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House of Commons

Thursday 30 June 2005

The House met at half-past Ten o'clock

PRAYERS

[Mr. Speaker in the Chair]

Oral Answers to Questions

TREASURY

The Chancellor of the Exchequer was asked—

Borrowing Forecast

2. Michael Fabricant (Lichfield) (Con): If he will make a statement on the accuracy of his Department's forecasting of borrowing. [8141]

The Chancellor of the Exchequer (Mr. Gordon Brown): The National Audit Office independently audits key forecast assumptions on trend, growth, unemployment, interest rates, equity prices, value-added tax, price indices, composition of growth domestic product, debt funding, oil prices, tobacco proceeds and privatisation proceeds. With the new fiscal framework, average borrowing has been not worse but better than forecast, on average by 0.2 per cent. of GDP for the first two years forecast and 0.4 per cent. of GDP for one year ahead.

Michael Fabricant: That sounds an interesting improvement. Back in 2001, the Government forecast that they would borrow £16 billion, but in practice they borrowed £91.3 billion. All forecasts are inaccurate, but what steps is the Chancellor taking to try to improve the forecasting model in the Treasury?

Mr. Brown: The forecasting model has improved. Let me tell the hon. Gentleman what happened during the last world downturn under the last Conservative Government. [Interruption.] The hon. Gentleman asked if we could improve the forecast. I am telling him that we have improved it. At the time of the last world recession, the last Government's forecast was 4 per cent. out—that is £40 billion. Then it was 6 per cent. out two years on—£60 billion. Then it was 5.4 per cent. out—£54 billion. Whatever the hon. Gentleman says about this Government, the Conservative Government's record of incompetence is something about which he should be ashamed. He should also know that we have a lower deficit and lower debt than all our major competitors. Instead of criticising us, he should be congratulating us.

David Taylor (North-West Leicestershire) (Lab/Co-op): The Government's record on debt is indeed remarkable and the forecasting mechanisms have been reasonably accurate, but can the Chancellor tell us whether the methodologies have been amended to
 
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reflect the amendment that has now been made? Private finance initiative debt is increasingly appearing on the Government's balance sheet, which is where it should always have been.

Mr. Brown: PFI debt does increasingly appear on the Government's balance sheet—and even with that, debt as a proportion of national income, which was 44 per cent. of GDP when we came to office, is now 35 per cent. of GDP. That contrasts with America, where the figure is 44 per cent., France, where it is 46 per cent., Germany, where it is 55 per cent., Japan, where it is 84 per cent., and Italy, where it is 100 per cent. Let me tell Conservative Members that not only is debt as a share of GDP lower than that of our major competitors—and it will remain so—but so are our deficits. Again, that shows that the economy is being prudently managed.

Sir Peter Tapsell (Louth and Horncastle) (Con): Has it occurred to the Chancellor that he would not have to borrow so much if he had not lost more than £1 billion of taxpayers' savings by selling half of Britain's gold reserves at a price almost $200 an ounce lower than the price today? He then compounded that folly by reinvesting the proceeds in, of all things, the euro. If he were a professional fund manager in the City, he would have been sacked long ago for that.

Mr. Brown: Inconveniently for the hon. Gentleman, who cannot resist getting Europe into any question, the value of the euro has risen and therefore the value of our reserves is higher.

Adam Price (Carmarthen, East and Dinefwr) (PC): According to the Office for National Statistics, VAT receipts were down by 1.8 per cent. last month. Was that in line with the Chancellor's forecast, and what effect will it have on borrowing?

Mr. Brown: We gave our forecast in the Budget. We forecast that consumer spending would rise and that the rate of growth would be slower than last year's, but would continue to be a rate of growth and not decline. I think that the hon. Gentleman will find that that is borne out by events. I will give the next forecast in the pre-Budget report, but if I were him I would not believe all the stories I read in the newspapers.

Dr. Vincent Cable (Twickenham) (LD): Will the Chancellor spell out the implications for his spending and borrowing assumptions of the commitments that the Home Secretary has made over the past two days? The initial commitment was to cap the cost of identity cards at under £100, but yesterday we were told that they should be given away free in the event of compulsion. The scheme is conservatively estimated to cost £6 billion—that is the Government's assumption—which is the equivalent of two years' investment in the NHS, but it is independently estimated to cost as much as £19 billion, the equivalent of four years' spending on overseas development. Why has the Chancellor agreed to this massive expansion of spending and borrowing potential?

Mr. Brown: This is just about the only area in which the Liberal Democrats do not want to spend more money.
 
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What the Home Secretary actually said was that he would make a statement to the House before the Identity Cards Bill left the House of Commons for the other place. I think that the hon. Gentleman should wait for that statement.

Mr. Mark Francois (Rayleigh) (Con): In view of the Chancellor's poor record of forecasting his own borrowing, does he now agree that we need an independent body to take over fiscal forecasting? Testing his declared net borrowing for the past five financial years against his original 2001 estimate of such borrowing reveals that that estimate was a little out—by some £100 billion, in fact. Is he not a bit embarrassed at having been so wide of the mark?

Mr. Brown: As I said at the beginning, it is this   Government—the hon. Gentleman might have acknowledged this point—who independently audit the major assumptions affecting fiscal policy. None of that happened before 1997. The previous Conservative Government simply put in a figure for privatisation proceeds, put in a figure for VAT receipts and put in an assumption about unemployment. There was no independent auditing, so the Conservatives should be praising us for introducing it.

On this Government's forecasting record, I have just pointed out to the hon. Gentleman how much better it is than that of the Conservative Government. I have also pointed out to him that on average, borrowing has been lower—I repeat, lower—since the new fiscal rules were introduced, not higher, a fact on which he should again congratulate us. On new rules and the fiscal position, I ask the Conservatives to consider that the right place to take decisions on fiscal policy, public spending and taxation is in this House. I do not propose to make fiscal policy independent of government.

Tax Credits

3. John Bercow (Buckingham) (Con): If he will make a statement on the operation of tax credits. [8142]

The Paymaster General (Dawn Primarolo): I refer the hon. Gentleman to the written statement that I made to the House on 26 May. I set out a number of specific measures to improve the administration of tax credits, with particular regard to how Her Majesty's Revenue and Customs communicates with families about their tax credit award, to reduce the risk of errors adding to   the number of overpayments, and to improve procedures for recovering overpayments.

John Bercow: I am grateful to the right hon. Lady for that answer, but surely the tax credit system is now as complex as the Schleswig-Holstein question, which was understood by only three people. One of them died, the second went mad and the third forgot what the answer to the question was. I put it to the Paymaster General that such complexity inevitably increases the number of errors, and that simplicity would tend to reduce their incidence. In those circumstances, is it not better to overhaul the entire tax and benefits system and to put in place a mechanism for helping the needy that is simple, transparent and fair?

Dawn Primarolo: Regrettably, the hon. Gentleman seems not to understand the facts about the system. In
 
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its first year, take-up reached 80 per cent.—some 5.7 million families, which is a very high figure. Each year, that figure is rising and it is now 6.1 million. In addition, the system's flexibility has contributed significantly to the Government's objective of ensuring that we reduce and then eradicate child poverty, and it has ensured that people can balance their family responsibilities with their desire to have paid employment. Tax credits have delivered everything that they were intended to deliver for those claiming them. They have removed stigma, introduced flexibility and helped families to plan care for their children and to return to paid employment.

Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): Some 8,000 families in my constituency have benefited from the tax credit system and I experienced many positive reactions on the doorstep during the election. However, it appears that on the occasions when overpayments have been made and other difficulties have occurred, the main criticism has been Government officials' slowness in responding to complaints. Can the Paymaster General assure me that this issue will be sorted out and that people with legitimate complaints will have them addressed quickly?

Dawn Primarolo: As my hon. Friend will know, the policy on overpayments is set out in code of practice 26, which points out that a claimant will not be asked to pay back an overpayment if it arose because Her Majesty's Revenue and Customs made a mistake, and if the claimant could reasonably think that they were being paid the right amount. This is an attempt to strike the right balance between fairness to the claimant and to the taxpayer. Of course, the reasonableness test—my hon. Friend alluded to this process—has been in place since the early days of tax credits. However, as I told the House in my written statement of 26 May, HMRC is currently reviewing the operation of the code of practice, including the reasonableness test. I will make a statement soon on its future application.

In addition, I remind the House that HMRC is taking steps to ensure that where an overpayment is disputed, recovery will be suspended until the dispute is resolved. In that way, I hope to meet the points that my hon. Friend and many other hon. Members have repeatedly made in debates over the past week.

Mr. George Osborne (Tatton) (Con): According to the parliamentary ombudsman, many families hit hardest by the chaotic administration of the Chancellor's tax credits are running up credit card debts to pay for child care costs, buy food and get to work. Will the Paymaster General confirm that the Inland Revenue is advising families faced with hefty repayments to borrow money on credit cards or from loan companies, and does she believe that that is good advice for low-income families?

Dawn Primarolo: As the hon. Gentleman knows, the parliamentary ombudsman said in her opening remarks that her report does not suggest that the new tax credit system is in general disarray. On the contrary, it recognises that, given the scale of the undertaking, its introduction has been broadly successful. I have said on a number of occasions—and, indeed, a few moments ago in answer to
 
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the previous question—that in the code of practice, the Revenue advises claimants on the process for recovery and explains what they can do about disputed overpayments. There are provisions for additional payments to be made under the current system. I have already told the House today that I have asked the Revenue to consider suspending the recovery of overpayments where they are disputed until that dispute has been resolved. That is how to deal with this matter.

Mr. Osborne: I am afraid that the Paymaster General did not answer my question, so I shall have to repeat it. Citizens Advice reports that the Revenue is advising people to borrow money on credit cards to repay their debts. Does she approve of that advice? I certainly do not and I do not think that anyone who wants to keep low-income families out of a spiral of debt would give that advice—[Interruption.] The Chancellor sits in his place muttering to the Paymaster General, but when is he going to get up and take responsibility for the tax credit system that he introduced? He sends his junior Minister to pick up the pieces and he sends the Prime Minister to apologise. When is he going to take the rap?

Dawn Primarolo: The hon. Gentleman clearly approaches each Question Time as though he has no responsibility for anything that either he or his party said in the past. I remind him that his party claims to support the tax credit system—[Interruption.]

Mr. Speaker: Order. Hon. Members are out of order.

Dawn Primarolo: I remind the hon. Member for Tatton (Mr. Osborne) of my comments today and in previous debates and, to help his understanding, I will send him a copy of the code of practice so that he can see precisely what HMRC is doing in these circumstances.

Mr. John McFall (West Dunbartonshire) (Lab/Co-op): The Minister may know that I signed a letter in the past few months for a lone parent constituent with three children who is getting £13,500 in tax credits. Presumably, that is the reason why all parties agree with the concept of tax credits. If newspapers are to be believed this morning, some Opposition politicians are taking advantage of the Chancellor's munificence by claiming tax credits. Is not the key issue the human judgment element of those who work with tax credits? If we can get that right, we can ensure a smooth interface between the Department and those who find themselves in debt.

Dawn Primarolo: I am grateful to my hon. Friend for reminding Opposition Members that the Conservative party has said that it wants families to receive the tax credits and that it supports the system. Indeed, Liberal Democrat Members also support the system as a means of assisting families and eradicating poverty. Those who work on tax credits in HMRC are doing a splendid job. They are doing everything they can at every opportunity to get the money through to the families. Following reports that we have seen and in the light of statements that I have previously made to the House, it is right to consider again how best to improve the interface.

Mr. Michael Fallon (Sevenoaks) (Con): My constituent was told that she had been overpaid £33,000,
 
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when the correct figure was £6.78. Deductions of £200 a month are still being made because the Revenue says that the computer system cannot be stopped. My constituent cannot afford that. The Chancellor hides behind his junior Ministers, but when will he come to the Dispatch Box and apologise for a system that was badly designed and appallingly—

Mr. Speaker: Order. The question is to the Paymaster General.

Mr. Andrew Turner (Isle of Wight) (Con): No, it is not. The Order Paper—[Interruption.]

Mr. Speaker: Order. The Minister is replying on behalf of the Chancellor of the Exchequer. I advise the hon. Gentleman not to be picky about what I say, as I do not think that he will win.

Dawn Primarolo: I cannot comment on the case that the hon. Member for Sevenoaks (Mr. Fallon) raises as I do not have the details before me. However, the legislation introducing tax credits was not opposed by any party as it went through this House. It had overwhelming and all-party support, and that included support for the details of how the flexibility would work. The issues that need to be taken forward are the ones that I identified in my statement of 26 May. I reported to the House again in another statement only last week and I will continue to keep the House informed about the improvements to the system.

Ms Sally Keeble (Northampton, North) (Lab): The child care tax credit has been very important for many hundreds of working women in my constituency, especially those who are lone parents. It has given them their first chance to go to work, although some of the problems associated with it have caused difficulties. I am organising a special surgery on tax credits. Will my right hon. Friend agree to meet me and go through some of the cases with my constituents, so that their experiences can be taken into account in the review aimed at improving the operation of the system?

Dawn Primarolo: I certainly confirm to my hon. Friend that I will extend to her the courtesy that I have extended to other hon. Members. I am prepared to meet any hon. Member who has detailed questions about the operation of the tax credit system.

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