Examination of Witnesses (Questions 167-179)
RT HON
DAWN PRIMAROLO
MP, MR MIKE
HANSON AND
MISS SARAH
WALKER
26 OCTOBER 2005
Q167 Chairman: Minister, can I welcome
you back to the Sub-Committee. Could you introduce yourself and
your colleagues formally for our shorthand writer?
Dawn Primarolo: Good afternoon,
Mr Fallon. My name is Dawn Primarolo and I am the Paymaster General.
On my right hand side is Mike Hanson, who is Head of Corporate
Services and on my left hand side is Miss Walker, who is Director
of Benefits and Credits.
Q168 Chairman: Thank you very much.
Can I start by asking you—
Dawn Primarolo: I am sorry, Chairman,
I wanted to make an opening statement to the Committee and I was
told that would be all right, so perhaps I can do that briefly,
because I know we are anxious to get straight to the questions.
Can I thank you for the opportunity of making this brief opening
statement to the Committee today. HMRC Spring Report is in essence
a statement of what the Department plans to achieve. It is early
days in the merger. The aim of the merger is to achieve three
strategic outcomes. Firstly, improved taxpayers' services. Early
signs are encouraging. For example, the number of leaflets issued
by the Department has been cut by 50% and the clarity of those
still being issued is to be improved. One million people have
been taken out of the self-assessment net altogether and 1½
million now have a simplified form. On efficiency, we have set
the Department challenging efficiency targets and we expect them
to be achieved. Again, the story so far is encouraging. About
2,500 posts have been cut; almost exactly where the Department
should be at this stage to meet its 2008 targets. But this work
is not simply about efficiencies, we also need to see productivity
and quality gains across the Department. Thirdly, revenue yield.
Revenue and Customs is aiming to collect a higher proportion of
revenue than ever before and is clearly focused on closing the
tax gaps on oils, tobacco, VAT and alcohol. Progress on these
strategies will be reported at the time of the PBR as usual. Turning
to tax credits, which I know the Committee is extremely interested
in: HMRC has started the completion of the renewals process for
2004-05. That still has three months to run, until the end of
January for the last applications, but early indications are that
it is progressing well. More forms have been returned than last
year and the helpline has dealt effectively with the increased
volume of enquiries around the renewals deadline. Latest figures
show that more families than ever—6.1 million—are
benefiting from tax credits, with the majority of people receiving
the right amount of money at the right time. But, of course, as
the Committee will know from my statement of 26 May and subsequent
reports published, I have set out to make sure that the Department
improves measures for the administration of tax credits in three
specific areas: improve how the Department communicates with families
about their tax credit awards; reduce the risk of errors adding
to overpayments; and improve the procedures for recovering overpayments.
On improving communications, since May, HMRC has been reviewing
the information it provides to claimants in written communications
through its helplines and online. A new award notice, which reflects
comments from the voluntary and community sector, has been agreed
and will be issued from April 2006. For claimants this means they
will receive a much clearer summary of their award, with an explanation
of how it has been calculated and what they will be paid. Following
consultation with the voluntary and community sector, the tax
credits section of HMRC has redesigned the website to improve
claimants' ability to access forms and information and give answers
to their most frequently asked questions. HMRC will also be reducing
the size of guidance notes sent out to claimants. From April next
year, claimants will receive a two-page summary that explains
the most important aspects of their award and tells them what
information on their award needs to be checked. In 2006, a new
renewal notice will be introduced so that when a claimant receives
their renewals pack, they will receive a comprehensive "play-back"
statement of the Department's records of their income and circumstances
for the previous year. One of the most frequently made points
by the voluntary sector, Hon Members and claimants is the need
for a clearer message to remind claimants of the importance of
providing up-to-date and clear information on any change of circumstances.
A publicity campaign will run from the New Year to remind claimants
to notify HMRC promptly of any changes in their circumstances.
In addition, the Department is piloting more targeted approaches
to remind claimants to report changes. Following the problems
experienced during the introductory period of tax credits over
two years ago, the performance of the helpline has been significantly
improved and figures for the year to date show that 97% of calls
are being answered within the target. HMRC is seeking to improve
the quality of the helpline service through improved guidance,
training for staff, learning from feed-back, but most importantly
arranging for call-back arrangements using a case-work approach
to provide more targeted support to the most complicated cases.
They are also taking forward objectives to create a more flexible
IT system that will allow process improvements, such as changes
to award notices, to be introduced much more quickly. However,
having established the integrity of the IT system and significantly
improved its performance, the priority must be to ensure that
progress to more flexibility is done in a measured and orderly
way. In terms of working with other organisations, HMRC is discussing
with the Citizens Advice Bureau how they can best work together
with a view to developing pilots to support claimants better,
including offering face-to-face contact with the most vulnerable
groups. It is also working, in full consultation with the voluntary
sector and other interested parties, to speed up improvements
in key areas including the quality of the helpline service, the
handling of appeals, complaints and the code of practice on overpayments,
and the Department is aiming to introduce for further discussion
a new version of COP 26, the appeals procedure, by the end of
this year. Finally, the Department is able to make additional
payments to claimants in cases of genuine hardship. In addition,
where an overpayment is being recovered from someone who is no
longer receiving tax credits, there are procedures that allow
HMRC to agree extended terms for recovery. Where recovery of an
overpayment is disputed, in cases where there is no on-going award,
there are already arrangements in place to suspend recovery. As
I have said in my written Parliamentary Answer this morning, from
next month, subject to final testing by HMRC, interim procedures
will be put in place so that if a claimant disputes the recovery
of an overpayment, action will be taken to prevent automatic recovery
until the Tax Credit Office has looked into the case and made
a decision. These procedures will apply both to the cases on hand
and to new cases going forward. I have asked the Tax Credit Office
to aim to complete all such enquiries and make decisions within
four weeks. Of course, HMRC will continue to develop work on a
fully computerised, automated procedure for suspending the recovery
of disputed overpayments with a view to introducing this in 12
months' time , but I believe the interim procedures will give
the immediate relief which so many are seeking. Thank you.
Q169 Chairman: Thank you. It would
be helpful if we could have copies of that statement because there
is quite a lot of detail in it. I do not know whether you can
make them available while this session is in progress. There is
clearly quite a lot wrong with a system which requires so many
changes to be made, which I am sure we would welcome, and I know
my colleagues will want to pursue some of the detail of that.
I would like first to ask you about progress on the merger of
Revenue and Customs. David Varney, the Chairman, told us on 12
October that the structure was finalised at the top level but
not in terms of the new command. Why is the structure still not
properly in place six months after you have started?
Dawn Primarolo: Can I say, firstly,
Mr Fallon, the change that the merger will bring about within
the Department is absolutely fundamental in terms of changing
the way that the Department works and its ethos to put at the
centre of its considerations the taxpayer and the services that
need to be delivered to ensure both the efficient collection of
tax and an efficient service to the taxpayer. In order to drive
that through such a large organisation, whilst at the same time—the
primary objective—also continuing to collect the revenue
currently and maintain the current services, what is necessary
in this organisation and in the merger is that at the top of the
organisation the structure is designed to drive those changes
through the entire organisation over a number of years. So in
the discussions that I have had with David Varney, I think it
is entirely appropriate to approach it in this way. It is nigh
impossible to take organisations of 100,000 and simply try and
join them together. As you are probably aware, there are lots
of other things which need to be done as well: the question of
whether the Taxes Management Act is still the most efficient piece
of legislation it should be; there is consultation going on with
regard to the powers of the Department; there is consultation
going on with the business sector and other taxpayers about what
they expect from the merger, and all of that needs to be fed in
in order to develop this process. I hope we will begin to see
the fruits of that because I am sure we would all agree that the
Department should first ask itself what does the taxpayer think
about this and how does the taxpayer deal with the requirements
we put on them.
Q170 Chairman: We will come back
to that later. Turning to tax credits, I think you said 6 million
families were now benefiting as you originally forecast, but David
Varney told us in the year ending March 04 some 1.9 million families
had been overpaid and he expected the figure, though it is not
available yet, to be roughly similar for the year ending March
05. If there are 6 million benefiting and 1.9 million being wrongly
paid, do you think that is a satisfactory outcome?
Dawn Primarolo: I do not think
it is a satisfactory outcome, Mr Fallon, if the results of that
are because of inefficiencies or errors in the system. I think
it is important to understand what the tax credit system does
in terms of delivering flexibility to the taxpayer, making sure
they get the money they need at the time they get it, and this
is a new system. Naturally, I am not satisfied, and nor are Members
of Parliament, that because of the initial problems in the tax
system there are errors, either by the computer or errors subsequently,
which have led to difficulties in some payments. I think it is
important to state that the majority of tax credit recipients
do get the right amount of money and do get it on time. What is
rightly a point to be addressed is how do we make sure that proportion
increases and that wherever we can we ensure people get the right
amount of money at the right time. If somebody's circumstances
change, then the position for the Department is that it has to
know about that, but then the Department has to do a number of
things which I think we also need to pay some attention to once
it has been notified.
Q171 Chairman: Again, I think we
will come back later to the design of the system. Finally from
me, I want to ask you whether you recall the Regulatory Impact
Assessment and how much you thought the system would cost? Do
you recall the assessment you made?
Dawn Primarolo: I have to be honest
and say that is not the immediate thing which is at the top of
my mind for today's hearing. I am sure you can tell me.
Q172 Chairman: I can tell you because
you said, "Recurring costs of £300 million a year to
administer Child and Working Tax Credit to a population of 6 million",
which [you said] is in fact the population. That was £300
million, but from the Spring Departmental accounts we see the
cost of administering Working Tax Credit was £133 million
and Child Tax Credit was £342 million, a total of £475
million. So this is costing half as much again, 58% more than
you forecast.
Dawn Primarolo: I think if you
take another comparison, Chairman, and I do not have the figures
right here but I am happy to give them in writing to the Committee,
which is the cost per payment under either Working Families Tax
Credit or the cost of payment under Family Credit, what the Committee
will see is the cost of administering per claim is the same or
less. So in terms of volume and in terms of cost for each family,
how much it costs the Department is round about the same. I am
happy to send these figures and if the Committee wants to come
back to me, they certainly can, but I do not have that right in
front of me now.[1]
Q173 Chairman: I understand that, but
do you accept were wrong in the assessment you made at the time,
that this is now costing half a billion a year instead of £300
million?
Dawn Primarolo: Indeed, it is
ever possible. As you know, Mr Fallon, I make assumptions and
forecasts on the best available information which is available
to us. Hindsight is wonderful, I often wish I had it. I have quite
clearly stated the figures and I am happy to give a more detailed
response to you in writing, as I was not prepared for that.
Q174 Chairman: Why do you think it
is costing so much more than you had predicted?
Dawn Primarolo: I think because
there is such a huge number of families in the system, and the
take-up of the system has outstripped all of the expectations.
It has been a very great success and continues to be, and that
is good for the policy but in terms of expectation and running
costs in the early years you have rightly pointed out some facts
on that.
Q175 Peter Viggers: May I quote briefly
from a letter from a constituent? "Realising errors had been
made on our claim due to our up-dates not being recorded and upon
receiving conflicting and inconsistent information and advice
from the operatives, we failed to return the renewal form in an
effort to stop the payments and therefore stop any overpayments
accruing. We had completely lost confidence in the system and
did not know what else to do. At this moment in time not only
are we faced with a huge overpayment claim of £3,454.49,
we are not claiming money that is rightfully ours." Do you
think that Ministers recognise the depth of distress this system
is causing?
Dawn Primarolo: It is very difficult
for me, without notice of an individual case, to comment more
particularly on that individual case, so perhaps I could deal
with the generalities, Mr Viggers. I have made it clear at every
point in the discussions of tax credits, whether it has been statements,
adjournment debates, Treasury Question Time or my appearances
on the media—quite frequently on this—that for the
individuals concerned it is not acceptable that they have not
received the service they should have done, and I deeply regret
that. So answering your first question, do I appreciate it, I
certainly do and I think Parliament as a whole does, and that
is witnessed by the fact of the letters, Parliamentary Questions
and indeed the number of Members of Parliament who speak to me
privately or ask to come and see me in my office. But the next
step is what is being done about it. So with regard to the point
your constituent has made, the new procedure to suspend recovery
whilst that case is being sorted out within a specific period
will address that problem. The question for me is until I see
the details of the case, I cannot see when that actually occurred,
whether it is as a result of the 2003-04 problems or whether there
has been something else going on. I want to stress, I have tried
to say all the time in the letters that I send to Members of Parliament
or directly to members of the public, that of course I deeply
regret this and I apologise where the errors have been made, and
I think that is quite right. I also take very seriously, hence
my statement on 26 May[2]
and the way we are taking forward both the comments of the Adjudicator
and the Ombudsman, how we specifically deal with those issues
and we need to of course.
Q176 Peter Viggers: May we consider the
test upon which it is decided whether or not an overpayment must
be repaid. With social security payments, if the claimant can
be shown to have "misrepresented or failed to disclose a
material fact" there can be a demand for repayment, whereas
with a tax credit the test is whether the claimant "reasonably
believed the award to be correct". It is a subjective judgment
by your Department. Are you satisfied with that test being different
from the social security test?
Dawn Primarolo: Yes, I most certainly
am, because I think there are a number of other tests in place.
The "misrepresented material fact" is sublimely wrong
information, and quite clearly that is dealt with in the tax credit
system. In addition, the tax credit system follows the rules in
the tax system of a light touch, which is the two-pronged test
of error and reasonableness. It is a test which has worked in
the tax system for all taxpayers for actually quite a long time.
I entirely accept, and we may come on to this as a question, the
issue about "reasonable" and what the Ombudsman has
said and what I have said in terms of reviews are a matter to
be looked at. I would finally say that tax credits are not benefits,
tax credits are negative tax and they are in the tax system and
they follow tax rules.
Q177 Peter Viggers: You gave your
undertaking five months ago in the House, in May 2005, that in
cases of genuine hardship where recovery of an overpayment is
disputed, the Department would ensure recovery was suspended while
the dispute was resolved, but two weeks ago your officials told
us it would be another 12 months before the Department was able
to build into the IT system an automatic facility to suspend the
recovery of overpayment, right through to October 2006. Why is
it taking so long?
Dawn Primarolo: Firstly, can I
say that I have said this afternoon, and I appreciate the point
Mr Fallon made about the Committee wanting to see the details
of this, that the Department is planning and is currently piloting—as
long as there are no show-stoppers about why and we are not aware
of any—to suspend all disputed recoveries regardless of
the hardship test manually. I have been informed by the Department,
and I have to take that advice, that the automation on to the
computer is going to take longer, so at this point I have to put
two steps in to deliver that outcome. Should the testing and the
piloting of this proceed well, I hope this will be introduced
round about mid-November.
Q178 Kerry McCarthy: When your officials
gave evidence on 12 October they said in cases of hardship the
Department is already able to restore the full amount of entitlement
regardless of whether there is a dispute. What advice have you
given to your officials or on what policy basis do they make this
decision about whether there is a case of genuine hardship?
Dawn Primarolo: The officials
will be expected in the question of hardship to consider the circumstances
of the individual taxpayer but there has been considerable discussion
around the question of how that is achieved and indeed the Ombudsman
has in one of her recommendations raised that. So I have removed
the hardship test from suspension, because I think we should proceed
on the basis it is disputed and therefore it should be looked
at and therefore it should be determined quickly. What I expect
from the review that the Department, in consultation with the
voluntary sector and the Ombudsman, is doing on what is called
COP 26 is that the question of the reasonable belief test lays
out a clear statement of the circumstances in which people can
claim help under a hardship category, over and above the other
help which is available. I think that will move things forward.
Of course there are a number of other things which will also need
to be taken on board but I think that will be a bit further down
the road, which are to do with recommendations from the Ombudsman.
Q179 Kerry McCarthy: So the discretion
to either not recover any overpayment or make additional payments
in the case of exceptional hardship will remain regardless of
whether it is disputed under present policy?
Dawn Primarolo: Absolutely, but
that tends to come into play in the end-of-year recovery or where
there is no on-going tax credit award. What I am trying to do
at the moment is take pressure off the system where there are
disputed awards and get them settled but, at the same time, require
the Department to review and address the points which are being
made on hardship and reasonableness, and I am trying my best to
respect, as would be expected of me, the recommendations which
have been made of me about what the Department should be looking
at.
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