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The Paymaster General (Dawn Primarolo): The hon. Gentleman is citing only part of the article. The author also had comments for those who wish to attack the system in principle using the problems with its administration. The article went on to say that the tax credits system was good. The hon. Gentleman should use the whole quote, or not use it at all.

Mr. Laws: I am happy to read out more of the article. I will also be happy to accept the Paymaster General's point if she will accept that the article describes the system as a "bureaucratic mess" and says:

Regardless of how good she thinks the overall system is, I assure her that it will not help her, or be appreciated by the hundreds of thousands of people throughout the country with problems, if the Government continue to talk about the generality of why the tax credits system is good, but do nothing to sort out the practical problems that people are facing.

Dawn Primarolo: I am happy to confirm again to the House, as I have done repeatedly, that I have never shied away from points made about the failures of the IT system in the early days and the administration. However, although I have continued to press people, including the hon. Gentleman, to separate the improvements to the administration and IT that deliver the system and the principles of the system, he still has not done that. Does he support the eradication of child poverty and accept that the child tax credit contributes significantly to that cause? Will he now separate policy from administration and concentrate on helping us to ensure that the administration works?

Mr. Laws: The right hon. Lady should be careful. She says that she has never understated the problems in the IT systems that affect tax credits, but she had better go back and read the ombudsman's report.

I want to find out how many of the important recommendations made by the ombudsman the Government will accept. Having heard the Chief Secretary's relatively general speech, I hope that the Paymaster General will go into detail about that when she winds up the debate, because that is what people what to hear.
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May I start with a couple of less controversial points on which I hope the Paymaster General will be able to offer us some reassurance? Many organisations that are worried about the tax credits chaos have asked for a clearer award notice. They have suggested that the notice should contain clear information about the mechanism for appeals in the case of overpayment. I assume that she can confirm that she will be going ahead with a new award notice for 2006–07, so will she place a copy of the draft award notice in the Library? Will further amendments be made to the award notice in the light of the ombudsman's recommendations?

The Paymaster General will be aware that the eighth and 11th recommendations of the ombudsman indicated that there should be a statutory right of independent appeal in the case of overpayment and that people should understand their appeal rights. That is also suggested in the early-day motion tabled by the right hon. Member for Birkenhead (Mr. Field). Can we have a clear answer on whether the Government accept the case for a statutory right of independent appeal, or was the Chief Secretary accurate when he said that that had been ruled out?

Can we know whether the letter on overpayments that is sent to our constituents will give advice automatically on the additional tax credit payments that may be made to those people in hardship and on the possibility of interim awards for those in need? That important practical concern was raised by the ombudsman and I am not sure of the Government's response. On the first point in the submission by Citizens Advice, have the Government decided whether there will be a limit on the clawback of overpayments, which causes extreme poverty? What will be the rules and regulations on that?

The Chief Secretary's explanation for the Prime Minister's comments in the House of Commons and for the Chancellor's comments on GMTV was so implausible that I am not interested in detaining the House by taking the argument seriously. What must be placed on the record is that the Prime Minister and the Chancellor of the Exchequer have on a number of occasions left people with the clear impression that, where there was official error, the overpayments would be written off. They said that in plain and simple terms.

We now have the ludicrous letter from the Prime Minister, which I received yesterday, and the frankly ludicrous statement that the Chief Secretary was given to make. I do not blame him for that, but it is an implausible cover-up of the Government's position. It tries to persuade us that the Government had in mind all the time that, although there could be some write-off of awards, it would only be for those cases in which people could not possibly have worked it out for themselves. That is totally different from what the Prime Minister and the Chancellor said, and exactly the same position that the Inland Revenue has adopted for the past year. There has been no concession.

John Bercow: Does the hon. Gentleman agree that people should have the right to appeal, not only in respect of arguments over the facts of the case and responsibility for error, but in cases in which an excessively harsh timetable for repayment will exacerbate existing poverty?
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Mr. Laws: I very much agree. There must be a right of appeal if a recovery causes extreme hardship. Although the Government could do much more to notify people of entitlement to additional tax credits that should prevent that, there should be a backstop that does not rely on the decisions of Inland Revenue officials.

John Thurso: Does my hon. Friend agree that reasonableness is at the heart of the problem? When my constituents bring a case to me, they do not think it reasonable that they should have been able to work out something on a form that they barely understand, whereas the Inland Revenue administrators think that it is unreasonable that everyone should not be able to work out what to put on their form. Should not the Government accept that it is reasonable to stop the clawback for people like my constituents, who find it difficult to understand the form?

Mr. Laws: My hon. Friend is right. Having seen probably 250 cases of tax credit overpayments in my constituency, I can vouch for the fact that a difficult judgment has to be made in a huge number of cases on whether the individual concerned could have reasonably known that an overpayment was being made. I would not want those decisions to rest solely with Inland Revenue staff with no rights of appeal.

The most important thing for the Government to deal with in responding to the ombudsman's report is the second point in the recommendations on page 8. The Chief Secretary told us that the Government were going to accept it, but appeared to make a U-turn on that shortly afterwards. The recommendation concerns whether the additional mechanism for recovering overpayments is lawful and, even if it is, whether it constitutes maladministration.

The QC who has advised the Child Poverty Action Group on this issue has made it clear that he considers the existing practice unlawful. He takes that view for a number of reasons, but particularly because no assessment is made before recovery is begun of whether recovery should go ahead under the code of practice. In other words, the Government recover first and ask questions later. The Paymaster General has written to me on this point to seek to clarify the Government's position. She maintains that the Government's existing position is lawful. That is not persuasive because the first argument that she advances is that the majority of overpayments are correctly repayable. On that basis, she seems to imply that all overpayments should be repayable.

The ombudsman, in one of the overlooked but perhaps most important paragraphs of her report, 5.17, states:

that is code of practice 26—

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That is a biting criticism of the way in which the tax credit system is working. The Paymaster General has been honest enough to admit in her letter to me that

It is recovery first and investigation later.

The right hon. Lady attempted to tackle that point in earlier debates, including when the hon. Member for Nottingham, North (Mr. Allen) raised the issue in the debate in Westminster Hall. She was careful in the words that she used. She talked not of investigation first and then recovery, but of notification before recovery. Notification and investigation are very different words and they have different effects. The effect of the Government's existing policy is that someone who has an overpayment through no fault of their own and entirely through the incompetence of the Inland Revenue will have that money reclaimed by the Government. They will then have to try to stop the reclaim. It is clear as well from the Paymaster General that the Treasury's position is not that there will be an automatic stop but that recovery can be suspended while the dispute is resolved. That there can be negotiation puts an entirely different gloss on the Government's policy. It allows the Government to recover tax credit overpayments from people who received those overpayments through no fault of their own. That is a major issue and one that the Paymaster General needs to address today and in her response to the ombudsman's report.

There is also the issue, which was raised by the shadow Chancellor, of whether the existing system is working effectively. The Government owe it to us and to themselves to investigate, two years into a new system, whether the payment mechanisms are sensible, whether they are working effectively and whether the transfer from a system of fixed awards, which we had under the working families tax credit and family credit, should be replaced with the existing backward-looking awards that are constantly changing.

Anybody who has read, as I am sure that the hon. Members for Normanton and for Doncaster, North (Edward Miliband) have, the Joseph Rowntree Foundation report of 2003 about the tax credit systems in Australia and Canada—Australia has the British system, while Canada has a fixed system—will know that the evidence is not clear about which is the more favourable. The report states:

It continues:

The report states that the answer to that question is not "self-evident".

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