Examination of Witnesses (Questions 120
- 139)
WEDNESDAY 18 JANUARY 2006
MR KEVIN
HIGGINS, MS
CARYL WILLIAMSON,
MS SIOBHAN
HARDING AND
MS ANDREA
BEDELL
Q120 Lorely Burt: The benefits are
not making up for the fact that they are not getting the tax credits
they are entitled to?
Ms Williamson: The system absolutely
defeated them. That was one thing that came through very strongly
in the consultation, the despair of people trying to do their
best with the system and the system being beyond their comprehension,
beyond their control, and they have ended up suffering because
of it.
Ms Harding: I think we have seen
that in our evidence as well. People are being put off by stories
that they have heard of the problems that have been experienced
and so on.
Q121 Lorely Burt: What would you
say to those people who have been put off? Would you encourage
them to at least give it a go? Do you feel that the situation
will improve?
Ms Bedell: We have to encourage
them to give it a go because no other benefit pays for children
any more, so anybody who has children has to go through the tax
credits system, they have absolutely no choice, which can be really
hard and take quite a lot of encouragement. If there is a problem
with their tax credit claim they cannot even access a crisis loan
if it is just Child Tax Credit they are claiming through the tax
credits because the Social Security Agency no longer issues a
crisis loan if it is just a payment for your child that is missing
from the tax credit, whereas when the benefit system used to pay
for your children if there was part of it missing for your child
you could get a crisis loan. People cannot access that system
now, so there is real poverty being created.
Q122 Lorely Burt: Can I move on to
ask you about the Pre-Budget Report. What effect do you think
the changes which were announced in the Pre-Budget Report will
have?
Ms Harding: The increase in the
annual income disregard to £25,000 will obviously cut down
on the number of overpayments there are but that does not take
away from the fact that there are a lot of overpayments out there
which are as a result of HMRC error or where changes in circumstances
have been reported and those have not been actioned leading to
an overpayment. There are issues around that, although in some
cases it will reduce the level of overpayments.
Q123 Lorely Burt: If this does not
work, if the Pre-Budget Report changes prove ineffective, what
do you think about going back to the old system that we had of
a fixed system which goes for a whole year?
Mr Higgins: On that issue I feel
that HMRC and Government should have a goal of the right payment
to the right people at the right time. I think people, particularly
vulnerable people on low incomes, should be able to feel certain
that the amount they are getting is right now and should not have
to be paid back at a later date. Therefore, thought has to be
given to introducing more certainty into the system.
Ms Bedell: Can I say on the subject
of the Pre-Budget reforms that were announced and that increase
in the £25,000 income disregard, whilst it might do away
with some of the overpayment situations that are arising, I can
still see a great need for clients to come to our service because
our concern about the £25,000 disregard is in the first year
that your income goes up by that much, you are going to continue
on the same level of tax credits and then have a lower income
in the second year and you are going to have a massive drop. Many
of these are low income clients who may have made financial commitments
based on the level of tax credits they are receiving and suddenly
there will be a drop in their payments in the second year when
the income disregard no longer applies and where will that leave
them? There is a very interesting paper published by Ferret Information
Systems which explores the effect of the £25,000 income disregard
and possible impact on clients. We are concerned about that.
Ms Williamson: This brings us
back to the key issue about communication and the incredibly poor
standard of communication in customer service and a total lack
of understanding of the client group, unfortunately, and their
appreciation of being able to work with a rigid and inflexible
system which has been poorly explained to them.
Q124 Mr Newmark: Where a claimant
alleges that an overpayment has arisen through an error on the
part of HMRC, claimants generally have to prove that it was reasonable
for them to believe that the award was correct. You have said
that this test of reasonableness "does not appear to be applied
consistently by HMRC staff". What evidence do you have for
this?
Mr Higgins: First of all, we wrote
under the Freedom of Information Act to the Revenue, as it was
then in January/February last year and asked about the issue of
people disputing recovery and the outcomes of that. Interestingly,
we were told that it is not possible to extract data from the
tax credit computer system about numbers of claimants overpaid
tax credits in Northern Ireland but they were able to tell me
that over 3,600 claimants had looked to have their overpayment
looked at again and, as a result of that, 39 cases were remitted
in terms of Child Tax Credit and 15 were remitted in terms of
Working Tax Credit. A total of 50 cases were remitted out of 3,600
who applied. I think that clearly gives you a sense of the numbers
of people who are gaining by that reasonableness test. I think
in the past the Revenue said they were trying to get a balance
between compassion and compliance but I think that evidence shows
up that I for one, and vulnerable people for others, would not
want to be relying on the compassionate Revenue staff, we want
to be relying on a rights-based legislative format for disputing
recovery of payments.
Ms Bedell: From the practitioner
point of view, having dealt with many tax credit overpayment cases,
there was a particular computer error known as the Red A computer
error. It was known as that because it affected hundreds of thousands
of payments, there was a bug in the system in June 2004 which
caused the miscalculation of hundreds of thousands of award notices,
to the best of our knowledge, and with this particular overpayment
clients were sent out a special letter advising them of the mistake
and the overpayment with a red A in the top left-hand corner,
so that was why they were called Red A overpayments. Having fought
many of those cases for clients who disputed the overpayment and
the recovery of it, every single case was dealt with differently.
Although they were caused by exactly the same computer error at
exactly the same time and the reason for the overpayment was the
same, whether the overpayment should have been remitted or not
surely the decision should have been the same. Every case was
dealt with differently. Some were remitted fully at stage one
of the process, others had gone all the way up to the adjudicator
because they had gone through every stage of the four stages of
the Inland Revenue decision saying, "No, it is fully recoverable.
It was not reasonable for you to think your award was correct".
We can produce case evidence of that if you need it.
Q125 Mr Newmark: So clearly the lack
of consistency in the application is still a big issue that needs
to be dealt with?
Ms Bedell: Absolutely. It is basically
a lottery when we fill in a TC846 for someone as to what decision
will come back.
Q126 Mr Newmark: You also say that
disputing the recovery of an overpayment is currently an unduly
lengthy process as well as confusing, it takes quite a while.
If a claimant was able to appeal an HMRC decision to recover an
overpayment, would this not prolong the process even further?
Ms Bedell: No. With other Social
Security benefits the process is you receive the decision, you
then appeal that decision and normally the department you are
appealing it with does a reconsideration first of all and if they
do not change their decision they refer it on to the appeals service
for you. You are talking about one month to appeal from the original
decision. Once you put in an appeal it is usually about three
months when you get a date of an appeal hearing. With tax credits
you are looking at a six stage process. I know it does not seem
like that according to the COP26 but the first stage is filling
in the TC846, a request to reconsider recovery of the overpayment,
you get a decision from the overpayments team and you then have
to write to the overpayments team to disagree with that decision,
which is the second stage. You get another decision and go into
the complaints process where you complain to customer services
and you get another decision. You complain to the directors team
and you get another decision. Then you go to the adjudicator.
If you are still not happy you can go to the Parliamentary Ombudsman.
Q127 Mr Newmark: It is a very lengthy
process.
Ms Bedell: Absolutely. Eighteen
months to get to the adjudicator.
Q128 Mr Newmark: I suspect it creates
a lot of anxiety for these families and a lot of stress.
Ms Bedell: Absolutely.
Q129 Mr Newmark: These are people
who already lead stressful lives anyway.
Ms Bedell: Absolutely, very, very
stressful.
Q130 Peter Viggers: The Paymaster
General tried to ameliorate the situation in respect of overpayments
in the statement in May 2005 by saying that—there are some
caveats there—"In cases of genuine hardship where the
recovery of overpayment is disputed, recovery can be suspended
while the dispute is resolved." How satisfactorily are measures
now working to suspend recovery of overpayments while a dispute
is being considered?
Ms Harding: We welcomed that decision
and had been asking for that for some time but as yet, because
it has only been introduced relatively recently, we have yet to
see how it is working in practice because decisions are taking
quite a long time to get through.
Ms Bedell: The suspension of recovery
only started in November, so cases where a request to reconsider
recovery of an overpayment went in before November are not necessarily
being suspended, it is only the ones that were received after
that. If we put in a request to reconsider recovery in September
we might not have heard back yet about the suspension of recovery.
In the cases where we have heard back, in one particular case
a client received a letter in November telling her that suspension
of recovery would occur while they were investigating their case,
which was unfortunate because the week before the helpline had
told us that her overpayment had been remitted already according
to their system and they told her she should get a letter any
day telling her the overpayment had been remitted but instead
she got a letter telling her the recovery would be suspended while
it was investigated. Obviously from the award notices and how
complicated they are it is very difficult to tell whether the
suspension has occurred or not. This client then got another letter
just last week again telling her recovery of the overpayment has
been suspended. She is a little bit confused now because she has
received two of these letters and does not understand why the
second one came out. After two more phone calls to the helpline
they are still telling us that the overpayment has been fully
remitted and that decision was taken on 6 November.
Q131 Peter Viggers: So your assessment
would be that the improvement which was announced in May 2005
has had very little impact at this stage. Is that the judgment
of you all?
Ms Bedell: Absolutely.
Ms Harding: Yes.
Mr Higgins: I think from a general
point of view, as far as we understand it, that suspension only
operates until the outcome of the first decision on disputing
recovery of the overpayment. If that first decision remains that
they are still going to seek recovery of the overpayment then
recovery will start again. There might be those amongst us who
would say the client may get very quick decisions made on that
first tier but they may not be to the benefit of the claimant
in all cases, in which case you have got a suspension of recovery
which is re-introduced quite quickly again after that first decision.
Q132 Peter Viggers: I have to move
on I am afraid. Comments on the helpline: there seems to be general
agreement that the helpline is not working very satisfactorily.
Would you like to comment as to the allocation of responsibility
on IT, on the one hand, and administrative errors and problems
on the other?
Ms Harding: Certainly we believe
it is a combination of both of those things, IT problems and administration
problems. We are still getting people saying to us that they cannot
get through to somebody on the helpline and they have to come
in to ask us to contact the helpline on their behalf because they
are having so many difficulties getting through. We are also seeing
inaccurate and inadequate advice from some helpline staff members
to claimants. All of those sorts of things are causing greater
problems for claimants on the ground.
Ms Bedell: This is why one of
our recommendations is we are asking for direct contact for welfare
rights organisations. I know we have an advisers' helpline, and
certainly the advisers on the advisers' helpline are able to do
more than the advisers on the public helpline, but still not enough.
We really need direct contact and, as I think has already been
suggested to you, a caseworker system where a caseworker sees
the case through from beginning to end and we can talk to an actual
caseworker to see the client's case through. I think that would
eliminate a lot of the problems.
Q133 Peter Viggers: The Ombudsman
has said by default the HMRC is operating an expanding caseworker
system itself. Do you feel that there needs to be an intermediary
other than from HMRC?
Ms Bedell: Absolutely. We are
looking for funding. People are coming to places like ourselves
after they have already tried the helpline on several occasions.
They may have been to a local Inland Revenue or HMRC contact centre
and then they are coming to us. By the nature of the way we work
we will see their case through from beginning to end, whereas
every time they phone the helpline it is a different person who
does a little bit more on their case but that is all they do,
just a little bit that day, and the next time they ring they are
talking to someone else.
Q134 Peter Viggers: It has been suggested
that provision of childcare support through Working Tax Credit
is unduly complicated and perhaps not very workable. Could I have
your comment on that, please?
Ms Bedell: It would be very useful
to have the childcare element protected from any reduction in
tax credit payments. At the moment claimants are unsure exactly
how much of their tax credit payment is related to the childcare
payment. They have heard the publicity, "We will pay up to
70% of your childcare costs", but because they do not know
the intricacies of the calculation they do not how much of that
has been down-rated by the size of their income. Claimants who
are on a low income budget weekly and budget to the penny, so
even the slightest fluctuation in their tax credit payment can
totally throw off their ability to pay their child minder. Even
a reduction of £5 in their tax credit payment can have a
drastic effect on their household budget. The protection of the
amount that is paid towards childcare against any reduction in
payment would greatly help.
Q135 Peter Viggers: Just one round-up
question, if I may. Members of Parliament may be in a difficult
situation because all we see is people who suffer grief through
the tax credit system and you perhaps have a rather broader audience
than the people who self-select to come to MPs' constituency surgeries
to complain. Is it your considered view that the tax credit system
which does allow money, as it were, on current and even future
earnings, is better than a system which is firmly rooted in the
past as the previous system was? Do you think this is an improvement?
Mr Higgins: I suppose it has to
be said that under the previous incarnations of the current system,
for example Family Credit, there were no such outcries about overpayments,
as far as we understand it, coming into advice centres. It has
to be said this peculiarity of overpayments is inherent in this
current system and, therefore, it is a question for debate as
to whether the current system can be changed or amended as regards
the announcement made by the Paymaster General to try to keep
the current system and tinker with it, if you like, or whether
some more root and branch fundamental change is required.
Q136 Ms Keeble: I wanted to ask something
about the childcare element again which has been really important
because it seems to be the one time that the actual cost of childcare
is properly reflected through the benefit system. It might be
that it has changed since but certainly my understanding of it
is if you have got Working Tax Credit and you qualify for childcare
payments then the actual payments you get for childcare are based
on the cost of childcare, not means-tested against your income,
so you could get quite a small element of Working Tax Credit but
the childcare element would be large because childcare is expensive.
When people come with overpayments, really big sums have not been
so much due to a miscalculation about the Working Tax Credit,
it is the childcare element that has been a real, real problem
because it can mount up very quickly. When you said just now about
protection of the childcare element, do you think there should
be some restrictions around clawing back overpayments of the childcare
elements because they are so large and, particularly since they
go to lone parents, of course, above all those are the people
who really cannot cope with being asked to pay back large amounts
of money?
Ms Bedell: Certainly I think it
would help if the childcare element had some sort of special protection
in the system so that no matter what overpayment occurred, or
no matter what in-year adjustment was needed to payments, the
amount being paid for childcare remained static so it would be
the rest of the tax credit payment that got affected by any adjustments
but you knew you could at least pay your child minder every week.
That would give people some certainty about remaining in work,
especially lone parents.
Q137 Ms Keeble: There are a couple
of other issues about that. People will get generous childcare
payments but often they have to balance it out because the childcare
element does not always reflect holidays, which is a real problem.
If it is recouped they find they are hit over what they have spent
during the holidays as well as what they spend for their ordinary
week and they have to balance stuff out. Do you think that needs
revisiting?
Ms Bedell: There is a level of
financial literacy required for any tax credit claim that clients
just do not have. We all know the figures about levels of literacy,
but I am sure levels of numeracy are much lower—I have not
seen statistics—because people can read and write but to
add up and do mathematics is a lot more complicated. A lot of
our time in bureau is spent simply with clients helping them to
estimate their annual income. If you say to somebody, "If
you phone the helpline now and give them an estimate of your annual
income", clients do not understand what that means. We literally
have to get clients' payslips and show them how after three months'
pay you can multiply it by four to estimate your annual income.
Those are the clients this benefit is targeted at and yet the
way tax credit is administered assumes a level of financial literacy
that is not there. Self-employed clients are frequently referred
to us by their accountants. Accountants send people to CABs to
have their tax credits looked at as accountants do not understand
the claiming system.
Q138 Ms Keeble: If we were to say
something about protection of childcare because of the impact
it has on overpayments, if there was a proposal to protect it,
one of the other aspects of a generous childcare payment is that
it is liable to fraud and certainly in the early days there were
a number of children who had been registered for nurseries and
then did not appear. I am sure everybody has heard of that. If
you protect that childcare element, what do you do about the prospect
of fraud or do you think there are enough protections in place
already?
Ms Bedell: I think so. I think
we are of the view there are enough and with the Pre-Budget recommendations
and what is going to happen in the reporting of change in circumstances
there are enough there. I think there is enough compliance in
the system already.
Q139 Ms Keeble: In the written evidence
there is a proposal from Citizens Advice that there should be
a contract with the voluntary sector for face-to-face advice for
members of the public. Do you think that is where the problem
is? Is the problem with the advice or with the calculations?
Ms Harding: I think there is an
element of both. The fact that we are seeing an increasing number
of claimants coming to us for advice on tax credits is testament
to the fact they are not getting the information they need through
the helpline and they are coming to us to have the system explained
to them in a way that they can easily understand. There is definitely
a need for that kind of frontline advice from a trusted third
party that is seen to be independent.
Chairman: Thank you very much. I should
have thanked you earlier for your submissions. We have not covered
all of the areas that you covered in your submissions but we will
be going through all of those before we come to draft our report.
I think you have illustrated very well today in the answers you
have given just how much improvements are needed to the system,
particularly in the way it is delivered. Thank you for coming
here today.
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