Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 220-239)


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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