Memorandum submitted by the Child Poverty
Action Group
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.
INTRODUCTION AND
SUMMARY
1. The Child Poverty Action Group (CPAG)
is pleased to contribute evidence to the Treasury Select Committee's
inquiry into the administration of tax credits. Although CPAG
is supportive of the aims of tax credits, ongoing administrative
problems and underlying structural issues are undermining the
effectiveness of tax credits in tackling child poverty and making
work pay.
2. This submission is informed by six immediate
steps CPAG has called for.[1]
These are:
— An amnesty of overpayments that
arose in 2003-04 and 2004-05;
— Introduce a right of appeal
against overpayment decisions;
— Fair recovery of overpayments;
— Improve communication and advice
to claimants;
— Encourage take up of tax credits.
3. We are pleased that the Treasury has
responded to criticisms about the problems claimants are experiencing.
However the timescale for the introduction of improvements is
too long and some issues remain outstanding.
4. This submission is broken into three
sections. The first considers the May 2005 statement (these are
presented as paraphrased by the National Audit Office).[2]
The second outlines the implications of the 2005 pre-budget report,
and the third considers issues that still need to be addressed.
PROGRESS SINCE
MAY 2005 STATEMENT[3]
5. "Review the effectiveness of information
provided to claimants, and to reduce the number of cases where
people receive unnecessary duplication of award notices"
Plans for a new award notice to be introduced
in April 2006 are very welcome. However continuing complexity
indicates a need for more effective support and communication
alongside the notices (through the helpline and face to face advice).
Although the introduction of a "playback" note—which
will explain how changes have affected an award—is very
welcome, implementation is a long way off (planned for after the
next set of renewals). We welcome the fact that additional payments
have recently been incorporated into the award notice (as these
are now automated). However the notes that go with the notice
do not yet explain the impact of additional payments as they should.
Further there is a need to demonstrate clearly to claimants (on
the notice or notes) whether and which overpayments have occurred
in order to enable them to challenge this if it is appropriate.
We understand duplicate notices remain a difficulty.
6. "Test new methods of reminding claimants
of the importance of providing up to date in-year information
on changes in income and circumstances"
Despite a welter of evidence about administrative
error (particularly around the helpline), claimants continue to
be held responsible for the occurence of overpayments where some
is systems driven. In a recent statement, for instance, the Paymaster
General did not refer to system or administrator error in her
assessment of the causes of overpayment.[4]
Reminding claimants to report will clarify needs but it should
to go hand in hand with ensuring that the system properly records
changes. Further changes announced with the PBR should improve
clarity and ensure HMRC is more proactive (for instance by calling
claimants to confirm circumstances).
7. "Develop options to improve the
quality of the helpline service"
We welcome the commitment to improve the helpline
services. However, although it is the key channel for responding
to claimants questions staff appear to be inadequately briefed
on the law and progress of particular cases. Staff should be able
to track the history of cases and to deal with complex queries.We
urge the Committee to examine call volume, helpline staffing levels,
training and staff sickness/absence as indicators of change since
May.
Since administrator or system error has led
to cases where changes have been reported to the helpline but
which were either entered on the computer late or not recorded
altogether reporting changes is itself no guarantee of a correct
award notice, indicating the need to further improve helpline,
IT and staff training to back up the proposed changes.
In particular we are pleased that "hard
cases" are being dealt with by a separate team able to respond
to more complex circumstances and, presumably, take ownership
of particular cases. Although it is important that the helpline
effectively signposts complex cases, we are unclear about how
cases are referred to this team. We understand that, as of Autumn
2005, this unit had the capacity to deal with around one in 400
calls made to HMRC contact centres. We recommend more investment
is targeted to support complex cases and suggest that this would
substantially ease pressures on both claimants and the helpline.
8. "Identify IT system problems and
processing errors more quickly"
We understand that IT changes are intended for
April 2006 and beyond. We suggest the Committee might obtain a
list of what is planned and when. We understand an IT architecture
review is planned which we hope will both solve bugs and make
it easier for these to be dealt with speedily in future, however
this overhaul looks unlikely to occur in the near future. We note
that Income Support cases have not yet been transferred to the
new scheme and that these will generate further difficulties.
We also note that changes tend to be introduced in April and November
of each year, suggesting two points at which HMRC makes IT or
process changes this constraint means claimants have to wait a
considerable period before the changes announced in the PBR are
made We recommend the Committee investigates the IT constraints
around policy change.
9. "Work more closely with the voluntary
sector to target more active support for vulnerable families"
Communication and consultation between HMRC
and the voluntary sector is welcome. The sector plays a vital
role advising HMRC of the likely impact of policy and providing
independent advice to claimants. However it cannot and should
not deliver tax credits.
The needs of tax credit claimants are varied.
Some will find it difficult or impossible or to access the helpline
or the internet. Some claimants may have limited literacy and
numeracy skills and some may not have English as a first language.
Some claimants may need support throughout the process, others
may need occasional access to key information and then deal with
the tax credit forms independently. It is important that claimants
have access to communication channels that reflect their particular
needs: there should be no "one size fits all" model.
We recommend that some HMRC staff be based in local Jobcentre
Plus offices to provide face-to-face advice.
10. "Review the operation of the Code
of Practice [COP 26] on overpayments, so that recovery can be
suspended in cases of genuine hardship, while a disputed overpayment
is resolved."
Significant progress has been made, but it is
slower and less radical than needed. We believe that the system
remains weighted against the claimant. Claimants should have the
right to an effective service, with good quality information and
structures for challenging poor decision making.
Manual suspension of recovery following dispute
has now been implemented, and an automatic system is planned.
However as this occurs only in the wake of a dispute the onus
remains on the claimant to challenge. CPAG believes this is unreasonable
since the scheme often denies claimants access to the information
they need to instigate a challenge. As the process is computer
driven no discretion is applied by HMRC before recovery, which
CPAG believes to be unlawful.
IMPLICATIONS OF
THE PRE-BUDGET
REPORT ANNOUNCEMENTS
11. The December 2005 pre-budget review
announced some very positive changes which address some of the
key policy problems. These include:
— From April 2006 increase in
the disregard for income increases from £2,500 to £25,000.
— From November 2006 the same
limits on recovery of "excess amounts" (in-year overpayments)
to apply as currently do at the end-of-year.
— From April 2007 underpaid awards
will be adjusted to the correct entitlement, but any lump sum
will be held over until the renewals' point.
— Stricter rules of reporting
changes of circumstances (from April 2006 more changes which must
be reported and from April 2007 shorter time period in which to
do so)
— From summer 2006 the deadline
for returns of end-of-year information will be brought forward
from September to August.
— From 2007, HMRC will be more
proactive at contacting key groups of tax credit recipients to
collect up-to-date income information before the start of the
new tax year.
12. These very welcome changes should reduce
the scope of overpayment and the impact of in-year recovery, itself
a major cause of hardship. The harmonisation of recovery rates
between in-year and end-of-year recovery is particularly welcome.
13. However we have a number of outstanding
concerns:
— Underpayment lump sums will
be held back to the year end to offset any subsequent overpayment
which accrues. Although this may reduce debt to the government
(a Treasury saving) and reduce subsequent recovery, families who
may have urgent spending needs or debt (including housing arrears)
following an underpayment will not receive a lump sum at the point
an award is adjusted.
— By increasing the mandatory
requirements HMRC hopes to improve clarity around reporting. It
remains to be seen how aggressively HMRC will pursue claimants
who do not comply (perhaps because of problems with relationship
breakdown or bereavement). As HMRC will be able to recover any
overpayments, we urge them to take a lenient approach. The key
should be to encourage reporting, not to punish those who may
have good cause for not having done so.
— We remain concerned about how
this system (including the income disregards) will cope with those
claimants whose income fluctuates. In particular we are concerned
about claimants whose income goes down and never rises above the
level of the previous years income. In these cases an underpayment
may occur, then leading to a revised award and any further income
increase (eg. after maternity leave) will not be subject to the
disregard.
OUTSTANDING ISSUES
14. Speed of implementation. We welcome
the changes proposed in the PBR statement, but they are a long
way off (some will not be introduced until 2007). We urge the
Committee to investigate whether these could be introduced sooner—for
instance through the use of a manual system as has happened in
the case of disputed recovery—and whether there are other
ways of easing the impact of overpayment recovery on claimants
in the interim.
15. Appeal rights: CPAG believes there should
be a statutory test to decide recovery of overpayments and a right
of appeal against a decision that there has been an overpayment.
We feel that statutory oversight of the test of recovery of overpayments
would improve decision-making.
16. A pause before recovery the Paymaster
General recently stated that she is considering what might be
done to "alert claimants about the recovery of an overpayment
before HMRC starts to collect it".[5]
This pause is vital—to allow claimants to understand what
has happened to challenge where appropriate and to adapt to a
different level of future income. We are glad HMRC is investigating
this and would like to see a clear path to implementation.
17. Additional (hardship) payments. Take
up of additional payments seems extremely low relative to probable
need. Compared to the 1.9 million end-of-year overpayments which
occurred in 2003-04[6]
(an undercount since it excludes in-year overpayments), in 2003-04,
32,500 claimants received an additional payment and just 10,000
in 2004-05.[7]
Part of this fall may result from groups being excluded from payments
in the later year (under COP 26). The Paymaster General has stated
"HMRC will consider how they might raise claimants' awareness
of the availability of additional payments"[8]
and the Department appears to be doing so to some extent but the
onus remains on claimants to access these payments and not all
can do so. Given the time to implement the proposed harmonisation
in recovery rates, we strongly suggest more generous application
and effective delivery of additional payments as an urgent priority.
One mechanism which might be examined would be to automatically
pay additional payments for those in receipt of income support
or job seekers allowance. We urge the Committee to investigate
the reasons for the level of take up of additional payments and
what might be done to meet need.
18. Passporting: Confusion with tax credit
entitlements—such as whether a claimant has maximum child
tax credit—may depress take up of other elements of support
such as the Sure Start maternity grant or milk tokens. There may
also be system issues around claim forms and the communication
between IT systems held by different departments. We suggest the
Committee investigates the take up of passported elements.
19. Recovery rates: The proposed harmonization
between in- and end-of-year overpayment recovery is very welcome,
but further protection is necessary to avoid the current jump
in rates from 10 to 25%. End-of-year overpayments are currently
recovered by award deductions (10, 25 and 100% depending on award).
The jump in rates can result in large differences in repayment
rates that are not proportionate to household income. Using percentages
of awards, rather than a flat rate figure to calculate rates also
produces higher deductions for those entitled to higher maximum
awards, such as those with more children and those with disabilities.
20. Streamlined formula. This formula introduced
to deal with the backlog of disputed overpayments has clearly
led to a limited write-off. However HMRC has not disclosed the
basis of the formula[9]
which means that it is difficult for advisers to help claimants.
We are also unsure of what the future will be of this formula.
21. Childcare: CPAG questions whether the
provision of childcare through the working tax credit is appropriate.
Take up is low, ill targeted on the poorest and subject to significant
variation in level which itself may well lead to overpayments.
We suggest the Committee investigates whether this payment, important
for overcoming barriers to work, ought to be separated from the
working tax credit.
December 2005
1 First Steps to Tax credit reform, CPAG. 2005. Back
2
National Audit Office October 2005, Comptroller and Auditor General's
Standard Report on the Accounts of the Inland Revenue 2004-05,
para 2.46. Back
3
The Written Statement by Dawn Primarolo MP appears in Hansard,
26 May 2005, 23WS. Back
4
See Paymaster General's written statement 5 December 2005. Back
5
See Paymaster General's written statement 5 December 2005. Back
6
HMRC, 2005, Child and Working Tax Credits Statistics 2003-04
Supplement on payments in 2003-04, National Statistics. Back
7
Dawn Primarolo MP, in a written Parliamentary answer to Frank
Field MP, 21 July, Hansard record Column 2035W. Back
8
Primarolo, D, 29 July 2005, letter to Ann Abraham the Parliamentary
and Health Services Ombudsman. Back
9
This is despite requests by CPAG under the Freedom of Information
Act. Back
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