, which totalled £94 million. As the hon. Member for Yeovil (Mr. Laws) said, there have been total mispayments of £2 billion. This is a staggering situation for the Government to be in, and it needs to be addressed. We have heard complaints and suggested solutions from the National Association of Citizens Advice Bureaux, Barnardo's and the Child Poverty Action Group. In Northern Ireland there has been special criticism of the system.

I know that the Paymaster General needs a substantial amount of time in which to sum up. In April, I asked the then Economic Secretary to the Treasury, who is now the Financial Secretary to the Treasury, whether the alarming reports, about which we have heard this morning, were true that Revenue officials were being ordered to get tough with those who had been paid more than they were due, even when—as was reported in The Guardian—that was

Will the Paymaster General clarify whether the reports are accurate? This is an important matter of public trust. In the last debate, her colleague also told us that he expected to clear the backlog of overpayments by the summer. Is that target still on schedule?

I very much welcome the Paymaster General's written statement of 26 May, which is a clear admission that the system has flaws. I welcome also the fact that she is talking about a code of practice that is certainly fairer. But the sixth measure promised in the written statement states:

The statement goes on to say that

Is that now happening?
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The first three measures proposed by the Government relate to the provision of better information to claimants. I hope that they can give us some assurance that that is now happening.

Will the Paymaster General also comment on the provision of better information to the public and taxpayers about the success of tax credits? As far as I am aware, the Revenue and Customs and Excise have delayed for several months the publication of official figures detailing how and why errors are made, claiming that the figures need further analysis. I understand that they are due to be published before the end of the year. Is that still the intention?

Obviously, the IT systems are at the heart of the problem. How efficacious does the Paymaster General think they now are? There has been huge difficulty with them, which needs to be resolved.

We return to a fundamental point. Despite what the written statement says, the Paymaster General has heard this morning about a continuing series of painful and tragic glitches. Building on the points constructively made by the hon. Member for Nottingham, North, and taking up the point made by my right hon. Friend the Member for North-West Hampshire, I must say that this issue seems to be one in which good intentions have turned to ill and that the Government need to review the matter fundamentally.

10.47 am

The Paymaster General (Dawn Primarolo) : I congratulate my hon. Friend the Member for Nottingham, North (Mr. Allen) on his fair and balanced introduction to the debate, and I congratulate hon. Members from all parties who have spoken. In the brief time available, I want to address context, what needs to be done, and the point made by the hon. Member for West Suffolk (Mr. Spring) about whether there is a systemic issue.

First, I reassure my hon. Friend the Member for Nottingham, North that the success of tax credits is not confined to Nottingham, North. Over 6 million families benefit from tax credits. That is around 20 million people, including 10 million children. Four in 10 families pay no net tax as a result of tax credits. By October 2005, in real terms, families with children in the poorest fifth of the population will be, on average, £3,200 a year better off than they were in 1997. The take-up in the first year of tax credits was 80 per cent., and that number rises every year, despite the misgivings that some hon. Members have expressed today about the implications of errors in individual cases. The tax credit system contributes to a substantial reduction in child poverty.

I stress to hon. Members that the policy is the result of a long consultation with the voluntary and community sector, including citizens advice bureaux, and extensive consultation on the balance between fixed awards and responsive awards and what needed to be done. We are picking up that theme again today.

Hon. Members have talked about individual constituents who have experienced extreme difficulties with their tax credit payments. I have always recognised
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that there are still issues to be ironed out and problems that need to be addressed. I am frankly appalled to hear that cases that my hon. Friend the Member for North Durham (Mr. Jones) raised on 6 April have still not been dealt with. Clearly, I need to pursue that. It gives me no comfort to continue to tell Members that they can come direct to me with cases. I have a huge motivation to ensure that the issues are dealt with rapidly.

The right hon. Member for North-West Hampshire (Sir George Young) raised some strategic and systemic points. It is important that we understand what the figures for 2003–04 show as we make decisions. Of course, I fully recognise that problems still exist, and my hon. Friend the Economic Secretary to the Treasury, now the Financial Secretary, said as much in his comments of 6 April. I took the first opportunity to reinforce that message in this new Parliament with my statement of 26 May, and I shall take this chance to elaborate on that and respond to the right hon. Gentleman's point.

Perhaps it would be helpful to start by underpinning the point about the flexibility of the tax credit system, and to say how it is designed to work. My hon. Friend the Member for South Derbyshire (Mr. Todd) referred to the need for flexibility, but of course there is a trade-off; flexibility brings more fairness, but it also brings more complexity. Fixed awards are unfair and unresponsive and would not make the contribution that the system currently does. We have to get the balance right and find a position between those two poles. The flexibility enables families to get more money when they require it, and they notify us of that.

The flexibility of the tax credit system mirrors that of the tax system, and it is based on an annual reward. If changes in income or circumstances during the year are not taken into account, that will be reflected in the tax credit award for the year. That places a responsibility on Her Majesty's Revenue and Customs to make sure that when it is informed of changes, changes are made to the tax credit award. However, it also places a responsibility on claimants to notify HMRC of changes.

What does current information tell us about overpayments? Two thirds of the total overpayment figure is due to rises in family income, and nearly £1 billion of that is due to increases in income of more than £10,000 in a year. In such cases, HMRC was notified of that not during the year but at the end of the year for the reconciliation process. Where that occurs, the income range is £20,000 to £30,000 per annum. Clearly, as my hon. Friend the Member for Nottingham, North points out, there is an issue as to whether claimants appreciate the fact that under the new system HMRC must be notified of changes in-year, and as to whether that message is reinforced enough. However, that is not a mistake of the system, officials, or the computer, and it accounts for the lion's share of problems.

Half of overpayments are less than £570; they are not the £1,000 that people keep quoting. A significant number of overpayments are less than £50. As my hon. Friend the Member for South Derbyshire pointed out, we need to look again at the interaction between change in circumstances and change in income, and we need to consider whether people are being notified of that properly.
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I am the first to admit that the IT system—I do not need to remind the House of this—experienced well-publicised administrative problems in its early days. A proportion of the overpayments that hon. Members have mentioned this morning reflect that fact. And of course there are additional issues; HMRC staff have on occasion made mistakes in processing, leading to overpayment. We need to make sure that we get that right, and a great deal of work has been done on the matter.

My hon. Friend the Member for Nottingham, North raised seven points. They fall broadly into the categories in my statement. HMRC must encourage people to notify it of in-year income changes and should make that clear on the statement. It must find ways to reinforce that message through the year, and that is precisely what my statement of 26 May said. The award notices need to be clearer, especially on the obligations. Again, my statement of 26 May addressed precisely that point.

We have held a long consultation with the voluntary and community sector; that is coming to a conclusion. HMRC must make sure that the helpline can track changes; that was another point. It must make sure that the complete history of a case can be seen. It should make sure that changes can be made when the claimant rings in, so that we do not have to go in and out of the system all the time.

I should remind everyone in the House that all conversations with the helpline are recorded, so we can go back and hear what was said and whether the system was notified. We do that on a case-by-case basis in order to give a fair judgment when challenged on overpayment. That is in addition to providing the paper response. Citizens advice bureaux have a direct number to a single location and do not have to use the helpline, and that is the case for Members of Parliament and advice-giving agencies, too. That is in my statement.

On notification of overpayments, in my statement I made it clear that I am in absolute agreement with my hon. Friend the Member for Nottingham, North that there should be notification before recovery, and that there should be negotiation, time to resolve cases and suspended repayment. On clearer recovery processes, we have set repayment rates—minimum, intermediate and maximum—but all those things need to be considered.

My hon. Friend's final point was on the streamlining of the process, and the time that the processes takes. I agree with hon. Members that it is unacceptable that these cases are taking so long to rectify. There is a long tail in the system from the original problems, and that needs to be dealt with. We should look at the figures and the information. By the second year of the scheme, there
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were 6.1 million families on tax credits; that has risen from 5.7 million in the first year. That does not suggest that families are recoiling from the system or deciding not to apply for tax credit. We have to look at what the figures tell us, and see what that means for the system.

I am perfectly happy to engage in debate about whether we should have a fixed system or a responsive system as an interesting exercise in this House, but every single assessment from the anti-poverty lobby demonstrates that responsiveness is the way to continue to tackle child poverty in our society.

I have tried to pick up on the seven points made by my hon. Friend the Member for Nottingham, North, and I have tried to show how I believe they are covered, although he elaborated on them in much more detail than I was able to in my written statement. We need to take them forward under the broad three categories. The first is consultation with the voluntary sector; we need to review the effectiveness of the information given to claimants and support them in understanding the responsive nature of the system. We should work closely with the voluntary and community sector, reducing the risk of overpayment.

Secondly, we need to look at new methods for reminding new tax credits claimants of the importance of providing up-to-date information on in-year changes. The Department has to come up with proposals as to how we can take that forward. Finally, we have to review the operation of the code of practice on overpayments. It has to meet the commitment given by the executive chairman of HMRC to the Public Accounts Committee in January 2005, and ensure that in genuine cases of hardship, where recovery of overpayment is disputed, repayment is suspended while that dispute is resolved.

Mr. Allen : The Minister is generous in giving way, particularly so late in her contribution. She has been extremely helpful in her reply.

Rather than have another such debate in a few months' time, would the Minister consider meeting me and others who contributed this morning in, say, three or four months to review what progress we have made?

Dawn Primarolo : I am more than happy to agree to that, if my hon. Friend wishes to facilitate such a meeting. It is not for me to indicate when Members should decide that they would like an Adjournment debate on a subject; as a Minister, I always stand ready to respond to debates, as long as they are on a subject that comes under my policy area.

In conclusion, I have tried to deal quickly with a number of issues raised by hon. Members. They are important issues, and I look forward to resolving them.
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