Memorandum submitted by Rt Hon Frank Field
MP
On 5 December 2005 the Paymaster General announced
three significant measures designed to provide greater certainty
for claimants.
— From April 2006, there will be an
increase in the limit on the amount that family income can rise
over the current tax year without affecting entitlement. The current
annual income disregard of £2,500 will increase to £25,000.
— From November 2006, automatic limits
will be imposed on the extent to which an award can be reduced
to recover an in-year overpayment of tax credits.
— From April 2007, when a claimant
reports a fall in income, any extra tax credits due from the start
of the tax year will be paid when actual income has been finalised.
The Paymaster General also announced three new
responsibilities for claimants designed to help HMRC keep their
records up to date.
These measures are welcome but will only affect
one third of all overpayments. The reforms already announced on
26 May 2005 are therefore crucially important to the vast majority
of claimants caught up in the horrors of this new leviathan.
The Government continues to fail to deliver
on the six major reforms it promised to the administration of
tax credits. The first section reports on the Government's failure
to make any significant inroad into what the Parliamentary Ombudsman
has already described as an area of major maladministration. The
second section sets out those reforms I hope the Committee will
recommend to rescue those millions of families whose finances
have been thrown into chaos by the Treasury's maladministration
of the tax credit system.
SECTION 1
The Government has yet to deliver on its first
promise: to ensure that in each case of genuine hardship, where
the recovery of an over-payment is disputed, recovery can be suspended
while the dispute is resolved.
1. There is no better illustration between
the Treasury's rhetoric and the reality of tax credit administration
than the fact that the Revenue does not have information on the
numbers of awards which have been reduced in order to recover
an overpayment, nor how many of this total have disputed this
action.
2. An automatic procedure to prevent recovery
was originally promised by the Chairman of the Inland Revenue
and that IT adjustments for an automatic procedure would take
place between April and autumn of this year. We now learn that
moves to this will only be in place at the end of 2006. The Government
have provided no report on whether they are on course to meet
this target. In the meantime the Revenue's staff, starting in
November, have begun tricking the computer and halting overpayments
where there is a dispute. This is a welcome response but it is
a makeshift measure and could damage still further an already
frail IT system.
3. There is a big question mark over whether
the Revenue will have sufficient staff resources and time to continue
tricking the computer in this way. Tricking the computer currently
requires Revenue staff to carry out 22 separate tasks and adds
40 minutes to each case. In 2004-05 alone some 217,000 disputes
against tax credit overpayments were registered with the Revenue.
To halt recovery of an overpayment in each of these cases would
take a staggering 80 years of staff time. The Revenue has set
itself a target of suspending all overpayments within five days
of a dispute being made and for a decision to be made on recoverability
of an overpayment within four weeks. The Treasury began to implement
this change from November 7 but the Treasury has refused to give
information on how this new target is working.
The Government has yet to deliver on its second
promise: to reduce the number of incidences where people receive
unnecessary duplication of awards often detailing different amounts.
1. The consequences of failing to enable
claimants themselves to check on the accuracy of the monies being
paid to them is compounded by the Treasury sending, sometimes
on the same day, a host of award notices signifying different
amounts on them. In turn cheques appear through claimants' letter
boxes, often in quick succession, for amounts which seem to all
intents and purposes to have been calculated at random.
2. Attempts by MPs, their staff and welfare
advisers to help are often complicated by errors and factual inconsistencies
in the many letters written by the Revenue about individual cases.
— A family from Birkenhead have recently
received four notices notifying them of an overpayment, but the
amount owed has differed in three of them.
The Government has yet to deliver on its third
promise: to consider options to identify families most at risk
of an over-payment and support them through better targeted contact
to ensure their stated circumstances and income are up to date.
1. The Government has produced very little
evidence that poorer families are being targeted by the Revenue
to make sure that they report information to the Revenue on time.
2. A pilot scheme telephoning those at risk
to remind them to return their renewal forms by September 2005
has produced poor results—out of the 341,000 phone calls
made 95% of them did not result in a renewal form being returned.
The Government has drawn no conclusion from this study except
to say that the pilots continue.
3. Claimants are still not being notified
of any entitlement to additional payments should recovery cause
hardship. Worse still hardship payments made manually have stopped
in 2005-06 in favour of readjusting the award in payment. Yet
again the Revenue has no information on the number of payments
adjusted in this way.
4. The Revenue are undertaking a long-term
pilot to try and encourage "at-risk" families to report
changes in circumstances affecting their award. Early results
do not bode well for the success of the pilots. In July 2005 the
Revenue contacted 22,500 people and astonishingly, of these only
1,200, or one in 20, notified a change of circumstances. Again
there is yet to be a report on why these preliminary findings
are so disappointing.
The Government has yet to deliver on its fourth
promise: to identify IT system problems and processing errors
so that they can be resolved more quickly.
1. Over 16,000 claimants have been paid
manually due to technical errors, but the Revenue is unable to
break down this group by the length of time manual payments have
been made.
2. The Revenue does not have information
on the value of payments outstanding due to IT errors halting
regular payments to claimants.
3. The Revenue is unable to supply information
on the number of backdated tax credits awards awaiting payment
nor the average time between an application being made and the
first payment. This would suggest the Revenue has little control
over what the IT system actually does.
4. A number of tax credit cases, including
cases from Birkenhead, have been issued with an emergency national
insurance number upon which their award is based. The Revenue
has not been able to provide details of the number of claims with
temporary tax credit reference numbers and staff members themselves
do not know why an emergency national insurance number is in use.
— Experience from constituents in Birkenhead
suggests that IT errors are still a serious problem and are not
rectified quickly. A grandmother from Birkenhead who is raising
her grand-daughter has not received regular payments since 2003
and is owed thousands of pounds in backdated tax credits. The
Revenue has admitted that their failure to pay her is due to an
IT system fault and that the problems are so complex that her
case has been referred to a specialist team.
— A family with a child under one year
old from Birkenhead found that their tax credit award had been
affected by a processing error originally made in 2003-04, but
the same mistake was repeated in 2004-05 and again in 2005-06.
It took almost three years for the error to be corrected.
— Another problem affecting claimants
in Birkenhead is, where an application for an award of tax credits
has been made with the job details and the number of hours worked,
but with no income details, there is automatically a maximum award
of tax credits. Similarly, a joint claim for tax credits with
the disability element in respect of a partner, where the claimant
has given job details but no hours worked, also leads to a maximum
award of tax credit. There is currently no way of alerting staff
to errors of this nature when an application is processed.
The Government has yet to deliver on its fifth
promise: to develop innovative ways of working with the voluntary
sector to target more active support on vulnerable families.
1. The Revenue has given no feedback on
this undertaking other than that they are in discussion with the
relevant bodies, including the Citizen's Advice Bureau. A Tax
Credit Consultation Group and a number of working parties, made
up of representatives and officials from voluntary sector bodies,
have met to consider a range of issues such as the review of Code
of Practice 26, the Helpline, the Revenue website, complaints
and redress.
2. Comments from the Revenue and the Paymaster
General have been vague in this area. Yet claimants are still
waiting for any sign of any recommendations of importance following
these meetings. So far there have been no practical developments
as a result of meetings between the Revenue and voluntary sector
bodies.
The Government has yet to deliver on its sixth
promise: to develop options to improve the qualities of service
on the helpline, in particular to ensure that the helpline operators
can track the progress of individual cases in the system, reducing
the needs for families to contact the helpline on multiple occasions.
1. The Revenue has told the Treasury Sub-Select
Committee that extra training and support was being given to support
staff. The Revenue were also exploring the use of a particular
software tool which would guide the call-centre operators through
a series of questions designed to ensure that staff are always
giving accurate and comprehensive advice. There are no details
about the timing of this reform.
2. One mother from Birkenhead was recently
told on the tax credit helpline that there was a note attached
to her case saying that it had been referred to a specialist team,
astonishingly 21 times. Worryingly, claimants are being told that
their cases are being referred to specialist teams as a means
of fobbing them off. These responses show that, despite all the
rhetoric and promises of the Revenue, staff are still not competent
enough to support claimants through what is an exceedingly complicated
process.
SECTION 2
What might be done?
The Government has yet to deliver fully on any
one, let alone all six of its promises to improve its tax credit
system administration. I would hope the Committee would consider
as a matter of urgency recommending:
1. The most important reform would be for
the Government to introduce a statement which clearly set out
how the tax credit had been computed. Such a wage/tax credit slip
is produced (Form TC647) but this form is only sent to claimants
who request one. The Committee should recommend that this form
is sent out automatically with each statement setting out a claimant's
right to a tax credit. While a staggering 56 million tax credit
award notices have been issued since April 2004, only 370,000
TC647 forms have been issued.
2. Even with the new rules, no recovery
should begin until the claimant and his or her advisor has had
the chance to appeal against the overpayment and the Revenue has
assessed recoverability under its own guidelines. The reform introduced
in November 2005 only halts recovery once the claimant has disputed
the overpayment by filling in a TC 846 form—many claimants
are unaware that an overpayment can be disputed in this way.
3. Greater effort should be made to reduce
the number of different notices that the Revenue can currently
send to tax credit claimants. The Committee should ask outside
experts if it is possible to concertina these forms down to a
maximum of say 10 which still provide claimants with accurate
information. According to the Tax Credit Manual there are 123
different forms which relate to the application and renewal of
tax credits.
4. Tax credit staff should be empowered
to check a current year's application form with a previous year's
form where there is a major difference in the size of the tax
credit being awarded. If a family, for example, has been mistakenly
awarded a full child tax credit in the current year, when in the
previous year there was no claim for children, or if a claimant
applied for a 30 hour element of the working tax credit but discloses
no earnings, the Revenue should make efforts to contact the claimant
and verify what the status of the claimant is.
December 2005
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