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.
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.
As
you rightly said, Sir Nicholas, we are specifically discussing the
uprating of particular tax credits, and the
Paymaster General indicated how the uprating of some elements will
occur. However, as the hon. Member for Rayleigh mentioned, the uprating
statement indicates that different components of tax credits will be
uprated in very different ways. It has been decided that the child
component will be uprated by earnings, but other components will be
uprated by the rate of inflation, while quite a number of elements will
not be uprated at all. I should be interested to hear the Paymaster
General’s explanation of that decision.
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.
Dawn
Primarolo:
Whatever might or might not have been said to
the hon. Gentleman, we have to consider the take-up figures for tax
credits. The most recent were published on 1 March 2007. They show that
take-up
rose across all sections from 79 to 82 per cent., with over 90 per cent.
of the available money being claimed. They show that take-up from those
on incomes of less than £10,000 is now at 97 per cent., up from
93 per cent. in the first year, and that take-up among lone parents is
now at 93 per cent., up from 91 per cent. Take-up of tax credits is
higher across the board, and particularly among the most vulnerable,
than in any previous system of income-related financial support.
Take-up in the early years of the family income supplement was 50 per
cent.; for family credit the figure was 57 per cent., and for working
families tax credit it was 62 per cent. The figures show that take-up
is increasing and that the majority of people in the tax credits system
are getting the money, the service and the support that they
desire.
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?
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.
We
had discussions—and have now advanced towards
implementation—through the consultative group on tax credits, a
very broad set of organisations, about the
best information to provide and how it should be laid out so that people
can see exactly what is being said. Picking up on points that have been
made, I think that we need to go further and recognise that, even so,
there will be some who will not fully understand the information in the
playback notice and who may want to dispute some of its
elements.
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.
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.
I am
asking for proportionality. No system in the world will work perfectly
and without issues arising.
Where there are extreme difficulties those issues are being addressed. I
entirely agree with my hon. Friend about the importance of getting
things right.
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.
Resolved,
That
the Committee has considered the draft Tax Credits Up-rating
Regulations
2007.
Committee
rose at ten minutes past Ten
o’clock.
