Memorandum submitted by Redcar and Cleveland
Borough Council
INTRODUCTION
1. The Treasury sub committee has requested
responses to the six generic proposals for improving the process
of Tax Credits administration announced by the Postmaster General
in May 2005. In the last few days the Chancellor has announced
a package of specific changes which it is to be hoped will alleviate
some of the harsher effects of the Tax Credit system. It would
therefore be difficult to respond without taking account of these
changes given the directions of the sub committee that responses
concentrate on implementation of the May proposals, overpayments
and proposed solutions for improvement of tax credit administration.
Each of the six measures are commented on in
turn and where applicable, appropriate reference is made to the
Chancellors proposed reforms.
THE SIX
MEASURES
2. Improving claimant information, Duplication
of award notices
HMRC are still failing in this area and could
learn much from their counterparts in the DWP. Tax Credit award
notices would be much improved were they to incorporate the full
details showing how awards have been arrived at. Award notices
showing only final income and tax credit figures do not assist
the client or the advisor to understand the workings of the calculations
used. Fuller breakdowns would not only highlight inconsistencies
and errors in the assessments but play a part in assisting the
client to understand better the process behind tax credits.
2.1 Claimants provision of information on
changes in circumstances
Recent proposals are to make it mandatory to
report more changes of circumstances than at present and in a
shorter time thereby shortening the period over which an overpayment
might occur. These measures alone will be insufficient if the
client remains unaware of those details which are important to
the performance of a claim. The emphasis must therefore be on
educating the client as to what information must be notified to
HMRC. That must be matched by an improvement in the HMRC systems
for receiving and processing such information. Conversations with
helpline staff revealed that they have limited client information
on their screens and are in effect little more than a conduit
for passing the information to the decision makers. Effectively,
a client reporting a change of circumstances has no means of knowing
exactly when that change will be acted upon. The system might
also be improved were it able to record and act upon the clients
advance notification of known changes in circumstances. Callcentre
staff respond that the system can only record changes as they
occur. A system that can respond in advance to a known change
of circumstance will help reduce risks of overpayment.
2.2 Improving the Helpline
It is imperative that the performance of the
helpline be improved beyond those changes already implemented.
The helpline remains the only instant means of contact for the
client and advisor but that contact often results in frustration.
As touched upon above, the helpline is a conduit and not part
of the decision making process so clients are left to ponder when
their information will be acted upon. In addition, helpline workers
routinely respond they do not have fuller access to the full range
of screens limiting their ability to respond fully to enquiries
and deal with problems. Representatives acting for clients are
hampered by an insistence that proof of representation be provided
even where representatives provide their Office Identification
number, a form of password supplied by HMRC itself. On occasions
the refusal to respond to respond to enquiries has even resulted
in HMRC refusing to talk to one spouse unless the other was present
to give permission, a ridiculous situation given that any couple
would be jointly and severally liable for claims and overpayments.
2.3 Identifying IT system problems and processing
No comment to make
2.4 The role of the voluntary sector
In her written ministerial response the Paymaster
General indicated that the role of the voluntary sector was crucial
in advising families receiving tax credits. We are unable to respond
other than to say any such proposals would be weighed carefully,
especially if similar to those proposals for joint working with
the Jobcentre Plus. Our view would be that the level of any cooperation
would be dependant on improved lines of support and information
from HMRC and a regard to the level of responsibility and participation
expected by HMRC.
2.5 Hardship
The Paymaster General announced that the Code
of Practice on Overpayments would be reviewed to ensure that recovery
would be suspended in cases of genuine hardship. It is disquieting
that the announcement only talked of a suspension while the overpayment
was being disputed and nothing of improving the process of considering
hardship with a view to waiving recovery. The code of practice
states that HMRC may decide not to recover all or part of an overpayment
in cases of official hardship and lists many factors that should
be taken into account. These include total means and expenditure,
other debts, the presence of children under five, to name a few.
It is important that a claimant in such circumstances be allowed
the opportunity to bring to the notice of HMRC the detail causing
hardship. Yet the forms provided to claimants for the purpose
of approaching the section which would consider hardship are inadequate
and concentrate on official error. It is unclear how HMRC will
be in a position to determine genuine hardship unless the claimant
is afforded the knowledge or means of doing so.
SUMMARY
From the perspective of an advisor it is difficult
to see how any future measures proposed will serve to reassure
clients or remedy what is perceived as the major defect in the
tax Credit system, namely that the system itself generates overpayments
as a normal feature of its operation. A system that generates
claimant debt will continue to be viewed with suspicion and anxiety
by those reliant on it. Those negative feelings are not assisted
by the failure of HMRC to provide the necessary information and
guidance that would enable claimants to better understand their
entitlements. Claimants can never feel reassured that the Tax
Credits they receive are the correct amount.
The Tax Credit system lacks the transparency
that exists with benefits administered by the DWP.
The sub committee has expressly asked that responses
not concentrate on past administrative practices and decisions
but it is difficult if not impossible to mention Tax Credits without
reference to overpayments and the lack of appeal. The lack of
any statutory right to contest HMRC decisions, even through official
error, does not rest easily with claimants or their advisors.
It can be appreciated that such is the inevitability of overpayments
occurring that if a statutory right of appeal did exist HMRC would
be swamped, a recipe for administrative chaos. That said, the
absence of statutory appeal rights and a reliance on a discretionary
process to recover or not to recover will not endear itself to
claimants.
The recent proposals by the Chancellor to reduce
overpayments are welcome but models are not yet available to evaluate
whether those proposals will be truly effective in alleviating
the problems with overpayments. It is however arguable that these
proposals will further serve to complicate and confuse claimants
perceptions of an already complex process.
It is submitted that claimant confidence and
a fairer system would result from a return to a system of fixed
awards for finite periods similar to the system of Family Credit.
This would afford claimants the ability to budget accordingly
without fear of overpayments during the award period. Instead
of annual assessment a period of six months be used with the full
income for the past award period being used to assess the coming
award period. If retaining the need to report changes during the
award period this would still have the effect of such changes
only having effect for the shorter duration of the award and not
for the full year. In effect a hybrid system incorporating a shorter
award period reminiscent of Family Credit with the overall means
testing element of Tax Credits. It would remove the administrative
burden of full reconciliation for all claimants at the financial
year end as claims would be staggered throughout the year depending
on the date of claim.
Large numbers have applied for Tax Credits and
the migration of those on benefits to Tax Credits is expected
to be completed by November 2006. However high take up statistics
are not representative of a universal approval of Tax Credits.
Tax Credits are a treadmill. Once applied for and determined no
withdrawal from the process is possible even in situations where
no Tax Credits are paid. Claimants are still required to respond
to HMRC for the process of reconciliation and to notify change
of circumstance which might provide entitlement. Perversely, a
claimant can be liable to fines and penalties for failing to notify
such circumstances.
The Tax Credit system itself generates overpayments.
Until this is addressed claimants will never feel confident or
secure with them. Fine tuning to reduce the impact of overpayments,
in our view, is welcome but is not addressing that adverse feature
of the system.
December 2005
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