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House of Commons

Thursday 10 November 2005

The House met at half-past Ten o'clock


[Mr. Speaker in the Chair]

Oral Answers to Questions


The Chancellor of the Exchequer was asked—

Tax Credits (Staffordshire, Moorlands)

1. Charlotte Atkins (Staffordshire, Moorlands) (Lab): What assessment he has made of the impact of tax credits in Staffordshire, Moorlands in each year since they were introduced. [26722]

The Chief Secretary to the Treasury (Mr. Des Browne): With permission, Mr. Speaker, I should like to explain to the House the absence of my right hon. Friend the Chancellor of the Exchequer from today's questions. He is in Israel and the west bank, meeting the Israeli and Palestinian Finance Ministers, the Israeli Prime Minister and the Prime Minister of the Palestinian Authority. To help expedite the peace process and to foster enterprise in the west bank and Gaza, he is announcing a small loan facility worth a potential $400 million, building over a number of years, which will help to create thousands of jobs and small businesses.

In 2003–04, an average of 7,500 families in Staffordshire, Moorlands benefited from tax credits. Tax credits reach far more families on low or moderate incomes than any previous system of income-related financial support.

Charlotte Atkins: I am grateful to my right hon. Friend for that answer. Clearly, tax credits have brought huge benefits to my constituents, but is he aware that problems of overpayments persist? In my experience, they are caused largely by the faulty transcription of details over the telephone. How does he intend to address those ongoing problems?

Mr. Browne: My hon. Friend is correct. Tax credits have lifted more than 500,000 children out of poverty since 1998–99, but I accept that computer and administrative problems in the past have resulted in a number of incorrect overpayments. We are aware of those problems, and have apologised for them repeatedly. On several occasions, my right hon. Friend the Paymaster General has set out what we are doing to improve the tax credits system. She told the Treasury Select Committee on 26 October that, subject to testing,
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where a claimant disputes the recovery of an overpayment, action would be taken to prevent automatic recovery until the case had been looked at. Final testing has been completed successfully, and Her Majesty's Revenue and Customs has now implemented the procedure.

Richard Ottaway (Croydon, South) (Con): Whatever the merits of tax credits, overpayments are causing serious problems. Will the Chief Secretary clarify what he has just said? Will all overpayments resulting from bureaucratic cock-ups be written off?

Mr. Browne: I will not say precisely what the hon. Gentleman invites me to, but he asked me to clarify the matter and I shall do so. We have made it clear that our objective was to ensure that, when a claimant disputed an overpayment, action would be taken to prevent automatic recovery until the case had been examined. We have been able to achieve that, and either I or my right hon. Friend the Paymaster General may have an opportunity to provide details later. However, the present procedure is manual, and we are working to introduce a fully automated system in due course.

Mr. David Laws (Yeovil) (LD): Will the Chief Secretary confirm that people in Staffordshire, Moorlands will continue to face the problem that the ombudsman called "systemic maladministration"? He has set out today the changes that will be put in place, but overpayments will still be recovered before his Department has assessed whether, under the code of practice, they are recoverable. Is not that the systemic maladministration that the ombudsman described? Will not the problem remain very considerable until the right hon. Gentleman and the Paymaster General deal with it?

Mr. Browne: I accept that the ombudsman's report on tax credits used that phrase, but it did not say that the tax credits system was in general disarray. The hon. Gentleman constantly makes that suggestion but, given the scale of the undertaking, the system has been broadly successful. He encourages me to write off all overpayments, but I am not prepared to do so. Of course, some will be written off, or people will be unable to pay the money back, but HMRC's duty is to seek recovery where that is possible. However, we have made the position perfectly clear as regards errors made by HMRC.

Mr. John McFall (West Dunbartonshire) (Lab/Co-op): I welcome the Chief Secretary's comments on the disputed overpayments. He knows that the Treasury Select Committee is looking into the administration of tax compliance. On behalf of my colleagues on the Committee I welcome the progress that has been made, but we will keep our eye on the system so that it becomes more efficient over the months and years. I am aware that on 30 September the renewal process was completed. What assessment has the Department made of that, and can my right hon. Friend make a statement?

Mr. Browne: I am grateful to my right hon. Friend for his support and I am sure that the Treasury Select Committee will continue to review these matters, as it
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should, and I welcome that. As my right hon. Friend pointed out, the renewal process commenced some time ago, but it is still early days in this year's renewal process to give a full review of how well it is going. Early indications are, however, that some people fail to renew and termination notices have been sent out to those who have not renewed. If those people come back to us with good reason why they are unable to respond, their payments will be reinstated. Last year that happened with about half of the people. Her Majesty's Revenue and Customs are continuing to make efforts to remind people. Hon. Members will be aware of the high profile publicity campaign to raise awareness of the deadline. In addition, we have made significant numbers of outward bound calls to claimants to remind them of the need to renew.

Mr. George Osborne (Tatton) (Con): I fully understand why the Chancellor of the Exchequer cannot be here and I wish him well on his trip to understand more about the middle east. I hope for reasons of prudence that he got a cheap-day return.

Turning to the tax credits fiasco, the Chief Secretary will be aware that the parliamentary ombudsman said recently to a Select Committee of this House that she is "hugely concerned" that the Government are simply "picking and choosing" from her devastating report and that the Government are

Is she right or wrong?

Mr. Browne: I have already referred to a quotation from the ombudsman's report and I will repeat it for the hon. Gentleman. The report

On the contrary, it recognises that, given the scale of the undertaking, its introduction has been broadly successful. We have responded in detail to the ombudsman's recommendations. The hon. Gentleman is correct that not all of them have been accepted. The fundamental point is that this process is bringing significant numbers of children in particular out of poverty. The question for him is: where does he stand? Is his position still the same—that he does not think that the tax credit system has helped to reduce child poverty?

Mr. Osborne: The Chief Secretary seems completely unaware of the real situation. Thousands of families are being driven below the poverty line by the administration of tax credits. The citizens advice bureau, which has to pick up the pieces from this mess, told me this morning that it is not uncommon for it to apply to charities for food vouchers to help desperate families who are not getting the tax credit payments that they expected. The Chief Secretary has told us that things are getting better, but the National Audit Office tells us that they are not. Is it not time that he joined a growing consensus that believes that we should consider moving to a system where payments are more certain and less prone to error, or has he decided to join the Prime Minister in his bunker?

Mr. Browne: The hon. Gentleman's assertion about the tax credit system and its effect on poverty is simply not true.

Mr. Osborne: I am adopting someone else's quote.
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Mr. Browne: The very fact that the hon. Gentleman adopts someone else's quote does not make it true. [Interruption.]

Mr. Speaker: Order. The hon. Member for Tatton (Mr. Osborne) asked me a favour to speak on Question 1 and now he is shouting from a sedentary position across the Chamber. We cannot have that.

Mr. Browne: The tax credit system has served to take a significant number of children out of poverty and 6 million families throughout the country are taking advantage of it. It was set up in a detailed design in consultation on child and working tax credits published alongside the 2002 Budget. At the time the Government recognised that we would need to monitor the operation of the system and learn lessons in the light of experience. That is exactly what we have been doing. My right hon. Friend the Paymaster General has periodically reported to the House on that, and that process will continue.

I know that the hon. Gentleman desires simplicity. Indeed, we know of his desire to simplify the tax system to a flat tax. He will know that, just like the flat tax, simplification always introduces significant inequities. A flat tax would cost £50 billion of public spending, and I am sure that the simplification that he suggests would drive a significant number of people into poverty, as, indeed, did the previous system of support in work.

Mr. George Mudie (Leeds, East) (Lab): In every other aspect of HMRC work there is a right of appeal to an adjudicator, but not for tax credits. Will the Minister assure the House that in the review of the code he will give that right of appeal genuine consideration?

Mr. Browne: I can answer that question simply: yes, of course we will. It was one of the ombudsman's recommendations and we are actively considering it.

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