Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20-39)


12 OCTOBER 2005

  Q20  Mr Todd: I have understood it. Thank you. May I turn to the information technology systems used in the delivery of this service. If you look back on this—and there is lots of opportunity for hindsight on this project—do you think using a system which, the Ombudsman pointed out, relied almost entirely on the viability of the information systems which you had purchased was prudent?

  Mr Varney: I am not sure I would agree that we are totally reliant on IT . . . If we are going to deliver a system of this size and this scale, it would be a combination of both IT and telephony.

  Q21  Mr Todd: But most of us have experienced, when we talk to your advisors who help Members of Parliament with figures, that they are wholly reliant on working their way through an IT system which quite frequently, even now, is not very responsive to their requests for information—or, indeed, particularly stable, from what I can tell.

  Mr Varney: May I try to parcel this up—because you have asked a question which has quite a lot of angles to it and I think it would be helpful if I tried to explain. First of all, may I say that we are currently in dispute with EDS who built the system. I really cannot say anything more than that there are discussions going on at this moment in time which may—

  Q22  Mr Todd: I am going to ask you to say more.

  Mr Varney: Maybe I can persuade you that there is not much more that I can say, other than that discussions are ongoing. If they are not resolved satisfactorily, the case will go to court. We have been trying to stabilise—and I think have been successful—the IT system. It is still potentially fragile and, therefore, every time we have to do something, I approach it in the spirit that we do not want to lose any progress that we have made in stability. Part of the challenge of the people we have is to be able to access information so we can produce a case note by pooling all the information together. That is something that we are trying to do. As you have rightly said, with the benefit of hindsight, there are lots of lessons to learn out of this, but you would be faced, I think, if you were trying to build a system like this, with having to use a computer system of some sort and a combination of telephony. We are trying to get the most out of the system we have got.

  Q23  Mr Todd: In the design of a system of this kind, I would have expected competent management to have provided some fallback should the system not deliver appropriately—since it is hardly an uncommon experience to find a system that is not delivering entirely what you would expect. Looking from the outset, I have been startled that there did not appear to be any framework to providing a human-based service when the information system was clearly inadequate.

  Mr Varney: I think on a system of this scale there cannot be a fallback which is a manual system. When the system did not work and deliver the functionality that was required, then we were overwhelmed because we just do not have enough resources—and it is not just a question of people; it is trained and skilled people with the right information in the right place. But it is very easy to agree with you, given where I am in the discussions with EDS and the stance I have taken vis-a"-vis

  Q24  Mr Todd: Perhaps we could turn to that. You have said that you do not wish to tell us any more than that you are considering legal action against them. What are the parameters of the dispute you have with EDS?

  Mr Varney: I cannot really go any further than to say we are in discussion with them.

  Q25  Mr Todd: This is a system on which millions of people in this country rely and which has cost the taxpayer huge sums of money. We just touched on the potential provision of £0.5 billion of overpayment, partly generated by difficulties with this information system. I think you have a duty to be rather more candid than to say we are considering this with our lawyers.

  Mr Varney: I want to be as candid as I can, but I do not think it helps in the pursuit of the case against EDS to rehearse the arguments we are having with—

  Q26  Mr Todd: Does it help in the pursuit of the case against you and your team? There is another possible scenario: one of your difficulties in defining your position in relation to EDS—after all, this has been going on for quite some time—is that you are not entirely confident that the framework and the relationship with EDS was well enough defined on your own side to pursue an appropriate action against them. It would be helpful if we could be clear that you had sorted out your own minds.

  Mr Varney: I can approach this with a very clear mind. I was not here.

  Q27  Mr Todd: I know you were not here.

  Mr Varney: My only concern in this, first of all, is to make sure that we do the right thing for the public interest and it would not assist that process, in my judgment, at the moment, to go any further than where we are with EDS.

  Q28  Mr Todd: What timeline are you on with this?

  Mr Varney: We will get a solution when we get a solution. We have been working at this.

  Q29  Kerry McCarthy: On the question of claimant error and fraud, you predicted in December 2003 that error rates attributable to claimant error and fraud would be halved. Are you in a position to update us on that? I think you undertook to do so by July 2005.

  Mr Varney: Yes, and in fact we will not be able to do that until the spring of 2006. I wrote to the Public Accounts Committee. When I gave evidence in front of the Public Accounts Committee, they reminded me of what Nick Montagu (then chairman of the Inland Revenue) had said, and I said: "If he knew what I know now I think he would have made a slightly different comment." We have done a very small sample of the total sample that we have taken to detect this. That gives an error rate of somewhere between 3% and 4%. But we do not feel that is a realistic sub-set of the total population we have been looking at statistically. We have to do a lot more work and that will not be completed until the spring of 2006.

  Q30  Kerry McCarthy: What specific measures do you think will help reduce claimant error? Obviously fraud is a different matter. Is it because the process is too complicated? Is it down to phone calls not being dealt with?

  Miss Walker: Part of the work we are doing in response to the Paymaster-General's statement on 26 May is to improve our communication with claimants. There has been a lot of criticism on the literature we send out and the forms we send out. We have already reviewed the award notice, for instance: there will be a much improved version of the award notice that will come out starting next April. We are currently reviewing the accompanying literature, hoping to replace the thick booklet that we send to people with a much shorter and clearer leaflet. We have done usability testing of the new form with real claimants: watching them filling in the form and learning from the problems that they have. I think it is fair to say that in 2003-04, because it was the first year of the new system, yes, it was difficult for people to understand and you would expect more errors in the very first year than later years if people are learning. But we are certainly working very hard to improve the help and support that we give people, in order to reduce errors that they make.

  Q31  Kerry McCarthy: Has there been any attempt to ascertain the extent to which people might be deterred from putting in claims now or from reporting change in circumstances because of the problem there has been with overpayments and lack of responsiveness under the system?

  Mr Varney: There is some anecdotal evidence of some people—because it tends to get picked up in individual cases in the media—but the level of take-up of new tax credits is much higher than the benefit system that went before.

  Q32  Peter Viggers: I know from constituency experience that the benefit that some people seek is nothing compared with the personal nightmare and real hardship that is caused by repayment. I would like to ask questions on two areas: communication and criteria for assistance in repayment. Child Poverty Action Group quite harshly said, "Helpline staff appear to be inadequately briefed on both the law and the progress of particular cases." I can confirm from my own constituency experience that many people are distressed by the manner in which they seek information and are able to do so. What are you going to do to improve communications?

  Mr Varney: Let me say, first of all, that we regret any case which causes upset to the members of public we are trying to serve. I should say that absolutely upfront. We are determined to try to improve the service we offer.

  Miss Walker: Certainly we are trying to improve the service that is given by the Helpline. We are giving them extra training and support in particular areas. We are certainly exploring at the moment the use of a particular software tool which will guide the call-centre operators through a series of questions so that we can make sure that they are giving accurate and comprehensive advice with support from a computer system. We are also looking at working with voluntary sector bodies to look at particular problems that have been experienced, and to feed that back into the training for call-centre operators.

  Q33  Peter Viggers: Do your officials and those who draft the proposals and the rules recognise that dealing with an explanatory note of up to 56 pages can be quite difficult for many people?

  Miss Walker: I think I just said that we are looking to replace that with a much shorter and simpler leaflet.

  Mr Varney: We have been working with some of the voluntary organisations that are active in this to try to produce a note which is clearer and more concise. The IT facilitation will take time. It will come out in April, would you say?

  Mr Gray: Yes. There are a number of aspects of communication we are seeking to improve. You mentioned the guidance notes and we are also looking at and have already made some simplifications and improvements in the claim forms themselves as well as in the guidance notes. Certainly the general issue you raise of the need for us to simplify and improve all these materials is well taken. At the same time, however, we do have to make sure that in the process of simplifying we do not mislead by missing out important bits of information. But the direction of travel is very much the one on which I think you are urging us to go.

  Q34  Peter Viggers: Earlier on you said change of circumstances during the year can result in a requirement for repayment. I have constituency experience of a number of cases of people who have been told they are entitled to credit, they have remonstrated and said they do not believe they are entitled to it, and the staff have insisted on it, and then there has been a repayment demand. This leads into a question about your criteria for deciding that repayment shall take place. I am told that if the claimant can produce a copy letter, written to you, showing that they have remonstrated earlier, that is helpful, but of course you encourage people to use the Helpline. Where is the burden of proof if the claimant alleges you have made a mistake?

  Mr Varney: We record the calls we receive, so we have some capacity to go back and check. The test which is in our so-called COP 26 is that it has to be an error on our part and they could not have reasonably known that there was an error. We have gone through that. Of the overpayments, about one-third are people whose circumstances have improved by £10,000 or more in the year in question, so the picture is a combination of different groups of people who receive new tax credits being affected in different ways. We are trying to go through those cases—it is quite resource intensive—trying to find the facts of the cases. There is a certain number of cases where the cost of doing that exceeds the amount in dispute and it would not be consistent to spend money doing that, so we have tried in some cases to make sure that we are not wasting more money than we are likely to redeem.

  Q35  Peter Viggers: Are you satisfied that the burden of proof is correctly allocated as to the decision as to whether the individual should have appreciated they have been overpaid? This is a subjective judgment, is it?

  Mr Varney: Yes. I said before it is a heavy burden and our staff I think try to make the right sorts of decisions. I reply to many of your letters. Some of them then go on to investigation and that has caused us to reflect on whether we have the right balance between compliance and compassion. As you can expect, we are dealing with two sets of public: the public who are receiving the tax credit and the wider public who want to ensure that the money goes to people who really do deserve it in the terms that parliament decided.

  Q36  Peter Viggers: Do you take hardship into account?

  Mr Varney: Yes, we do. We try to. I stand always subject to receiving a letter from any of you where we have failed to do that. The intention of our policy is to moderate the rate of recovery if it causes hardship. We have the capacity to make extra payments in cases where people are driven to real hardship.

  Q37  Mr McFall: On the point made to Mr Viggers you said that you do not have the correct information regarding the family's income, but I would suggest to you that the constituency cases I have dealt with would suggest an incompetent system and maybe incompetent management. Perhaps I could detail for you one case. I have a constituent who has been £10,600 overpaid. She thought it was because of the PAYE tax code changes in 2002-03; the impression given was that that was due to the new child tax credit and the married man's allowance getting taken away. In March 2003 she had her first notification letter which detailed incorrect information. When she got onto the staff, they said, "Oh, it's scanning problems with the computer system," and she was assured the new information would be put on. In May 2003—she had two award notices, incidentally, showing that incorrect information—she phoned the Helpline night and day, but they were engaged, saying "High volume of calls". She contacted the local Inland Revenue office in Dumbarton and an official there was very helpful. That official contacted the national Inland Revenue and came back and said, "You are entitled with your circumstances to both child tax credit and working tax credit. I find that very surprising but national office have told me that is the case." In October 2004 my constituent got on to the Hotline, an employee phoned her there, told her she could not appeal, but she said, "I'm still in receipt of payment and it should have stopped." This is going on and on. The last advisor she spoke to in August '05 was Sereta, from Team 31, West Midlands—so she has been taken all over the country, from Dee, to the West Midlands to the south. She said to Sereta, "Listen, Sereta, see the award notice I have just now: it says I have no qualifying children," and Sereta looked it up on the computer and said, "That's not right. That's on the computer: you have two qualifying children, so I can't understand it." That situation has prevailed for 18 months with that constituent. Now £10,600 overpaid. She saved £3,800 of that in a special account and she is worried stiff because when her children go to university then she will be having to pay this all straight away. I suggest to you, Mr Varney, that this is an incompetent system and incompetent management. I am going to give you this information, so that you can give me a personal account of this and take it through the whole system, so that we as politicians can feel sure that the faults in the system have been traced and that in any future cases our constituents are going to be satisfied.

  Mr Varney: This is a system which deals with six million people and I deeply regret what has happened to your—

  Q38  Mr McFall: No, but the point, Mr Varney—

  Mr Varney: Let me finish.

  Q39  Mr McFall: I understand, but do not give me the platitudes—

  Mr Varney: I am not giving you the platitudes, I am giving you an answer.

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