Supplementary memorandum submitted by
the Child Poverty Action Group
Ahead of your session with David Varney on 19th
April, CPAG would like to update you on some current issues of
concern in relation to the way in which tax credits are working
for lower income families. We have given both oral and written
evidence to your inquiry before and for brevity do not repeat
these arguments but here focus on several specific issues which
arise as HMRC is changing its policies and delivery following
Dawn Primarolo's May 2005 statement and the subsequent policy
changes announced in the 2005 pre-budget review. We raise these
both for your information and in case you wish to raise these
with David Varney.
In general we are supportive of the moves HMRC
is making to improve its service and the efforts of its staff
to achieve this, but we continue to have both policy and delivery
concerns with the approach. The issues of concern we outline below
relate principally to:
— The nature of communication between
the HMRC and claimants and the quality of information available
to claimants.
— Issues relating to overpayment recovery
around communication and policies on overpayment.
— Planned changes to the law on reporting
changes of circumstances.
— Migration of Income Support cases.
COMMUNICATION BETWEEN
HMRC AND CLAIMANTS
The computer system: the computer system on
which the tax credit system is being operated is fundamental to
its effective delivery. CPAG believes its limitations underlie
many of the problems with the award notices and the inability
to respond quickly to make changes to the tax credit scheme in
accordance with government's, NGOs' and claimants' wishes. We
understand HMRC is attempting to improve its system to allow more
rapid change in the future—but we are not yet convinced
this has gone far enough—and delivery on this front is crucial
to support policy and detailed regulation changes.
Internet and helpline: HMRC remains reliant
on delivering information to claimants via the internet or by
phone. To rely on these methods alone does not take into account
the difficulties faced by many lower income claimants, in particular
the need for face to face contact (to explain complex issues such
as how an award is worked out). Barriers to the use of computers
include not being used to operating them, and not having access
to the internet at home or to using this in a public place to
transact complex and confidential information. Further we do not
believe HMRC should assume that its clients have telephones when
a minority do not have landlines and rely on more expensive pay
as you go mobile telephones.
Complex written information: the system relies
not only on complex award notices but on detailed booklets of
notes that accompany claim and renewal forms and other detailed
information leaflets on specific issues. However well written
these are, the assumption that claimants will have understood
the content or obtained professional or expert advice and then
completed forms appropriately is unreasonable. It demonstrates
the need not only for an effective helpline but for access to
face to face advice by HMRC.
Providing different services to different groups
who claim tax credits: HMRC have now accepted the principle that
there is a need to provide services and help in different ways
to different groups of claimants and that for some low income
claimants there will also be specific needs that may not exist
in other groups. Developing new ways of reaching different groups
of claimants needs adequate staffing and resources which we do
not currently see earmarked, and indeed remains under threat from
the programme of staff cuts in HMRC.
HMRC's monitoring its service: There is a need
for the HMRC to monitor its service in order to understand why
claimants have difficulties dealing with the system, to assess
whether new forms and notices are effective, for example the new
award notice, the `checking your award' notice (TC 602 SN) and
the new code of practice on overpayments (henceforth COP 26).
This is necessary in order to reassess constantly the best mechanisms
for delivering the system given the varied nature of the tax credit
recipients.
PROVISIONS FOR
RECOVERING OVERPAYMENTS
BETWEEN APRIL
AND NOVEMBER
2006
CPAG remains concerned about the information
presentation on award notices despite the introduction of the
new `checking the award notice' form; we feel the new COP 26 continues
to lack clarity and have concerns about specific provisions in
it, outlined below. Although generally welcoming the policy changes
that will reduce overpayments we wish to draw attention to certain
difficulties that exist between now and November 2006 when the
computer will be able to deliver automatic maximum deductions
to recover overpayments.
AWARD NOTICES
AND CHECKING
AWARD NOTICES
FORMS
CPAG believes that the award notices to be introduced
from April 2006 remain difficult to understand particularly in
relation to the section on `payments' which also covers overpayments.
Although the accompanying `Checking the award notice form' (TC
602 SN) is an improvement and may help prompt some claimants to
ask for an additional payment the content of the award notice
is such that it will still be unclear whether the change to award
is due to a new overpayment or not. The content of award notices
relies in large part on the capacity to change the instructions
in the computer programme.
Between now and November 2006, following overpayment,
the award will simply be adjusted as in the past to recover the
new overpayment within the year until the claimant requests the
additional payment. With the additional payment the recovery will
be reduced to achieve the standard maximum deductions of up to
10% or 25% in the case of those with awards of more than the family
element of CTC. These deductions are applied automatically to
end of year overpayments.
Unfortunately the new subsection of the award
notice now entitled `overpayments' (a welcome extra) is still
impossible to understand from models we have so far seen. Claimants
are prompted by the `checking the award notice' to ask for an
additional payment if their payments have been reduced. A reduction
in the payments may but does not necessarily indicate an overpayment;
moreover an award could increase but this could mask a new overpayment
due to income change. The only safe current advice for claimants
is therefore to contact the Helpline each time they receive an
award notice to check whether there is a new overpayment and if
so then request an additional payment. However it is not always
easy for helpline staff to explain award notices and to do so
is onerous on the helpline.
Certain claimants may face difficulties obtaining
an additional payment—where HMRC has decided there has been
a failure to notify a change or wrong information has been given
to the Revenue. This may be the result of a failure to notify
or giving wrong information may be the result of lack of understanding,
low functional literacy levels or poor mental health. If the claimant
says they will be in hardship their request is reconsidered but
the danger is that in practice they will have been deterred from
obtaining this help. It also appears to be inconsistent with the
policy in 2006/7 which assumes overpayments are recovered at a
standard deduction rates without exception and which once the
computer allows will apply these automatically.
THE NEW
COP 26
COP 26 is a relatively detailed document and
designed for those who can cope with reading several pages of
complex text. Many people will not understand its contents. We
understand the HMRC plan to do a two sided leaflet as an addition
or alternative to COP 26 but that this is not an immediate priority.
We feel this would be useful and would ask that this be a more
urgent priority. A simple leaflet would enable more claimants
to understand what happens if they have an overpayment and what
to do. A leaflet would also have an important signposting function
to other advice, and could advise those who wish to read it how
to obtain the COP 26. It would be an important supplement
to the new checking your award notice leaflet.
Content issues in COP 26 include:
— We believe the structure and layout
of the new COP 26 is not very clear or logical.
— The rates of deductions are not set
out very clearly. For example a claimant on maximum CTC but reduced
WTC would have a deduction made at 25%. This needs spelling out.
— The COP 26 still refers to stopping
paying tax credits for the rest of the year if the person has
received too much. All it now needs to say is that deductions
are set at certain maximum rates to recover in year overpayments
and that to achieve these the tax credit recipient must apply
for an additional payment. The concept of deductions is easier
to explain than adjustments to awards.
— `Disagreeing with recovery of an
overpayment' section. Hardship as well as official error should
be included in this section so that it is clear overpayment recovery
can be challenged on one or both grounds. This would be consistent
with the Treasury's own advice on waiving recovery in cases of
hardship.
— The departmental error test is satisfied
only where both the department has made an error and `it was reasonable
for the claimant to think the payments were right'. For the latter
part of the test to be satisfied there is an expectation that
claimants will have made certain checks including the payments
going into bank accounts, which it is not reasonable to assume
of all claimants (such as those with mental health problems or
with poor literacy or numeracy).
COMMENTS ON
CHANGES TO
OVERPAYMENT POLICIES
AND PROPOSALS
FOR FURTHER
IMPROVEMENT
We welcome most of the changes announced in
December 2005. However we remain critical of the following:
— The proposal to hold back any underpayment
and offset against any possible overpayment—to be introduced
in April 2007. If those on low income have been underpaid
they may well have incurred debts whilst receiving an underpaid
award.
— The exclusion of certain people from
additional payments (see above)
We also propose the following changes:
— An additional deduction rate of 15%
for recovery where a person is on reduced rate WTC and maximum
rate CTC. There is a big jump from the 10% deduction level to
that of 25% which does not take full account of the fact that
some low paid workers may have income for example below £10,000.
— Disregard the disability elements
in the tax credit award when calculating the percentage reduction.
At present those with the disability elements repay a proportionately
larger amount when repaying an overpayment yet these families
are often most at risk of poverty.
— That claimants should have a statutory
right of appeal against recovery of overpayments. We believe this
will improve decision making and protect claimants' rights.
— There is a need for clarification
of procedures where an outstanding overpayment exists but there
is no continuing award or a new award has been made following
household change. CPAG is concerned that where a non resident
parent is untraced, a lone parent may be required to repay the
full overpayment thus disadvantaging their children.
CHANGES TO
THE LAW
RELATING TO
CHANGES OF
CIRCUMSTANCES, THE
TIMETABLE AND
PROCESS FOR
CONSULTATION ON
THE CHANGES
The policy changes which have been announced
raise a number of issues—both in relation to policy and
process, many of which we have commented on before. We would raise
concerns here about:
— HMRC increasing its powers to apply
penalties where it believes people have wrongly reported circumstances.
CPAG believes these are unnecessary (as the HMRC have the power
to recover the overpayment) and risk placing families with children
in hardship. Where fraud is suspected HMRC already has measures
available.
— The one month rule for reporting
a change of circumstances to be introduced in April 2007. CPAG
believes this period should be three months. It will be unclear
to claimants in many cases whether or not the change of circumstances—eg
hours of work or child having left home to stay with absent parent—is
permanent or long term after one month. If there is a further
change the claimant will need to report it again. Introducing
the change with a three month reporting period initially (from
November 2006) and then reducing this to one month in April 2007
seems to be a recipe for confusion.
CPAG would welcome clarification of the following:
— HMRC's strengthening of its regulations
around reporting changes of circumstances requires clearer definitions
yet we do not know what HMRC proposes to do, both around when
a child ceases to count as living with a parent (say if absent
for a short period) and around how hours of paid work are to be
defined. Both are complex issues, and have ramifications for different
ethnic groups and for those with different working patterns. Each
shows the need for HMRC to adequately consult—both with
voluntary sector and with the Social Security Advisory Committee—about
the implications of regulation changes.
— The way in which the HMRC plan to
tighten definitions and to confirm that these will be made by
regulations rather than guidance. The latter is open to more flexibility
but consistency is lost. If the changes are incorporated into
regulations they are open to clarification by case law if necessary.
CPAG would hope that the definitions and changes will be dealt
with in regulations.
— How will consultation proceed on
the regulations and what is the timetable for change. It would
be useful to see draft regulations by July giving time for comment
and discussion.
— The concept of full time work and
who is responsible for a child is relevant to social security
entitlement and therefore we would like to see the HMRC learning,
where appropriate, from the DWP as to how these definitions should
be drawn the tax credits model.
— How far will the computer have the
capacity to deal with these changes or will the onus for deciding
whether a person fits the specific conditions in relation to hours
of work or responsibility for a child lie with the claimant who
will then tick the relevant box when claiming or reporting a change.
Again this detail suggests the need for more access to direct
advice and information from the HMRC and in some cases this may
need to be at local offices. The voluntary and professional sector
may advise claimants but it is up to the HMRC to deliver the service.
MIGRATION OF
INCOME SUPPORT
CASES
CPAG would welcome a reassessment of the timing
on migrating claimants currently in receipt of means tested benefits
to child tax credit given the extent of the changes currently
being planned. It seems quite reasonable to wait until these important
procedural and policy changes are in place and seen to be operating
effectively before moving across those in a particularly vulnerable
position. This does not prevent any income support or Job seekers
allowance claimant making a claim for CTC if they so wish.
I hope these points are of use in your forthcoming
session with David Varney. If you have any questions in relation
to this document or if CPAG can be of any assistance to you please
do get in touch.
April 2006
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