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Dawn Primarolo: If my right hon. Friend looks at the documents that were published today on the error and fraud statistics for 2003-04, he will see that there is a breakdown of error between claimants and fraud. The difference is that in order to ascertain that there has been fraud, an investigating officer must be utterly convinced that the intent of the claimant was to
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defraud, as opposed to an error having occurred when the application was returned. The figures show that fraud is put at £70 million.

I concur with the points of the Comptroller and Auditor General with regard to the work that needs to go forward. We now have the base year for figures, and there must be improvement and development on those figures. As I set out in my statement, there are steps in place, including the changes that were announced in the pre-Budget report in 2005. The CAG also acknowledges that there is improvement in the system, and we are continuing to build on that.

Mr. David Laws (Yeovil) (LD): Is not the truth that we have just heard an extraordinarily complacent statement from a Minister in denial about a system that is clearly in a mess? A moment ago, the Paymaster General referred to the National Audit Office report. I am delighted that she has read it, because she did not refer to it or any of the information that it cites in her statement. Can she confirm some facts that were not in her statement? The original estimate for fraud for the first year of operation was £460 million, but it may now be as high as £1.28 billion. Will she confirm that the figure for the second year of the operation of the system is expected to be as high again? She suggested that fraud is falling, but will she confirm that it is likely to rise in the system and that, in the past year alone, £131 million was lost to organised fraud by criminal gangs? Can she confirm that tax credit fraud and error account for more fraud and error than any other benefit and that the error and fraud rates in tax credits are higher than in any other welfare benefit? Can she confirm, too, something that her Department has clearly told the Comptroller and Auditor General, but not the House? For the third year of operation, the Department expects overpayment on tax credits of £1.8 billion, and it estimates that there will be overpayments of £5.8 billion in the first three years, and £2.4 billion in fraud. Can she confirm those figures, which she left out of her statement?

Can the Paymaster General confirm something that her Majesty’s Revenue and Customs staff told us—that there has not been a proper anti-fraud culture in the tax credits department, and that it is so obsessed by take-up that it has left the stable doors open to fraud? She implied that problems arose with the e-portal shortly before she closed it in December 2005, but can she confirm that the document by the Comptroller and Auditor General says that those problems were known about at the end of 2004, and that the number of suspected organised fraud cases gradually increased throughout 2005? Why, therefore, did it take so long to do anything about the problem and why were claimants using the e-portal not required to produce documentary evidence of their identity and address?

The Paymaster General did not say anything about payments to individuals subject to immigration control, which were written off by the Inland Revenue because they should not have been made. Why were the verification procedures, specifically rule 12, suspended for 18 months after April 2003? Was she aware of the decision at the time, and did she approve it? Why has it taken her so long to implement the recommendations in the ombudsman’s report? The Chancellor and the Paymaster General know that many Liberal Democrat
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Members want the system to work rather than abolish it, but the Government’s complacency about fraud, error and overpayment is undermining the very system designed to help people on low incomes, and has affected people on lower incomes in particular. The Government are in a persistent state of denial, but is it not time not only for new ministerial leadership on the issue in the Department, but for a Minister who will seek solutions instead of making excuses?

Dawn Primarolo: The hon. Gentleman never misses an opportunity to try to spread innuendo and undermine the tax credits system. If he read paragraph 2.28 of the report, he would see, far from his accusation that the compliance strategy is not working, that the Comptroller and Auditor General details the amount that was prevented from going to people who made fraudulent attempts to claim tax credits. It shows that the HMRC prevented payments of £447 million, so the majority of attempts were dealt with. The hon. Gentleman touched on the e-portal, but if he continues to read paragraph 2.28, he will see that all the figures are provided, including those on the questions of suspected organised fraud and the specific attack on the e-portal.

If the hon. Gentleman still needs convincing, he should refer to tables 10 and 11 in the Comptroller and Auditor General’s report, which detail how the HMRC dealt successfully with attacks on the tax credit system. He has been provided with that information, but he persists with innuendo. He should present the House with proof or stop trying to undermine the system.

Mr. Frank Field (Birkenhead) (Lab): Does the Paymaster General accept that there is a natural tension in a radical Government who want to redistribute large sums of money to the poorest people in society, while making sure that taxpayers’ money is spent properly? Historically, we have done that through one Department paying the benefit and the Treasury watching over the Department that pays out that money. Given that the Treasury now pays out the benefits and watches the taxpayers’ interests, will she reflect further on whether the Treasury has the balance right between helping poor families and protecting taxpayers?

Although the statement today is about fraud and the associated problems, is there not also a problem of take-up? Even those of us who are not enamoured by tax credits ought to admit that the poorest families have gained more help through this measure than through any other measure that any other Government have introduced. I have noticed in my constituency that mothers who might be eligible for the first time claim child benefit, but are not aware of the tax credit side. May I suggest that my right hon. Friend considers combining the form for applying for child benefit with tax credits? When applying for child benefit, that person has to produce a genuine birth certificate. That might stop some of the fraud in the system.

Dawn Primarolo: My right hon. Friend makes a series of important points. Surely the test of the policy is whether it is successfully lifting children out of poverty, and it is. All the independent reports indicate the substantial contribution that tax credits are making to the delivery of the Government’s target of lifting children out of poverty. A careful balance needs to be
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struck, but the huge benefits that we can see as a result of the tax credits, the fact that more people are returning to work, the fact that lone parents are being supported into work, the fact that take-up among the poorest—under £10,000 a year per family—is at 93 per cent. and rising, and the fact the child care element is at record levels and rising, all address his first point.

On my right hon. Friend’s second point, paragraph 2.10 of the Comptroller and Auditor General’s report shows that as a result of the flexible system being run through the tax credits, in 2004-05 some £700 million went to families, which would not have happened without the disregard and the way the present system operates. In the previous year, £800 million more went to families than would have done under a fixed system. Although he is right to press the Government to focus on take-up and make the system better, which we have been doing—the figures are from the first year—I still believe that the direction of travel is correct and that we are delivering our policy objectives.

Mr. Michael Fallon (Sevenoaks) (Con): Why does the Paymaster General again blame claimants, instead of apologising to the 2 million families who have been wrongly paid? Given that she and the Chancellor are entirely responsible for designing a system that has become a fraudsters charter, will she reflect on the fact that if the two of them worked in the private sector and lost £1.5 billion, they would not simply be sacked—they would probably both be prosecuted?

Dawn Primarolo: I am surprised at the hon. Gentleman, who is experienced in the House. It is rubbish to suggest that the tax credits system is a fraudsters charter. He knows that because he is the Chairman of the Treasury Sub-Committee, which produced an excellent report saying how much it valued the contribution that tax credits make to lifting children out of poverty and helping families back into work. He knows full well from comparisons of benefits in their first year of operation that the issue is always challenging. There were particular problems with the computer system in 2003-04, but he knows full well that since that period the improvements that I have announced in this Chamber and that the Chancellor announced in the 2005 pre-Budget report have made significant inroads into improving tax credits. The hon. Gentleman should be honest: he does not want to help the poor, because he wants to abolish tax credits.

Mr. George Mudie (Leeds, East) (Lab): As a member of the Treasury Committee, I urge on the Paymaster General in the battle against fraud; as a Back-Bench inner-city constituency MP, however, I urge her to continue her efforts. The tax credit policy has pulled thousands of kids out of absolute poverty in my constituency and it has put single parents who have been on benefit for the whole time that I have been an MP into work, which allows them to earn for their families, for the community and for the economy and to give their kids a better standard of living. I hope that the Paymaster General will not be disheartened by the Opposition’s petulant carping.

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Dawn Primarolo: I assure my hon. Friend that I am not disheartened. Indeed, I am encouraged by the excellent communications that have been sent to me and to other hon. Members describing how tax credits have helped single parents and families. Tax credits also help the Government in our historic challenge of eradicating child poverty. At some point, the Opposition parties must decide whether they are going to continue to oppose tax credits. If they are, what will they say to the tens of thousands of families in their constituencies who will lose hundreds of pounds a month?

Mr. David Gauke (South-West Hertfordshire) (Con): The Paymaster General has referred to the excellent Treasury Committee report, which criticised her and Her Majesty’s Revenue and Customs for failing

Assuming that she has finally established a complete picture—one wonders what the Chancellor of the Exchequer and she have been doing for the past three years—will she set a target to improve those appalling figures?

Dawn Primarolo: While we are discussing the Treasury Committee report, I shall remind the House of what it said:

If the hon. Gentleman examines the report by the Comptroller and Auditor General, he will see the continued improvements, which have been monitored, and how the Treasury is developing tax credits to ensure their smooth operation.

Ms Sally Keeble (Northampton, North) (Lab): I welcome the measures to tackle identity fraud announced this afternoon. I, too, am a member of the Treasury Committee, and I underline the fact that the report welcomes the way in which tax credits have targeted child poverty, and so it should. The system helps 9.9 million children, whereas the old family credit helped only 1.6 million children. In moving forward with the tax credit system, will my right hon. Friend make sure that the child care element is protected, because it allows women to go out to work, which ultimately improves living standards for children in this country?

Dawn Primarolo: My hon. Friend regularly discusses child care payments in this House because she is an absolute champion for making sure that such payments not only operate properly, but reach more and more families, and I am considering how we can ensure that that happens. On identity fraud, I remind her and the House that the Treasury identified the stolen identities, that it stopped the majority of those claims and that it is now working with banks, the Home Office and other Departments to take forward a strategy. The creation of bank accounts caused the difficulties in the tax credits system.What I announced today, in referring to the written statement as regards Sir James Crosby and
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the public-private forum on identity, is how we can all learn, in the private and public sectors, how to eradicate identity fraud.

Sir George Young (North-West Hampshire) (Con): There is widespread support among Members on both sides of the House for policies that help low-income families in work. However, it is clear not only from today’s statement but from the endless debates that we have had in this Chamber and in Westminster Hall over the past nine years that the present system is not fit for purpose. Will the Paymaster General now answer the question that has been put to her twice: has not the time come to devise a better interface between the low-paid citizen and the state?

Dawn Primarolo: The evidence clearly demonstrates that tax credits are working, particularly in getting resources to those who are lower paid or unemployed and want to return to work, including women who need to pay for child care arrangements. None of that was available under the previous Government. The right hon. Gentleman is right in his assessment that the Government should be redoubling their efforts to eradicate child poverty and to ensure that tax credits play their proper role. When he has an opportunity to read the Comptroller and Auditor General’s report, he will see that it clearly sets out how Her Majesty’s Revenue and Customs is going about that.

Sarah McCarthy-Fry (Portsmouth, North) (Lab/Co-op): I recently spoke to a single parent in my constituency who has two young children. She told me that without tax credits she would find it difficult, if not impossible, to carry on working, and therefore would be forced back on to benefits and unable to give her children the standard of living they had been used to. Last year, the shadow Chancellor refused to acknowledge the part that our tax credits have played in reducing child poverty. Does my right hon. Friend agree that that shows how out of touch the Conservatives are with ordinary people’s lives?

Dawn Primarolo: I agree with my hon. Friend. Opposition Members have become so obsessed with attacking elements of the tax credits system in the House that they are not listening to thousands of their constituents who are benefiting from the presence of tax credits and support them. As the Treasury Committee report says, tax credits enjoy widespread support within our communities. Opposition Members are foolish to ignore that point.

Mr. Richard Bacon (South Norfolk) (Con): I have a constituent who has had to give up work because of tax credits. HMRC keeps telling her that she is disabled, but she is in fact a dance teacher. The Paymaster General should know that the system is not working for many hundreds of thousands of people.

What is the Government’s estimate of the amount of money lost through eastern European nationals who have come to the UK, set up tax credit claims, and then headed home while the Government continue to pay taxpayers’ money into their bank accounts?

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Dawn Primarolo: I should remind the hon. Gentleman that the rules that are followed with regard to European nationals are those laid down by the European Union. Provided that they are registered with the Home Office workers registration scheme, nationals from the new member states who are working in the UK are entitled to tax credits on the same basis as other European economic area nationals working here—for example, French or German nationals. If the hon. Gentleman has proof of the allegations that he makes, he should bring them forward. I have made it clear today that, as is demonstrated by the National Audit Office report and the other publications that I have put before the House, the Department takes seriously any attempt at tax credit fraud and is dealing with it.

Mr. Gordon Prentice (Pendle) (Lab): My question is about recovering overpayments. Many claimants report changed circumstances to the tax credit people in a phone call, and a great dispute often subsequently takes place about who said what. What point have we reached with keeping a record of—and perhaps digitising—telephone calls so that there is an accurate record of what happened?

Dawn Primarolo: That has always been part of the tax credit system. All calls to the contact centres are recorded and, when the content of the call is disputed, it can be recalled and presented to the claimants so that they can hear exactly what was said and when.

Stewart Hosie (Dundee, East) (SNP): Last year, the parliamentary ombudsman said in “Tax Credits: Putting Things Right” that

In the statement, the Paymaster General said that HMRC would pursue “a number of measures”, including “improving the information given with the award notice such as providing a ready reckoner.” Given that tax credits can be complex, especially for those on low and variable incomes, does the Paymaster General seriously believe that a ready reckoner is all that is required? Several of my constituents receive numerous letters—sometimes on the same day—from HMRC, detailing different amounts. Does not the proposal constitute complacency? Is not it simply a sticking plaster covering a gaping hole?

Dawn Primarolo: A series of statements have been made to the House about the improvements in the award notice, the guidance notes of two pages and explaining exactly what claimants should check on receiving the award notice and the facts that are presented to them. I suggested today that we could take those attempts to reassure the claimants further by adding a ready reckoner. I did not offer it as a solution. If the hon. Gentleman cares to read any of the tax credit literature, he will realise that it clearly sets out the basis on which claimants should check the information that HMRC confirms has been supplied to them.

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Active constituency Member of Parliament though the hon. Gentleman may be, I doubt whether he has personally spoken to the many thousands of families in his constituency who benefit from tax credits and are grateful for them.

Ann McKechin (Glasgow, North) (Lab): Since the introduction of tax credits, which has benefited the largest income group in Glasgow, the number of occupied shop units in the poorest areas of the city has rapidly increased. It would be greatly beneficial if the Treasury could, in future, make some assessment of the economic regeneration effects of the introduction of tax credits.

Dawn Primarolo: I agree with my hon. Friend. Surely all hon. Members agree that we would all be better off if child poverty were eradicated from our society. It is about time that Opposition parties started to support that aspiration instead of constantly trying to undermine it.

Alistair Burt (North-East Bedfordshire) (Con): The individual learning account scandal of four or five years ago exposed the dangers of trying to encourage take-up while disregarding basic security checks in pursuing a political commitment. We could all have done so much more with that money for the people whom we want to help. Why did not the Treasury learn any lessons from that previous fraud scandal?

Dawn Primarolo: The Department had security checks in the system. If the hon. Gentleman examines the report, he will realise that the Comptroller and Auditor General specifically refers to them and how well they worked. Paragraph 2.35 contains a specific statement to the effect that the arrangements were adequate and have worked. The lessons that the hon. Gentleman claims that we need to draw are predicated on his belief that the system did not contain preventions to squeeze out fraud. He is wrong about that, and there is no proof of it.

Mr. Ian Davidson (Glasgow, South-West) (Lab/Co-op): Does the Paymaster General accept that tax credits have been enormously beneficial to large numbers of my constituents and a great help to many poor families? However, does she also accept that the scheme is not perfect? A recruitment company in my area reported to the Treasury that some employees from the accession countries have made false claims. Although that has been drawn to the Treasury’s attention, it has told the company to go ahead and pay them. The problem applies especially to seasonal workers, who come here for a time, return home and continue to claim tax credit throughout that period. That undermines the credibility of the whole system.

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