Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 220 - 239)



  Q220  Susan Kramer: Mine is a tiny question. To get the kind of savings you have talked about, as you say, you paid out much more because you have abandoned claw back and I am delighted with that. You must be suggesting that there is a huge amount of flaw in the system for you to be able to make those kinds of savings. You are only changing the timing of when people report, not the amount that they are due to pay. I have not added up the numbers but we have been dealing with fraud on that scale.

  Mr Orhnial: I am certainly not saying anything at all about fraud. I am sorry, I am going to go into another long explanation. It is quite a tricky one.

  Q221  Chairman: I think you should write to us.[5]

  Mr Orhnial: I can certainly write it down for you.

  Chairman: It is complicated for all of us. We need it nailed down tonight. We have got an email that is open 24-hours a day. We will give you the address. We would like to have it for tomorrow.

  Q222  Ms Keeble: An awful lot of people will be women and they will be parents and they will be lone parents. For an awful lot of them the end of August is a terrible cut-off in reporting time because most of them are off work because their children are off school. Their work patterns start in September because for quite a lot of people they go back to work and they will change their hours and start reporting back. In the written response, can you explain how you looked at the practical working patterns of the people claiming this and fitted the new design into their work patterns? One of the real problems with the design of it previously was it did not match with the practicalities of the lives of people getting this.

  Mr Orhnial: Can I give you a partial answer now? We are not at the end of August asking people to tell us what their income is at that point.

  Q223  Ms Keeble: I understand that.

  Mr Orhnial: In terms of the reporting period, there is no reason why people should leave it to 31 August to do it. They have their P60 if they are employed several weeks and months before that. Obviously some of the measures that were in the Paymaster General's 26 May statement which I think she up-dated you on in October, which will involve much more pro-active help and clearer communications from HMRC, should help people to try to get the timing of their reporting back better, but I do not see they need to leave it until 31 August if they have the information in front of them.

  Q224  Ms Keeble: I think it is something called human nature actually.

  Mr Orhnial: We do have, if you like, a cultural mountain to climb, but this would be helpful all round both for the claimant and for ourselves.

  Q225  Mr Mudie: When you have been before us in this Committee we have pressed you on the right of appeal and we have always been under the impression at this moment in time there is no right of appeal except there is an Inland Revenue pamphlet which sets out how to appeal on tax credits. Is there a right of appeal to an independent tribunal as this suggests or is there not?

  Mr Orhnial: I am afraid I am not aware of the reference, if you point it out to me—

  Q226  Mr Mudie: I will pass you a copy at the end of meeting. We would welcome knowing because we have been giving you some grief and constituents are not going down that road because they are not aware of that and we need to clarify whether there is a right of appeal.

  Mr Orhnial: There may be a right of appeal against something other than that. There was a time when I knew but I am afraid it was a while back.

  Q227  Lorely Burt: It seems to me that in return for the changes that you are making to the system you seem to be putting the onus on people to get their reports in, to report more quickly. I am very worried that given the problems that people have had already in trying to report, you are putting the onus on them to report more quickly, to get information across, but the channels of communication are very frequently not there for people to be able to do that. I am sorry I smiled when you spoke about the idea of you phoning people. Do you think you are wrongly attributing the problems of the tax credit system to a lack of understanding rather than the fact it is the design and delivery of the system that is actually causing a lot of these problems?

  Mr Orhnial: It is difficult to know where to start an answer, but with an annual system on which we consulted for quite a long while before designing and introducing it, we will always have the situation where payments you received during the year are in effect provisional until you have got all the information you need for the year. So there clearly has always been, not a design feature, an element of the system which adjusts at the end of the year. These are not things which have gone wrong but things which are adjustments to make sure people whose award has flexed during the year get the right amount of money. That has always relied on good communication from claimants to HMRC and vice versa, and we accept, and the Paymaster has accepted, in the early years there were problems which did not help. We have a programme for improving communications and as that is delivered over the next 18 months or so I would hope to see a very substantial change. You are right in saying that this is a package, if you like, of rights and responsibilities in that the Government is giving people a more generous treatment both in terms of in-year repayments and threshold payments, but in return they are expecting, assisted by HMRC, more responsibility.

  Lorely Burt: As long as people can find their way through your system because there have been very severe problems up until now, and I am sure the Chairman will reinforce that we will be looking very closely at what happens.

  Q228  Chairman: We do have a Sub-Committee inquiry and no doubt we will be taking evidence at leisure in the New Year on that. If you send us your epistle tonight, that would be very helpful.

  Mr Orhnial: You would like it tonight?

  Chairman: Thank you very much.

  Q229  Mr Fallon: Turning to public sector pay, I quote from the Budget 2003 Press Notice: "Budget 2003 announces that measures will be implemented to ensure that public sector pay systems include a stronger local dimension where appropriate." How much more local pay has there been since March 2003?

  Mr Cunliffe: I think we will have to give you a note. Do you want it measured by—

  Q230  Mr Fallon: I want you to tell me how much more local pay there has been since March 2003.

  Mr Cunliffe: I do not have that to hand.

  Q231  Mr Fallon: Has there been any?

  Mr Cunliffe: We will cover it in a note, I am afraid we cannot answer that now.[6]

  Q232  Mr Fallon: Has it applied to particular bits of the public sector? Can you give me some knowledge?

  Mr Cunliffe: I do not think we have any information on that.

  Q233  Mr Fallon: None at all?

  Mr Cunliffe: None at all.

  Q234  Mr Fallon: Is it possible there has not been much local pay since March 2003?

  Mr Cunliffe: I would not want to speculate not knowing the answer, so I think it is safest if we could write to you.[7]

  Q235  Mr Fallon: Can I turn now to your hand-brake turn on SIPPs, where you have prohibited all investment in residential property. This obviously has caused a fair amount of turmoil, both amongst the industry and people who were making preparations for 1 April. Why did you choose such a sweeping prohibition? Could you not have considered prohibiting certain classes of investment?

  Mr Orhnial: I think again we need to be clear about what it was we were trying to do with pension reforms, of which SIPPs will form part. What we were trying to do was to sweep away a great deal of complexity through eight different regimes for pensions and one small part of that reform related to self-invested pension plans. As compared to the present, where you are not allowed to invest residential property in a SIPP, what we did was to plan on removing that prohibition. The Chancellor, as you know, announced on Monday that we would return to a prohibition on the investment in residential property.

  Q236  Mr Fallon: Forgive me but we know that, that was announced. What I am asking you is why you chose to prohibit all property investment rather than to consider prohibiting certain classes of property investment, for example, property for personal use?

  Mr Orhnial: The reason for that is that it is well nigh impossible to design a system that actually achieves that.

  Q237  Chairman: You should have known that months ago. You have done a U-turn.

  Mr Orhnial: No. The question was, why did we not isolate this particular—

  Q238  Mr Fallon: You define in tax law what a main residence is, you even define second homes, why would it have been impossible to prohibit property investment in a home you own or you use yourself?

  Mr Orhnial: Simply because we cannot guarantee or police rules where you do indeed make that distinction but then you find people change the use to which they put their home. So you may well buy it for the SIPP on the basis you were not going to use it for your personal use, and then choose to use it for your personal use a year or two years later. These are very long-term investments where you are locked in. We could not practically construct a rule which would do it. We could write a rule but we could not construct a rule.

  Q239  Chairman: This was left to debate in public for about six months, it was in all the newspapers and people were talking about second homes, fine wine and goodness knows what else. There was a hare chasing for months and months and months and then, all of a sudden, we get a panic decision.

  Mr Orhnial: I do not think it was a panic decision, actually it was a very considered decision.

5   See supplementary memorandum dated 12 January 2006. Back

6   See supplementary memorandum dated 12 January 2006. Back

7   ibid. Back

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