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Mr. Frank Field (Birkenhead) (Lab): The hon. Gentleman says that he is coming towards the end of his speech. I hope that before he resumes his place he will answer one question that poses in a different form questions that have already been asked. No one can say that my right hon. Friend the Chancellor of the Exchequer is not keen to redistribute income. Taxpayers have given up a 5p reduction in the standard rate of tax to finance tax credits. If the hon. Gentleman were Chancellor, would he use the money in exactly the same way or in a different way?
Mr. Osborne: That is an entirely fair question and it is literally a matter to which I am turning. Perhaps the right hon. Gentleman, who has a bit more patience than some of his right hon. and hon. Friends, will listen for a second. As he knows, there is a growing body of opinion that says that we need a far-reaching review of the tax credits system. In her review, the ombudsman says that it is rightly a task for Parliament and the Government—not for her—to address the
"fundamental question as to whether, for people on modest incomes who have to budget and plan their finances carefully to manage their lives, the inbuilt instability or uncertainty really works."
The chairman of the Inland Revenue, the man charged with administering tax credit, thinks that we need a review. In the Financial Times last week he said:
We know that the Prime Minister would probably support a review. It is an open secret that he has never liked the Chancellor's tax credits. If we read the
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Westminster Hall debates that have been held on this subject, it is clear that a growing number of Labour Members have called for a review. Even the hon. Member for North Durham (Mr. Jones), who, I understand, is one of the Chancellor's henchmen, has called for a fundamental, root-and-branch review. All those Members are right. We need that fundamental root-and-branch review. We need to ask whether the current system of annual payments can ever meet the needs of people whose income and circumstances can change week by week. We need to ask whether people on low incomes will ever have the flexibility in their budgets to repay the overpayments that are an inherent part of the current tax credit system.
We need to ask whether we should consider moving to a system where payments are fixed for longer and require fewer changes. That is something to which I am attracted, but it is something that should be reviewed before we come to a definite conclusion. We need to ask whether it is right that hard-working families on average incomes are paying taxes to fund means-tested benefits for people earning £66,000 a year. That is something that a review should consider.
Tax credits were designed to tackle child poverty, but as I have said repeatedly, the Institute for Fiscal Studies has shown that their administration has plunged people and their children into poverty. There could hardly be a greater indictment of the Chancellor's policy. Families have been pushed below the poverty line by Government incompetence. Single parents have been forced to rely on Salvation Army food parcels to feed their children. Tens of thousands of people have been driven to despair and hardship.
Mr. Osborne: With the greatest respect, I am about to finish my speech.
Is that really what we want from a 21st-century welfare system? Is it not time that that the Chancellor and his minions took a long hard look at his cherished tax credits? Is it not time that he had the courage to take the rap for his own mistakes?
4.10 pm
The Chief Secretary to the Treasury (Mr. Des Browne): I beg to move, leave out from "House" to end and add
"supports the Government's strategy to make work pay and provide financial support to families through tax credits; welcomes the fact that over 6 million families and 10.5 million children are benefiting from tax credits, with first year take-up of around 80 per cent., compared to just 57 per cent. for the Family Credit system inherited by the Government; recognises that far more families than ever before are benefiting from help with childcare costs; notes that tax credits are central to the Government's goal of abolishing child poverty; further notes that tax credits have helped ensure there are 1.5 million fewer children in poverty and have helped 275,000 lone parents into work; recognises the need to balance the demands for a simple system with the need for a system that responds to people's changing circumstances, giving most help to families when they need it most; acknowledges the IT and administrative problems that accompanied the early stages of implementation; and welcomes the measures announced by the Government for improving the administration of the system."
May I echo the entirely appropriate words of the hon. Member for Tatton (Mr. Osborne) about the sad events and consequences of the terrorist attack in this great city last week? We have all been moved and impressed by the dignity and resilience of the people who were tragically affected by those events. Our thoughts continue to be with them, and I am grateful to the shadow Chancellor for his words as, I am sure, are all hon. Members.
The shadow Chancellor made two allegations about my right hon. Friends misleading the House, whether inadvertently or otherwise. The accusation that my right hon. Friend the Paymaster General misled the House about the stability of the IT system is incorrect. I accept that the shadow Chancellor relied on the ombudsman's report for his assertion, and that he was reporting it to the House. My right hon. Friend, however, did not mislead the House. There has not been a failure of the tax credit computer system since tax credits were introduced in April 2003. The Paymaster General made a statement about the performance of the IT system, its speed and reliability over the previous year. I am happy to confirm that the system has been performing well in terms of speed and availability for that period. There were, of course, well-publicised problems—we will come on to deal with some of them—in the early days when the system did not perform as expected. With a system of this size and complexity, there are occasional glitches, but I am happy to refute the assertion that my right hon. Friend the Paymaster General misled the House.
As for the assertion that my right hon. Friend the Prime Minister misled the House by saying that overpayments due to error would be written off, that is not the case. Both the Prime Minister and the Chancellor reported accurately the policy that Her Majesty's Revenue and Customs write off overpayments where there is official error. There is, however, a long-standing principle that official error requires both a mistake on the part of the Revenue and reasonable belief on the part of the claimant that they were being paid the right amount. Neither the Prime Minister nor the Chancellor were doing anything other than reporting the long-standing principle.
Mr. Laws : Does the Chief Secretary expect us to take that response seriously? When the Prime Minister was asked in the House whether there would be an amnesty in each and every case where the Treasury was responsible for an overpayment, he said that
"we will not seek to get the money back if the error is on the part of the Inland Revenue."—[Official Report, 22 June 2005; Vol. 435, c. 798.]
What does the Chief Secretary think people in the country would have understood by that?
Mr. Browne: I am grateful to the hon. Gentleman for giving me the opportunity to restate the position. Of course, that was an expression that there would be a write-off if there was official error. He knows—
Mr. George Osborne: An error by an official.
Mr. Browne:
Well, an error by an official. I do not want to be pedantic. The hon. Gentleman reads the quote to me and it contains the phrase, "an error by an official". As I understand it, that is otherwise official error, is it not? I think I am right.
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Official error has a long-standing definition, which includes a mistake on the part of the Revenue and the claimant reasonably thinking they were being paid the right amount. The qualification is necessary to strike the right balance between fairness to claimants and fairness to taxpayers as a whole. I shall come later to the question of the extent to which the overpayments could or could not have been known to individuals, but it could not possibly be the case that it would not matter to what extent a claimant knew that the error had been made.
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