Examination of Witnesses (Questions 200-219)
RT HON
DAWN PRIMAROLO
MP, MR MIKE
HANSON AND
MISS SARAH
WALKER
26 OCTOBER 2005
Q200 Mr Todd: That does occur.
Dawn Primarolo: Indeed.
Q201 Mr Todd: To wrap this up, you
refer to the learning experience of one of your team, if you like,
gathering that together. I think for everyone's benefit it would
be useful if such a document, if it was prepared in that form,
was publicly available so we could all learn from that. You made
a perfectly fair pointed reference to the fact that Parliament
did not scrutinise these aspects when it considered the introduction
of tax credits. Perhaps it should have done and perhaps it would
do in future if it had a greater degree of shared experience about
what had gone wrong in an experience of this kind. It would be
very helpful if that was the case.
Dawn Primarolo: Indeed, just to
clarify—I think you were touching on the question of the
resilience of the system.
Q202 Mr Todd: Yes.
Dawn Primarolo: That will have
to be when everything is settled with EDS that I can raise that
and ensure the Committee gets what it is asking for.
Q203 Ms Keeble: I want to ask some
questions about error and fraud. The Comptroller and Auditor General
recently qualified his audited opinion on the 2004-05 accounts
because of the probable unacceptably high level of claimant fraud
and error which is likely to have been about 3.4%. In your opening
statements you referred to three different ways in which you are
looking to improve the position about improved communication,
reducing error and improved procedures for recovery. You have
said quite a lot about communication and recovery but how about
changing the procedures so you can reduce the errors, can you
say any more about what you are doing there?
Dawn Primarolo: I can say what
the procedures are that the Department undertakes now and where
we are with regard to that assessment and, of course, the Comptroller
and Auditor General's view qualifying the accounts of the Department.
This was a matter for quite a lot of discussion when the Bill
was going through and, indeed, I think we have had discussion
here. Firstly, the Department has to verify and check all claims
before payments. Secondly, it has to do a risk assessment on the
claim and report changes with examination of cases where risks
are identified. Thirdly, it will disrupt or terminate where fraud
is suspected, and there is always some crossover there, and ensure
that financial penalties and prosecutions from these serious cases
are in place. Now, on what the Department has done, and how we
got to the 3.4%, and that is an early estimate going through an
analysed representative sample, which is the way it is done on
the finalised claims, it came in at 3.4%-ish, let us finish the
work. Clearly the NAO qualified the accounts because the NAO benchmark
is 1%. Now the levels are lower than they were in their predecessor
benefits it would appear but obviously at 1% it has to be a considerable
amount of pressure to get down to that, although DWP accounts
have been qualified since 1986. What the Department has to do,
we have to sort out as part of that what is going on now with
regard to disputed overpayments because we have to try and separate
what is a real disputed overpayment and whether there is something
else going on, to ensure that all those checks and verifications
are working and the difference between the estimated and 1% benchmark,
we will have to review whether that is severe enough to drive
down the percentage even further to 1%.
Q204 Ms Keeble: In the sample you
are talking about, from the information we have got, that work
is not due to be completed, in fact, until the spring of next
year and then do you think it is irresponsible to have such a
huge programme—£30 billion programme—rolling
out without having some reliable data collected quite quickly
on the local area of fraud, given that it will not be completed
until next spring?
Dawn Primarolo: Yes, but the data
has to be collected from the finalised awards of 2003-04. It has
to be scrutinised and tested and then it has to go through the
requirements to ensure the data is correct. That data simply was
not available until those awards were finalised. The approach,
and there was a great deal of discussion about this, is to build
automatically into the system pressures which would act on a downward
pressure on that fraud. What we need to do from those figures
is then ascertain exactly what percentage is error, and therefore
cannot be collected, and what is fraud which we might need different
procedures for.
Q205 Ms Keeble: I want to ask something
about the fraud but, first of all, presumably there is some sampling
mechanism built in right from the outset, from the design of the
system?
Dawn Primarolo: Yes.
Q206 Ms Keeble: Why did it have to
wait until the 2003-04 figures were completed, given that those
have taken a long time to complete and some are still disputed?
Dawn Primarolo: Because tax credits
are determined on P60s from the previous year and then are projected
forward to say if your income stays the same or only varies by
a maximum of £2,500 and there are no changes in circumstances,
that is a provisional award to you, and then it is reconciled
at the end of the year and finalised, which is how much did you
actually earn, and therefore you have a statement of how much
exactly individuals were entitled to. So while the process was
going on—and I am happy to send a more detailed paper on
this—those steps are in when people apply for the tax credits
to try and act as a downward pressure and to eliminate those claims
that are considered fraudulent or without substance.
Q207 Ms Keeble: What I am concerned
about is that one of the issues about tax credits is that they
are very generous, which is great for people on low incomes, but
it obviously means that the potential for fraud is quite substantial.
What you virtually end up saying is that for the first two years
it is very hard to get the checks in place because of the way
the system operates.
Dawn Primarolo: No, I am not saying
that. Firstly, the vast majority of taxpayers are perfectly straightforward
and honest. Let's be correct here and have that on the table.
Secondly, what I am saying to you is I am recognising that the
system as it operates, automatically, through verification, risk
assessment, disruptional termination and finally penalties and
prosecution, if necessary, has a way of stopping that fraudulent
activity succeeding, and then the finalised awards, which are
looked at in detail in the sample is a sort of double check on
that, and then it gives a percentage. Quite rightly, the NAO have
said the benchmark is 1% and that is what you have to get to.
To make it sound as if the system is going ahead and nothing is
happening in between times is not the case. In fact, sometimes
we cut people's money off and they do not like it and then they
go to their MP and say we have cut their money off.
Q208 Ms Keeble: I understand that.
I want to ask a question specifically about fraud. I completely
accept that for most people they are going to put in completely
straightforward claims and for most people the payments will be
accurate, they will be very welcome, they will be generous, they
are particularly important for women (although there has been
the problem about overpayment) however, what checks are actually
done particularly on identity fraud? For example, in particular
where people might have national insurance cards or whatever which
are not valid?
Dawn Primarolo: That would be
within the verification checks of all claims before payment, and
if you would like I could ensure that you had a paper on that.
We have got a system which is recognising a number of things which
also need to be verified. 700,000 children are born a year and
that could lead to an increase. Half a million young people get
to the age of 18 and move into employment and that changes it.
There are 120,000 lone parents moving into employment—good—27,000
of them from part time to full time. So there are lots of good
things going on in the system and we have to balance what is good.
It is the time old debate that is had about a benefits system
per se in making sure that it has the right checks in place
to deal with those who may decide they want to commit fraudulent
activity, whilst not making it more difficult for those who are
straightforward and claiming what they are entitled to. On verification,
that is done, that is why we ask people to check forms. Alright,
sometimes the form says they have got more children than they
have or they have not got as many children as they have and that
is where the verification and the links between the claimant and
the Department come in.[3]
Q209 Ms Keeble: And national insurance
cards in particular?
Dawn Primarolo: Well, it is done
on a national insurance number and we have to have the national
insurance number as part of the claim. Some people claim and the
forms are not complete. They are not processed until they are
which results for some people in delays to their payment.
Q210 Ms Keeble: There is a problem
about those cards being forged, is there not?
Dawn Primarolo: You are asking
me a wider question about the security of the national insurance
system. I am telling you that the verification checks are in place.
The problem in asking the Department to give you information is
that to reveal exactly how the Department does its risk analysis
to combat fraud is as good as saying "This is how you might
be able to get around it." I can ensure that the Department
supplies more information than I am equipped to give you this
afternoon but that will be limited also and I am sure they will
put the caveat here so as not to say "Here is a roadmap on
how to get round that."
Ms Keeble: I understand that.
Chairman: Lorely Burt?
Q211 Lorely Burt: I would like to
ask you one or two questions about the Ombudsman's report please.
The first one is can you tell me why the Department refused to
accept the Ombudsman's tenth recommendation that the MHRC consider
writing off all excess and overpayments caused by official error
which occurred during 2003-04 and 2004-05?
Dawn Primarolo: Because the Department
is under a duty of care to all taxpayers as well as those receiving
overpayments of tax credits, should that happen. There are many
people, many homes, who pay back their tax credits, who recognise,
despite the fact that there might have been an error on behalf
of the Department, that they should not have had the money and
they are prepared to pay it back. It was simply—and I said
it in Parliament—balancing the duty of care to all taxpayers
and the duty of care to individual tax credits claimants, which
is a difficult balance and that is why we use the test we do.
It is exactly the same one as in the tax system. That was the
response to the Ombudsman. I have not heard any other response
coming back from her yet but discussions between her and the Department
obviously are going to have to be on-going and I am very much
looking forward to her being involved with the Department, as
she is, in advising on and addressing the issues that she says
we need to take forward.
Q212 Lorely Burt: I am glad to hear
that. I wonder if I could turn to the eleventh recommendation
that you consider adopting a statutory test for recovery of excess
payments and overpayment of tax credits, consistent with the test
that is currently applied to social security benefits, with a
right appeal to an independent tribunal. What is your position
on that?
Dawn Primarolo: The Ombudsman
asked us to consider that within the tax credits system and therefore
that must be taken forward within consideration of what is called
COP26. I stress again that the tax system is not the benefits
system. The tax system is the tax system and it works on an automated
process for very good reasons, particularly for in-year recovery,
so what I expect—and I know that the Ombudsman would want
to be, rightly, involved in this—is for that matter to be
addressed and the Department to respond accordingly, and that
is what they are doing, and they will tell me as well.
Q213 Lorely Burt: From what you are
saying it sounds like we should not be too hopeful.
Dawn Primarolo: Frankly, I am
convinced that in a system that is so large we have to have automated
recovery, and that was very much part of the discussion. If somebody's
income changes dramatically in year, the best way to stop any
overpayment is to address their tax credits, how much they are
entitled to for the whole year given the change in their incomes,
and in that way you do not get an overpayment, so this has to
be seen as part of what the principles of the tax system are operating.
It is not for me to say whether I am hopeful or not. It is for
me to ensure that these issues are properly addressed within the
broad prospect of the policy and whether or not that can be taken
forward. I am not speculating.
Q214 Lorely Burt: I appreciate all
that you say, however, there have been so many problems for so
many thousands of people, and I think this was why recommendation
ten came in because of the number of people who had, in all good
faith, given information to the Department, the Department have
made the errors, the money has been given to these people, they
have supplied all the right information. It is not their fault,
and they have spent it and they do not have the money then to
pay it back to you. I think this is the reason why these two recommendations,
10 and 11, were made.
Dawn Primarolo: I agree and all
I can say to you is can we keep it in perspective, please? There
are 6.1 million families and, yes, you are absolutely right that
there are a number of families for which this has not worked as
it should and we have to address that. You are talking about errors,
failure for administrative reasons or computer reasons, and that
should of course be put right. Then there is a separate issue
of if the system is working as it should, is there a need for
an appeals procedure? If there is, what would that look like?
That must be taken forward as part of that consideration. That
is all I am saying to you. I get a little frustrated when, rightly
so, the terrible service that some have received—and it
is a small percentage in the tax credits; 6.1 million is a large
number of people—is presented as the reality for all tax
credits recipients, and it is not.
Q215 Lorely Burt: Is it not the case,
though, that over 30% of people were overpaid in the first year
of the scheme?
Dawn Primarolo: Yes and £1
billion of the £2 billion was accounted for by households
who had earned £10,000 more a year. That is a pretty significant
change in circumstance. The issue is did the Department know and
not act on it in a timely way or did the Department not provide
enough support and information to the tax credits claimant that
they should have notified at an earlier stage. Cut the other way,
half of the 1.9 million who were overpaid were overpaid by £570
something or less in the entire year. Then alongside that—and
I think Mr McFall had a case—there are also some people
who, for various reasons that are inexplicable, received considerable
amounts of money.
Q216 Lorely Burt: The Ombudsman said
that there was systematic maladministration over the automatic
recovery of overpayments. When we met David Varney he flatly contradicted
her and said that there was not. Is it for him to say or for the
Ombudsman? Can you give a yes or no answer to the question: is
there systematic maladministration?
Dawn Primarolo: It is for the
Ombudsman to say whatever she decides she wants to say. I would
quite like to know, and will be enquiring exactly what was meant
by "systematic" because that only appeared as a suggestion
last week in committee, and that is something that I would be
very concerned about as to how she came to those conclusions and
what her test is for coming to that conclusion, and then I will
be able to form a judgment. I do not have that information currently
and I had no idea before it was actually said in committee and
she did not say that in her report. Indeed, she said herself in
her report that she does not consider the system to be incalculable
for everyone, or words to that effect, and that for a significant
number it is working well. She rightly concerns herself, as we
all do, with those where it does not work well. I cannot comment
on a statement that was made when I do not know on what basis
it was made and what are the criteria for making such a suggestion,
and that it is something that was not said in her report.
Q217 Lorely Burt: Just one final
question, if I may. Do you think it is simply a matter of tweaking
the administration and improving the IT and then everything will
be fine, or do you think that the client group that it is chiefly
intended for, which is those on very tight budgets and low incomes,
the uncertainty and the inherent overpayment is always going to
be problematic?
Dawn Primarolo: It is not just
intended for, as you called it, and I did not quite catch the
last word, the very vulnerable. Nine out of ten families benefit.
It is hugely superior to the fixed, time-limited snapshot award
that was its predecessor, which was also widely criticised, and
family credit before that. It has specific objectives in terms
of removing stigma, moving people into work, eradicating child
poverty and making a contribution to that objective. Yes, I think
this system is the system to do that. The challenge now in the
immediacy is to get the errors out of the system, get the IT working
properly and to make sure that people are getting the service
that they are entitled to—the right money at the right time—and
proper communications from the Department, and of course deal
with the issues, should they arise, of error and fraud. Those
are my objectives and I will work with whoever is prepared to
work with me on those objectives in order to improve the service.
Q218 Mr Love: Can I endorse that
last statement you just made about the system and, indeed, can
I congratulate the Department on reaching 6.1 million families
because I think that needs to be said as well. I wanted to talk
a little bit about the design of the system because there has
been research carried out by One Parent Families which shows that
the level of understanding of this system is quite high, but picking
up the point Jim Cousins made earlier on, they found that 47%
of the people they polled had somewhere between two and seven
changes in their circumstances every year, 36% had at least one
change, and only 17% had no changes at all. Recognising that the
current design of the system under which we are operating appears
to be impacting most on vulnerable families, is that a particular
concern for the Department at the present time and are you looking
at that?
Dawn Primarolo: Firstly, the report
that has recently been published by One Parent Families, which
I have recently received (and I do want to look at it in some
detail and have discussions with them and I have not been able
to do that yet) I would say, yes, one of the issues is this question
of change of circumstance, how frequently it occurs. People moving
into work—thankfully and because of the brilliant stewardship
of the economy by the Chancellor—is much, much higher and
the turnover of those in work is higher than we had anticipated.
That is a challenge. It is a challenge in terms of looking forward
so, yes, the consideration—and I would like to speak to
them in more detail about the size of their sample and looking
at the points they are making, for us to understand exactly, because
whilst informing applicants for tax credits of what would be a
change of circumstances it does also mean that we have to be advising
them clearly and understand what is going on as a Department,
and we need to take that forward. I cannot comment at the minute
but I think it does raise some important points, which have been
raised by other organisations.
Q219 Mr Love: The Department itself
has not carried out any research in this area? It seems an obvious
thing to do.
Dawn Primarolo: We are trying
to look at that now but at the same time our priority is to sort
out what we have been asked to sort out already so, yes, an analysis
of what might be causing this churn in change of circumstances
is something that we do need to look at, and I have asked that
it be considered.
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