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Tax Credits

6. Anne Main (St. Albans) (Con): What assessment he has made of the level of overpayment of tax credits in the last 12 months. [17042]

9. Tim Loughton (East Worthing and Shoreham) (Con): How many cases of child tax credit overpayment have been reported since the credit was introduced; and what amount of overpayment has been written off. [17045]

The Paymaster General (Dawn Primarolo): Estimates of numbers and values of overpayments or underpayments for the 2004–05 awards will not be available until family circumstances and incomes for 2004–05 have been finalised. Her Majesty's Revenue and Customs statistics that were published on 1 June for 2003–04 show that 1.9 million families had been overpaid by a total of £1.9 billion, as recorded on the system on 5 April 2004. Subsequent backdated payments in respect of 2003–04 awards brought the total value of overpayments for that year to £2.2 billion. The figures for 2004–05 will be available next spring.

Anne Main: I am afraid that the experience of my constituents, Mr. and Mrs. Keys, means that they agree with the Citizens Advice report of June that there has been a completely unacceptable error in the system, so I want a simple yes or no answer from the Minister. Mr. and Mrs. Keys were overpaid, but there was an error because they believed it was money with their names on it, yet it was grabbed back, which left them severely financially impoverished. They believed that they had been paid the money genuinely, so they genuinely spent it. The money has now been reclaimed, so will the Minister assure me—yes or no—that Mr. and Mrs. Keys and the thousands of other families in their situation will be able to reclaim retrospectively the money that she grabbed back from them?

Dawn Primarolo: The answer is yes. I will take the hon. Lady's representations, if she sends me the details, and give her a clear answer on her individual case.

Tim Loughton: If the Paymaster General were the finance director of a company that last year had overpaid its dividend by about £2 billion—representing a sixth in additional money—and had then told recipients that it was perfectly okay for them to spend that money, but subsequently had to write menacing letters to those people to say that they must pay the money back, even though that threatened them with dire financial circumstances, does she think that she would be entitled to keep her job?

Dawn Primarolo: As the hon. Gentleman knows—we have gone through the figures already this morning—those who notified the HMRC that their income grew by £10,000 a year or more and received more tax credits than they were entitled to will have been asked to make a repayment. He also knows that, where there is official error on behalf of the HMRC, there is the question of whether the amount can be written off. Finally, he is aware that, for those who are in hardship, there can be additional payments. If a company were as flexible and
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as direct as the Government in supporting those in the labour market, my right hon. Friend the Chancellor would be able to claim an even greater victory.

Mr. Robert Flello (Stoke-on-Trent, South) (Lab): My right hon. Friend will no doubt be aware that, in my constituency, about 8,000 families are benefiting from the new tax credit system. As a result, many thousands of families can now take jobs. Does she agree that, when Opposition Members lament the situation in which some families face hardship through overpayment, those tears are from a party that would scrap policies that have lifted 2 million children out of poverty? Are they not crocodile tears?

Mr. Speaker: Order. The Minister will comment only on the tax credit situation.

Dawn Primarolo: I thought you might say that, Mr. Speaker, so I shall concentrate in my response on saying how much I agree with my hon. Friend. His 8,000 constituents and many of our constituents are benefiting significantly from tax credits. They have been allowed to see an earnings growth of £2,500 before they have to notify any change in their circumstances. We all know that, while there are difficulties in the system, the system is working very well for the vast majority.

Rob Marris (Wolverhampton, South-West) (Lab): I urge my right hon. Friend to stick to her guns on tax credits. The system is benefiting about 7,300 families in my constituency. Will she reassure the House and outline some steps that are being taken by her Department to assist those who have difficulties in unscrambling the paperwork? Sometimes there seem to be rather large backlogs. What steps are being taken in that regard?

Dawn Primarolo: As my hon. Friend will know, I laid out clearly to the House, in six specific areas, how to ensure improvements in the administration of tax credits. As he acknowledges, those changes will improve the system. The policy point that all parties must address is that it is important to recognise that the system before tax credits was widely criticised as inflexible. It did not offer support in bringing people into work and it did not support families by giving most to those most in need. The question is whether we have a flexible system that is delivering our anti-poverty targets and helping people into work. The answer is yes. The challenge is to get the administration right.

Mr. Charles Walker (Broxbourne) (Con): Would not the best way of helping poor families be to lift the threshold at which people start paying tax? If there were a loss of revenue, perhaps we could fund the system by slimming down the Treasury, starting at the Treasury Front Bench and working our way backwards.

Dawn Primarolo: I am happy to speak to the hon. Gentleman privately to explain to him how the tax system works and the way that allowances benefit the wealthy more than the less well-off.
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As the hon. Gentleman well knows, tax credits are a way of ensuring that the most goes to those in greatest need. Nine out of 10 families benefit from this system. He needs to consider how we should support families, how we ensure that they can rise to the challenge of a flexible labour market and how we support them in work while ensuring that we eradicate child poverty and make sure that families can reach their full potential. There is no answer to those questions from Conservative Members.

Angela Eagle (Wallasey) (Lab): It sounds as if my right hon. Friend already knows, but may I caution her not to take the Conservative party's advice on tax credits? We should remember that people have to be in work if they are to benefit. The solution of the hon. Member for Broxbourne (Mr. Walker) would help only the rich. Will she keep in perspective what is happening in my constituency, where 12,500 children are benefiting? Although there are difficulties, which the Department is working out when they are brought to her attention, will she persist and realise that tax credits often give lone parents their first opportunities in many years—opportunities that the Conservative party never gave them—to earn their own living and to look forward to making progress in life, instead of rotting on the benefits on which they were left by the Conservatives?

Dawn Primarolo: Indeed. As my hon. Friend will know, employment for lone parents is rising from the appalling rate that we inherited from the previous Government. It is 55 per cent., so we are on the way to the target of 70 per cent. Parents, including single parents, constantly tell us that they want the opportunity to balance their family responsibilities with paid employment. The only way to do so is with a flexible system that supports them when their income drops and makes sure that an increase of over £2,500 in their salary does not cause an overpayment. My hon. Friend rightly said that the most important thing is to keep the principles in sight but drive down the administration, because tax credits should be right first time. That is our objective.

Mr. Mark Francois (Rayleigh) (Con): As the Minister has already admitted, overpayments have now affected nearly 2 million British families. Only two weeks ago, the National Audit Office had to qualify HMRC's most recent accounts of continuing tax credit problems. When will Ministers stop tinkering and get to grips with genuine reform of the tax credit system, which is over-complicated, poorly administered and a cause of genuine misery—[Interruption.]

Mr. Speaker: Order. I will not allow the hon. Member for Wallasey (Angela Eagle) to shout across the Chamber when she has made a contribution herself. It is bad manners.

Mr. Francois: Thank you, Mr. Speaker. As I was saying, when will Ministers get to grips with genuine reform of the tax credit system, which is over-complicated, poorly administered and causing misery to many families? It is time for action.
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Dawn Primarolo: The hon. Gentleman clearly does not understand how in certain circumstances an overpayment can arise when income increases over the figure declared to the Department by more than £2,500. He has still not addressed the fact that a fixed system will not support the objectives in a flexible labour market of eradicating child poverty and supporting people into work. The question is whether the hon. Gentleman supports those objectives. I agree that it is important that the system is accurate and delivers the money at the correct level from the first payment. However, it should maintain its flexibility so that, if people's income falls, they can be supported, and, if it rises by more than £2,500, they notify HMRC to prevent overpayment.

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