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Mr. Michael Wills (North Swindon) (Lab): The system has benefited thousands of my constituents, and I pay tribute to my right hon. Friend the Paymaster General for all her hard work in refining the system so that it works better. However, most of the problems that come through my office are to do with repayments, to which my hon. Friend just referred. The origin of most of them is a dispute over whether the tax credit office was informed about changes in the claimant’s circumstances. Generally, my constituents say that they have informed the tax credit office on the telephone, as the office informed them that they should, but that there is no record of the telephone conversation.

Does my hon. Friend agree that one way of dealing with those disputes, which are terribly depressing for everybody involved, debilitating and wasteful of public money, would simply be for the tax credit office staff who take those phone calls to supply a reference number?

Mr. David Marshall (in the Chair): I remind hon. Members that interventions should be brief.

Mr. Mudie: Perhaps you should remind me that main speeches should be brief as well, Mr. Marshall. You have been very gentle with me.

I was going to mention telephone calls, but it is clear from the evidence that calls are recorded and kept. At a seminar that took place in the past couple of weeks, the HMRC officer present was pressed on the issue. She said that she would not be happy if requests for recordings were widespread, because it takes a long time to find and prepare them. However, I put on the record for the public that they can ask for a CD of their conversations. They are useful and allow people to cut out a great deal of argument.

We must first consider the system, because when overpayments are drawn to the customer’s attention, recovery begins immediately, and the Treasury Committee unanimously believes that that is wrong. Money is taken from the person’s award straight away, and if they complain, recovery is put on hold until HMRC decides that it is right, at which point recovery restarts. We have asked that the pause—the famous pause—provides the customer with sufficient time to think about the information that HMRC has passed to them, seek advice and help and enter into dialogue with the department before recovery starts.

The Paymaster General is a very nice Minister, and she is on record as saying that the Government will “try.” I had some fun with her about that yesterday, because there is no such word in political life as “try.” It is like a football match: the players either do or do not, but do not tell me that they “try.” Anyway, she is trying, and she thinks that our request is desirable, and that in principle, a pause is okay. We all hate verbatim reports, and Members can understand why I do, but in yesterday’s verbatim report, the Paymaster General said that she did not have a specific IT release—I do not know what that means—in which she would be able to say that she wanted the pause to go in. She also said that she was still asking her Department to consider the idea and its consequences.

The Paymaster General should get Gerald Kaufman’s book. I am sure that she has read it. I am not sure about using his first name—

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Mr. David Marshall (in the Chair): indicated dissent.

Mr. Mudie: I shall refer to him as my right hon. Friend the Member for Manchester, Gorton (Sir Gerald Kaufman). I am sure that he is learned and everything else, but he certainly wrote a good book. He would not ask a department to consider the problem; he would tell the department, “I’m under great pressure from my party, my colleagues and Opposition Members, because everybody wants a pause, so do not consider it, do it. If there are consequences, tell me, but those consequences must be grave, otherwise you should just go ahead and do it.” That is what I want the Paymaster General to do.

Mr. Mark Francois (Rayleigh) (Con): I apologise for interrupting the hon. Gentleman’s flow, because I am listening carefully to what he says, and he has made a good point about overpayments. When HMRC decides that somebody has been overpaid and recovery begins, people are often not notified straight away, and they often eventually receive a notice, saying that they have been overpaid x thousand pounds and must repay it, without receiving any breakdown of the way in which the overpayment was calculated. They find that process very distressing. Does he agree that when HMRC writes to people to allege an overpayment, it would be helpful if it provided a simple breakdown of the way in which the overpayment was alleged to have occurred?

Mr. Mudie: I am sure that the Paymaster General would say that HMRC already does so, but the hon. Gentleman makes an important point, and one that the action groups have made, too. I support—we all support—the recommendation of the hon. Member for Sevenoaks, whereby individuals should have recourse to appeal to an independent tribunal, but although they do not have such a recourse, they can still go to the adjudicator. The Paymaster General’s industrial relations background should come in handy, because when we were involved in trade union matters, and a dispute with management went through a set procedure, we always insisted on the status quo and that, until a final decision was taken on the matter, management should not act arbitrarily or unilaterally.

When an individual’s first indication of unhappiness is noted, recovery stops, and then HMRC says, “We are right,” and it restarts. The customer can take their appeal to the adjudicator, then to the ombudsman, and even—it is suggested—to judicial review. Although I do not know how many of my low-paid constituents would take the latter path, the pause should not end until the entire process has been exhausted, because the matter is still in dispute.

The hon. Gentleman said something in good faith, but I am not sure about it, because we get terribly mixed up with the appeal system. Yesterday, the Sub-Committee discussed whether the Department for Work and Pensions has an appeals system for overpayments. DWP overpayments are not recovered unless fraud has occurred, and the Library’s notes for the debate back me up. We have two different situations and two different legal positions, and although the latter might be the cause of the difference, there is a question mark over the interpretation of departmental policy.

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According to the Library, and according to other information supplied yesterday, which we have agreed to send to the Treasury’s solicitor, the DWP has not sought to recover official error overpayments—unless the hon. Gentleman was right and it is being pushed into replicating HMRC’s bad system. HMRC does not have the rider—this is its policy—that it will not recover an overpayment if it is a result of an official error and if the customer could know that the payment was made in error. The DWP does not have that rider. It will recover overpayments if there is any question of fraud, misrepresentation or missing information, but it does not seek to recover an official error, which is the policy that we are after.

Yesterday, we pressed the Paymaster General to consider bringing the right of appeal against tax credit overpayments and recovery into line with that at the DWP and operating it under social security legislation, rather than tax credit and tax law. We would like that to happen, because the question is not whether overpayments are made, but whether people have a right of appeal in principle.

Therefore, HMRC could decide tomorrow to follow the DWP in having a single basis for not recovering overpayments that result from official errors. The DWP has done that for years, and the auditor is happy with that. We are arguing, first, that that should happen and, secondly, that the tax credit law should be changed, because there is no right of appeal on overpayments—those are two subtly different points. There is a strong argument for changing overpayment law.

I am sorry about the time that I have taken, but let me just say that tax credits have worked. We can see the evidence in our constituencies, where families have got back to work and people have benefited. However, we can also see the trauma caused by overpayments in particular. It is as if we had built a great ship, but there was a tiny hole in the bottom that had sunk it.

Mr. Wills: I am sorry to interrupt my hon. Friend’s peroration, but is there not one very simple way to plug that hole—a telephone system that responded efficiently to claimants? All too often, my constituents are desperate because they have just received a court summons, but they cannot get through on the telephone. Would not an efficient telephone system be one way of plugging the hole to which he referred?

Mr. Mudie: I sympathise with my hon. Friend and I am all in favour of regional representation, better helplines, better telephone lines and all that. At the end of the day, however, there is the question of the public money that is paid over, the entitlement that people have and the effect of all this on families. If we are going to claw back tremendous amounts of money and push families deeper into poverty, the very least we should do is give them the opportunity to have an independent person decide whether the department is right or wrong, rather than letting the department take the decision.

The adjudicator was represented at the seminar that took place two weeks ago for Members’ staff. She said that it did not matter whether people came through the fast track that the department is pushing. She said that, as an adjudicator, she could not set the law or precedents, and that even if complaints flooded in to
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her in greater numbers and she took faster decisions, she would still have to balance them against code of practice 26 and the reasonability test, so that would not help things. What we really need is to change the law and the policy in a minor way, so that people are given the opportunity to have their case heard before an independent tribunal.

Having said all that, let me add that although I have raised two important points, they are dwarfed by the number of major points that could have been raised nine months ago. Again, I pay genuine tribute to the Paymaster General on the work that she has done in clearing the decks of so many difficult problems.

3.14 pm

Mr. Roger Gale (North Thanet) (Con): I am grateful to the Select Committee for having done a difficult job very well. I am delighted to see the Paymaster General in her seat—the correct seat—this afternoon. This time, she certainly does have responsibility for the matters before us, although by the time I have finished, she may wish that she did not. Much of the Treasury Committee report deals with the recovery of overpaid tax credits and what is risibly entitled “Improving HMRC’s service to claimants”, and I should like to concentrate on those two issues.

I am currently dealing with 28 cases involving claims for the repayment of tax credits. Although that is an improvement on the 46 cases with which I was dealing, there is still a long way to go. Of those 28 cases, seven are with the adjudicator and six, which have been rejected by the adjudicator—I shall return to that later—are with the ombudsman. Every one of those cases represents a demand for money from a family with children that is, by implication, on a low domestic income. In every case, that demand is for money that the family has spent and does not have, and it is causing misery. The hon. Member for Leeds, East (Mr. Mudie) referred to families struggling to keep themselves afloat, and that is exactly what these people are doing.

In almost all those cases—HMRC acknowledges this—my constituents have provided correct income details in a timely fashion. They therefore have a right to expect that HMRC has done its job properly and that the money that they received is theirs by right to dispose of as they see fit in the interests of their families. Instead, they are being penalised for the incompetence of a failing management and a failing system.

I do not want to hear any more tales from the Paymaster General or any other Treasury Minister about the enormous success of the tax credit system or the millions who are receiving help. The 28 cases that I mentioned, and more than 300,000 others like them, involve real people suffering real distress as a result of the failure of the chairman of the Revenue and Customs and the civil servants working under him to manage the system properly and deliver an efficient service.

Following a scathing report from the adjudicator, Dame Barbara Mills, the Prime Minister told me on the Floor of the House on 22 June 2005:

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A week later, on 29 June, the hon. Member for Yeovil (Mr. Laws), referring back to my question, pressed the case again. The Prime Minister told him:

Would that it were so.

The weasel words that HMRC now uses as a shield lie in the second half of the Prime Minister’s answer to me. He said:

Those words have been interpreted to mean that even where a claimant has provided full and correct information in a timely fashion, as most have, but HMRC fails properly to process and take account of that information and to make the necessary adjustments, the overpaid money resulting from that failure will be recovered, notwithstanding the Prime Minister’s very clear undertakings, which he gave on not one, but two occasions.

The device—that is precisely what it is—that is used to justify the unjustifiable is HMRC code of practice 26. COP 26 is not a law, but a code of practice, which was introduced without parliamentary consultation or approval. It was introduced by Revenue and Customs to regulate its own business and nobody need answer for it—not even, as I shall demonstrate, to the adjudicator or the ombudsman.

COP 26 was concocted by the Treasury in October 2003 and was first published in December 2003. It was May 2004—a full eight months later—before even a flyer was produced for civil service public information. The full implication of COP 26 has been realised only since the Prime Minister’s undertakings and the resulting welter of claims concerning Revenue errors that were upheld. That cost the Treasury a lot of money.

In her report “Tax Credits: Putting Things Right”, the parliamentary ombudsman said:

which hon. Members may consider still more important—

The conclusion of a stinging catalogue of criticism was the ombudsman’s comment:

That is precisely what the hon. Member for Leeds, East was driving towards.

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However, it was not done. The Chancellor of the Exchequer—the only Prime Minister in history to have failed even before taking on the job—who was responsible for the introduction and administration of tax credits, has chosen to ignore the parliamentary ombudsman. There is no right of appeal to an independent tribunal, no statutory test and no compatibility with the social benefits system. I do not want to reduce the Paymaster General to tears, but she heard that from me a couple of weeks ago. Indeed, in giving evidence to the Select Committee the deputy chairman of Revenue and Customs, who is apparently in denial, asserted:

He has clearly not read section 12 of the Social Security Act 1998 which states:

We shall, no doubt, be told that claimants have a right of appeal to the adjudicator, to the ombudsman and ultimately to judicial review. The latter is, of course, for the families that we are discussing, simply not a realistic or practical proposition. The adjudicator and the ombudsman have, I regret to say, been disgracefully compromised to the point where their findings no longer bear relevance to reality.

Instead of revising its systems to reflect natural justice and the spirit of the undertakings given by the Prime Minister, Her Majesty’s Revenue and Customs has chosen to re-interpret its own creation, COP 26, to which the hon. Member for Leeds, East also referred. Its key words are:

A reasonable person might think that it was reasonable for a claimant who had provided the correct information at the correct time to believe that, given the battery of information technology and the veritable army of civil servants available to the Treasury, the calculations made by Revenue and Customs and, therefore, the payments based on those calculations, should be right. However, that is not the way that the Chancellor, the Paymaster General or the chairman of HMRC think. They have chosen to interpret COP 26 as saying, “We were wrong but you should have known we were wrong, so we are right and you are wrong and we demand our money back.” They have taken it as far as saying, in effect—I shall not bore you with it, Mr. Marshall, but I have a relevant case before me—“Our computer systems cannot handle your payment so we are going to make a manual payment; but our computer may make a duplicate payment, but we cannot tell you when that may happen, and if it does you will need to notice it and we will demand repayment.”

This is the world of Alice in Wonderland, and it would be amusing if it were not so tragic and if it had not compromised, hopelessly, the positions of the adjudicator, Barbara Mills, and the ombudsman, Ann Abraham. Correspondence from both of them, responding to challenges to HMRC decisions, now supinely reflects the HMRC position on COP 26. Dame Barbara says, for instance:

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and she usually continues to uphold the view of HMRC, which is:

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