CONCLUSIONS AND RECOMMENDATIONS
1. The operation of Tax Credits has proved
unsatisfactory for a significant minority of claimants who were
disadvantaged and who cannot understand how much they are due
or why in so many cases such large overpayments have been made.
The Department does
not have sufficient information about the claimant population
to enable it to provide good service to the public and avoid disruption
to its own main business of tax administration. The Department
should review the information provided to claimants to enable
them to understand their Tax Credit awards, and should develop
as a matter of urgency the operational information needed to manage
the Department's relationship with claimants and the effects upon
them.
2. Members of Parliament have been inundated
with distressing complaints from constituents whose lives have
been affected by the Department's management of Tax Credits.
The Department has also received a large volume of complaints
about Tax Credits, as have the Citizens Advice Bureaux. The current
appeals and complaints procedures do not include any independent
process, however, and the Department remains the final arbiter.
3. The scale of overpayments being recovered
from claimants is much higher than envisaged when the Tax Credit
scheme was designed. Tax Credit initial
awards are provisional and the final award for the year in question
is often significantly reduced because the claimant's pay has
increased by more than £2,500, which is disregarded. This
leads to recovery of the overpayment. The Department published
figures in June 2005[7]
showing that some 1.8 million (33%) of claimants had been overpaid
in respect of 2003-04. The Department should review and report
each year on the effect on claimants of the inbuilt overpayment
and recovery of substantial sums of money so that Parliament can
judge whether the consequences for claimants are compatible with
its intentions in passing the legislation.
4. The Department cannot show whether error
rates attributable to claimant error and fraud have halved as
it predicted in December 2003. The Department
undertook to report on this issue by July 2005, by which time
over £30 billion would have been spent on New Tax Credits.
That report should quantify and analyse in detail the estimated
overpayments due to fraud and error; set out targets for reducing
overpayments and plans for achieving them; and show the performance
indicators used by the Department to manage Tax Credits.
5. Schemes that are intrinsically complex
carry the risk of being too difficult for the intended beneficiaries
to understand and for departments to handle.
The Accounting Officer's ability to guard against fraud and error,
and to secure economy, efficiency and effectiveness, may also
be impaired by undue complexity. Accounting Officers should see
that Ministers are made aware of the risks presented by unduly
complex schemes, and if necessary be ready to seek a Ministerial
direction where such schemes would be hard to implement to an
acceptable standard.[8]
6. The Department estimates that routine housekeeping
software incorrectly deleted almost one million taxpayer records
in the period 1997 to 2000, resulting in over 360,000 unidentifiable
taxpayers not receiving repayments due and 22,000 others not paying
tax that was due. The Department needs
to maintain reliable and comprehensive management information
to monitor the operation of IT systems, including data that would
enable unintentional record deletion or loss to be detected promptly.
7. The problems in administering Tax Credits
have entailed some impairment of the Inland Revenue's reputation
for accuracy, fairness and proper handling of taxpayer affairs.
The Department's effectiveness in managing the tax system depends
on maintaining public confidence in its administrative competence.
It needs to demonstrate and convince taxpayers that it has resolved
the problems caused by Tax Credits; caught up on the backlog of
other work; and maintained its capacity for timely, fair and accurate
processing of taxpayers' affairs.
7 HM Revenue and Customs: Tax Credits finalised awards
2003-04 (1 June 2005) www.hmrc.gov.uk/stats/personal-tax-credits/cwtc-payments-0304.pdf Back
8
A direction from the responsible Minister for the Accounting Officer
to implement a course of action against which he or she has advised
the Minister on either value for money or regularity and propriety
grounds. Back
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