Examination of Witnesses (Questions 51
- 59)
THURSDAY 20 OCTOBER 2005
MR DAVID
VARNEY, MR
PAUL GRAY,
CB AND MS
SARAH WALKER
Ms Ann Abraham, the Parliamentary and
Health Service Ombudsman, further examined.
Q51 Chairman: Welcome to our witnesses,
Mr David Varney, who is the executive chairman of Her Majesty's
Revenue and Customs, accompanied by Paul Gray, who is the deputy
chairman and Sarah Walker, who is the director of benefits and
credits. We are very pleased to have you along. I understand you
ran the gauntlet of the treasury select committee last week and
you get us this week. I hope you have a better week next week.
Thank you for coming along. You will know why we have asked you
to come along, which is because we are, as it were, the custodians
of the reports from the Ombudsman. In reading Ombudsman reports
over the years, they only make special reports when there is an
issue of wide concern, but I do not think I have read a more devastating
report from an Ombudsman in recent times than the one on the tax
credit system. This was confirmed just now in evidence from the
Ombudsman. This is a system that is characterised by what she
agreed was systemic maladministration. First of all, would you
agree with that it is characterised by systemic maladministration?
Mr Varney: No. I agree with what
the Ombudsman says in the first part of her report on page three.
This report does not suggest the new tax credit system is in general
disarray. On the contrary, it recognises that given the scale
of it, its introduction has been broadly successful. Then it identifies
a series of problems and issues which we ourselves are working
to improve. We are working with the Ombudsman on particular cases
that were identified and generic lessons to learn, making the
system work more effectively and efficiently. What happened with
the introduction of the new system was, sadly, the computer system
did not work and we were also introducing a change from a benefit
system to a system which reflects more accurately changes in circumstance.
That gives rise to two things. One is an in year adjustment so
that when people report change of circumstance, the benefit is
adjusted to minimise the amount of overpayments. It does give
rise, if we do not know what those changes in circumstances are,
to overpayments at the end of the year. Overpayments are an intrinsic
part of the system that Parliament approved with the budgetary
papers when the scheme was described. The expectation was that
there would be a million overpayments in the first year of running
new tax credits and that would go down to 750,000. The computer
problems which have dogged us exacerbated that number. I think
there is an issue that the system works well and has a lot of
achievements which can be put on the positive side but there are
undoubtedly some groups of customers who have been let down badly
by the Revenue and Customs, and we are determined to improve our
performance.
Q52 Chairman: I am staggered. You
are an expert on Revenue matters or I hope you are. Perhaps you
ought to become one.
Mr Varney: I will become slightly
more knowledgeable. I was recruited having spent most of my life
in the private sector.
Q53 Chairman: The Ombudsman is an
expert on maladministration. That is what her trade is. When she
tells us that here is an area of public policy that is characterised
by systemic maladministration and gives examples which we all
know, from our own constituencies, to be the case, I think we
are entitled to be rather taken aback when you come and tell us
that in fact it is not systemic maladministration we are talking
about here; we are talking about a system that is designed to
work like this.
Mr Varney: I did not say it is
designed to work like this. A feature of the system is in year
recovery and overpayments. What the Ombudsman did was draw attention
to a particular facet of the operation, which was our practice
of starting to recover overpayments from continuing situations,
without checking whether there is a valid reason why the overpayments
should not be repaid and said that constituted maladministration.
That caused me real difficulty not because I dispute the right
of the Ombudsman to make such a finding but because I cannot accept
that it is maladministration to operate a system in the only practical
way that will provide an efficient service to protect the public
purse. We physically could not operate a system that required
us to check every case and see whether there was a reason, either
because of official error or because of hardship, why we should
write off the overpayments. That is the reality of the system
that is dealing with millions of people. The fact is the vast
majority of overpayments are properly recoverable. In the conversations
you and we have had with the Ombudsman we have moved to understand
that, and I think that is part of a process which I think is desirable.
I do not think it is desirable that departments are visited with
findings which then have practical consequences which are not
well understood. I agree wholeheartedly with the Ombudsman that
we are dealing with a large, complex system which will take time
to change. The issue of whether we can introduce a pause and whether
that would provide a better administrative and more satisfactory
outcome from all perspectives is one we are looking at seriously.
On the computer front, we know it will take until some time next
year to get the functionality in[1].
The computer system is stable. Every time we make a change to
it I want to be absolutely sure it does not create more problems
than it solves.
Q54 Chairman: It has to be systemic
maladministration if you are sending out award notices that you
know are wrong but the computer nevertheless has to send them
out. It must be maladministration if you are sending out multiple
award notices with different information on them. It must be maladministration
if you have a helpline where people do not know the full details
of a case and cannot help the people who have queries. These are
all the characteristics of this system. Whatever you say about
the particular argument about the overpayment issue which no doubt
we shall have, looking across the board at all the features of
this system, it is a system which is producing maladministration
on a systematic scale, is it not?
Mr Varney: That is not the finding
of the report. The report was focused on a particular area. The
majority of overpayments by value went to those whose income rose
over £2,500. The overpayments caused by income rise, more
than half, went to families who experienced income increases of
more than £10,000. The system was designed so that if we
did not know about those changes in circumstances we would have
a case to recover. If we made an official error and the person
could reasonably have known it was wrong and corrected it, then
we would recover the money. If they could not reasonably have
known, we would waive the overpayment.
Q55 Chairman: You do not tell them
what the cause of the error is.
Mr Varney: In the overpayment
case, we provide a—
Q56 Chairman: The form does not tell
them what the cause of the error is, so on what basis do they
challenge it?
Mr Varney: On the basis that they
do not agree with it.
Q57 Chairman: Unless you are told
the basis for an error, how on earth can you begin to challenge
it?
Mr Varney: We write to them and
say, "We think this is an overpayment and, because of the
information that we now have, we have come to the conclusion that
the amount we paid to you was too much. Therefore we need to recover
it. It is your right to dispute that recovery." If that recovery
will cause hardship we also have procedures in place to ensure
that that hardship is not caused.
Q58 Chairman: What is the total number
of errors that have been made in the administration of the tax
credit system to date?
Mr Varney: We have reported publicly
on the amount of overpayments.
Q59 Chairman: No; errors.
Mr Varney: The problem with the
word "error" is that you have a system and part of its
design criteria is overpayments. It was designed with overpayments
being a feature of it. If there was not knowledge of change in
circumstance and therefore we had paid out money in good faith
on the basis of the information that we had which was incorrect,
then we would recover it. There have been computer errors. We
could identify the number of cases where the computer has generated
overpayment because we had the information but it failed to register
in the computer system because of a computer failure.
1 Note by witness: Correction-We will not be
able to get the functionality to introduce a pause in until 2007. Back
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