Memorandum submitted by the Child Poverty
Action Group
Following the Chancellor's Pre-Budget Review
(PBR) statement, we write to set out some comments on yesterday's
announcements, to inform your evidence sessions with Treasury
official and with the Chancellor. CPAG's interest focuses on the
official pledge to eradicate child poverty by 2020, and to halve
it by 2010. We set out recommendations for PBR in a submission
to the Chancellor which we enclose with this commentary.
We welcome the emphasis within the companion
Treasury/Department for Education and Skills document Support
for parents: the best start for children on children's life
chances. We welcome the implementation and funding of the Russell
Commission recommendations on youth volunteering. However, efforts
should be made to ensure that the most disadvantaged young people—from
black and minority ethnic communities, disabled young people,
and young people leaving care—are consulted with, kept informed
about, and benefit from opportunities to participate in volunteering
initiatives both in this country and abroad.
We note with disappointment the continued price
linked uprating of both child benefit and income support, which
will continue to reduce their relative worth (as against average
earnings). This effect is particularly acute for those families
with no parent in work—perhaps because of disability—where
pre-existing poverty gaps (the gap between the level of financial
support available through the benefits and tax credit and the
poverty line) will continue to grow. If the safety net pays many
families less than the poverty line, child poverty cannot be truly
eradicated and we would like to see further action to combat benefit
inadequacy.
We await further detail about the proposals
around training for teenagers (involving the piloting of training
wages), what will emerge from the Leitch review of skills and
from the proposed further pilots of the New Deal (including personal
action plans and compulsory work focused interviews). There are
two separate policy drives:
— an improvement in skills—which
is critical both to economic development and to ensuring that
wages are adequate to escape poverty; and
— the continued drive to raise the
employment rate towards 80%.
CPAG is very supportive of policy which seeks
to help individuals who are able into decent jobs. Many face serious
barriers to paid work yet want to be able to do so—the key
for these groups is to overcome the barriers. However we continue
to be concerned about a "work-first" approach which
encourages parents into employment—irrespective of the quality
of work. We are particularly concerned that utilising benefit
conditions to encourage people to access employment may simply
encourage people into unsuitable and unsustainable jobs, increasing
the churn rate at the lower paid end of the labour market and
doing nothing to reduce child poverty. We would stress the need
to provide support, not threats to help people access employment.
Key to that support is investing in education and training for
all.
Turning to the primary focus of this submission,
tax credits. Well-publicised problems with the tax credit system
have caused CPAG to argue for significant reform to current delivery
(as outlined in "First Steps to tax credit reform"—key
points of which were reiterated with our pre-budget submission,
both of which are attached with this letter). We are also aware
of the separate inquiry the Committee is holding into the administration
of tax credits and we reiterate here issues that are pertinent
to that inquiry.
In "First Steps to tax credit reform"
CPAG called for:
— An amnesty of overpayments that arose
in 2003-04 and 2004-05.
— Introduction of a right of appeal
against overpayment decisions.
— Fair recovery of overpayments.
— Improve communication and advice
to claimants.
— Encourage take up of tax credits.
We strongly welcome the generality of changes
announced by the Chancellor and Paymaster General yesterday. Although
these do not achieve all of what we have asked for yet, they go
a considerable way towards reaching our objectives. Briefly, the
Chancellor announced (paraphrased from box 5.2 page 97 of the
report):
— Increase from April 2006 in the disregard
for increases in income between one tax year and the next will
rise from £2,500 to £25,000.
— Automatic limits on recovery of excess
amounts (in year overpayments) paid where awards are adjusted
in-year following a reported change. These limits will be the
same as the current limits on cross-year overpayment recovery.
— Underpaid awards will be adjusted
to the correct entitlement, but an outstanding lump sum held over
until the renewals point and then paid if still applicable.
— Stricter rules of reporting changes
of circumstances (shorter time period and more changes which must
be reported).
— Deadline for returns of end-of-year
information will be brought forward from September to August.
— From 2007, HMRC will contact key
groups of tax credit recipients to collect up-to-date income information
before the start of the new tax year.
These changes signify a welcome desire to reduce
the level of overpayments. The document estimates these will reduce
the extent of overpayment by value by a third). In general we
are very supportive of this aim. The clawback of overpayments
causes families administrative problems and, potentially, hardship.
We are particularly supportive of the move to protect family incomes
where an overpayment is discovered in-year (a so-called "excess
payment"). Previous policy placed many families in serious
hardship where an in-year overpayment had been discovered, and
the computer is set to recover within the financial year, irrespective
of the amounts of lost award this means for the family. Placing
limits on recovery of in-year overpayments is very welcome.
Less welcome is the holding back of lump sums
following an underpayment until year end. Though we recognise
the wish to count this against any possible overpayment, we also
argue that, following falling income and an underpayment, families
may have a particular debt or urgent need which a lump sum payment
could assist with. We also seek clarification that such an end
of year payment would be disregarded as income for other benefits.
There remain several outstanding issues we would
draw the committee's attention to:
— Appeal rights: there is no
statutory right of appeal against a decision to recover an overpayment.
We feel government should urgently address an issue which strikes
against natural justice, contrary to the Ombusman's recommendation
to consider appeal rights and practice elsewhere in the benefits
system.
— Recovery rates: We strongly
welcome the proposed harmonisation, but also note that further
protection is necessary to avoid the current jump in rates from
10 to 25%. HMRC has discretion to use lower recovery rates if
these are causing hardship—a discretion it does not seem
to use.
— A pause before recovery. In
her statement the Paymaster General notes:
Hardship payments. We
recommend the Committee investigate the effectiveness of this
important system, since take up rates for additional (hardship)
payments appear low. We would also seek clarification for what
these changes mean for that system.
— Complexity and communication.
We appreciate the work ongoing in HMRC to improve communication
with claimants, particularly around new award notices from April
2006. We urge that this activity be stepped up to place claimants
in the position where they are better able to understand (and
challenge if appropriate) the processes being applied to them.
We are particularly concerned about the extent and quality of
information sent to claimants where they have been overpaid and
argue this should be much improved.
— Overpayments: Finally we also
note that in making these changes the Chancellor has reduced the
probable extent of overpayments and thus the cost to the Treasury
of these (beyond next year). We hope to see this investment, together
with the additional required to reach the halving target, will
be re-invested in Britain's children—the opportunity to
do this will be the forthcoming spending review.
ABOUT CPAG
CPAG is the leading charity campaigning for
the abolition of poverty among children and young people in the
UK and for the improvement of the lives of low income families.
CPAG aims to: raise awareness of the extent, nature and impact
of poverty; bring about positive income policy changes for families
with children in poverty; and enable those eligible for benefits
and tax credits to have access to their full entitlement.
December 2005
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