Examination of Witnesses (Questions 40-59)
MR DAVID
VARNEY, MR
PAUL GRAY
AND MISS
SARAH WALKER
12 OCTOBER 2005
Q40 Mr McFall: This was on the computer,
right? Do not give me apologies, I want solutions.
Mr Varney: Fine.
Q41 Chairman: Let us have the answer.
Mr Varney: If you give us the
case, we will work the case. In general terms, we have six million
people. It is incorrect to describe in my view the performance
of the system in terms of just a small group. There is a group
where we have real problems. We recognise that. We are trying
to deal with it. That is what the announcement was on 26 May.
The best way of dealing with individual cases is to put us in
a position where we can look at it, see what the evidence is,
and learn from it. We have an agreement with the Paymaster-General
which was announced on May 26 and the steps we are taking is to
try to learn from the experiences we have had to date to deal
with some of these issues. I sign all the letters that go to MPs,
so I know what is coming from the constituents. I know what is
coming also in terms of the conversation I have had with Paul
since he has been freed up to try to move this forward, but there
are hundreds of people working hard in HMRC to try to deliver
a better outcome and we need to do justice also to their good
work—not mine.
Q42 Mr McFall: It is the management
system I am interested in. That is what we are looking at.
Mr Varney: It is easy to do that.
Q43 Lorely Burt: I would like to
talk about overpayments and the test of reasonableness. In the
first year of operation, your system overpaid 33% of claims. I
would like to pick up on the comments that my two colleagues have
made here. This is not just the odd case; there are hundreds and
thousands of people and families who are put in a tremendous amount
of stress and worry because of the system and its failure to operate.
Anybody who has read the Ombudsman's report will understand the
enormity of the problem—and not only the IT problems but
a lot of the other overpayment problems that have occurred because
of the way the system is calculated which has already been raised.
I do not think there is an MP in the whole of the land who has
not been inundated with constituents at the end of their tether,
worried about overpayment and clawbacks. I know I certainly have
been. When they bring their statements into me and ask me to explain
them, I am very embarrassed to say that I cannot understand them.
How can they understand exactly what these overpayments are and
why they are being paid when people have notified you in time
and yet they get an overpayment to the end of the year? Is it
reasonable, in your view, when they have told you at every stage
of their changes in circumstances and yet at the end of the year
you are demanding clawback of monies from them, for them to have
to make repayment? They have given you all the information clearly
and in good faith and yet at the end of the year you are requiring
them to pay money back—which they have spent.
Mr Varney: The system of overpayment
was built into the design that Parliament made of the new tax
credit position. It was exacerbated by some computer problems
but overpayments are a part and feature of the system. In individual
cases we look at what the circumstances were: Was there information
which was reasonably available to the individual concerned which
was incorrect, which if we had known we would have adjusted the
payments? We are also working—as we have committed under
the announcement of May 26, in the revision of Code of Practice
26 (which is the stance we take when we approach these issues)—to
see whether we can be clearer about the test of reasonableness
and lay out much more clearly and transparently than we have the
Code of Practice and how we use it. That is what we are trying
to do. But there is built into the system an expectation that
there will be overpayment.
Q44 Lorely Burt: Where there has
been overpayment, how long are you going to give claimants to
pay these monies back? Only last week someone came to one of my
surgeries: they have only been receiving the credit for a period
of two years, but, because of the overpayment, have received a
statement saying that they are now not going to receive anything
at all for the following three years—for a family with three
small children. Do you consider it is reasonable that these types
of situation should prevail, where families who have been paid
money and have got used to receiving the higher level of income
should then all of a sudden have that stopped immediately?
Mr Varney: I would have to look
at the individual situation to give you an individual answer.
If I can give you a general answer, it is that in our practice
we do get people who come back to us and ask for delayed payments.
We have had about 42,500 requests.
Miss Walker: Time to pay.
Mr Varney: Time to pay—and
we have granted 42,000 of them. So we do respond and there is
an ability to pay people additional tax credits if it drives them
into hardship. We try to reach agreement over what is a reasonable
and sensible way to pay back the overpayment, if it is within
their capacity. If it is not within the capacity, then it falls
into the hardship cases.
Mr Gray: We start with the position
formally laid down for the rates of repayment, so a certain percentage
per year. That is the standard starting point, but anybody who
wishes to come to us and say, "That is generating hardship
for us," we look at those cases individually and in the great
majority of them respond positively to those requests.
Q45 Lorely Burt: Are you confident
that the Revenue is acting lawfully by recovering those repayments
without considering the possibility that the money should not
be taken in accordance with the Code of Practice. I understand
CPAG are considering taking legal action over this. The Ombudsman
said in her report that even if it was not lawful, it was maladministration.
Would you accept that?
Mr Gray: No.
Mr Varney: We are not quite sure
whether we are going to be challenged in the courts over the legality
of what we are doing but our legal advice is that what we are
doing is consistent with the powers that we have. We do not see
it as a case of maladministration and I have written to the Ombudsman
saying that. Could I correct the information I gave to you: the
42,000 figure I quoted on time to pay was our performance in the
first four months of 2004-05. Today we have 164,000 time-to-pay
agreements across the whole population of new tax credits.
Q46 Jim Cousins: How many requests
for time to pay have you rejected?
Mr Varney: I do not have the exact
number. I am quite willing to write. For the first half of this
year we had 42,500 applications. I have a feeling we have agreed
40,000 and the rest of them are in the system.[2]
Mr Gray: In the early months of
the year, it was certainly an extremely small number. In relation
to the 42,000, I think we have rejected eight.
Q47 Jim Cousins: Eight thousand?
Mr Gray: No, eight.
Q48 Lorely Burt: On that time to
pay, when residents come to us and they are in that difficult
situation, if they appeal and ask for a longer period to pay,
can I take it that you will view sympathetically any requests
to extend that time to pay?
Mr Varney: That is our broad approach.
We are obviously not out to cause hardship. In the National Audit
Office report—and I apologise again for the accounts not
reaching the Committee—there is a description of how long
it would take to recover £1.3 billion, which all reflects
time to pay. I do not want to be hung for the time, but we do
try to reach agreement which is satisfactory on both sides. Our
aim is to recover the money.
Q49 Mr Mudie: Are you challenging
the Ombudsman on maladministration?
Mr Varney: Yes.
Q50 Mr Mudie: You are setting yourself
up to say the Ombudsman does not decide maladministration; the
department she is investigating decides maladministration.
Mr Varney: We are in front of
the Select Committee for Public Administration. You asked me whether
I accepted it. I do not. I accept that she has the right to make
these judgments.
Q51 Mr Mudie: But, elsewhere in the
Ombudsman system, whoever has that judgment put against them it
is accepted and we all expect it to be accepted. Have you taken
that judgment and acted on the judgment as being something you
may disagree with but you are going to implement? Or are you still
challenging the Ombudsman?
Mr Varney: We have written back
to the Ombudsman.
Q52 Susan Kramer: I personally was
very taken aback when, earlier in the discussion, in response
to the Chairman, you basically said that the primary reason for
overpayment is because people do not contact you in time to tell
you about their change in circumstances. I think you gave us the
actual explanation rather later when you said that overpayment
is part of the system. That is surely the problem: that it is
inherent in the system. It is not because we have people there
who are failing to make contact within a reasonable period to
tell you of their change in circumstances. Every MP has had letters
from constituents who have made such representations and are still
trapped. What worries us more than anything else are the many
people who never contact us, so they do not get letters back signed
by you , who end up getting lost in the system, suffer hardship,
do not realise they can appeal the situation and genuinely suffer
with all of this. To go to the issue of automatic recovery, as
I understand it there were some recommendations—going back
to last January possibly—that when there had at least been
an attempt to pay, to stop the system automatically clawing back
repayments when a dispute was in place over whether or not that
repayment was appropriate. As I talk to people on the ground,
my constituents are finding—and it might be that some other
people's constituents are finding it too—that they are in
dispute but the automatic recovery system continues. What kind
of practice have you now put in place to deal with automatic recovery
when a dispute is pending?
Mr Varney: In your speech you
made two comments, and I will ask Paul to address the question
of the disputes. We are talking about two sides of the same coin.
The reason the overpayments arise is because we do not know about
the change of circumstance. It is not a different explanation.
In the design of the system, there was clearly an expectation
that the system will not have the information, either because
we did not get it from the customers or we did not record it properly.
So it is two sides of the same coin.
Mr Gray: The issue you have raised
is whether we have a facility to suspend recovery of the overpayment
once the dispute has been started. Earlier in the year, it was
indicated that we were looking to see whether we had a viable
means of building that facility into our systems. In terms of
getting a durable, fully functional capability in our IT system,
it will be something like another 12 months before we are able
to build an automatic facility to suspend recovery once an overpayment
is in dispute. Over the summer we have been actively looking at
whether we are going to be in a position quite shortly to introduce
an interim facility that will allow that suspension. We are actively
addressing whether we can do that in a safe, reliable way that
does introduce an improvement for customers.
Q53 Susan Kramer: This is the precise
area around which the legality of recovery was raised. You have
said now that you believe that is legal. Are you able to make
available to us the legal advice that provides and supports that
position?
Mr Gray: The facility I am talking
about in relation to suspension is the capability for us to suspend
an overpayment once it is in dispute. I was not talking about
a facility under which, before we instituted overpayment procedures,
we would have a suspension.
Q54 Susan Kramer: Do you believe
it is legal for you to be in a position of automatic recovery
while the case is in dispute?
Mr Gray: Yes, we do.
Q55 Susan Kramer: Can we have the
legal advice that supports that?
Miss Walker: The Paymaster-General
wrote a letter to David Laws MP in the summer setting out the
reasons why we were confident that this was legal. That letter,
I think, has been placed in the House library.
Q56 Chairman: Could we have a note
of this after this session.
Mr Gray: Yes.[3]
Q57 Susan Kramer: That would be helpful.
I will not pass on David Laws' comments on what he was able to
take away from the letter.
Mr Varney: Thank you!
Q58 Susan Kramer: Looking again at
the issue of recovery in the accounts there is a provision of
£961 million of doubtful debts in respect of tax credit overpayments.
I understand from what you said earlier that a very large amount
of that is very small amounts that were written off because it
was not cost-effective to go out and seek recovery. That might
lead one to assume that those who are the better-off tax credit
claimants get the their amounts written off because they are,
by definition, smaller, and those who are in greatest need face
the issue of first automatic recovery and then dabbling this whole
way through this system. Could you clarify what percentage of
your doubtful debts applied to those individuals you have put
in the category of being in greatest need?
Mr Gray: I do not think we can.
Q59 Susan Kramer: How much is automatically
written off?
Mr Gray: I do not think we can
do that for the reasons David was explaining to Mr Todd earlier.
That figure of £960 million you talked about was provisions
for two years—it is equivalent to the £480 million
per year we discussed with Mr Todd—and the basis for making
that provision is on some fairly broadly based assumptions about
the maximum liability we might face in certain circumstances.
It has not, I believe, been based on a detailed bottom-up assessment
that says this is how much we think we might need to write off
for people in particular family circumstances of the sort you
describe.
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