Examination of Witnesses (Questions 220-239)
RT HON
DAWN PRIMAROLO
MP, MR MIKE
HANSON AND
MISS SARAH
WALKER
26 OCTOBER 2005
Q220 Mr Love: Can I move you on to
fraud and error which we talked about earlier. You mentioned the
Comptroller and Auditor General has qualified the reports of the
Benefits Agency for some considerable time. Indeed, when I sat
on the Committee of Public Accounts I was involved in all of that.
Fraud and error is very roughly proportional to the complexity
of the system you are trying to operate. I would not go too far
with that but generally that is not an untrue statement. Does
that give you cause to consider simplification of the tax credits
system?
Dawn Primarolo: I think firstly
the issue must be, as you rightly say, that we have to drive down
and get to the benchmark of 1%, and so the issue there is, as
Ms Keeble raised, do we actually have robust processes in place
to deter fraud, is that workable, is it producing what we want,
are there further changes that could be made in the system in
order to deliver that objective? I am not saying that I never
look at policy but it is a straight political choice of fixed
system versus flexible system. A flexible system delivers what
we need for the challenges in the economy and, if it had the difficulties
removed that have been experienced, should work well: a fixed
system does not. Can we make sure that the system that currently
works will work well? And that is part of what we are now doing.
Q221 Mr Love: Let me just ask in
relation to that because the experience of other parts of the
Benefits Agency has been that you introduce things like, in housing
benefit, the verification framework which adds considerably to
both bureaucracy and the complexity of the system and which may
well produce a limited reduction in the level of what they call
fraud and error. Is that something that you are looking to increase
in the tax credits system? It would not be something that I would
recommend to you but it may be something you are looking at.
Dawn Primarolo: I think the drive
has always been from my point of view that I want to make the
system work, I do not want to make it more complex. In taking
on board many of the suggestions and recommendations, that is
the balance that has to be struck, and that is a matter for Parliament
where you sit on that continuum. With the NAO operating a benchmark
of 1% that is a pretty tough thing to reach, but that is what
is required currently by Parliament and, yes, that is a balance,
but it is a conflict, if you like, between the two big pressures
of make it simple but get fraud down or make it fair but make
it simple. They do not always go together.
Q222 Mr Love: None of the other benefits
agencies have got anywhere near the 1%.
Dawn Primarolo: Right.
Q223 Mr Mudie: Can I thank you, Minister,
for your written answer on the matter upon which we failed to
get a satisfactory answer through your Chairman when he was here
two weeks ago. Going back to question 5, Peter Viggers asked this
question, I am not sure the reply was helpful. The Government
can recover overpayments of certain social security benefits only
if the claimant can be shown to have "misrepresented or failed
to disclose a material fact" whereas overpayments of tax
credits will be recovered unless HMRC decides that the claimant
"reasonably" believed their award to be correct. I take
it that because tax credits are administered by HMRC, you are
using the HMRC's criteria for stopping overpayments or carrying
on with overpayments, in other words reasonableness?
Dawn Primarolo: Yes.
Q224 Mr Mudie: Right. I am not wanting
an immediate answer but I would genuinely think it is something
we should look at because you have conceded that where there is
hardship and where there is dispute you will stop the overpayments
until the dispute is settled. The only trouble with that is HMRC
says "I have decided that you are unreasonable"—it
is very subjective. Now, in the rest of the Inland Revenue on
all other matters there is a right of appeal. Why can you not
extend that right of appeal or will you consider extending that
right of appeal to these matters?
Dawn Primarolo: I think there
are two steps there. First of all, the reasonableness test, it
is absolutely right and that is being looked at, is the reasonableness
test reasonable, and, secondly, what is the role of the appeals
process within the tax credits system following the recommendation
from the Ombudsman? Yes, they do have to be looked at, and they
are.
Q225 Mr Mudie: I have got 12 items
on the other side of the Department and if there is a difference
of opinion between the Department and the customer, the customer
in every instance has a right of appeal. You will consider extending
this to a difference of opinion, whether there is hardship or
not, on tax credits?
Dawn Primarolo: Yes, of course
I will consider it.
Q226 Mr Mudie: Good. Can I just confirm
that because in your reply on the 29th which I have just seen
today which we asked the Chairman about two weeks ago and only
received this morning (which does not make for good relationships
with your new Chairman) the question of appeal was under paragraph
11. Now it said it covers the statutory test and the right of
appeal. The answer is interesting. Civil servants always know
what they are writing and are careful with every word. The answer
is: "The scope for adopting a statutory test will be considered
as part of the review of COP26." There is nothing about the
right of appeal. That is just an omission and you will be considering
the right of appeal, as you do on other matters in the Inland
Revenue; yes?
Dawn Primarolo: I cannot comment
on the interpretation of the words but, yes, the recommendation
from the Ombudsman requires consideration of the right of appeal.
That will be and is being considered.
Mr Mudie: It is so much nicer doing business
with you than your Chairman, I must say. That was subjective,
not reasonable!
Q227 Peter Viggers: Very briefly
following that last point, there is so much money sloshing around
in this system that even if you get the amount down to 1% of turnover
it is still £300 million being wasted in the system. The
other point is that in the world of marketing, I dimly remember,
one dissatisfied customer causes more grief and distress than
20 satisfied customers. Does your Department take account of the
fact that the over six million people given benefits are outweighed
by the comparatively small number caused immense grief and distress
by overpayment?
Dawn Primarolo: I am not sure
I understand the question. I think what any organisation should
be tested on is how it deals with complaints. People can be satisfied
but also you have got to see how those complaints are dealt with,
at whatever level, and if the Department has not been dealing
with those complaints properly as part of the work we do with
the adjudicator then it should put that right, and that is part
of all the work that is going on now as a result of the complaints.
Of course, I do not want somebody to be dissatisfied but I find
in the tax system people are dissatisfied for an extraordinary
range of reasons. I agree with you that £300 million is a
lot of money but so is the amount of money that we lose through
contrived avoidance schemes against which we are constantly battling.
There is a certain level of this that goes on. I am trying to
drive the Department to 1% and that is the parliamentary requirement
otherwise the accounts are qualified, and I will do that as best
I can.
Q228 Mr McFall: Could I follow up
my colleague George Mudie's point because I sent you a letter
in the summer, Minister, as you know, pointing the way forward
with the Tax Credits Agency and your Department kindly sent a
reply to me yesterday, both to my constituency office and to my
London office so I am really grateful to you on that. What I want
to do is follow up George's point on the right of the appeal because
in the letter you sent to me you said if a taxpayer had been told
by the tax credits helpline that the award is correct HMRC will
normally be satisfied with it being "reasonable" for
the claimant to believe that to be so. I have presented your Department
with those very points and I do not think it is sufficient for
someone in the Department to come back and say that the tax credits
helpline did not think that. There has to be documentary evidence
for people in that. I wonder if you would look at that specific
point for us?
Dawn Primarolo: I will certainly
look at that. What I want to see in terms of reasonableness in
a review is what circumstances are taken into consideration, how
it applies, and that that is the information that is out in the
open and is available. There are wider questions beyond that which
Mr Mudie raised with me as well but when I am answering letters
now I have to do so on the basis of what the current practice
is and how one can then take that forward, and I am doing my best
to answer in that way.
Chairman: Minister, we welcome the improvements
that you announced at the very beginning of this session to the
tax credits system, but I hope you understand the concerns that
we all have that the system is not working well. You have been
the Minister in charge since the beginning. It was four years
in the planning and this is the third year of operation. I know
you are helping six million people and it is a very big operation
but there are two million people being wrongly paid. Personally
I do not think it is sufficient to say that the majority of people
are being paid correctly. If we are spending half a billion pounds
a year on running something we need to get it running well. I
need to give you notice that administration of tax credits is
something that we will be looking at as an inquiry, not to rake
over who decided what but to look at the architecture and design
of the system, some of the points that have been made on my right
here, to see what suggestions we can put forward for improvement.
I want to move on now to some of the issues that arise from the
merger of Revenue & Customs. Damian Green?
Q229 Damian Green: It is clear from
what we have been discussing for an hour and a half that there
are governance and competence issues surrounding the new Department.
The Good Governance Standard for Public Services says that the
roles of chair and chief executive should be separate and provide
a check and balance for each other's authority." David Varney
is both Chairman and Chief Executive of HMRC. Why in this new
Department has the Government decided to flout the good governance
standards for public services?
Dawn Primarolo: Accounting officers
rules in terms of how Parliament operates—I think, Mr Green,
this is the correct answer but I would really like to check that
and confirm it in answer to you—and also in terms of the
O'Donnell Report and how to bring together mergers. It is not
a question of ignoring or baulking trends; it is being appropriate
for central government, and I am sure you will appreciate that
accounting officer rules are very important and that we should
maintain their primacy for Parliament. If I have got that wrong,
I will immediately come back to the Committee on that.
Q230 Damian Green: Thank you. To
take the wider issue of the Department's performance since it
was merged, the Committee has seen various memos suggesting that
experienced tax inspectors have been offered early retirement
and in particular worries about the target of reducing full-time
equivalent posts by 16,000 and the way that has been done. The
figure was decided before decisions were made about where the
staff cuts should fall and who best could be got rid of. Is it
the case that that figure of 16,000 was set before any examination
was made of where the specific cuts should fall?
Dawn Primarolo: The 16,000 was
set by the efficiency review undertaken by Peter Gershon and announced
to this House. It is net 12,500, and that has been in place for
some time. I am sorry, you asked another question and I have forgotten
it.
Q231 Damian Green: It was whether
that figure, which is clearly not plucked out of the air but is
fairly crudely set, was set before—
Dawn Primarolo: Related to the
Department they are quite clearly efficiency savings and how Gershon
assumed that.
Q232 Damian Green: But those in the
private sector who deal most regularly with the Department are
telling this Committee that it seems to be that, as I say, it
is the experienced tax inspectors that are going and that the
Department is losing its core competence in pursuit of what seems
like a fairly crude manpower reduction figure.
Dawn Primarolo: I am not aware
of those suggestions being made as Minister but let me tell you
that of course the early retirement proposals are part of—as
well as the efficiency and productivity that I referred to earlier—achieving
our target, but I am informed that being offered early retirement
is subject to a test on whether or not they are required within
the merging Department in terms of future services. So if the
suggestion is that there is no criteria that are applied first
before anybody is able to opt for early retirement, I understand
that that is not case, but I will check that.
Q233 Damian Green: If I can take
one example then of something that is causing very specific worry
and perhaps reflects on the Department's governance. You will
be aware that the Department is conducting consultation about
the proposed changes to the VAT exemption laws for insurance-related
services following the ECJ judgment and that the insurance industry
is extremely anxious that this change should not be implemented
on 1 January 2006 because they say that would cause some chaos.
Are you committed to an implementation date of 1 January or might
that be delayed?
Dawn Primarolo: The consultation
on this as a result, as you rightly say, of the ECJ ruling was
completed on 30 September. We need to consider very carefully
the responses to the consultation and then it may be necessary
to try and make an announcement as quickly as possible, but what
I am keen to stress, Mr Green, is that I want to ensure the Department
does this closely with the industry. The best solution will be
developed on that basis. I do not know exactly where we are on
this point at the moment. Forgive me, we have shot straight across
into tax policy now. I am happy to give an undertaking if you
wish to come and speak with me further about this as a particular
issue, I am happy to facilitate that and to keep you informed
as best I can.
Q234 Damian Green: It is a particular
timing issue that one—
Dawn Primarolo: I agree, it is
very sensitive.
Q235 Damian Green: The consultation
ends on 30 September and if the implementation is 1 January then
the industry is saying, particularly as it is something they say
would cost £200 million, that would cause chaos in IT systems
(we were talking about that earlier) and they are very anxious
at the very least that should be delayed and I hope that that
is right?
Dawn Primarolo: I understand that,
although obviously there is an issue that it is an ECJ ruling.
I understand very clearly the sensitivities around here and I
do not want to either mislead today or make it sound as though
I do not share, along with the Department, those very great concerns,
and we are actively trying to find a way of resolving this satisfactorily.
Again, I extend the offer to you, when I have a view following
the consultation, to discuss it with you in the Treasury if you
think that would be helpful. We need the best solution here, not
dates.
Q236 Jim Cousins: The Revenue first
merged with the National Insurance Contributions Agency and then
of course with Customs and both of those are proposals that I
thoroughly support, but at what point and in how many years' time
will it be that the computer systems which provide information
about individual taxpayers or VAT payers will be in a form where
Revenue & Customs is able to take a comprehensive view of
the circumstances of an individual taxpayer?
Dawn Primarolo: I think it may
have been at a previous hearing with David Varney that he explained
the huge number of different legacies and systems that he has.
Obviously it is a priority. Part of the reorganisation of the
Department into, for instance, the four main streams—large
business, small and medium-sized business, individuals and frontier—is
to bring together from both departments under those four headings
all the information that is pertinent there and the staff that
work there in order to address the point, which is how many times
does a taxpayer contact different parts of the Department, and
whether there should be a move to a point where the taxpayer makes
the contact and the Department deals with the rest. That is obviously
quite an unwieldy operation and will need some scoping. This is
precisely the work that Steve Malone and his team will be looking
at in terms of the legacy project and how we will start bringing
those together, looking at how the Aspire project works, and of
course the other areas. I should just say, because nobody will
ask, that the national insurance system, which is a vast system,
was replatformed without a hiccup recently but the Department
has not got any credit for actually managing to do that. So it
does manage to get some of its IT—a lot of its IT right.
Q237 Jim Cousins: Indeed and these
are very difficult and large systems and a lot of them have been
outsourced so there are contractual arrangements which have to
be respected in any attempt to make the system more coherent,
but I am just wondering (because there is evidence too that staff
in HMRC are actually quite concerned about the difficulties of
integrating the various information platforms and data-handling
systems) when is it that you are aiming that these platforms should
all be able to communicate with each other.
Dawn Primarolo: The staff are
concerned that they cannot communicate, as we all are. I cannot
give a date to you Mr Cousins, at the moment. That is a vast amount
of work that the Department needs to do over the period of merger
and it needs to do it, as you rightly say, in a fashion that does
not endanger the integrity of current systems. The Department
has been merged for 170 days. It could not do anything until it
was merged because those are the rules under which we operate,
so that is going on now. Of course, the Committee will be kept
informed. I am not aware—but I will go back and check—that
there is a timeframe for achieving that as a finished product
but there will be a timeframe for assessing that and knowing how
to proceed, and I will try and get that information to your Committee.
Q238 Mr Todd: In response to questions
on this to Mr Varney he did write to the Committee giving a very
brief summary of how information technology would be planned in
the new merged Department and he referred to the development of
an IT strategic framework. From my reading of what he and his
advisers have written, it is difficult to evaluate the substance
of that, to be honest, although many of the points that he has
made in the answer he has given us are sensible and useful. Is
that a document that is available publicly?
Dawn Primarolo: That plan is not
available yet but I am happy to give an undertaking that when
it is the Committee can be briefed on it.
Mr Todd: That would be helpful.
Q239 Mr Ruffley: Minister, could
we turn to the child trust fund? HMRC figures show there has been
quite a low take-up of child trust fund vouchers. Of the 1.9 million
vouchers issued by 20 August this year, only 46% had been used
to open an account. And that take-up rate is slowing from 499,000
in the period up to 20 May, and has now fallen to 390,000 in August.
So what those figures show is that over half the numbers of eligible
parents have ignored the vouchers. What do Treasury Ministers
think about that poor take-up? Are they worried by it?
Dawn Primarolo: I have to say
that given the period of time that the vouchers have been available
and given the pressure on new parents and given the fact that
if within a year the HMRC would automatically invest it anyway,
the take-up figures, I am advised by the Department, are improving
and they expect to see that continue to improve.
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