Tax Credits (Claims and Notifications) (Amendment) Regulations 2006

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Lord Commissioner of Her Majesty's Treasury (Kevin Brennan): That was brilliant.
Mr. Francois: Thank you—a bit louder for Hansard.
3.13 pm
Mr. Timms: I start by going back to the point that I made at the beginning of the debate, by underlining the substantial reduction in the incidence of child poverty that has resulted from the introduction of tax credits. That is the reason the Government introduced tax credits; alongside the other factors to which I have referred, they have made a huge contribution to reducing child poverty. I am pleased that the Conservative party has started to acknowledge that there is such a thing as child poverty, which it frequently refused to do in government. That is progress, but there is still a long way to go.
Mr. Francois: As the Chief Secretary is makinga point about poverty, can he explain why the Government’s former welfare reform Minister, the right hon. Member for Birkenhead (Mr. Field), has said that trying to alleviate poverty by using tax credits is equivalent to
“attempting ... keyhole surgery with a hacksaw”?
Mr. Timms: Let me refer the hon. Gentleman to the document published by his party’s social justice policy group, “Breakdown Britain”, which I read with interest earlier this week. It makes the point that 700,000 children were lifted out of poverty, and I welcome that acknowledgement of the facts on behalf of the hon. Gentleman’s party.
Let me respond to the questions that the hon. Gentleman asked. First, I do not agree that the changes will have an adverse impact on agency workers and others in the position that he described. It is worth underlining the point that there is nothing new in the requirement for people to state whether they are working more than 16 hours or 30 hours. The only change here is having to notify when the position changes. As far as I am aware, agency workers and others have not had any great difficulty applying for tax credits. Most people work regular hours. Nevertheless, it is possible in a small number of cases that there could be some difficulty. I urge hon. Members to look at the tax credits manual, which is on the Revenue and Customs website and which sets out the approach that Revenue and Customs will take in more complex situations, based on case law. There is also some additional guidance being placed on the Revenue and Customs website to cover more complicated situations. I do not think that there should be undue difficulty for those groups; of course, it is important there is not.
Secondly, the hon. Gentleman asked about the computer system. It is true that there have been some difficulties in making changes to the system, and that they have not happened as quickly as we would have liked. That is why the package of measures announced in the pre-Budget report last year is being implemented gradually. I am pleased to be able to tell him that the computer system is now stable and delivering a good service for claimants. As long as we continue with that careful approach, I am hopeful that that will continue.
Mr. Francois: If, as the Chief Secretary claims, the computer system is now stable, why did his colleague the Paymaster General issue a written statement to the House last week saying that the anticipated changes that should have gone ahead, including migration of jobseeker’s allowance cases involving child tax credit on to the tax credit system, have been delayed yet again?
Mr. Timms: For precisely the reason that I just gave, which is that we are having to tread quite carefully here not to make changes that would cause problems but to ensure that the current stable condition of the system is maintained.
The hon. Gentleman asked me about the fall-off in successful appeals. The key factor is the substantial improvement in accuracy in processing and calculating awards. I gave the numbers at the beginning: in 2003-04, accuracy ran at about 78 per cent. In 2005-06, it was about 98 per cent. Because the question of whether the Revenue made a mistake is a key consideration, that dramatic reduction from about22 per cent. to about 2 per cent. in the number of cases in which there is inaccuracy is the main factor behind the reduction in the incidence of successful appeals.
Mr. Francois: I heard and understood what the Chief Secretary said, but he knows that complaints—appeals—are running at over 25,000 a month, or at least they were in April 2006. Given that we have 25,000 or more people a month appealing against the system—we do not have more up-to-date figures—how many of those appeals are now being judged to be successful? That is a straightforward question; what is the answer?
Mr. Timms: The hon. Gentleman gave some numbers, and I have no reason to query them. The point that I am making is that the proportion of cases in which there is an HMRC error, which was significant to begin with, is now very much lower. That is the reason for the fall-off in the number of appeals. I also make the point that if claimants are unhappy with a determination about an overpayment, they can complain to the adjudicator, who is—contrary to the point that he made—independent of Revenue and Customs.
Mr. David Gauke (South-West Hertfordshire) (Con): Does the Chief Secretary accept that, for people who are on low incomes, going through the whole complaints and appeals procedure is extremely difficult? The right hon. Member for Sheffield, Brightside (Mr. Blunkett) made that clear in his memoirs when he talked about having to help out a constituent financially himself because, in his words, the tax credit system is “such a shambles”. Does the Chief Secretary recognise that just beginning the appeals and complaints process causes enormous difficulties for people?
Mr. Timms: Yes, I accept that too many people had difficulties in the past, and that is precisely the reason for these regulations. They are to ensure that people provide the information quickly so that overpayments do not occur in the first place and people will not get into the difficulties that he describes. Everyone across the House recognises the importance of doing that.
Mr. Francois rose—
Danny Alexander rose—
Mr. Timms: I will make a little more headway before I give way again. The hon. Member for Rayleigh asked for some cost information. He knows that we have provided information about the costs of the overall package, and he was kind enough to credit me with understanding his question about the entitlement basis for those costs. All I can tell him is that the change in entitlement in the year as a result of the disregard is not the same as the cost of the disregard on top of what the Government would otherwise have paid out. When overpaid tax credits are recovered, there is a yield—money comes into the Treasury. The cost of the disregard is the amount of overpayments that no longer have to be recovered due to the disregard. The higher disregard does not necessarily affect the amount of money paid out to claimants in any one year. Reducing the amount of overpayments will mean that the higher disregard will mean that there is less money to be recovered in future years. I hope that that is crystal clear to him.
The hon. Gentleman will also know that information has been provided to the Select Committee on Public Accounts on the costs of the increase in disregard from £2,500 to £25,000.
Mr. Francois: First, on appeals, it is true that after appealing to the tax credit office, people can appeal to the adjudicator, but the adjudicator has ruled that if Members of Parliament have referred cases back tothe Department by writing to the Paymaster General, the adjudicator will no longer rule on those cases. So the system is not as independent as the Chief Secretary makes out. In those cases, people’s last resort is the parliamentary ombudsman, but that is a bit worrying because the Government have shown that they will just ignore the ombudsman when they do not like a decision.
Secondly, on the figures, there are two bases for calculating the cost: the one that the Chief Secretary has given and what is called the entitlement method. If he does not believe me, he can speak to the acting chairman of HMRC, because he had a dialogue with the Public Accounts Committee about that, which knows one or two things about these matters. I would like to know what the cost is under the entitlement method. The Chief Secretary knows exactly what I am talking about, so why is he so reluctant to tell the House of Commons what the number is?
Mr. Timms: The hon. Gentleman kindly tells me that I know exactly what he is talking about. If he puts his inquiry in writing, I will do what I can to provide the numbers that he seeks. However, the information about the costs of the package has been put in the public domain. They are correct and I stand by them.
Danny Alexander: The Chief Secretary blithely swept away many of the complaints about overpayments being recovered on the ground that the HMRC is making fewer mistakes and that there are therefore fewer overpayments to recover. In my experience, the category of mistakes for which the HMRC is willing to accept responsibility has also narrowed. It seems to take the view that even if it has made a mistake—perhaps in failing to listen properly to what someone says on the telephone, or with transcription—and it then writes to the claimant and the mistake is contained in the letter, if the claimant does not immediately call back, that is enough to allow their appeal to be turned down.
Mr. Timms: I make no bones about the fact that some people have faced serious difficulties because of the way in which the system has worked in the past few years. I make the point again: that is precisely why the changes we are considering are so important. We want to ensure that people do not have an overpayment problem in the first place. The hon. Gentleman earlier made the point, rightly, that people need to understand what is required. A lot of effort is being made to ensure that they do understand, and evidence shows that that effort has been effective. However, if people notify HMRC promptly about changes in their circumstances, the overpayment problems will not occur in the first place.
The hon. Member for Rayleigh said that even after these proposals, the scale of the problem will be reduced by only a third. It has already been reduced by a fifth; we expect the package to reduce it by a further third and we will continue to improve the systems and the responsiveness of HMRC to minimise the problems so that these incidents do not arise in the first place.
Question put and agreed to.
That the Committee has considered the Tax Credits (Claims and Notifications) (Amendment) Regulations 2006 (S.I., 2006, No. 2689).
Committee rose at twenty-six minutes past Three o’clock.
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Prepared 15 December 2006