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Dr. Vincent Cable (Twickenham) (LD): Will the Secretary of State spell out the Government’s responsibilities when the market price of electricity falls below the cost of privately generated nuclear power, making the company insolvent? Is it not inevitable that the taxpayer will have to subsume the liabilities, as it did with British Energy in the past?

Mr. Darling: The system that we have in place should ensure that we have viable generating companies. The hon. Gentleman referred to problems in the past that, as I said earlier, largely stemmed from the fact that successive Governments did not pay enough attention to the true economic costs of generation, especially nuclear power. The system that we have now is far more robust than the system we had then.

Ian Lucas (Wrexham) (Lab): I warmly welcome the Government’s statement that they will provide strong support for on-site electricity generation, including solar panels. That will be warmly welcomed in Wrexham and by Sharp, which manufactures solar panels. Some £50 million was made available by my right hon. Friend the Chancellor in the Budget for microgeneration, but when will the detailed roll-out of that scheme be clarified by my right hon. Friend’s Department?

Mr. Darling: I am grateful to my hon. Friend for his support. He is right that solar panels have made a contribution, and I hope that they will make a greater contribution, to providing energy for households. We should be in a position to make some further proposals in the not-too-distant future.

Mr. Henry Bellingham (North-West Norfolk) (Con): Is the Secretary of State aware of how disruptive offshore wind farms are to inshore fisheries? Is he aware that there are no proper compensation arrangements in place for fishermen, especially those who fish in the Wash? Will he look carefully at that issue before the offshore wind farm programme is further rolled out?

Mr. Darling: I noticed that the e-mail from the hon. Member for New Forest, West said that wind power did not get a good review. He obviously had the hon. Member for North-West Norfolk (Mr. Bellingham) in mind. I am well aware that many people find offshore wind farms visually intrusive and fishermen have expressed concerns. However, it is possible to reach a compromise on all those matters. I visited a wind farm off the north Kent coast this morning. It generates a substantial amount of electricity, enough for about 100,000 houses. The hon. Gentleman perhaps illustrates the problem that, whatever form of generation we decide on, there will always be people prepared to object to it. I happen to think that offshore wind generation should be encouraged, provided that we get the arrangements right in each case.

Mr. Gordon Prentice (Pendle) (Lab): Will the private sector bear the whole cost of providing security at nuclear plants? Would another Chernobyl mean another energy review?

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Mr. Darling: I have said that people coming forward with proposals to build a nuclear power station will be responsible for meeting the costs of building, operating and maintaining the plant, and of decommissioning it. I appreciate where my hon. Friend is coming from, but I happen to disagree with him as I think that it will be important to have a mix of energy generation in the future.

Richard Ottaway (Croydon, South) (Con): Given what Labour Members on the Benches behind the Secretary of State have had to say, I do not think that he is in a position to lecture anyone about consensus. I welcome his nod towards nuclear, but his statement leaves more questions than answers. A few months ago, the Minister for Energy announced that co-firing would be included in the energy review. I assume that the right hon. Gentleman knows what that process is—

Mr. Darling indicated assent.

Richard Ottaway: I see that the right hon. Gentleman understands. Will he explain what his conclusions are?

Mr. Darling: Of course I understand what co-firing is. It is referred to in the energy review, and it is something that we ought to encourage. It is useful in the disposal of waste, and it also means that less coal is burned.

David Taylor (North-West Leicestershire) (Lab/Co-op): Approximately 800 million tonnes of coal lie under my county of Leicestershire—part of which I represent—and under the constituency of the hon. Member for Rutland and Melton (Mr. Duncan), who speaks for the Opposition on these matters. I therefore welcome the references that my right hon. Friend the Secretary of State made to the role of coal in future energy policy, but within what time frame does he expect the investment in clean-coal and carbon-capture technology to bear fruit? There is a real risk that a continued and expanded role for coal will be met only through higher coal imports and more open-cast coal extraction, in England and elsewhere.

Mr. Darling: I agree that we need to press ahead as fast we can, but the answer to my hon. Friend’s question depends on how quickly we can solve the remaining technical problems. However, I assure him that I feel very strongly about the matter and that I want to make progress. A bigger role for coal would benefit this country and the industry right across the world. It represents a huge opportunity, if we can only get it right.

Several hon. Members rose—

Mr. Deputy Speaker: Order. I am afraid that we must move on. No doubt we will come back to this subject in due course.

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Tax Credits

4.57 pm

The Paymaster General (Dawn Primarolo): Tax credits today provide support to 20 million people, including 6 million families and 10.1 million children. Tax credits take-up is at unprecedented levels, with 93 per cent. of families on incomes below £10,000 claiming their entitlement to the child tax credit. That compares with the 57 per cent. take-up in the first year of family credit.

Tax credits have improved work incentives, reduced the tax burden on low-to middle-income families, and helped to reduce child poverty dramatically. Tax credits and economic stability have helped to increase the number of people in work by more than 2 million since spring 1997, and since 1997, long-term unemployment has been reduced by 450,000. Tax credits have also ensured that the Government have implemented our commitment to ensure that work pays over welfare. For example, the changes that we are making mean that, from October 2006, a couple with two children moving into full-time work on the national minimum wage will be £41 per week better off in work.

The tax credit system has also played a key role in tackling child poverty. Since 1996-97, 700,000 children have been lifted out of relative poverty, whereas child poverty had doubled in the previous 20 years. In addition, there are now more than 1.8 million fewer children in absolute poverty, before housing costs are taken into account, than was the case in 1996-97.

A figure of £2.2 billion is often referred to for adjustments leading to overpayments, with the suggestion that that represents the amount lost to the Exchequer. However, that total includes moneys that have been recovered or are still to be recovered. Once error, fraud and adjustments leading to overpayment are taken into account, the net total estimated not to be recovered for 2003-04 is between £1.24 billion and £1.74 billion, as reported to the House in the documents that have been laid before the House today. That figure takes into account Her Majesty’s Revenue and Customs estimates of claimant error and fraud through the random inquiry programme, and which are being published today.

I remind the House that those figures relate to three years ago, when claimants were unfamiliar with the new rules and processes and the Inland Revenue was experiencing initial IT problems. The HMRC is today publishing a detailed account of what it is doing, and will do, to tackle error and fraud in tax credits, setting out the detailed programme of action that is in place to ensure that claimants receive the tax credits to which they are entitled, at the right time.

To help reduce claimant error, the HMRC is pursuing a number of measures, such as targeted advertising, including the current campaign to encourage claimants to renew their tax credit claim in good time, an improved claim form to reduce claimant error and redesigned award notices that include a clearer summary of the tax credit award and how it has been calculated. The HMRC is improving the information given with award notices—for example, by providing a ready reckoner—and improving access to contact centres.

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Identity theft is a serious and growing problem for the United Kingdom. It is increasingly linked to organised crime and is the source of significant amounts of financial fraud in both the public and private sectors. The Home Office estimates that the cost of identity fraud is £1.7 billion a year, of which tax credit-related fraud is a small proportion. A separate statement will be issued today announcing that Sir James Crosby is to head a public-private forum on identity to explore issues relating to identity management and associated technologies. Our aim is to do everything that we can, at all levels, to prevent identity fraud.

To tackle fraud, the HMRC is pursuing a range of measures, which include further refining of its risk assessment, putting compliance specialists in contact centres and increasing pre-payment checks on claims where fraud or non-compliance is suspected. In addition, the HMRC will continue to use the information it holds, as well as data held by other Departments and third parties, to support and enhance its compliance operations.

Tax credits and economic stability have helped to increase the number of people in work by more than 2 million since spring 1997, and since 1997 long-term unemployment has reduced by 450,000. Tax credits have improved work incentives, reduced the tax burden on low-to-middle-income families and helped dramatically to reduce child poverty.

Mr. Mark Francois (Rayleigh) (Con): I thank the Paymaster General for her statement and for providing me with a copy in advance.

About 6 million families claim tax credits, at a cost of about £16 billion a year, which is equivalent to 5p in the pound on the standard rate of income tax. As we pointed out in our recent Opposition-inspired debate on the subject, according to the latest available figures about 2 million families were overpaid, while just under 1 million families were underpaid, so nearly half of all payments in the system were wrong.

According to the figures in the statement, more than £1.2 billion a year is going astray in error and fraud. Is not it embarrassing beyond belief that the Treasury—of all Departments—has to have the accounts of one its principal arms qualified by the National Audit Office because it has failed to control fraud and error in a system that the Chancellor personally introduced? Given that situation, I have four specific points to put the Paymaster General. First, when did she realise the true scale of fraud in the tax credits system? She announced last December that she was closing the e-portal because of fraud via the tax credits website, but the amount concerned was miniscule compared with today’s figures. When did she really know how bad the problem was and why has the Treasury not done more actively to combat it?

Secondly, the right hon. Member for Birkenhead (Mr. Field), who is in his place, previously warned publicly that the system was open to fraud and recommended additional counter-fraud measures, but, as he knows and has put on the record, they were not adopted. Will the Paymaster General confirm that although the fraud now appears to be much greater than previously admitted, the Government’s recent response has been to reduce the number of qualified
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anti-fraud officers within the anti-fraud compliance organisation and to replace them with less qualified administrative staff? I have here a copy of an internal HMRC plan to do exactly that. It is entitled, “Claimant Compliance Restructuring Project” and it was recently leaked to my hon. Friend the Member for South Norfolk (Mr. Bacon). It confirms the plan in considerable detail. How on earth does it make sense to let go experienced anti-fraud officers, most of whom recover many times their own salary, when the degree of fraud in the system appears to be spiralling out of control?

Thirdly, will the Paymaster General now concede that the current tax credits system is increasingly discredited and urgently needs to be reformed? When the House debated the problems with the system in our Opposition day debate on 7 June, the Chief Secretary to the Treasury, who is in his place, called for a consensus across the House on the operation of tax credits. We remember it well. As part of that, given the scale of the fraud and error that has been revealed today, will Ministers finally admit that the current system is now discredited and has to be reformed, as we on these Benches have argued for quite some time?

Fourthly, although we welcome the presence of the Chancellor this afternoon, why did he not deliver the statement to the House? Tax credits are his personal creation, but for the past year he has not answered a single oral question about them. When will the Chancellor stand at the Dispatch Box and explain why his overcomplicated and increasingly discredited system is now causing so much misery to exactly the low-income families that it was introduced to help in the first place?

Today’s figures relate only to 2003-04 and we are now in financial year 2006-07, so we suspect that the problem of fraud in the tax credits system remains much greater than the Government are currently willing to admit. Indeed, the Comptroller and Auditor General says in his accompanying report, which was published today:

If it proves to be the case that the fraud and error on this scale continues to persist at these levels, or if it transpires that the right hon. Lady knew about all of this much earlier than she is letting on, her position must surely become untenable.

The Prime Minister told the House a few weeks ago at Prime Minister’s questions that the working families tax credit was working well. The Working families tax credit was abolished three years ago. The Chancellor has created a system that is so complicated that even the Prime Minister does not understand it. The Chancellor is the real culprit in this whole fiasco. The Paymaster General mentioned 1997. The Labour manifesto in that year said:

This is not a crackdown; it is a meltdown—and it is the Chancellor’s personal meltdown. It is he, more than anyone else, who has let down low-income families and it is he who should ultimately be held to account for this fiasco.

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Dawn Primarolo: The hon. Gentleman clearly has not read the Comptroller and Auditor General’s report. I will address each of his points in turn, but I also say to him that there are 6 million families—10 million children—in the tax credits system. Progress is being made on reducing child poverty, which increased and doubled under family credit and his Government. We are helping 6 million families, while his Government helped 600,000—there is no comparison. The hon. Gentleman cannot get away from the fact that his party is not committed to eradicating child poverty.

Let us deal with the hon. Gentleman’s points. First, I remind him that since 1997, the number of families with children paying no net tax has risen from just fewer than 2.5 million to more than 3 million in 2006-07, which is a result of tax credits and benefits reform. On the point about error and fraud in the system, regrettably, most of the error is on behalf of the claimant—we must remember that this is the first year. The figures on error and fraud in tax credits that were published today show an incident range of 8.8 to 10.6 per cent. The range for the working families tax credit was 10 to 14 per cent., while the figure for jobseeker’s allowance was 13.2 per cent. The figure for income support was 9.2 per cent. Those are based on figures from when the Government first collated data on a comparable basis. The hon. Gentleman is simply not concentrating.

The hon. Gentleman asked about the e-portal. I refer him to paragraphs 2.31 and 2.33 of the Comptroller and Auditor General’s report. That report clearly sets out the period of the attack on the portal and confirms the information that has been repeatedly provided to the House. The hon. Gentleman also said that staff are being cut, but there is absolutely no substantiation of that point. In fact, in paragraph 2.27, the Comptroller and Auditor General refers to the fact that more staff are being employed in tax credit compliance, not fewer.

The hon. Gentleman referred to reform. We know the reform that the official Opposition wish to undertake—they want to undermine tax credits and, if they ever get the chance, to abolish them. That is the message to take out to tens of thousands of families in every constituency in the country. The hon. Gentleman should read the report before he stands up and makes accusations.

Mr. John McFall (West Dunbartonshire) (Lab/Co-op): I represent a constituency with traditionally and historically high unemployment. Tax credits have played a significant role in providing families with incentives to work, as well as reducing child poverty. Will the Paymaster General comment on fraud and the work that she is doing with companies such as Network Rail to ensure that fraud is closed down? Will she break down the causes of overpayment into those that are the responsibility of the HMRC and those that are the responsibility of the claimants?

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