Appendix 1
Tax Credits: putting things right: Government
Response to the Committee's Second Report of Session 2005-06
We welcome the Revenue's willingness to look at
the Ombudsman's recommendation to introduce a pause before starting
recovery of overpayments. However, we are concerned that, not
for the first time, a government department is presuming to define
what constitutes maladministration. Moreover the Revenue seems
to suggest that protection of the public purse overrides other
considerations, including fairness. Public services cannot be
designed or delivered without regard to costs but an unfair system,
while it may well be cost-effective, cannot be said to constitute
good public administration. (Paragraph 19)
The department believes that automatic recovery represents
the only practical and efficient way to administer a system of
this size and, given that the vast majority of overpayments are
properly recoverable, believes that the practice is fair. It has
sought to address concerns by introducing new procedures that
enable it to stop recovering an overpayment if a claimant lodges
a dispute. In such cases it will not recommence recovery until
it has made a decision based on the facts of the particular case.
It is also improving the quality of the information given to claimants
to explain the circumstances in which recovery of overpayments
may be waived.
The department has agreed to look at the proposal
for a pause. However, introducing it would mean a major structural
change to the operation of the tax credits computer system and
the department is examining whether it can be done without jeopardising
the stability of the system.
We are concerned that the IT system which is supposed
to enable an efficient delivery of the scheme has in fact been
a root cause, first of creating some of the problems which have
led to the criticism and complaints about the scheme and then
of acting as a barrier to resolving them quickly. Careful consideration
needs to be given to the design of future government IT-enabled
schemes so that it is the needs of the customer rather than the
limitations of the technology which are paramount. (Paragraph
22)
There were some well-publicised problems following
the introduction of new tax credits when the IT system did not
perform as required or expected. Since that time the department
has contracted a new IT supplier and significant progress been
made dealing with past problems and stabilising the IT system.
Looking ahead the department is planning further improvements
to the IT system. However, having established the system's integrity
and significantly improved its performance, the priority is to
ensure that progress takes place in a measured and orderly way.
The Office of Government Commerce works with the
public sector to achieve efficiency, value for money and effective
delivery of Government projects. This includes identifying and
addressing systemic issues that occur in the acquisition and implementation
of Government IT-enabled projects and promoting best practice.
We are concerned that the consolidation of the
tax and benefits systems represented by the tax credit scheme
and the consequent transfer of functions from DWP does not appear
to have resulted in any assessment on the part of the Revenue
about the nature, and the needs, of this particularly vulnerable
group among tax credit recipients for whom regular and reliable
payment is not a desirable budgeting convenience but a real necessity.
(Paragraph 27)
Many of the Department for Work and Pensions staff
involved in the delivery of the Working Families and Disabled
Persons Tax Credits transferred to Inland Revenue and the government
was able to build on their experience, consulting with voluntary
groups, to help it understand the needs of more vulnerable claimants.
However, in line with its commitment when tax credits were announced
in 2002, the Government has sought to learn from the early operation
of the system and will continue to do so.
The package of administrative measures set out in
the Paymaster General's written statement of 25 May 2005 and the
subsequent package of measures announced in the 2005 Pre-Budget
Report are based on HMRC's experience of the first two years of
operating the system.
To further improve its understanding of the needs
of claimants HMRC seeks to access the insights and customer focus
of the voluntary and community sector to help improve its understanding
of customers' needs, particularly the most vulnerable. HMRC is
also developing plans with the Citizens Advice Bureau to run a
series of pilots to test how it can support these claimants better.
It is deeply worrying that a scheme such as this
one has such unsophisticated means for reconstructing individuals'
records. It is essential that any public service scheme which
involves a history of transactions between individuals and a department
should have at its base adequate case-handling capacity, whatever
technology it uses. (Paragraph 30)
We have put in place a system for enabling our staff
to have easy access to recordings of telephone conversations between
claimants and our help-line staff. This is helping them to assemble
more quickly the case history and reach decisions. In the longer
term, we are looking to improve our technology to provide better
summary screens for our staff to show them what has happened with
each case more easily.
We welcome the Revenue's review of the reasonableness
test and support the need for a solution modelled on the well-established
social security benefits. (Paragraph 34)
In the tax and tax credits system, like the social
security system, there is a statutory right of appeal against
decisions on entitlement which turn on matters of fact, but no
appeal against the use of discretion. HMRC and DWP have almost
identical policies on recovering overpayments caused by official
error, although DWP have recently applied the "reasonableness
test" differently.
A new version of HMRC's Code of Practice 26 "What
happens if we have paid you too much tax credit?" will be
published in April 2006. This will clarify the reasonableness
test, providing a clear statement of what a claimant is expected
to check on their Award Notice. To supplement the revised code
and help build confidence in decision making, HMRC is considering
with the adjudicator whether it would be possible to provide a
fast-track, independent review of decisions to recover overpayments
in disputed cases.
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