Memorandum submitted by Citizens Advice
Citizens Advice has welcomed statements made
over the summer by the Paymaster General, the Prime Minister and
the Chancellor of the Exchequer which all show determination that
the delivery of tax credits needs to improve rapidly. We also
recognise that the Revenue is focusing on delivering the necessary
We are however, concerned that the implementation
of these changes is too slow. Changes are urgently needed to ensure
that families can have confidence in tax credit income, and are
not plunged into poverty by the sudden withdrawal of tax credit
payments. In the longer term too tax credits need to provide stability
in order to address child poverty. Families need income stability
and security of payments to be able to return to work with confidence
depending on their tax credit income to help meet childcare and
other costs. In particular:
There has been no commitment to place
an absolute limit on the amount that can be recovered from families
who have been overpaid.
The position regarding writing-off
overpayments remains confused, as the onus remains on individual
families to challenge the decision to recover, leaving unknown
numbers of people repaying overpaid tax credits which have resulted
from Revenue errors.
The Government has made much of the
commitment to suspect recovery of overpayments where recovery
is being disputed on grounds of official error or hardship. This
commitment was first made by HMRC Chairman David Varney in January
this year and confirmed by the Paymaster General in May and June,
but we are yet to have any clear indication of when this might
No commitment has been given to introduce
a statutory right of appeal to an independent tribunal.
1. RECOVERY OF
One third of all households were overpaid £1.9
billion in 2003-04. Figures show that more than half of these
were as a result of income rises over £2,500 and 0.3 million
families experienced rises over £10,000 and did not report
the change until the year end.
There are as yet no figures published giving details of the full
extent of the number of overpayments resulting from Revenue errors.
The rules around writing off overpayments arising
from Revenue error are complex and discussions in Parliament have
often been misleading. For instance Tony Blair advised the House
during Prime Minister's questions on 22 June and again when challenged
on 29 June that "we will not seek to get the money back if
the error is on the part of the Inland Revenue." It was later
confirmed that whilst the Revenue will write off overpayments
arising from "official error", the definition of "official
error" is two-fold: where the Revenue has made a mistake
and where in addition it was "reasonable' for the claimant
to believe that their award was correct.
In addition to this, overpayments are still
automatically recovered unless a claimant disputes the recovery.
By June 2005 HMRC had received 294,000 requests for the recovery
of overpayments to be reconsidered on official error grounds and
116,000 were awaiting decision. The backlog of disputes awaiting
decision meant many claimants had to wait many months, during
which time recovery continued. In May 2005 "streamlined'
processes were introduced for making these decisions, but the
criteria for writing-off have not been made public. There was
an immediate rise in the numbers of overpayments being written
off, from an average £1.2 million per month written off from
January to April 2005 to almost £31 million in May 2005.
Citizens Advice Bureaux have seen many more overpayments being
The main commitment on overpayments made by
the Paymaster General is that the Revenue will consider suspending
recovery during a dispute period. The Revenue Chairman, David
Varney, originally promised this in evidence to the Public Accounts
Committee in January 2005. At the time the Revenue was unable
to stop the computer system from automatically recovering, so
regardless of how long it took to investigate the claimant's case,
recovery continued. IT systems have made this difficult to achieve
and in the short term we understand that achieving this will involve
"tricking" the computer. Work has been carried out on
this over the summer period but we are now waiting for Ministers
to announce when they intend to proceed on this. Six months into
the financial year the suspension will be too late to be of significant
value for most families.
When is the suspension of disputed
recoveries likely to be introduced?
What about overpayments that are
not disputed, but would meet the official error test?
The Revenue must provide all claimants
with information about overpayments and the reasons why they have
arisen. Claimants must be informed clearly about their right to
dispute recovery on official error grounds.
Use of the "reasonableness"
test must take into account the inadequate information and advice
available to claimants on the helpline or on their award notices
to enable them to understand their awards.
2. THE NEED
TO ENSURE FAMILIES'
BELOW MINIMUM LEVELS
Citizens Advice has recommended an absolute
limit to recovery from ongoing tax credit payments. This important
proposal has not been addressed in recent Government statements.
Citizens Advice believes an absolute limit on recovery from those
most in need of tax credits is crucial, if vital objectives on
tackling child poverty, helping people into work and to keep jobs
are to be achieved in full.
Unless safeguards are built-in, an annual system
cannot protect weekly income. Even if the quality of administration
significantly improves, households could still find themselves
with their weekly payments dramatically cut, particularly if an
overpayment comes to light near the end of a financial year. One
example illustrates this:
On finishing work and claiming income support,
a lone parent had accrued an overpayment of £185. Although
this was small, because there were only six weeks left of the
tax year, her payments were cut from around £40 a week to
just £9 a week and she was facing significant hardship.
Tax credits are designed to be responsive to
families' changes in circumstances. They contrast with the old
fixed period systems that were stable but meant that families
had to wait until the end of their award period for payments to
change to reflect any new circumstances. Although fixed awards
were not responsive to drops in income, to many families the stability
they bought was very welcome.
The advantages of an annual system do not take
away the need for minimum weekly incomes. Adjustments to tax credits
within the tax year have left families unable to pay childcare
costs, their rent or their mortgage payments and those on benefit,
struggling to live on just the adult rate of income support of
£56.20. In contrast, the recovery of an overpayment of benefit
would never remove payments altogether. With the transfer of 0.8
million benefit claimants, to child tax credit next year, the
need to protect weekly incomes is even more urgent. We accept
that adjustments are part of an annual system but there must be
limits to ensure families are not left in hardship.
The most common report from Citizens Advice
Bureaux dealing with clients with overpayments is that it is simply
not clear how the overpayment has arisen or in fact, how much
it is. Whilst the Revenue inform claimants that they have been
overpaid, by how much and how it will be recovered, they have
no standard means of informing them of the cause of the overpayment.
One CAB reported that their client first came
to see them in June 2004. They finally closed her case 13 months
laterin July 2005. "She had so many award notices
we could have decorated the bureau." There had been numerous
mistakes including missing children, wages and an extra disability.
Initially the claimants had been told that although the overpayment
was caused by Revenue error they should have been able to spot
it, so it would be recovered. All replies to their challenges
simply repeated this, including one from the Paymaster General,
but a year later out of the blue client got a letter remitting
it in full.
The Government has committed to review the Code
of Practice on the Recovery of Overpayments. In August Citizens
Advice participated in a consultation meeting where there was
a broad consensus on changes that need to be made. The key recommendations
All cuts to payments resulting from
overpayments during the year or at the year-end must be limited
to ensure families are not left in hardship. For example, households
on maximum child tax credit should not have their payments cut
by more than 10% of their weekly entitlement. (See paragraphs
6.42-6.58 of CAB report, Money with your name on it).
There must be an end to immediate
automatic recovery/adjustments in payments. They should be delayed
for 30 days after the claimant has been notified of the reason
for the overpayment; of their right to dispute the recovery on
the grounds of official error or hardship; and/or their right
to appeal entitlement and of course information about how and
when the adjustment/recovery will start.
The introduction of a statutory right
of appeal to an independent appeals tribunal.
The Paymaster General's statement of 26 May
2005 highlighted the need to improve the quality of award notices,
of service provided by the helpline and improve the speed with
which they can identify IT problems and errors. We welcome the
reviews that are being undertaken as part of this but are concerned
that it will be many months and in some cases years before improvements
are felt on the ground by claimants.We welcomed the opportunity
to contribute to the redesign of the award notices and hope the
changes will help claimants to understand their entitlement. We
are disappointed however that the changes will not be introduced
until April 2006.
CAB advisers face considerable difficulty resolving
even the most simple errors and other problems with their clients'
tax credits. They report tax credits as their number one policy
concern even though they receive more enquiries about other issues.
This is because cases can be extremely complex, time consuming
to resolve and the problems facing the clients in the interim
are often very serious indeed.
Complaints about the quality of administration
can take a long time to pursue and claimants will often not get
the redress they deserve. The Adjudicator's report published in
June highlighted that complaints about tax credits rose from one
third of all their complaints received in 2003-04 to a half in
2004-05 and they upheld over 80% of in favour of the complainant
either fully or in part. Similarly, since the introduction of
new tax credits, the Parliamentary Ombudsman upheld 79% of their
tax credit complaints in whole or in part.
The Paymaster General's statement also places
considerable emphasis on educating claimants to understand the
importance of reporting changes in their circumstances. Much of
our evidence however, shows that many people have reported changes
to the helpline, but that these have failed to be acted on by
the Revenue. HMRC still have a lot to do to rebuild confidence
in their administration.Whilst we accept that the computer system
is now more stable than in the initial periods of 2003-04, we
find current statements that indicate that there are no systematic
problems with the system, only individual problems, misleading.
We understand that there is still a problem with the payments
system which can result in the payment of lump sums into claimants'
bank accounts in error.
The planned improvements are very
welcome but we would like to stress the urgency of this and in
additional to urge for the contingency arrangements to be put
in place. Claimants who cannot be paid because their cases are
"stuck" should be offered interim payments and those
paid in error should not be advised without further checking that
the payment is theirs to keep.
Until award notices can be improved,
it is essential that the tax credit helpline must be better able
to explain award notices to claimants. They must also be able
to explain the reasons for overpayments and clarify what payments
are due and why.
Urgent improvements to the response
times for correspondence are essential.
In order to improve transparency
and accountability, we would welcome further publication of performance
information and information on complaints, correspondence response
times, appeal clearance times, and numbers of award adjustments
that leave families on incomes below their weekly or monthly entitlement.
We also believe that for some there
will always be a need for face-to-face advice, particularly when
trying to understand complex paperwork and even when trying to
establish relevant income.
1 HC Deb, 12 September, col 2387w Back
HC Deb, 4 July 2005, col 101w Back