Supplementary memorandum submitted by
Rt Hon Dawn Primarolo MP, Paymaster General, HM Treasury
TAX CREDITS
(Q 180 and 186) What information is given
to the claimant when they are asked to repay an overpayment—specifically
if they are given information about hardship and how to challenge
recovery
In my letter to David Laws MP on 30 June this
year I stated the following:
"HMRC recognises that such amendments may
cause problems for some claimants. This is why HMRC explain at
the time they start to automatically recover outstanding amounts:
— what the claimant needs to do where
the recovery creates hardship,
— or, what the claimant should do where
they believe that it is not appropriate that they should be liable
to pay back the overpayment at all, for example, in the case of
official error.
The guidance sent out by HMRC confirms the availability
of help and how to seek such help. It also provides details of
how to obtain HMRC's Code of Practice 26 (COP 26), `What happens
if we have paid you too much tax credit?' The Code sets out what
happens where a family believes that recovering an overpayment
will create hardship. The HMRC website also includes the same
information and advice. HMRC also work closely with CPAG and CAB
to publicise the availability of help in cases of hardship."
I can confirm that HMRC provides the following
information to claimants.
When a claimant notifies HMRC of a change in
circumstances, they will be sent an award notice which will include
notification of any overpayment, and how this affects their payments.
They will also receive a copy of Tax Credits Notes 602 which advises
them to contact HMRC if their payments are reduced to a level
that causes financial hardship. Once they have contacted HMRC,
the claimant would then be sent a copy of Code of Practice 26
(COP 26), which covers overpayments and the processes in place
of hardship cases. This booklet also advises claimants to contact
HMRC as soon as possible if they object to a decision to recover
an overpayment.
For overpayments recovered directly from claimants,
the Notice to Pay (TC610) gives information regarding the amount
of the overpayment to be paid back, the date by which it is due
(30 days hence) and that repayment can be spread over the next
12 months if they wish, detailing the Payment Helpline phone number
for them to arrange this. It also gives information on payment
methods on the reverse of the form. The Tax Credit Helpline numbers
are provided. A Notice to Pay is issued to each claimant in a
two claimant household.
(Q 206/208) More details on how HMRC deters
fraud, and what identity verification checks are in place
As I stated during the hearing, because these
are areas of compliance activity I am unable to provide too many
details on HMRC's processes. I hope the following information
will be helpful to the Committee.
The most effective way to avoid financial loss
in tax credits is to tackle any risk before the claim goes into
award. HMRC's aim is therefore to try and do this wherever possible
in the most effective and timely way.
HMRC's strategy for combating fraud involves
applying the following standard checks to all tax credits
claims; to all changes of circumstances and renewals of
claims before payment is made:
— Automatic verification of the data
claimants provide to check they are consistent with information
that HMRC already hold for them.
— Automatic risk assessment to identify
high-risk cases. New Claims posing the greatest risk are examined
in detail before the award is put into payment.
Following these checks HMRC then utilise a graduated
series of interventions applied throughout the life of a tax credit
claim:
— A large number of cases are selected
for investigation using sophisticated IT based risk profiling
tools. HMRC identify risky non-compliant claims and undertake
compliance intervention to correct them. Where a claimant error
is identified, action is taken to help the claimant to ensure
the error does not re-occur and put the award back on track quickly
to minimise the level of overpayment.
— In the more serious cases, HMRC may
also use their powers to charge a financial penalty.
— In some instances, the risks identified
in a claim are so serious that a more robust response than imposing
a financial penalty is considered appropriate. These cases are
investigated with a view to securing a criminal prosecution. HMRC
have undertaken 125 prosecutions so far this year and currently
have approximately 150 cases in the court system.
— Where criminal proceedings are not
being taken forward, HMRC intervene and terminate the payments
to disrupt organised fraud. HMRC has handled over 14,000 cases
in this way and have only received one appeal.
The Department is constantly reviewing and updating
its capture, verification, risk assessment and investigation processes
to ensure they provide a robust defence against attacks. The Department
has been working on identifying key risk areas since tax credits
were introduced. I cannot provide too many details of what those
risk areas are but they include identity fraud and bogus documentation.
And HMRC has had, from the start, a series of measures in place
to counter these and have successfully addressed this threat to
date.
As part of the constant updating of its processes
for preventing fraud and measuring the general level of compliance
in tax credits, HMRC carries out annually a programme of random
enquiries of a statistically representative sample of finalised
claims across the tax credit population. Interim results have
already been shared with the Public Accounts Committee in July
this year, and finalised results for 2003-04 will be available
in Spring 2006. Once the Department has established a baseline
figure for the level of non-compliance in tax credits, the intention
is to target year on year a reduction in this figure beginning
2006-07. Alongside these measures, HMRC has joint initiatives
underway with colleagues from the Department for Work and Pensions,
Local Authorities, Metropolitan and other police forces, and with
CIFAS (Credit Industry Fraud Avoidance System—UK fraud prevention
service).
STAFFING CUTS
(Q 232) The basis on which any HMRC staff
have been or are being offered early retirement in order to assist
HMRC in achieving its target of reducing full-time equivalent
posts by 16,000 (12,500 net of redeployment to front-line services)
by April 2008
Civil Service Departments are able to use three
different early retirement schemes that are designed to address
staff surpluses. The Approved Early Retirement (AER) scheme offers
the lowest cost option of the three. Under this, staff aged 50
or over are able to retire early and receive a pension based on
their accrued years of service, but without any enhancement to
the retirement terms. (The other two schemes offer enhanced benefits.)
HMRC has challenging efficiency targets in terms of both staff
numbers and financial savings. We have concluded that we are best
able to meet these commitments by the use of AER schemes.
AER schemes are defined by strict rules on who
may apply. Staff are only allowed access to the HMRC schemes if
their Director certifies that they are surplus to the staffing
needs of their business area. However, where we foresee the need
for specialist staff to be retained to deliver wider business
needs or the level of training investment is such that it would
be inefficient to lose that resource, we have directed that surpluses
will be dealt with by way of redeployment rather than through
early retirement.
In an AER exercise held earlier this year, some
748 staff were accepted for early retirement. A further 600 staff
have been identified as being eligible under a second scheme currently
under way. Further schemes will be run as businesses reorganise
over the coming months.
In each case the AER represents a reduction
in costs as pension benefits will be 50% or less of the salary
that would otherwise have been paid and the costs are significantly
less than the cost of full redundancy.
CHILD TRUST
FUNDS
The Economic Secretary to the Treasury will
be appearing before the Committee on 23 November and it has been
agreed that he will respond to all the issues raised on Child
Trust Funds at that hearing.
VALUATION OFFICE
AGENCY
(Q 260) Details of future plans for the Valuation
Office Agency, in light of the recent decision to put on hold
the council tax revaluation planned for English homes, including
details of decisions that are still to be taken in this area
Some 200 staff on various short-term contracts
left the Valuation Office Agency (VOA) very soon after the announcement
of the postponement of the revaluation. Since then, the VOA has
also terminated the contracts of some 200 further staff who were
on fixed-term appointments. This means that to date around 400
staff in total have been given notice to leave the Agency. In
addition, it has advised its remaining staff that there will be
an early departure scheme for permanent employees. Further announcements
about the VOA will be made very shortly, and the Committee will
be kept informed.
FUTURE UNDERTAKINGS
(Q 237) Inform the Sub-Committee about whether
there is a timeframe for achieving an integrated departmental
IT system, given Inland Revenue's pre-existing relationship with
Capgemini and HM Customs and Excise's pre-existing relationship
with Fujitsu, and about the timeframe for assessing and proceeding
with that integration
HM Revenue and Customs has in excess of 100,000
users and over 250 major IT systems that underpin the full range
of its businesses, covering direct tax, indirect tax, National
Insurance, Tax Credits and frontiers work. These currently operate
within two separate operating environments—ex Inland Revenue
and ex HM Customs and Excise.
Over the course of 2006 the infrastructure of
HMRC will be modernised and see the introduction of a single operating
environment. This will allow HMRC staff to communicate freely
across a single network supporting all of HMRC's IT systems. In
addition a single backoffice systems covering HR, Finance and
Commerce will also be introduced in 2006-07.
An integrated IT contract across HMRC is a critical
enabler for providing a full range of facilities for sharing data,
processes and systems. It will also ensure that any future improvements
are spread across the Department, rather than being limited to
the boundaries of former Revenue or former Customs—boundaries
which in many cases no longer apply. Negotiations to bring the
contracts together are underway. The integration of the contracts
will be subject to a full business case and ministerial approval.
ADDITIONAL MATERIAL
In addition to the specific information requested
by the Clerk following the evidence session of the HMRC Spring
Departmental Report on 26 October 2005, during in the hearing
some further matters were discussed on which I would like to provide
the Committee with additional details.
TAX CREDITS
(Q 172) Figures showing the costs of administering
WFTC, Family Credit and Tax Credits
The cost of managing and paying the tax credits
appears in Table 1 of the annual Report and Accounts for year
ending 31 March 2004.
Table 1
COST OF COLLECTION (PENCE PER £ COLLECTED)
| 1999-20001
| 2000-012 | 2001-023
| 2002-03 | 2003-04
|
| | |
| | |
| Income Tax | 1.59 | 1.36
| 1.38 | 1.41 | 1.42
|
| Corporation Tax | 0.76 | 0.98
| 1.01 | 1.15 | 1.25
|
| Petroleum Revenue Tax | 0.24 |
0.15 | 0.20 | 0.26
| 0.18 |
| Capital Gains Tax | 1.49 |
1.33 | 1.44 | 2.73
| 2.13 |
| Inheritance Tax | 1.46 | 1.23
| 1.21 | 1.38 | 1.25
|
| Stamp Taxes | 0.11 | 0.09
| 0.11 | 0.17 | 0.434
|
| National Insurance Contributions (NICs) |
0.57 | 0.59 | 0.67
| 0.66 | 0.42 |
| Overall cost (pence per £ collected) 1.08
| 1.02 | 1.06 | 1.11
| 1.04 |
| Tax Credits (pence per £ paid)5
| 3.29 | 2.94 | 2.53
| 2.21 6 | 2.96 |
| Child Benefit (pence per £ paid) | —
| — | — | —
| 0.55 |
| | |
| | |
1 In the 1999-2000 report, the published ratio
for Income Tax also included NICs costs and receipts, in addition
to Tax Credit costs and payments. Since NICs are now shown separately
and the reporting of Tax Credits has also changed, the figures
here for 1999-2000 have been adjusted and exclude NICs.
2 The one-off STEPS receipt in 2000-01 has been
excluded.
3 From 2001-02, ratios are now based on Resource
spend rather than Cash.
4 The 2003-04 ratio was affected by temporary manual
processing prior to the introduction of automated processing of
SDLT forms.
5 The ratio for 1999-2000 excludes payments of
Family Credit and Disability Working Allowance also made between
October 1999 and March 2000.
6 Excludes costs of preparing for child and working
tax credits: if these are included the ratio is 4.58 pence per
£ paid.
Before 2002-03 the figures relate to Working Families' and
Disabled Person's Tax Credits. Note that the comparison over time
is affected by the absence of children's tax credit from the costs
of managing and paying tax credits for 2001-02 and 2002-03 as
this was included in the Inland Revenue's routine work and not
separately identified in running costs.
As a proportion of total payments made each year, administration
costs of tax credits have remained stable since 1999 at around
2.5% to 3%.
Department for Work and Pensions' figures show the cost of
managing and paying Family Credit was £66 million in 1996-97,
£59 million in 1997-98 and £72 million in 1998-99. In
these three years total expenditure on Family Credit was: £2,084
million, £2,326 million and £2,429 million. These figures
imply that the cost per £ paid of administering Family Credit
was broadly in line with that for tax credits at about 3 pence.
GOVERNANCE
(Q 229) David Varney is both Chairman and Chief Executive
of HMRC, is this consistent with the good governance standards
for public services?
The Corporate Governance Code was drawn up following a review
that was led by Sir Andrew Likierman. In the course of that review
a number of different options were considered in relation to the
Accounting Officer (AO) role. However, the balance of the argument
pointed to retaining the practice of appointing the permanent
head of the Department as the AO, and against any sharing of accountability
with other board members.
The primary argument for retaining the AO role is that it
provides absolute clarity in terms of accountability to Parliament.
It was also felt that the AO status provides additional influence
to the Permanent Secretary in checking potential political pressures,
evidenced in part by the relatively small number of AO directions
that are issued.
Private sector concerns about concentrating too much responsibility
in one person were not seen as relevant, as checks and balances
exist in central government. These include the monitoring arrangements
for government departments, the public audit process, and the
counter-balancing powers of Ministers.
NATIONAL INSURANCE
CONTRIBUTIONS AVOIDANCE
(Q 269) If the National Insurance Bill is enacted, do
you have a benchmark you have set yourself to bring in?
The tax and National Insurance yield scored for PBR 2004
statement and associated measures was in Table B4 of PBR 2004,
which shows for remuneration based avoidance £200 million
in 2004-05 and £500 million per annum thereafter until 2007-08.
The Regulatory Impact Assessment accompanying the National
Insurance Contributions Bill provides a breakdown in respect of
National Insurance Contributions as £95 million for 2004-05
and £240 million per annum thereafter.
14 November 2005
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