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“to ask whether the model of tax credits regime which the Government has adopted is the right model.”
That is not what the Select Committee has pretended to do. The Committee also took evidence from a series of people, as the Chief Secretary will know, including one-parent families, who want to see a return to fixed awards; the Institute for Fiscal Studies, which believes that that option needs to be looked at seriously; and the Child Poverty Action Group, which has said that it believes that if the existing system cannot be made to work, there should be a major redesign. If the Chief Secretary really believes that the system of fixed awards is so flawed, why do not the Government carry out a public assessment? Why do they not commission some sort of research about other systems in the world? We have this extraordinary debate where it is hinted that a fixed system would be unacceptable, yet the Government simultaneously say that the system is being kept under review.
I noticed today that one of the things that the Chief Secretary is trying to do by continually coming back to the issue of a fixed award system, which was not even an aspect of the Select Committee’s report, or one of the recommendations of the ombudsman, is to try to distract attention from the lack of progress on some of the major issues in the ombudsman’s report, which came out a year ago. I find it extraordinary that the Chief Secretary is unable to say how many of the ombudsman’s recommendations made a full year ago have been implemented. I find it extraordinary that he does not know that the principal recommendation that the ombudsman made has been rejected by the Government. It is extraordinary that the Government do not seem to have taken on board the implications of the existing system for low-income families. It is also extraordinary that, one year after the ombudsman’s report, which was the most powerful critique of the impact that the tax credits system was having on some low income families and will probably never be bettered in terms of its insights into the tax credits system and its recommendations for putting it right in its existing form, a cross-party Select Committee with many thoughtful but also instinctively loyal Members of the Government, a majority Labour Committee, should be reporting that
“we are not convinced that the Paymaster General and the Department fully realise the extent to which HMRC needs to re-focus its administrative structures for tax credits around the needs of claimants.”
It is astonishing that the Select Committee has gone on to conclude:
“We consider it would be much more helpful if the Department were to focus on the quality of the service it provides to claimants, rather than seeking to attribute the majority of problems with the tax credits regime to error or omission on the part of claimants.”
The Select Committee refers to the Paymaster General’s statement about a year ago when she attributed virtually every aspect of the overpayments to errors that other people were making, and no aspect of the overpayments to the errors that are being made by the system itself and by the Inland Revenue.
Mr. Mark Francois (Rayleigh) (Con): Does the hon. Gentleman agree that if, as the Government claim, the pre-Budget report package is supposed to be essentially revenue neutral, and because the tenfold increase in the disregard is expensive—although the Government will not tell the House how much it costs, even though we know that they know—in logic, the only way to keep the package neutral is that HMRC will have to rule more harshly on those other decisions about who is responsible for overpayments, and that will have a deleterious effect on the low-income families who were supposed to be helped in the first place?
Mr. Laws: The hon. Gentleman makes a serious point about the Government’s package that was presented in the PBR last year, and the Treasury Committee’s report was fairly scathing in setting out the lack of evidence about costings for those changes. I suspect that that is either because the disregard of £25,000 will be much more expensive than the Government expect, or perhaps the Government were never expecting ever to be able to reclaim a lot of those overpayments in any case, and therefore have treated them as written off.
Let us come to the main recommendations of the ombudsman in her report last year, and the main recommendations about overpayments in the Select Committee’s report and what I would like the Government to focus on as their first priority. I will touch upon some of the interesting issues that have been raised with regard to fixed awards and some of the comments about means-testing. There are challenges there for all the parties. But the first matter to get right is the system as it is working now.
There are a number of problems in the ombudsman’s report that, in fairness to the Government, they have started to try to deal with. Unfortunately, the problems that they seem to have prioritised have been some of the smallest and therefore the easiest to change. The biggest recommendation of all, which would have involved a lot of money, writing off overpayments due to official error, has been disregarded by the Government. But the really critical recommendations that the ombudsman has made concern the way in which overpayments are treated. That was clear from today’s briefing by the National Association of Citizens Advice Bureaux, from recommendations 10 to 17 of the Select Committee’s report, and from the shadow Chancellor’s questions, but it was not clear in the answer from the Chief Secretary. We must move away from the type of system that one-parent families described in the Committee’s evidence as a system designed by HMRC that would work with IT rather than with claimants. That is the type of system that the
Paymaster General described to me in a letter last June, when she said that it was right that there should be
“a presumption of recovery by means of reducing or stopping further payments”
because most overpayments would be due to errors by claimants. In other words, the system as it has always worked from the beginning has been driven by IT and computers, not by any sense of justice.
In light of the responses by the Paymaster General and the Chief Secretary, I am very disappointed that one year on from the recommendations made by the parliamentary ombudsman, the Government seem to have made absolutely no progress on putting in place a pause so that people are able to challenge the overpayments that have been alleged against them. That pause must not only mean that people are not guilty until proven innocent but allow them to understand why the overpayment has occurred. At the moment, the information about that is completely inadequate in most cases.
Ms Keeble: This is a very important point that comes back to how one manages the collection of debts, which is what they are in some instances, from people on low incomes. We must ensure that, in the name of having a pause, we do not build another big delay into the system that makes it worse for people who are having difficulties. That is not a flippant point but a serious one about managing income, repayments and debt.
Mr. Laws: The hon. Lady makes a legitimate point about the balance between not allowing people to get further into debt and overpayment and giving them a reasonable breathing space to challenge overpayments. I am sure that she accepts that the existing system that presumes that people are guilty until they prove themselves innocent is inadequate and, as the ombudsman puts it, systemic maladministration. It is fundamentally unjust.
What has struck me from my own constituency cases is the complexity of making decisions about many of the cases where overpayments occur. Looking at the system from the top, one might think that one would be dealing either with an overpayment caused by an outright error by the Inland Revenue, where it was obvious to the person that £1 million had turned up in their bank account, or the opposite, where there had been a case of fraud. A huge number of cases are much more complicated, and the tax credits system needs to deal with that. They usually arise when individuals have accurately reported information over a helpline or on paper to the Inland Revenue. Those individuals usually then assume that the Inland Revenue will use that information correctly, but often it does not. It makes errors that it expects people to pick up from extremely complex forms which most people do not understand, and which, in fact, many Members of Parliament probably would not understand.
I can think of an enormous number of cases in my advice centres just over the past few weeks. People have reported that in a particular year they had no income and then have gone into a job, and the tax credits award notice that came back showed them simultaneously working 40 hours and also having no
income. People have been on the basic state pension but the award notice has said that they are on pension credit and they have not understood that. People have put in one application for a disabled child with particular mobility components and something else has turned up on the form. Many of these cases are not black and white. The existing system, which applies the double lock whereby someone has somehow to prove not only official error but that they could not have found it by looking through all the forms, is completely inadequate for most of our constituents.
I cannot understand why the Chief Secretary does not accept that the systems of the Department for Work and Pensions and the Inland Revenue are fundamentally different in relation to the assumptions that are made about error and reasonableness. We need a fairer test.
Jim Cousins (Newcastle upon Tyne, Central) (Lab): May I draw the hon. Gentleman’s attention to the fact that his predecessor as Front-Bench spokesman, the hon. Member for Northavon (Steve Webb), was apparently able as a Member of Parliament to claim tax credits, perfectly properly, by discounting his pension contributions from his income? Does he find, as I do, that most of our constituents do not do that, and that that accounts for a great deal of the overpayment?
Mr. Laws: With all due respect to the hon. Gentleman, who is my former colleague on the Treasury Committee, I am sure that he is making a serious point—that one needs to be a professor of social policy and a former fellow of the Institute for Fiscal Studies to understand this system. I was once a Treasury spokesman for my party, and I am now supposed to be the Work and Pensions spokesman, yet I cannot understand some aspects of the forms that the Government send out. They are still not simple enough, and it is still unsatisfactory that there is no statutory test. It is bizarre that the Government have been maintaining several different standards for writing off overpayments over the past couple of years. It is disappointing that none of those issues was addressed by the Chief Secretary. The Treasury Committee’s report goes over incredibly important ground that we knew about a year ago following the report by the parliamentary ombudsman.
Mr. Weir: I am interested in the hon. Gentleman’s remarks about the complexity of the system. I used to be a solicitor, and I find it very difficult to follow. The situation is even worse than he suggests. A constituent of mine recognised that she had been overpaid and continually told the Revenue so, but it would not accept it. Eventually she got a letter from it claiming an overpayment and saying that although she had repeatedly said that she was being overpaid, it was not reasonable for her to accept the payments. What sort of reasonableness are the Revenue working to when they send out such letters?
Mr. Laws:
The hon. Gentleman is right. Many hon. Members who have had people with tax credit
problems coming to see them will recognise such cases, and yet will be entirely uncertain about how the Inland Revenue would deal with them in practice. I have referred cases to the tax credits office where a correct judgment has been made to overturn the overpayments. I have had other cases where there is still fundamental injustice—sometimes involving people with serious disabilities or people with learning difficulties who could not possibly be expected to understand aspects of the form having given the correct information to the Treasury.
Mr. Mudie: I listened with interest to the hon. Gentleman’s answer to my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins). I went on television to defend the Liberal spokesperson for claiming tax credit despite a wage of about £60,000. This is a good opportunity to put that on the agenda. My personal view is that if a system directed at the poorest and most vulnerable extends to people such as MPs, that clearly pushes a lot of work on to the Revenue that it should not have because we should not be able to claim. The system should be tighter and directed at the most needy.
Mr. Laws: The hon. Gentleman makes a sensible point. As he says, people are entitled to claim from a system that the Government have established and on which they have a legitimate claim. He will know that there will be huge sympathy for his viewpoint. It seems bizarre that people who otherwise pay the upper rate of tax can get such benefits. The Government’s difficulty with a means-tested system is that if one wants to deny the benefits to such individuals, one has to taper it away more sharply, which raises the disincentive issues mentioned by the shadow Chancellor.
When the Paymaster General winds up, I would like to hear what progress has been made on the crucial recommendations made by the parliamentary ombudsman a year ago, which the Treasury Committee has felt it necessary to come back to in its report. That should not have been necessary. The Government should have been able to progress these issues by now, even if they had decided to make changes that could not have been implemented for some time.
I would also like to follow up the shadow Chancellor’s point about fraud. Those matters deserve a much bigger debate than we have today. However, it is clear that the Comptroller and Auditor General was expecting the updated fraud figures this spring. Have provisional figures already been made available to him? When will they be given to the House?
We need to have a wider debate on fixed awards and the balance between flexibility and stability. The Select Committee acknowledged that it did not fully investigate that in the report. It would be enormously beneficial to the House if it could examine some of those issues in future. Even the Government have had to learn to some extent from their experience when the original design of the tax credits system went wrong. The Chief Secretary’s claims that a fixed award system would be wrong or damaging sits ill with the Government’s statements that they are keeping the matter under review. If they are keeping it under review, it would be interesting to know what they are doing to review it.
Rob Marris (Wolverhampton, South-West) (Lab) rose—
Mr. Laws: Are the Government simply keeping it in the bottom drawer or doing anything active to discover whether the sort of system that exists in Canada—doubtless the hon. Member for Wolverhampton, South-West (Rob Marris) is about to brief us on that—should apply in this country?
Rob Marris: The hon. Gentleman has been generous in giving way. Of course, we acknowledge that there are problems with the system. As a Government Back Bencher, I know where my party is going and I have some idea now of where the Conservatives are going—although they are not entirely clear—but I am beginning to feel like one of the hon. Gentleman’s constituents in Yeovil because I do not know what his party stands for. He says that we need more debate here and more debate there—that is good—but his speech, with interventions, has lasted more than 20 minutes and he has not outlined his party’s policy. Will he please do so?
Mr. Laws: I advise the hon. Gentleman to read the Select Committee report and the parliamentary ombudsman’s report and ask the Government why they have not implemented the recommendations, which we support, that should have been implemented as a priority a year ago. I ask the hon. Gentleman to ask the Chief Secretary to consider seriously the case for a fixed award system such as that in Canada. I thought that he would brief us on Canada’s excellent experience of a fixed and stable system. The Government should examine that option because stability is as important if not more important than flexibility for families on low incomes.
We all understand that the Government have made, at considerable cost to the public finances, an enormous commitment to trying to reduce child poverty and improve work incentives. They have changed the terms of the political debate, even though there are some major problems with the design of tax credits and the extent to which we can rely on increasing use of means-tested benefits. The Chief Secretary will know about that from his time in the Department for Work and Pensions, dealing with the pension credit.
My major criticism of the Government is not that they have rejected all our proposals for a fixed award system, but that we are sitting here, one year after the parliamentary ombudsman reported and two years after we knew about the problems, and the most important recommendations have not been implemented. I do not like to personalise such matters but it is regrettable that the Chancellor of the Exchequer has not bothered to be here today and that he can find time to change his diary and deal with international issues but cannot find time to tackle an important issue such as this. It is also regrettable that much that the Paymaster General has said in the past couple of years has been complacent and reflected a state of denial. That must lie behind the fact that a year has passed and yet we have made no progress on the
key issue. I therefore believe that the Department would benefit from new ministerial responsibilities for tax credits.
I started by quoting from an excellent leading article that appeared in the Financial Times on the day when the tax credit figures were published last week. It concluded that the Chancellor’s
“failure to sort out the tax credits mess bodes ill for this government, the Labour party and low income working families.”
I hope that Ministers will listen to hon. Members today. If they do not listen to Liberal Democrat Members, I hope that they will listen to the ombudsman and their colleagues on the Select Committee. If they do not, they will pay a high price at the ballot box in losing the votes of precisely those people whom the tax credit system was designed to help.
3.4 pm
Mr. John McFall (West Dunbartonshire) (Lab/Co-op): It is a funny old world when both Opposition parties tell us that we must refer to the Treasury Committee report to find out where we are going. Like my hon. Friend the Member for Wolverhampton, South-West (Rob Marris), I am puzzled about where the official Opposition and the Liberal Democrats are going.
The official Opposition proposal for a more flexible inflexible system is something to get one’s teeth into. If the Conservative party is a serious party, its members must stand up to the plate on the matter. At Prime Minister’s questions, the Leader of the Opposition referred to the Treasury Committee report and was misleading. I looked at the Conservative website’s home page today. It states that, as a result of the report, the Opposition would hold a half-day debate and that
“Mr. Osborne was speaking as the cross-party Treasury Select Committee issued a report condemning the tax credit system”.
That is wrong, wrong and wrong again.
Our Committee is regularly mentioned in the House. I love hearing the Opposition referring to the noble position that I take on specific issues when it pleases them and I am delighted that the Committee’s report forms the backbone of the debate. The official Opposition and the Liberal Democrats have exposed it to the light.
Mr. Laws: I believe that we are considering the sub-Committee’s report. The Chairman of the sub-Committee launched the report by saying that the tax credit system was not fit for purpose. The right hon. Gentleman is therefore in danger of giving a false impression about the extent of support for the system.
Mr. McFall: Absolutely not. I am surprised at the hon. Gentleman, who has served on the Treasury Committee. He should know the rules. The sub-Committee is a creature of the main Committee. The sub-Committee does not publish a report by itself. We are considering a Treasury Committee report and the Chairman of that Committee is the right hon. Member for West Dunbartonshire. I am in my place to deal with the comments about the main Committee’s report.
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