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Session 2006 - 07
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Public Bill Committee Debates

Draft Tax Credits Up-rating Regulations 2007

The Committee consisted of the following Members:

Chairman: Sir Nicholas Winterton
Allen, Mr. Graham (Nottingham, North) (Lab)
Banks, Gordon (Ochil and South Perthshire) (Lab)
Boswell, Mr. Tim (Daventry) (Con)
Challen, Colin (Morley and Rothwell) (Lab)
Clappison, Mr. James (Hertsmere) (Con)
Evennett, Mr. David (Bexleyheath and Crayford) (Con)
Fisher, Mark (Stoke-on-Trent, Central) (Lab)
Francois, Mr. Mark (Rayleigh) (Con)
Gauke, Mr. David (South-West Hertfordshire) (Con)
Goldsworthy, Julia (Falmouth and Camborne) (LD)
Goodman, Helen (Bishop Auckland) (Lab)
Jones, Mr. Kevan (North Durham) (Lab)
Laws, Mr. David (Yeovil) (LD)
McCabe, Steve (Birmingham, Hall Green) (Lab)
Primarolo, Dawn (Paymaster General)
Reed, Mr. Andy (Loughborough) (Lab/Co-op)
Simpson, Alan (Nottingham, South) (Lab)
David Weir, Committee Clerk
† attended the Committee

Sixth Delegated Legislation Committee

Thursday 8 March 2007

[Sir Nicholas Winterton in the Chair]

Draft Tax Credits Up-rating Regulations 2007

8.55 am
The Chairman: May I welcome hon. Members to the Committee on this so far bright morning after an exciting evening? I am rather tickled that so many hon. Members have found it possible to be here on time at five to 9 this morning.
I call the Paymaster General, a very long-serving member of the Government, to move the motion.
8.56 am
The Paymaster General (Dawn Primarolo): I beg to move,
That the Committee has considered the draft Tax Credits Up-rating Regulations 2007.
Good morning, Sir Nicholas. It is a pleasure to see you in the Chair and to be in Committee. I am sure that many of us were refreshed this morning by a brisk walk to the House in the sunshine. We are wide eyed and bushy tailed, and ready to discuss the regulations.
In my view, the regulations are compatible with the European convention on human rights.
Tax credits, with child benefit, deliver financial support to the vast majority of families with children in the United Kingdom, and they are vital to our commitment to tackle child poverty. Tax credits also play a major role in ensuring that work pays and in helping people to move up the employment ladder. Overall, nearly 6 million families with nearly 10 million children are benefiting from tax credits.
The regulations increase the child element of child tax credit by £80, in line with earnings, to £1,845 a year from 6 April 2007. This element has increased by £400 since its introduction in April 2003, benefiting some 6.8 million children. In addition, the regulations increase the disabled child element of child tax credit in line with inflation.
The elements of working tax credit will also increase in line with inflation. Working tax credit provides support to low-income working families, including people who do not have children. The tax credit system offers support to people as they move between jobs and their circumstances change. The Government built on the lessons from the first two years of tax credits and announced in the 2005 pre-Budget report a package of measures to improve the system. These measures will ensure that the system strikes the right balance.
Mr. James Clappison (Hertsmere) (Con): Will the right hon. Lady give way?
Dawn Primarolo: No; I am just concluding my speech. The debate will be interesting and I am sure that I will be able to respond to any points made by the hon. Gentleman.
These measures will ensure that we strike the right balance between providing a stable award and maintaining our ability to respond to changes.
The increases that the regulations bring into effect will deliver even more support next year. We remain committed to the Government’s long-term aim of eliminating child poverty within a generation, and halving it by 2010. Tax credits and child benefit remain a key part of that. Indeed, my right hon. Friend the Chancellor made a commitment in his Budget to increase the child element of the child tax credit at least in line with average earnings until the end of this Parliament.
I commend the regulations to the Committee.
8.59 am
Mr. Mark Francois (Rayleigh) (Con): May I reciprocate the welcome to you, Sir Nicholas, on this bright and sunny morning? After the rather dramatic events of last night, I can assure you that whatever happens to the regulations this morning, we will have fewer Divisions than then.
It is a pleasure, as ever, to be here opposite the Paymaster General. We have debated the tax credits system on quite a few occasions since I began shadowing her directly in 2005. Rather like we are in a scene from “Groundhog Day”, we find ourselves debating that subject yet again. In fact, in March last year, we debated a statutory instrument that was much the same as these regulations—such measures serve to update annually the payment of tax credits. The regulations will apply the new amounts for the financial year 2007-08. Indeed, as the explanatory memorandum that accompanies the instrument points out clearly, from 6 April 2007, the regulations increase various monetary elements and thresholds for the child and working tax credits, as set out in the pre-Budget report of 6 December 2006.
The explanatory note states that as part of the process of reviewing the rates of increase each year, the Treasury is required, under section 41 of the Tax Credits Act 2002, to:
“prepare a report of each review; including a statement of what each of the amounts would be if it had fully retained its value, and ... publish the report and lay a copy of it before each House of Parliament.”
I have looked through the so-called section 41 report, as it is known in the trade, which points out that the varied tax credits are recommended for increase at a variety of rates, from zero in some cases, through to a maximum of slightly more than 4.5 per cent.
The Paymaster General said that a number of increases were taking place in the new financial year in line with inflation, and those are laid out in the schedule. My first question is this: can she confirm whether, when she says “in line with inflation”, she means consumer price index inflation or retail price index inflation; or are the provisions based on some other figure, or an amalgam of the two? The Committee would like to know that.
Under the heading of “Impact”, the explanatory memorandum states:
“The estimated cost of the increases to rates and thresholds, which was included in the Budget 2006 forecast, is £990 million.”
Bearing in mind that increase, will the Paymaster General update the Committee on the total cost of the tax credits system for 2007-08? I ask that because table B16 in the pre-Budget report 2006, which is headed “Total Managed Expenditure 2005-06 to 2007-08”, has the estimated cost of tax credits falling from £16 billion in 2006-07 to £15.8 billion in 2007-08. How can that be the case if the additional cost of uprating the tax credits payments next year is nearly £1 billion? Unless the Treasury is making heroic assumptions about the recovery of overpayments, there appears at first glance to be a discrepancy in the global numbers. I am sure that there is an explanation for that, but I wonder whether the Paymaster General would assist the Committee by pointing out how that apparent dichotomy arises.
Let us move on to the issue of overpayments, which will be affected by what we shall probably do this morning. It is a key issue that will still pertain when the new increases come into effect in 2007-08 because if people are overpaid at the new rates, they will still be compelled to pay that money back. Some 2 million families have been pursued for overpayments, including in circumstances in which a couple has split up and Her Majesty’s Revenue and Customs has pursued one member of the couple. It usually pursues the woman—although not in all cases—even though it is usually the man who has effectively disappeared from the scene. The explanatory memorandum points out:
“A Regulatory Impact Assessment has not been prepared for this instrument as it has no impact on business, charities or voluntary bodies.”
However, the regulations will certainly have an impact on those families pursued by Her Majesty’s Revenue and Customs for overpayments, many of whom will have been put through considerable difficulty as a result of the extremely complicated system that the Chancellor has devised.
The Paymaster General will recall that when we debated the equivalent instrument last year—we were probably in the same Committee Room—the main feature of the debate on that day was the increase in the so-called income disregard by a factor of 10—from £2,500 a year to £25,000 a year.
Dawn Primarolo indicated assent.
Mr. Francois: I see that the Paymaster General is nodding; she obviously recalls that. That measure, which was part of the so-called PBR package from 2005 to which the Paymaster General referred in her opening remarks, was designed to reduce overpayments, although, as the Treasury admits, it might do so only by about a third. At the time, she argued that it was not possible to disaggregate the individual cost of the increase in the disregard from the other elements of the PBR package. However, after persistent questioning from us—and, to be fair, from the hon. Member for Yeovil, who is in the room—the Treasury conceded and admitted that the actual cost of that element of the package would be £850 million between 2006-07 and 2010-11, including a cost of £100 million for next year, 2007-08, which is the period that we are debating. Experience shows that persistence pays, especially on tax credits, and that if we press Ministers for long enough, we eventually get the information that we desire.
Mr. David Laws (Yeovil) (LD): About two years is the usual time.
Mr. Francois: The hon. Gentleman says that that takes about two years on average. As we will not be considering these regulations for two years, we will see how we get on.
In the past, the Paymaster General has been keen to stress that as part of the so-called PBR package, tax credit claimants will receive a clearer and more easily understandable statement that will lay out the precise amounts to which they are entitled.
Mr. Tim Boswell (Daventry) (Con): On the administrative aspects of tax credit, does not my hon. Friend agree that it is somewhat concerning that a constituent of mine can receive eight separate, discrete statements, all of which are dissonant with one another? The chances of knowing which is the correct one—or, indeed, of HMRC accepting its own version as the correct one—are rather low.
Mr. Francois: My hon. Friend makes a good point. Unfortunately, a constant feature of the tax credit system since its introduction has been that the computer often produces contradictory statements. When those statements arrive at a claimant’s address, they look official—they have a Crown crest—so people become anxious about what they mean and telephone the tax credit office to seek clarification. Further things go wrong at that stage, as I shall say in a minute. My hon. Friend is spot on. I am sure that constituents of other Committee members will have had similar unfortunate experiences.
We welcomed in principle the Government’s commitment to making the statements easier to understand—presumably, that will also apply to the new rates that will be laid out in the new statements from the beginning of the new financial year on 6 April. May I make a genuine plea to the Paymaster General about the clarity of such information? In practice, as my hon. Friend the Member for Daventry was beginning to say, the first time that many claimants realise that they have been overpaid is when they get a notification from HM Revenue and Customs informing them of that fact and demanding that they repay the amount. However, unlike the actual statement of what they are entitled to, the notification of overpayment simply gives them an amount that they have to pay back and does not usually include a detailed breakdown of how the overpayment has been arrived at.
The claimant is usually distressed by that piece of paper. He or she rings up the tax credit helpline and asks for an explanation of what has gone wrong. Owing to weaknesses in the IT system, the people who work at the helpline are often unable to assess the whole case in the round and in many cases can givethe claimant only partial information about how the overpayment has been arrived at. The claimant then usually appeals to the tax credit office, which at that stage usually provides a detailed breakdown of how, in its opinion, the claimant has been overpaid.
I suggest to the Paymaster General that, to avoid a great deal of time and trouble, HMRC could, as a matter of course, include an automatic breakdown of how the overpayment has been calculated when it writes to the claimant in the first place. Then the claimant could look directly at how the alleged overpayment has occurred, and perhaps in some cases they would accept that and not appeal. At least they would have the information there and then on which to base a rational decision about what to do next. In some cases, information is provided, but people generally do not get a detailed breakdown. That is a weakness in the system.
The fundamental weakness in the Chancellor’s tax credits system, which the regulations unfortunately fail to address, is that it is simply too complicated for its own good. The last year for which we have fully audited figures on tax credits is 2004-05. Some 6 million families were in receipt of tax credits in that year. Slightly more than 2 million of them were overpaid and slightly fewer than 1 million were underpaid. In other words, almost half of all payments in the system in that year were wrong.
As a result, the system has been criticised by a variety of organisations, such as Citizens Advice, the Public Accounts Committee and the parliamentary ombudsman. In addition, almost 100 Labour Members of Parliament have signed an early-day motion calling for reform of the system, particularly in the way overpayments are dealt with.
Dawn Primarolo: This is the second time that the hon. Gentleman has cited the early-day motion. If he were to examine it closely, he would see that it is in connection with housing benefit and a court case, and has no connection with tax credits. He might also see that a ministerial statement has explained why that particular case relating to housing benefit does not connect to tax credits—I would be happy to send him a copy.
Mr. Francois: I thank the Paymaster General for her generous offer, but she need not send me a copy, because I have one here. Early-day motion 545 is headed “Recoverability of overpaid tax credits”. There is not much mention of housing benefit there.
Dawn Primarolo: Will the hon. Gentleman give way?
Mr. Francois: Not for a moment. The Paymaster General offered to send me a copy, but I have one, so perhaps I should send her a copy, if she would like. The gist of the rather wordy early-day motion is that it calls for an independent appeal tribunal to adjudicate on alleged overpayments of tax credits. By my quick calculation, it is signed by 94 Labour Members. If she wants me to read out their names, I shall do so, but I suspect that you might not want that, Sir Nicholas.
The Chairman: Order. I would advise the hon. Gentleman not to read out that list.
Mr. Francois: I am indebted to you for your advice, and I shall comply with it, Sir Nicholas. I shall just send the Paymaster General a copy and save us some time.
Dawn Primarolo: I understand that these things are also about having a bit of fun. If the hon. Gentleman were to examine the ministerial statement of 24 January, he would see that the early-day motion is in connection with the European Court of Human Rights case on 14 November 2006 with regard to a dispute on entitlement to housing benefit. It is not relevant to tax credits because there is an appeals procedure in connection with a ruling of a person’s not being entitled to tax credits. That is different from the point being made by the hon. Gentleman. The point that I am making to him is that there is an appeals procedure in this regard.
Mr. Francois: The Paymaster General refers to the so-called independent appeals procedure. As she raises this, I should point out that the claimant has to appeal twice to the tax credits office.
Dawn Primarolo indicated dissent.
Mr. Francois: With respect, they do. I will send the Paymaster General a copy of a letter that I received from the adjudicator’s office a couple of days ago. I had referred a constituent’s case that had been turned down once by the tax credits office. The adjudicator’s office said that a claimant’s appeal needs to have been turned down at director level by the tax credits office before they can forward the case to the adjudicator’s office. It is rare for a constituent to have their appeal addressed at director level in the first instance, so, practically speaking, they have to go to the office twice. They then go to the adjudicator and subsequently to the parliamentary ombudsman. At the end of that exhaustive process of appeal, fewer than one in 20 of the claimants are let off the amount of money involved.
I am perfectly familiar with how the appeals process works, because many of my constituents have had the misery of going through it. I am delighted to pursue the matter all morning if the right hon. Lady wants to, but I suspect that she wants us to move on. I should be very pleased to stay here all morning.
Mr. Boswell: rose—
Dawn Primarolo: rose—
Mr. Francois: I shall give way to my hon. Friend the Member for Daventry, and then to the Paymaster General.
Mr. Boswell: As a relative amateur in such matters, I am extremely interested in the exchanges. If the Paymaster General thinks that the explanation of the difficulties of our constituents is sufficient and plausible, would not it be helpful if she undertook to the Committee to write to the 94 Labour signatories of the early-day motion to explain her account of events in order to determine whether they considered it plausible?
The Chairman: Order. Before the hon. Gentleman who leads for Her Majesty’s Opposition replies to that intervention, I must confess that I have used my discretion so far, and the matter under discussion is not entirely relevant to the statutory instrument that we are considering, which is really more about amounts than the appeals system that has been the subject of most of the hon. Gentleman’s speech so far. May I suggest that we deal with the matter under discussion? I shall continue to use my discretion, but only for a few more seconds, then we should return to the regulations.
Mr. Francois: Thank you, Sir Nicholas.
Dawn Primarolo: Will the hon. Gentleman give way?
Mr. Francois: Having heard the Chairman’s guidance, I must, in fairness, reply to my hon. Friend the Member for Daventry. Then, and again with the Chairman’s discretion, I should be delighted to take a further intervention from the Paymaster General.
I must tell my hon. Friend that I am not responsible for the correspondence arrangements of the Paymaster General, but I suspect that, one way or another, she may wish to take the matter up with her 94 colleagues, and, one way or another, tell all 94 that they are wrong and that she is right.
Dawn Primarolo: I am very grateful for your patience, Sir Nicholas, and for that of the hon. Member for Rayleigh. There are two separate points under discussion. The hon. Gentleman has put them both together, but they do not go together. The appeal process to which the European Court of Human Rights ruling refers, and on which the early-day motion is based, is about entitlement—receiving the tax credit in the first place. There is a right of appeal.
The hon. Gentleman is talking about circumstances in which there is a disputed overpayment, and about how the appeal procedure should deal with it. I am happy to discuss that with him, but when he quotes the early-day motion, he quotes the wrong thing. He is talking about disputed overpayments; the regulations are about entitlement—whether an individual is entitled to have the tax credit awarded to them in the first place.
Mr. Francois: I shall have one last bite at that cherry, and then I shall move on. The last few words of early-day motion 545, headed “Recoverability of Overpaid Tax Credits”, say that this House
“calls upon the Government to legislate without delay for a right of appeal to the Independent Appeal Tribunal on whether any such overpayment is recoverable by HM Revenue and Customs, in compliance with Article 6 of the European Convention on Human Rights.”
That sounds to me like it has something to do with the overpayment of tax credits, but of course, I shall gladly send a copy of it to the Paymaster General.
It is not only me, my hon. Friends, Citizens Advice, the Public Accounts Committee and the parliamentary ombudsman who have been critical about the amounts and how they fit into the overall system. The former Minister for Welfare Reform, the right hon. Member for Birkenhead (Mr. Field), recently criticised the system. On 24 February, he said in The Spectator, that well known left-wing journal, that the Government had run their course on tax credits, and he called for a “mega re-think” of the issue.
Her Majesty’s Opposition have similarly concluded that the tax credit system desperately needs to be reformed, for all the reasons that we have discussed this morning. In paying increased amounts to people, we need to devise a simpler tax credit system that continues to deliver help to those families who need it, but without driving them to distraction in the process. I have stated it on the record several times, but I shall restate it again now for the avoidance of doubt: the Opposition are not planning to abolish tax credits. Rather, we seek to reform the system so that it will operate more efficiently in future. We look forward to unveiling the details of that process in due course.
9.20 am
Mr. Laws: I, too, welcome you to the Chair, Sir Nicholas. You said at the beginning of our debate that there was a danger, for a while, that our proceedings would be overshadowed by yesterday’s votes on House of Lords reform, but I think that we are already seeing this debate, which could have been rather quiet, emerging from the shadows. The debate is important because it affects in a very real way the income of 6 million households throughout the United Kingdom, whereas the votes on House of Lords reform will probably not make a great difference to the majority of our constituents for some time to come.
The uprating of the child element of tax credits is extremely important in relation to the Government’s policies on child poverty. We expect a number of important pieces of information from the Government on that subject soon, together with announcements about their future strategy. I should be grateful if the Paymaster General could confirm in her response the anticipated dates of publication of the next sets of figures on both the child poverty target and tax credits, including the figures for overpayment for the latest year.
There has been some Government confusion about when an announcement will be made on the future uprating strategy for the child tax credit and other tax credit elements. We know that a Government spending review is expected later this year. The original assumption was that that would take place in July, but there has now been a suggestion—from the Chief Secretary, I think—that it might drift on to the autumn. The groups outside this place that take a strong interest in tax credits want to lobby and make representations as part of the spending review, and they know that the review will be much tighter than last time and that reducing child poverty will have to compete with other priorities. They all want to know when the announcements on future uprating policy will be made and when the spending review is likely to reach a conclusion. They will also be interested to know whether there will be future announcements about the uprating policy in the Budget, although I suspect that I will not succeed at this stage in drawing the contents of the Budget statement out of the Paymaster General.
There is a temptation to think that uprating some elements of tax credit by earnings will automatically mean that the situation for children will keep pace with earnings growth in the wider economy and that relative poverty will not increase. However, most families in which children live are dependent on not only child tax credit, but all the other benefits in the system. If those benefits are not uprated in similar manner to the child component of tax credits, there is a risk that relative poverty will continue to rise. Will the Paymaster General therefore explain why neither the family element, nor the baby addition to it, have been indexed at all since 2003-04? Not only have they not kept up with earnings, they have not even kept up with prices.
There are other areas in which there has been no uprating. The second income threshold for tax credits has not been uprated at all since 2003-04—again, it would be interesting to know why. The disabled and severely disabled children elements of child tax credit have been increased by prices rather than by earnings. It would be interesting to know what the thinking behind that is.
There is also an element of tax credits that deals with child care costs. There are maximum eligible costs of £175 for one child and £300 for two children. I notice that neither element is being uprated at all this year. One of the complaints that we often hear from our constituents is that child care is very expensive. The costs rise year by year and might rise faster than inflation, given that they depend on wage costs. Many of the people involved will be on low pay and some might have seen their wages increase by more than the rate of inflation in recent years, not least due to the increase in the minimum wage. It would be interesting to know not only why the Government have decided not to earnings-uprate or price-uprate such components as the second income threshold—there might be an understandable desire not to give such components a high priority—but why the child care components have not been uprated as well.
We have debated some of the administrative elements of the tax credits system. Although all of us want to remain firmly in order, Sir Nicholas, one consideration that we always have when we debate additional tax credit expenditure is whether the tax credits will reach their desired targets and have the desired effect on their target audience. All hon. Members know that there have been terrible administrative problems with tax credits ever since the existing system was established. Tragically, many of the people whom the tax credits system was designed to help have ended up, in their own words, in worse circumstances than if it had not existed. Many people have told me in my advice surgeries over the past couple of years that in the future they want nothing to do with the tax credits system at all, because they have ended up with £2,000, £3,000, £4,000, £5,000, or, sometimes, even £7,000 to £8,000 of debt. People on low incomes—ironically, those whom the tax credits system was designed to help—are precisely the people who need to manage their finances carefully and who find it incredibly difficult to get out of such debt.
On some occasions, I have found myself trying to persuade people who have had such bad experiences to stay in the tax credits system so that they will not give up a lot of money. It is very sad indeed that a Government who have spent so much on tax credits to try to create better incentives to work and to deal with child poverty have ended up in a situation in which hundreds of thousands of people—or perhaps even millions—are more critical of them than they would have been if the changes had never occurred. Those people see a system that is very customer unfriendly and that has, in many cases, put them into debt. That is not just my view; it was also the conclusion of the Treasury Committee report of November 2006, which made serious criticisms and said:
“we are not convinced that the Paymaster General and the Department fully realise the extent to which HMRC needs to re-focus its administrative structures for tax credits around the needs of claimants.”
It is a great frustration and concern of ours that the Government seem to be perpetually in denial about the problems of the tax credits system, instead of listening to the usually well-intentioned criticisms that have been made to try to get it right. After all, the parliamentary ombudsman produced an outstanding report almost two years ago that not only addressed the failings in the tax credits system, but proposed a series of sensible steps that could be taken even under the existing structure of the system and thus without the need to introduce the more radical reforms that have been suggested. That could have addressed a lot of concerns.
Mr. Francois: We have seen from the situation involving occupational pensions how much regardthe Government now pay to the parliamentary ombudsman, who was always intended to be there as an independent referee in the first place. Does the hon. Gentleman agree that as, by definition, many of the people who use tax credits have few, if any, savings—that is one of the reasons why they apply for them in the first place—when they receive a demand for a four-figure sum to be paid back, their circumstances often make it very difficult for them to comply?
Mr. Laws: The hon. Gentleman is exactly right, which is why the ombudsman suggested at the beginning of her report that consideration should be given to whether a system with such a degree of volatility was suited to the needs of individuals with very low incomes. My frustration, which the hon. Gentleman mentioned, is that many people end up with overpayments not because of incompetence or a desire to defraud the system, but because having supplied accurate information, they receive back an incomprehensible form that sometimes includes totally contradictory information about income levels and whether they are in work.
When the system goes wrong, people are often blamed for problems caused by the Inland Revenue for such reasons as because they were supposed to have spotted that something was wrong in paragraph 18 on page 3 of their award notice. I have met a huge number of people who have convinced me that they had no idea that there was a problem with their award, yet they still have to pay the money back. I am worried that, in many cases, not only is the Inland Revenue taking an unsympathetic view, but, I am sorry to say, the ombudsman—I have raised this with her—is taking an increasingly inflexible view of the rules.
I urge the Paymaster General and the Chancellor—I have not had much success so far—to understand and acknowledge the difficulties, to implement the reforms suggested by the ombudsman, and even to tell us how many reforms have been implemented. I have tabled questions about tax credits, as the right hon. Lady knows, but, sadly, it now seems to be the Treasury’s policy objective to answer as few questions as possible, even to the extent that it is impossible to discover from the Treasury how many of the ombudsman’s recommendations have been introduced.
On the lack of openness, it would be helpful if the Treasury, as a first step towards opening up tax credit scrutiny, tried to improve the system and, rather than being in a state of denial, agreed to publish the Social Security Advisory Committee’s reports on tax credit administration. Those reports are prepared on all aspects of our social security and welfare system and they are normally published, so they are open to scrutiny. The one time that the reports are not published is when they scrutinise HMRC benefits and tax credits. It is ludicrous, and an insult to Parliament and our scrutiny system, that the Treasury continues to deny access to those reports. That only prolongs the administrative pain of tax credits, irritates the people whom the system is designed to help, drives many people further into poverty, and results in the ludicrous situation in which the Government, who have spend £15 billion on the tax credits that they have made an enormous priority, are not getting any political benefit from the system. I do not know why I should worry on the Paymaster General’s behalf, but the people I talk to whom have discovered enormous overpayments will not vote for her party at the next election. Given the latest poll figures, I would have thought that that was a matter of concern to her.
I hope that, while remaining in order, Sir Nicholas, it was right to draw attention to not only uprating, but the serious administrative problems. I also hope that the Paymaster General will now tell us that, having reflected on the debate, she is inclined to do what she has sadly not done over the past few years to the satisfaction of anyone, including the Select Committee, and get to the bottom of the concerns.
The Chairman: I shall ask the Paymaster General to reply, unless any other hon. Member wishes to catch my eye. I have been generous in the use of my discretion during the debate, because I appreciate the political sensitivity and importance of all matters relating to tax credits. I am not often helpful to Ministers, but I am always fair to them. If the Paymaster General wishes to stray reasonably widely in her response, I shall give her the same discretion that I gave the Opposition spokesmen, the hon. Members for Rayleigh and for Yeovil. With pleasure, I call on the Paymaster General to respond to the debate.
9.35 am
Dawn Primarolo: I am grateful for your words, Sir Nicholas. I am not inclined to comment on the Liberal Democrats’ prospects at the next election. I do not think that that is a matter for consideration and am not particularly interested. Naturally, I am interested in the Government’s position. However, the issue is much wider than the regulations.
I say to all hon. Gentlemen who have spoken this morning that I do not dispute one of the points on which they persist: serious issues have arisen for some claimants as a result of what I, as the Minister, freely admit were problems that occurred at the beginning of the tax credits system. However, the hon. Gentlemen seek to eradicate a fact about tax credits, even in respect of their own constituencies. The hon. Member for Yeovil mentioned the total number of claims made and received. Even what he considers to be a vast case load is tiny in comparison with the tens of thousands of children—11,700 in his constituency, I think—who benefit from tax credits.
Before I come back to the regulations, I should like to deal with and then put to one side certain assertions that are constantly made. The hon. Gentleman contradicted himself in his speech: he praised the ombudsman at the beginning and condemned her at the end. Perhaps his attitude is that if she does not do what he wants, something must be wrong. Let us look at what the ombudsman herself has said about co-operation with HMRC. On 13 July 2006, in a press notice accompanying her annual report, she commented on the positive, constructive way in which HMRC had worked with her office on the issues of tax credits. In June 2005, HMRC responded to her report in Parliament with substantial changes to the administration of the system and agreed new ways of handling complaints.
Mr. Laws: Will the Paymaster General give way?
Dawn Primarolo: I should like to finish my point. Nobody in this House could claim that tax credits are not thoroughly discussed in the Public Accounts Committee and that its recommendations are not taken note of. I might add that I am appearing before the Treasury Committee next week to discuss this very subject; I appear regularly before it. It makes recommendations, and there are administrative improvements in the system.
Mr. Laws: Will the Paymaster General give way?
Dawn Primarolo: No, I shall not give way at the moment. The hon. Gentleman also said that people do not want tax credits. That is extraordinary.
Mr. Laws: That is what they say to me.
Mr. Laws: If the Paymaster General is getting on so well with the ombudsman, why does she find it so difficult to respond to a parliamentary question that simply asks her to tell us how many of the ombudsman’s recommendations have so far been implemented? Can she now give us that figure?
Dawn Primarolo: I do not find it difficult to respond to the substantial number of parliamentary questions that I am asked, nor to make written submissions to the Treasury Committee. My officials do not find it difficult to make submissions to the Public Accounts Committee. Those points have been made in reporting back to the Treasury Committee. In his many, many questions, the hon. Gentleman seeks information about details that may not exist. He conflates that as meaning that he is being denied information. I shall be happy to send the hon. Gentleman the details of what has been said to the Treasury Committee and elsewhere about the progress on such matters—information to which he has been referred.
Let me turn to some of the specific questions. The hon. Member for Rayleigh asked about the impact of the different figures on the total for tax credits. Of course, the situation is not always straightforward because those figures will depend on take-up and the combinations of elements that are claimed in any one year. He went on to answer his own question, particularly by trying to model the impact on some of the pre-Budget report changes. For instance, he pointed out the £25,000 disregard. The renewal period was shortened by a month last year; it will be shortened by a month again this year. That has an impact on overpayments. Other changes are in the system. It is not straightforward to try to forecast the likely expenditure on tax credits. The final expenditure is given to the House. As I mentioned, the Treasury provides a great deal of information to the National Audit Office and the PAC about tax credits. Further information will be provided as necessary, particularly in writing, when those organisations request it.
I turn to the hon. Gentleman’s point about the clarity of the award notice. Of course, that was one of the recommendations. A new version of the award notice, which reflects the comments from the voluntary and community sector, has been in use since April. It gives claimants a much clearer summary of their award, explaining how it has been calculated and what they will be paid.
The tax credits system works on the basis of rights and responsibilities. The claimant gives the information, it is played back to them and they are asked to check it. Like all hon. Members, I have had constituents in my surgeries who have been overpaid. In one case, the statement said, “Your income is nil,” when it clearly was not. However, there was not then a response to say, “Actually, my income is not nil; it is higher.” I find it a bit strange that Opposition Members baulk at the idea of claimants having information that they supplied played back to them and being asked, “This is the information that you gave us. Is it correct?”
Mr. Kevan Jones (North Durham) (Lab): Will the Paymaster General give way?
Mr. Laws rose—
Dawn Primarolo: I shall finish my point before I give way. If claimants receive an award notice telling them that x amount of tax credits will be paid into their account, but they receive y, which is substantially larger, it is not unreasonable to expect them to notify us and say, “I don’t seem to be getting the right amount.”
There is another important point, to which the hon. Member for Rayleigh alluded. Claimants now receive a much shorter, two-page summary explaining the most important aspects of the awards and which of the information on the award notice they must check. In 2007-08—this is one of the recommendations that is being taken forward—claimants will be given a more detailed history, or a playback. The Treasury Committee, in particular, has been keen to introduce such arrangements, which would allow claimants automatically to see the history of their claim.
Mr. Jones: Will the Paymaster General give way?
Dawn Primarolo: I shall give way, but I just want to finish this point. I shall not forget my hon. Friend and I shall come to him first.
I am trying to ensure that the response that I have outlined is the one that is given when people dispute an overpayment or query their payments in the interim. Obviously, it will be much better when all claimants receive the playback.
Mr. Jones: I am listening carefully to the Paymaster General, but let me tell her about my experience in a number of cases. People have actually queried whether they were entitled to a payment, but the Department has insisted that they take the money and subsequently served them with a notice of overpayment. The other thing that my right hon. Friend and the Department need to recognise is that it is all very well saying that people can examine the payment form, but some claimants have very poor literacy and numeracy skills and cannot deal with the complex information that is sent out.
Dawn Primarolo: On both counts, there are remedies. One such remedy—I am glad that I required the Department to introduce this when the tax credits were set up—is the recording of all telephone calls to the contact centres. Where claimants have said that they have notified HMRC, that can be checked.
I agree with my hon. Friend on his other point. Where the claimant has been given incorrect information—my hon. Friend said that one of his constituents challenged the payment and was told that it was correct—the error is on HMRC’s side.
Mr. Laws: Will the Paymaster General give way?
Dawn Primarolo: No. It would be really good if I could answer one question at a time. I shall then come on to the other questions.
I say very gently to my hon. Friend that I have never stood in this House and said that the tax credits system was perfect. Where there are difficulties I have acknowledged them. What I will very robustly defend is a system that works for the majority and where the recommendations by the Treasury Committee, the ombudsman and others as well as my own statements with regard to improving the system are being taken on board.
Providing more assistance to those who need it—with filling in their tax rate forms, for instance, or understanding exactly what is being said to them—has taken longer than I would have liked. That is due to the length of the discussions that have taken place with various people. My officials and I have gone back repeatedly to the representational organisations who have made these points. We have asked ourselves how we get to that small proportion of people the very particular and more supportive service that would enable them to have a smoother transition through the tax credits system. A number of projects are being developed and we are working collaboratively with that sector to get the very best expertise to support that effort. This is not unique in the tax and benefits system. If people have trouble with their tax or a problem with their benefits it is important to ensure that we give them the very best service and advice that we can.
Mr. Francois: May I press the right hon. Lady on this specific question? There has been much talk about the so-called playback concept, allowing a claimant to have a much more accurate summary of the history of their claim. In principle we welcome that. With regard to the arrangements for the new financial year, when someone receives a notification that HMRC believes they have been overpaid, will the accompanying playback information be sufficiently detailed that a person without a degree in economics could reasonably work out exactly how that overpayment had occurred and then decide whether to appeal against the decision?
Dawn Primarolo: Claimants will be able to see from the playback information what was said to the Department, what the Department did with the information, how much tax credit was paid and when changes were notified.
Another recommendation that has been taken up concerns the role of contact centres. We should ensure that if a claimant telephones a centre to dispute a payment or a fact, or to report a change in their circumstances, their first point of contact is in a position to answer their questions and advise them. Regrettably that was not the case. It is, however, the case now. Where there are particularly complex issues, we also have case studies that are referred on to individual case workers.
Mr. Laws rose—
Mr. Jones rose—
Dawn Primarolo: I will give way first to the hon. Member for Yeovil, and then to my hon. Friend the Member for North Durham, who has been so helpful.
Mr. Laws: Does the Paymaster General understand that it is sometimes very difficult, as the hon. Member for North Durham said, for people with relatively low or even medium levels of financial literacy to check these forms? I recently had a case in which somebody had given the correct income data, and they were sent back a form that said not that their income was zero, but that their income for tax credit purposes—which means something very different to other people—was zero. However, the next page of the form said that the individual was considered to be in employment for35 hours a week, so the award notice itself was contradictory.
I put it to the Paymaster General that, for many of the people that tax credits are designed to help, if they have given the right information and they get that type of form back, they are not well placed at all to pick up on problems created by the Inland Revenue. Such payments should not be clawed back, but they are.
Dawn Primarolo: I acknowledge the difficulties that some claimants are experiencing with the forms. These forms have not been dreamed up by the Inland Revenue; they have been widely consulted on, and they came about as a result of the views of those in the sector. Of course, there is room for improvement; there is always room for improvement. It would not be sensible to be complacent, even if the system was working perfectly. However, I would say to the hon. Gentleman that the statistics speak for themselves: for instance, the number of children in relative poverty, and the number of children who have been lifted out of relative poverty. Alternatively, one could say that if we had not made changes to the tax credits system and the benefits system, child poverty would not have been reduced, as it has been under this Government. Rather, the number of children in relative poverty would have increased by 800,000.
Mr. Laws: The right hon. Lady is missing the point.
Dawn Primarolo: No, the hon. Gentleman is missing the point. The point is that he seeks to discredit and destroy confidence in the tax credits system, on the basis of issues that are recognised by the Government, who are pursuing strategies to deal with them, and on the basis of a small number—an important number, but none the less a small number—of individual constituency cases, from which he then extrapolates.
Of course, I follow closely the number of complaints that are made and the issues that Members of Parliament raise with regard to tax credits, and I know how many times they have written or phoned on the subject. I also know how many people are benefiting from tax credits in their constituencies. All I am pleading for is a little bit of proportionality in the debate.
Mr. Jones: I do not intend to discredit the system, as it has been of tremendous benefit to many people in my constituency. I must also pay credit to the Minister because, when complaints are sent to her, she handles them and takes a personal interest in them.
May I stress one point, however? On Saturday, a constituent came to my surgery with a case that shows the real hardship being caused by some of these problems. I wrote to the tax credit office about the lady in question last year, because she had received an overpayment. We had heard nothing since October about the case, until she received a letter last week and came to my surgery in tears because it was threatening her with court action to recover £1,300. She has stopped claiming tax credits for the last year, so I said to her that the Government might owe her money, rather than the other way round. In fact, she took out a loan of £600 before Christmas because she could not afford to replace her central heating boiler when it broke down.
All I would say to the Minister is that, when these mistakes happen, we need to ensure that they are dealt with sympathetically and speedily.
The Chairman: Order. Before the Paymaster General replies—I will allow her to reply to that intervention, which has nothing directly to do with the statutory instrument—I would like to suggest that, thereafter, the Committee and the Minister deal with those matters that are truly relevant to the statutory instrument. I appreciate that people want to get constituency matters and other things off their chest and that these Committees are good opportunities for doing so. That is why I have been generous in my use of discretion, but I could be faulted by those who examine the Committee’s proceedings if I were to allow the debate to range as widely as it has done thus far.
Dawn Primarolo: I am always happy to answer questions—despite what the hon. Member for Yeovil says—including those put by my hon. Friend the Member for North Durham. He makes an important point. As he knows, 8,300 families and 11,900 children in his constituency benefit from tax credits. Some of those cases involve difficulty and distress—I believe that he has 18 live cases with the Department.
Perhaps I could return to some of the issues connected with the regulations. I suppose the Conservatives and the Liberals should tell us whether they are going to vote against the uprating. It will be interesting to see whether they are going to deny people the extra money that the system will offer. They probably will not do so because, despite what they are saying, they recognise that tax credits are making a huge contribution to the Government’s objective of reducing child poverty.
The hon. Member for Yeovil asked when the statistics would be published. I refer him to the many written answers that I have given him on this subject. The statistics will be published in May and are part of national statistics. The Office for National Statistics will determine the exact date of publication and it will then tell all of us, including me. I will know the date at the same time as him. That is the position, as I have told him repeatedly.
I have covered issues of detail in this wide-ranging debate. I turn finally to the question of why the family element was not increased. I shall be perfectly candid and say that this must be a calculation about what is affordable. The calculation is made on the basis of examining the maximum impact of moneys paid in respect of contributing to the objective of raising children out of poverty. The Government have to make such decisions when they allocate funds, and have done so again.
The hon. Member for Yeovil might want to examine the figures that are produced nationally on the average cost of child care and compare them to the availability of child care tax credit payments. London is the exception in this regard because of a number of difficulties: take-up is lower there, and there are greater extremes of poverty and higher costs. Elsewhere in the country the average payments made for child care match the costs. Those figures are produced not by the Government but by a number of other organisations.
We can also see how enormously popular the child care payments are. They have increased each year. There are now approximately 350,000 or 360,000 families—I cannot remember the exact figure—receiving an average of, I think, £60 a week. That amount was considerably lower when the scheme was introduced, and under the previous system there was nothing. There is considerable progress, but it has to be balanced against the affordability of the resources.
Mr. Laws: I am grateful to the Paymaster General for addressing directly the points about those elements of the uprating statement. Will she comment on the latest figures for the take-up of the child care element of the measures? Given the administrative concerns that were expressed by the Treasury Committee, does she think that there might be changes to the way in which the child care element is delivered?
Dawn Primarolo: On the first point, those figures were published on the Inland Revenue website on1 March. I do not want to give the hon. Gentleman the wrong information. The take-up figure for the child care payment tax credit is in the same ballpark as the figure that I gave, but he will be able to find it on the website.
The question of how the child care tax credits are paid is a difficult one. I have looked at it at different points and I continue to consider it. In doing so, I have to balance several issues. I want to ensure a high take-up, but I have to balance that against the need for a proper system. There were many siren voices, of which I think the hon. Gentleman’s was one, saying that there would be problems with child care tax credit payments being widely abused, so quite a strict compliance regime is in place. That regime does not always provide for the flexibility that parents would like, particularly when the claim is only for the summer holiday, for instance.
I am mindful of what has been said and I am considering how to take forward some of the proposals, but I need to balance the issues. The final factor that I need to taken into account, bearing in mind all the things that have been said by hon. Gentlemen in this debate, is the ability of claimants, if I keep changing the system, to become familiar with the basic principles of how it operates. I need to ensure that they can correctly interpret the information that is given to them. There is considerable pressure. Hon. Members are rightly pressing me on other priorities, which are considered to be more important changes to the tax credits system.
The hon. Gentleman raised the issue of support for disabled children. Tax credits are a crucial element of that, but there are wider issues. He will have seen that a review of children and young people, with a specific focus on those who have a disability, is taking place within the comprehensive spending review.
I think that I have dealt with all the issues that have been raised. I do not intend to provide a final summary of all the achievements of tax credits.
The Chairman: Order. I have to say to the Paymaster General that that would be out of order.
Dawn Primarolo: In that case, it would be a good job if I did not give such a summary, Sir Nicholas.
I commend the regulations to the Committee. I hope that on this occasion, the Tories and the Liberals will agree to give people in poverty more money.
The Chairman: I am sure that the Committee is grateful to the Paymaster General for the humorous and sensitive way in which she has dealt with the debate.
Question put and agreed to.
That the Committee has considered the draft Tax Credits Up-rating Regulations 2007.
Committee rose at ten minutes past Ten o’clock.

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