Examination of Witnesses (Questions 220
WEDNESDAY 7 DECEMBER 2005
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.
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
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
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
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
Q231 Mr Fallon: Has there been any?
Mr Cunliffe: We will cover it
in a note, I am afraid we cannot answer that now.
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.
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
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
See supplementary memorandum dated 12 January 2006. Back