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In the Chancellor’s absence, we have the poor new Chief Secretary to the Treasury. He, at least, must know something about the chaos in the tax credits system as he happens to represent the constituency
with the largest number of people who are overpaid and the largest number who are underpaid in the entire country. Half of all the hon. Gentleman’s constituents in East Ham who claim tax credits receive the wrong amount from the Department that he helps to run.
The Chief Secretary will undoubtedly tell us that the amount being overpaid across the country has fallen a little, to a mere £1.7 billion. When he does so, perhaps he will confirm that the number of people being overpaid has risen, with almost 3 million people getting the wrong award. When he tells us that help is going to the poorest families, will he also confirm that more than 100,000 of the poorest families—those on incomes of less than £5,000—did not receive the level of support to which they were entitled? When he tells us about what he has called in the past couple of days the “improved performance” of the tax credits system, will he explain why the number of people in his constituency being overpaid has doubled in a year? Why did NACAB tell me yesterday that there was no sign of a reduction in the number of families contacting it?
The Chief Secretary to the Treasury (Mr. Stephen Timms): Will the hon. Gentleman give way?
The tax credits system is a shambles. The Chief Secretary knows that, as does every MP in this House. The millions of people caught in the system’s web know it, too—it is a shining monument to the incompetence of this Government. On that note, I give way to the Chief Secretary.
Mr. Timms: The hon. Gentleman referred to the report published yesterday by the Treasury Committee and to the remarks made in the introduction by the hon. Member for Sevenoaks (Mr. Fallon), who said that tax credits were right in principle. Does he agree with that?
Mr. Osborne: Yes, I believe that tax credits are right in principle, but I want a system that works. The present system does not work, and that is why we are having this debate.
Mr. John McFall (West Dunbartonshire) (Lab/Co-op): Will the hon. Gentleman give way?
Mr. Osborne: I am happy to give way to the right hon. Gentleman. I do not know whether he has checked the figures for his constituency produced by the Inland Revenue, but 5,200 people there received the wrong payment.
Mr. McFall: Does the hon. Gentleman accept that the Treasury Committee is an all-party Committee, and that its report supported the principle of tax credits? The next question is, does he support a flexible system or a fixed system for tax credits?
John Bercow (Buckingham) (Con): My hon. Friend supports a system that works.
Mr. Osborne: As my hon. Friend the Member for Buckingham (John Bercow) suggests, I support a tax credits system that works. Towards the end of my speech, I shall speak specifically about whether the system should be flexible or fixed. I note what the Treasury Committee report says about the variability of low incomes, and its request that the Chancellor keep an open mind about moving to a more fixed system.
David Taylor (North-West Leicestershire) (Lab/Co-op): The hon. Gentleman has said that his party supports tax credits in principle and that it wants a system that works. However, does he accept that the variability of low incomes is bound to mean that a substantial number of claims will have to be adjusted at the end of the financial year, under any system? I used to be an accountant, and I speak as one used to dealing with complex forms. Does the hon. Gentleman also agree that, to understand the statements that people receive, one needs a post-graduate qualification in encrypted Sanskrit?
Mr. Osborne: The hon. Gentleman makes his point extremely well and I had better support his ten-minute Bill now.
Today’s debate should focus not just on the mistakes of the past, but the prospects for the future. I have four questions for the Chief Secretary to answer when he responds. They lie at the heart of whether the Chancellor’s tax credit system, designed by the Economic Secretary, can ever be made to work in future. First, can the Chief Secretary confirm that the huge annual overpayments—almost £4 billion in two years—are not the result of what the Paymaster General once dismissed as “teething problems”, but are now a permanent feature of the tax credit system? He admitted as much last week when he set out the latest emergency reforms to the way in which the credits operate. He said—this is a striking statement—that once the changes are
“fully implemented, we expect them to reduce overpayments in future years by around one third”.
So, even if the reforms work as well as he hopes—let us face it, nothing else that the Government have promised on tax credits has worked—two thirds of the overpayments will remain. Almost 2 million people a year will go on receiving the wrong tax credit payment and will face having the money clawed back off them, with all the hardship that we know that brings.
Ms Sally Keeble (Northampton, North) (Lab): Will the hon. Gentleman give way?
Mr. Osborne: I am happy to give way because I have been checking on the figures in the hon. Lady’s constituency. In Northampton, North, 1,800 people were underpaid and 3,800 people were overpaid. That is almost half of all the people in her constituency who received tax credits.
Ms Keeble:
Yes, and quite a lot of them came to see me. I helped them with that, which has given me a good understanding of the tax credit system. [ Interruption. ] It was a special surgery. Does the hon. Gentleman
accept that the reduction of one third would follow from the change in the income disregard, but that the other overpayments should also be reduced by the changes to the reporting requirements? That was another really important recommendation made in the pre-Budget report.
Mr. Osborne: As I understand it—there is an opportunity for the Chief Secretary to clarify this—the reduction of a third would occur if all the changes, both the reporting requirements and the increase in the disregard, were to take place. The increase in the earnings disregard simply reclassifies overpayments as disregarded income. That is one of the ways in which the Government are dealing with the problem.
As I said, the Chief’s Secretary’s admission was extraordinary. As the Child Poverty Action Group reminded us last week:
“behind these figures are thousands of families struggling to survive when the overpayments are clawed back”.
Not that we need reminding—we see that every week in our constituency surgeries. A disabled young constituent of mine told me that she was
“at the point of despair”
because of the clawback of tax credits that were rightfully hers. The chairman of the Inland Revenue wrote to me about the case earlier this year. He said:
“I am sorry to say that when we processed your constituent’s claim we missed including her new income details”.
How can one possibly miss including the income details when one processes a tax credit claim? That reveals a deep flaw in the system.
The new changes announced by the Government include new obligations on claimants to fill in more forms and to file them more quickly—any bureaucracy’s answer to any problem. Why do not the changes also include new obligations on the Treasury? The parliamentary ombudsman recommended a year ago that the Government introduce a statutory test for the recovery of overpayments that gives people a right to appeal to an independent tribunal when they think that the Revenue has got things wrong. That is the same test that exists for other benefits. The parliamentary ombudsman said that the test would
“strike the right balance between the obligations on the part of the administrators and those on the part of the recipients”.
NACAB says today that the test would
“build confidence in...the decisions being made”.
Why have the Government refused to introduce that statutory test? Why are they instead imposing new obligations on the recipients that are not matched by new obligations on the administrators?
John Bercow: Surely the impenetrable complexity of the system is such that it is understood only by the Chancellor of the Exchequer, if at all. Is it not distinctly shameful for him to have devised a system that is even more complicated than the Schleswig-Holstein question? At least three people understood that—even if one of them went mad, the second died and the third forgot what the answer to the question was.
Mr. Osborne: Believe it or not, I studied the Schleswig-Holstein question at university, but I am not going to go into it. My hon. Friend makes a telling point. It is a remarkable achievement of the Chancellor that he has made the tax affairs of the poorest almost as complex as the tax affairs of the richest.
Mr. Mike Weir (Angus) (SNP): I was interested in what the hon. Gentleman said about the new forms. What good is there in changing forms if part of the problem is that the information does not seem to get on to the computer system in the first place? The people who return forms still end up with overpayments or the wrong payments because the information goes missing, does not get put on to the computer or the computer seems unable to recognise it.
Mr. Osborne: That is one of the rare issues on which I agree with the hon. Gentleman.
The other question for the Government on overpayments is, why have they not implemented their own promise last year to pause before proceeding to recover an overpayment so that they can work out whether it is the Revenue that has made the mistake? Again, the parliamentary ombudsman recommended that approach. So, too, did NACAB. The Select Committee said in its report yesterday that that was
“crucial, in the interests of natural justice.”
However, the Committee also said that it feared that the Government promise had been “sidelined”. Why have the Government reneged on that promise? Perhaps the Chief Secretary can explain.
If multi-billion pound overpayments affecting millions of people are to be an annual feature of the tax credit system, the Government need to implement the changes needed to protect the rights of our most vulnerable families. That brings me to the second question—when will the ongoing fiasco of the computer system be resolved? Again, I recently dealt with a case in my constituency of a single parent who repeatedly tried to tell the Inland Revenue that she was being overpaid. She was ignored for months, only for her tax credits suddenly to be suspended altogether two weeks before Christmas. She wrote to me to say that she could not buy her two young children presents because she was struggling to provide them with even the basics. A month later, after Christmas, the Revenue wrote to me admitting that it had got the case wrong because of
“a technical fault we are experiencing with our computer.”
That was this year. That was the same computer that the Paymaster General told the House a year ago was “stable and performing...well”. Does the Chief Secretary still think that the computer is stable and performing well? Will he repeat that phrase when he gets up to speak?
The Government amendment says that the IT problems affected only
“the early stages of implementation”.
If Ministers really think that that is the case, I am afraid that they are living in a fantasy world. Certainly the Select Committee does not agree. It says in its report that IT error remains a “significant” cause of the tax credit mistakes. Do Ministers not realise what is
going on in their own Department? The report goes on to talk about the Paymaster General’s evidence. It states:
“The factors cited by the Paymaster General...as contributing to the problem of overpayments do not appear to give us a comprehensive account of the reasons why overpayments have arisen”.
“It is obvious to us that the Paymaster General’s account makes no reference to causes which have arisen as a consequence of the Department’s own processes—for example official error and IT error”.
Jeremy Wright (Rugby and Kenilworth) (Con): Does my hon. Friend agree that the position on information technology is even worse than he has set out? Is he aware that in my constituency I have a case in which a lady was overpaid repeatedly? She told the authority that that was happening and the reply was, “Yes, we know, but the computer won’t let us put it right.”
Mr. Osborne: It is an extraordinary example—one of many. I suspect that every Member could produce similar examples of computer errors.
The Government finally sacked EDS, the company that provided the computer, and announced triumphantly that the company would pay them compensation. However, as yesterday’s Select Committee report shows, the deal done by Ministers means that—this is truly incredible—full compensation is paid only if EDS wins other Government contracts. In short, the company that Ministers believe is guilty of messing up the tax credit computer will pay full compensation to taxpayers only if it is given a chance to mess up another Government computer system. Only this Government could negotiate such an incompetent deal, and now they refuse to discuss the details of the deal on the ground of commercial confidentiality. The Select Committee is right—Ministers should be accountable for the mistakes that they make and subject to parliamentary scrutiny on the arrangements into which they enter on our behalf, instead of hiding behind commercial contracts.
Of course, it is not only the computer that has cost the taxpayer millions of pounds, but fraud, which brings me to my third question—what is the true cost of tax credit fraud and what are the Government doing to tackle it? The Government refuse to tell us the true extent of tax credit fraud. According to the Paymaster General, there have been
“persistent attempts by organised criminals to obtain tax credits by using stolen or fictitious identities”.
We know that the Government had to abandon their online application system six months ago after systematic abuse. We know, too, that although Ministers say that they are acting tough, there were just 211 prosecutions for tax credit fraud, with only two for organised tax credit fraud, out of 6.5 million applications. However, we do not know when Ministers knew for the first time that systematic fraud was taking place or how much money has been lost. Does the figure run into hundreds of millions of pounds, or even billions?
Ministers were warned about the possibility of fraud before the tax credit system was introduced. Why did the Chancellor ignore the series of security checks that
was proposed by the right hon. Member for Birkenhead (Mr. Field) when he was Minister for welfare reform? The right hon. Gentleman said earlier this year:
“After I resigned ... the counter-fraud measures were not carried out and now it shows in the figures”.
Why were those counter-fraud measures not carried out?
What about stopping fraud in the future? Surely the Select Committee is right when it warns that increasing the earnings disregard to £25,000 creates an incentive for further fraud as people deliberately fluctuate their incomes from year to year, but the Government have done nothing to prevent that from happening. Will the Chief Secretary address that problem today, too?
The Paymaster General promised the House that the Treasury would provide
“more comprehensive information on the level of claimant error and fraud ... in spring 2006.”—[ Official Report, 10 January 2006; Vol. 441, c. 551W.]
I know that winter has descended early on the Labour party and it is getting its seasons muddled up, but it is now June. Where is the information that we were promised for the spring?
For the second year running, ministerial incompetence and computer chaos have caused hardship for hundreds of thousands of people and cost the taxpayer billions of pounds, so I ask my final question—is it not time that the Government looked at the design of the tax credit system? The Government say that money has got to the poorest, but after spending more than £15 billion a year, it would be extraordinary if it had not. However, that comes at a price. In the words of the right hon. Member for Darlington (Mr. Milburn), a great friend of the Economic Secretary to the Treasury, in the Budget debate in the House:
“poverty has become more entrenched.”
The right hon. Gentleman said:
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