Examination of Witnesses (Questions 40
- 55)
WEDNESDAY 11 JANUARY 2006
MS KATIE
LANE, MRS
JACKIE FIELDING,
MS KATE
GREEN AND
MS KATE
BELL
Q40 Mr Love: As I was listening to
the discussion about computers and computer-generated letters,
it reminded me of the old classic housing department that sent
out letters saying, "You are £1.20 in arrears,"
which created an enormous problem for the person who received
those letter—usually on a regular basis. So I do have considerable
sympathy for that. I wanted to move you on to overpayment recovery
and the controversy that there has been on the so-called "reasonableness
test". As I understand it, that test states that claimants
would not be asked to make a repayment of an overpayment if it
was decided that the cause of the overpayment was a mistake by
the Revenue and where it was decided that the claimant "could
reasonably have thought your award was right." That is the
reasonableness element of it. I understand why that has been somewhat
controversial, but the suggestion has been that we ought to move
to a system similar to that in the rest of the benefits system,
where repayment only occurs where there has been a misrepresentation
or a failure to disclose. I would like to ask all of you who are
involved directly in both: Is the so-called social security test
a reasonable test? Is it workable in the tax credit situation?
I will perhaps start with Jackie because she is a practitioner.
Mrs Fielding: Unfortunately, because
tax credits are annual, I do not know that the same tests could
be applied. I have discussed this with some colleagues. Something
like the housing benefit type reasonableness, which is probably
the only other benefit where you get not the same situation but
a long-running situation—because housing benefit, as you
probably know, is done as an advance benefit, assuming. In a sense,
that is also tax credit. However, my problem with overpayments
is more to do with the rates of recovery than it is to do with
the decisions on actual recovery. Clients, most of the time, are
happy to pay back if they have been overpaid.
Ms Lane: I think it is different.
It is a different system. We would not be arguing that people
who receive random amounts of, say, £5,000—which has
happened—into their bank accounts should get to keep it.
We think that would not necessarily be a good use of resources.
Where we would want to see an independent right of appeal is on
whether it is reasonable for someone to know whether their award
was correct or not. At the moment, the problem now, with no right
of appeal, is that the Revenue themselves are judge and jury on
making decisions about what claimants know and do not know. They
can pay people and claim it back whenever they like, and that
is a real problem for our claimants. We would want it a little
bit more like the housing benefit test, but I do not think it
would be able to be exactly the same, and it would check what
is reasonable for each claimant in each situation.
Q41 Mr Love: Could I ask Kate from
One Parent Families, because you said you were quite happy with
that system. I think you were looking for an appeal mechanism,
but you were happy with the system. Could you say why you feel
that way?
Ms Bell: I think we feel the key
problem with this is that the Revenue decides (a) whether it made
a mistake, and (b) whether it was reasonable for you to have believed
it to be correct. You might say that those two prongs should be
there in any test of whether the overpayment should be recovered,
but we do not think you can trust the Revenue to make that decision
about its own procedures. That is why we think the really critical
thing is having a right to appeal that to an independent tribunal,
and then you might get some case law established about what reasonable
means. For example, we do not think that anyone independent looking
at the award notices at the moment would say that it was reasonable
for you to have believed your award was correct, because you just
would not know; but when the Revenue looks at it, they think,
"You should have read that." That is why we think it
is the independent right of appeal, as opposed to the nature of
the test, that is the really important factor.
Q42 Mr Love: Do you think "reasonable"
should be more closely defined? I think the fear is that there
would be a huge number of appeals because most people out there,
certainly the people who come to my surgery, think they have been
honest, that they have disclosed all of their circumstances, and
when somebody says, "It was unreasonable for you to think
it was right," they object to that. You would have a large
number, unless you can define what it is you are talking about,
so that people understand.
Ms Bell: The difficulty with tax
credits is that there are overpayments that can arise when nobody
has done anything wrong and that are recoverable, just because
of the nature of the system. We have got into a bit of confusion
about overpayments, where people think that all overpayments are
because of a mistake. Because of the nature of the tax credit
system, that is not the case, so that test would probably have
to apply to cases where it was a mistake. You would have to have
it in operation for a while to build up case law. I do not think
you could define reasonableness straight off, because there are
going to be exceptional circumstances that would fall outside
that. That is why, again, the right of an independent appeal would
allow you to do that and to get that case law established.
Q43 Mr Love: The Ombudsman recommended
for the two years she looked at, 2003-04 and 2004-05, that all
overpayments caused by official error ought to be written off.
The Government rejected that, saying that it would wish to maintain
the reasonableness test. I would expect you all, representing
the claimant, to be in support of that. What is your response
to the Government's view that we have to strike a balance between
the claimant and the taxpayer in terms of these overpayments?
Ms Bell: In future, maybe—and
if, as I said, somebody other than the Revenue is determining
what that balance is. We have no confidence whatsoever in the
Revenue's ability to apply that test fairly, given the current
experience. In future, we can say, "Yes, that is a reasonable
balance to make between the taxpayer and the claimant," but
so far we do not think it has been made fairly. That, again, is
why we want the independent right of appeal.
Q44 Mr Love: I assume that you all
agree with that, since you are nodding your heads. The Government
has obviously rejected writing off overpayments in those years.
What about the years coming up? Is there a case to be made, where
the Revenue have not been able to justify, that there is a strong
prima facie case for them writing off where the overpayment
is their mistake?
Mrs Fielding: One of the cases
that I have quite heavily dealt with is arguably where the client
should have known that the error had arisen. It was to do with
one of the premiums that had been awarded, and in fact the wrong
premium had been awarded. It is still being maintained that the
client should have known that they were not entitled. There is
no way that that client could possibly have known. There was nothing
on the award notice that would have told them, "You are getting
this because we think you have told us this." Disabled people,
both physically and mentally disabled people, think tax credits
are absolutely brilliant, because they can go to work on a limited
number of hours but earn a reasonable amount of money that does
not require them to take money in any other way. But, because
their system is so much more complicated, not all of them would
necessarily understand why they were being awarded additional
amounts for additional reasons. A reasonableness test for myself
would be totally different from a reasonableness test for possibly
one of my physically or mentally disabled clients—more often
the mentally disabled. The problem with families is that the people
to whom this is happening most of the time are people whose lives
are incredibly complicated: they are in the sorts of jobs that
have variable hours, that are low paid, that are not guaranteed;
they are in and out of employment; they have problems with their
childcare. The people who are really being affected are the people
whom society ought to be helping more, not helping less.
Ms Green: In terms of the write
off, there are three things I would say. First of all, we have
advocated a write off for years 2003-04 and 2004-05, and we have
done that not just because of issues of reasonableness and what
people have understood, but because that would give the Revenue
a bit of breathing space. If they got those cases out of the way,
they could start focusing on the future. We have strongly advocated—and
indeed been encouraging MPs to sign up to an EDM to the effect
that there should be an amnesty on recoveries for 2003-04 and
for 2004-05. The second point is that I completely support what
everybody else has said, that we should have a statutory test
and that we will build up a body of case law as a result around
what constitutes reasonableness for the future. In the meantime,
thirdly, while the award notices are still so difficult to understand,
we would advocate that possibly the second leg of the current
official error test—in other words, that it was reasonable
for the client to have realised—should be abandoned, should
be put to one side, until we have better award notices. I think
there are a number of stages we could be working through on the
way, in the long term, to recognising that of course there will
have to be some sort of test that takes account of what the claimant
knew.
Q45 Mr Love: The Government tells
us it is carrying out a review of the code of practice in this
overpayment area. You have talked about a statutory test and an
appeal mechanism in order to establish case law. Is there any
other thing that you would like to see changed in that that would
help to resolve some of these problems?
Ms Green: Most certainly. One
of the things that all of our organisations strongly advocate,
indeed CPAG has been advised that it is legally required, is a
pause between identifying an overpayment and beginning recovery,
a pause which enables the Revenue to contact the claimant, to
give them a comprehensible explanation of how the overpayment
has arisen, when it arose and what recovery arrangements are going
to be put in place and give the claimant very clear information
about what they need to do if they are not happy with, and want
to dispute, that decision. We do not have any of that at the moment,
and I think all of our organisations would say very clearly that,
whilst we welcome the fact that the Paymaster General has said
that she will consider this, it seems to us to be absolutely essential
that it is considered as a matter of urgency.
Q46 Mr Love: I do not know whether
you have submitted anything or whether the Government allow you
to submit anything to their review, but if you have perhaps you
could let us have a copy of any views you have on that. As a last
issue (and we have a talked about this earlier on), this whole
area of the level of official error, which is very critical in
all of this, is there any way that we could identify that? The
Government says it is a huge bureaucratic exercise; it would cause
an enormous administrative burden on them when they have got all
the other things that they need to be doing at the present time.
Is there a simpler way that you are aware of that could give us
at least some idea of the level of official error that is going
on at the present time?
Ms Bell: We have thought of doing
samples before, taking 100 claimants and seeing how many of them
had had an error in their award. When we did our research, which
was in the summer 2004, 28% of people had been overpaid and of
those 80% was due to official error, but that was obviously again
reflecting the early years of the scheme, so it was very high.
It is very difficult to get to the statistics, because when you
look at how much they are writing off due to official error, again,
that is only when they have accepted it was reasonable for the
person to have believed their award was correct, so you lose a
big chunk of the official error figures.
Q47 Mr Love: But if you add all three
of your organisations together and the prime groups you represent
and if you all carried out some research into this area with all
the different people that are making an application in this area,
surely you could get a ball park. Nobody is saying it would be
accurate to within whatever tolerance, but you could get a ball
park that could challenge the Government to refute that that was
the level of official error at the present time?
Ms Green: That may well be true,
and I am sure we could all look at the data that we have and what
we could offer to the Government by way of advice, but, in fact,
we would say there is a duty on the Government to be tracking
the performance of its own system and making public the results
that it is uncovering so that organisations like us, parliamentarians
like you, can actually test the integrity of the system for now
and for the future. I do not think, with respect, that that is
the responsibility of the voluntary sector.
Mrs Fielding: There is actually
a system in place already, because one of my slightly more unusual
cases was a client who did not appear to have any problems at
all and then was contacted by a special department at the Inland
Revenue and was told that they check a proportion of the cases
that do not appear to have any issues in them. They look at a
certain proportion of cases—I do not know the proportion—but
in his particular circumstances they discovered an error, which
they, interestingly enough, then said was 50% his fault and 50%
their fault and that they would take half of the overpayment and
that he had to pay the other half. That case actually went up
to our MP, who I think is still working on it, because it was
very unusual, but there is obviously some sort of administrative
way of checking. The sorts of clients we tend to see are the people
we already know have got a problem; so in a sense our figures
would not be particularly accurate. We do not see the happy people.
We only see the people with the problem.
Ms Lane: I would just add to that,
in terms of people challenging the recovery of overpayment, it
is entirely left up to the claimant to challenge it, and so, whilst
you say, if it is an error that is made by the Revenue and it
is reasonable for the client to think their award is correct,
we will not recover, that is not strictly true. If the claimant
does nothing, it will all be recovered completely and the claimant
will be left with less money, and so I think it is really important
that people are told, "You must challenge", otherwise
it will be recovered from them automatically.
Q48 Mr Love: Can I just make the
point to Kate that this Committee is a very effective way for
influencing the Government in these areas, and any information
you can provide to us that helps us to do that will be very gratefully
received?
Ms Green: We have noted that.
Q49 Ms Keeble: In the evidence submitted
to us by the Public and Commercial Services Union it argues that
the £25,000 disregard would lead to unfairness in terms of
the relative need between claimants with very different income
levels. Do you agree with that? I do not know if you want to respond
separately or collectively.
Ms Green: We are unclear about
what the Public and Commercial Services Union is talking about
there beyond the issue we discussed earlier around the fact that
the £25,000 disregard does not work where your income rises
in-year but remains lower than the previous year. There may be
other issues that the PCS have identified, but we have discussed
this particular point in their evidence, which we have not seen
actually, and we are not very sure of what else they may be thinking
of, although, of course, they may well have other pieces of information
that have not occurred to us.
Q50 Ms Keeble: I am sorry I was not
here earlier—I was at another committee meeting—but,
for example, if a claimant's income rises from £20,000 to
£40,000 within a tax year, which is quite possible, then
they will not be required to pay any of the £3,375 tax credits
which would have been paid to them in-year because the income
level falls within the £25,000 disregard. Do you think that
is fair, given that, if people's income goes down, they are not
necessarily going to see that reflected in a payment in-year,
they might have to wait until the year end? Do you think that
is a fair way to deal with it: because quite a lot of people would
think £40,000 is quite a reasonable income, whereas obviously,
if somebody's income falls, they can be left very short indeed?
Ms Green: It is possible, of course,
to play the system—some people can and will do that. It
is also possible, of course, that some people who are not in any
financial hardship at all are going to be benefiting further from
this increased cushion, but I think that there is a more important
focus that we are concerned about, which is this issue of addressing
the position of people whose income is lower this year than the
previous year. I think we would give more concern and priority
to addressing their circumstances at the moment, because inevitably
there is going to be, I guess, some roughness and readiness a
system that has a disregard built into it.
Q51 Ms Keeble: Sure, but, as we all
know, most people play the system absolutely straightforwardly,
some people will play it, some people will be accidental beneficiaries
of the change in the disregard, but some people can lose out quite
heavily through the new changes if their income goes down in-year
and if they have to wait. As we know, most people who need tax
credits operate on real-time income, not delayed debts that only
get repaid when you get your lump sum at the end of the year.
Do you think that it is fair for those people who find themselves
in that kind of difficulty to see people who they will know, who
have got a big increase in their income and are still getting
their tax credits? There is an issue about the fairness of the
tax and benefit system. Do you think it is fair and do you think
it will encourage confidence?
Ms Bell: If your income falls
within the year, you will see your tax credits compensated—the
£25,000 disregard does not stop that happening—and
one of the things we have always liked about the responsive system
is the tax credit system's ability to respond quickly to falls
in income; but the one thing, which we are talking about briefly
earlier, where it is missed out is if your income falls and then
rises again, which means that your tax credits will continue but
you will not see as much benefit as if that had happened from
one year to the next, as you will if it happened within year,
but the disregard does not lead to, I do not think, a situation
where your income falls and your tax credits do not compensate
it.
Q52 Ms Keeble: No, the disregard
is for people whose income goes up, but my reading of it, and
it might be just because it is a bit unclear, is that there is
this issue about an underpayment being carried forward into a
lump sum at the end of the year.
Ms Lane: It is partly your tax
credits will immediately go up, but if there was any back-dated
payment you were due, then you would wait for that bit until the
end of the year; so there could be a small loss there or a small
delayed payment.
Q53 Ms Keeble: You do not see that
as being an insuperable problem, which clearly the union does?
Ms Lane: I think it is difficult.
I think HMRC will have a huge responsibility to encourage people
to report that change quickly, because there will only be a real
big disadvantage to someone if they delayed in reporting their
change and therefore there would have been a lump sum due to them
that would be quite substantial; so it is important that the message
gets across that, in order to get your increase in your tax credit
and all of it at the time you need it, you will need to report
that change quite quickly. There will be some losses, as Kate
said earlier, for people who actually need that money to pay off
rent arrears or anything else they may have accrued in that time
lag, and we would hope the Revenue work really hard to improve
the communication to ensure that as many changes as possible are
reported very quickly so people do benefit from an increase in
their tax credit payments.
Q54 Ms Keeble: You do not foresee
there will be a problem about people on low incomes having those
debts and having to resolve those, their not having the money
and being told, "You will have got to wait for the year end"?
Ms Green: We think potentially
that will be a problem, and that is why we were saying earlier
that we are wary of this intention to hold the underpayment back
until the end of the year. That will be desirable for some people,
because it will help them to avoid a big overpayment recovery
at the end, but for others, in fact, it is quite likely to compound
the hardship that they may have experienced already from having
had an underpayment.
Q55 Chairman: I must protect the
time for the other witnesses, but in doing that I do want to thank
the four of you for launching your inquiry, for the evidence you
have submitted and also for the further explanation you have given
this afternoon. We have got off to a very good start. I am most
grateful to all four of you. Thank you very much.
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