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15 Mar 2007 : Column 153WH—continued

In other words, the adjudicator bases her adjudication on the rules set down, interpreted and enforced by the body that is the subject of the complaint. When a matter is referred to the ombudsman, that august person says:

That is in spite of the “Tax Credits: Putting Things Right” report, which indicated that that approach was unreasonable and that there should be an appeal to an independent tribunal. The ombudsman and adjudicator appear for some reason to have allowed themselves to become the creatures of a self-created Revenue and Customs system that is unjust and is failing some of the most disadvantaged people in the country.

I want the Treasury to take certain immediate actions. The Paymaster General and I have discussed the matter and she has treated me most courteously at our meetings, but as the hon. Member for Leeds, East said, the right hon. Member for Manchester, Gorton (Sir Gerald Kaufman) would have demanded action, not trying—or even very trying. The Treasury must instruct HMRC to write off all overpayments to date except those arising directly and obviously from fraud—from the submission of deliberately false information—or from unacceptably late submission of the information needed to make calculations. The Treasury must accept the original recommendation of the parliamentary ombudsman and replace the office of adjudicator with an independent tribunal system comparable to that used to adjudicate social security benefits. The Treasury must accept the spirit of the undertakings given by the First Lord of the Treasury, the Prime Minister, renounce its future dependence on COP 26 and take full responsibility for future errors leading to overpayment. Finally, the Treasury should acknowledge that its chosen system has failed and abandon it in favour of either a flat-rate payment or a payment based on historical and actual rather than theoretical income.

3.26 pm

Mr. Mark Todd (South Derbyshire) (Lab): I agree with a significant proportion of what the hon. Member for North Thanet (Mr. Gale) has said. I shall focus on two aspects of the matter: the human aspect and the technical and administrative aspects.

To start with the human side, we are dealing with a very well intentioned set of proposals. I share many of the views expressed by most hon. Members in this context: the intentions were good and the policy makes sense in broad terms. However, there was no reality check with regard to the likely customer base of the system.

I have found in the years of experience that we have had that commonplace events in modern life challenge the system and all too often cause it to fail. Relationship changes happen, and they can be frequent or confused, such as when someone is perhaps not quite out of one relationship but is moving into another one. We cannot
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be judgmental about that and we certainly cannot have a tax system that is judgmental about it, but it makes for considerable difficulty in communicating clearly a critical piece of information about household circumstances. There can be problems in defining the timeliness of the communication and making sure that it is conveyed accurately. The whole year picture must be considered, and I have had conversations with constituents who have said, “Do you really expect me to work out what this means in my whole year circumstances?” when they had a change of circumstances nine months into the year and needed to work out what it meant for the totality of the year, and whether it triggered the £2,500 disregard. The answer is yes, I do expect that, but one must be realistic. There are many people who would find it difficult to handle the process of accurately calendarising their circumstances when they changed during the year.

Job changes and changes in hours, such as a change from part-time to full-time work—things that happen in the real world—throw the system all too often, particularly when dealing with single women. Most of the cases that I come across tend to arise from relationship changes—they are common; changes in circumstances because of alterations in jobs, particularly changes in hours when someone goes from part-time to full-time; and people not communicating rapidly about a change of relationship because it was not yet fully established. All those things make it difficult for the system to work.

One particularly unpleasant case related to the abilities of the claimant. It involved a claimant with special needs whose family quite rightly wished him to be as independent as possible. He took the trouble to attend local Inland Revenue offices to seek guidance on the claim that he should submit; however, errors were made. He has been treated in exactly the same way as someone who has deliberately provided incorrect information. His family face the recovery of £13,000 because of errors that I regard as shared with local Revenue officials, who might have done their best to assist in a complicated case, but did so in error.

The hon. Member for North Thanet went over the reasonableness test thoroughly. To be quite honest, I probably get as many cases as he does. In one recent case, the Revenue readily conceded that it had made a mistake. It failed to respond to information that my constituent provided in a timely fashion. She rang up and reminded the Revenue, but it did not respond very quickly. Because the payment was made through an employer, the response to her change in circumstances was delayed, too, and a significant overpayment accumulated. She was not at fault, yet she now faces recovery of that sum, on the grounds that she should have spotted that the extra money was going into her account. She should have set that money aside and been ready to pay it back to the Revenue to compensate for its failings. Most people would say that that was not reasonable, that one would really expect a better performance from public officials and that she had done her best to communicate effectively with the Revenue to ensure that it had the correct information.

In another case, which is still unresolved and which directly mirrors a point that the hon. Gentleman raised, the Revenue made an error about four years ago, right at the start of the tax credits system. The
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case came up in a previous debate—indeed, my right hon. Friend the Paymaster General may even recall it, because she has heard me talk about it. The Revenue logged an employer on its system. The woman in question changed her employment before tax credits were even introduced, yet the record showed that she still worked at that place. Payments continued to be made through that employer for which she had never worked while tax credits were in place. She never received that money—I do not know where it went, and I am not even sure that the employer got it. However, the information has not been deleted and remains on the system, because there is still no software fix to remove erroneous historical data.

Periodically, that poor woman has to go through a recalculation, but when the results come back out of the system she is again confronted with the fact that an overpayment has been made. Her payments are adjusted to reflect that, but then there are manual payments and one has to tell her, “You’re going to get some manual payments, but beware. You may find that these manual payments will come back to haunt you, because you’ll start to get payments again through the computer system and you’ll be paid twice. So, be very careful.” I signed off a letter to her today saying exactly that. I must have written to her several times to say, “Yes, we’re sorting out a manual payment for you, but beware. You may live to regret it later, so be very careful”. Those difficulties of understanding people and understanding what seems fair are still present in a system whose overarching aims are entirely laudable.

I should like to comment on how the problems were dealt with at the start. Most, but not quite all, of the hon. Members present have been Members of Parliament since the inception of the system. At the start, the system was in utter chaos. The overpayments that were made during that period were dealt with under a regime that I would describe as desk clearing, which simply amounted to saying, “We won’t be able to perform our task if we have so many disputes in front of us. The easiest way to deal with these disputes is simply to concede them and move on.” In many ways that was an intelligent management judgment. One might wish that those circumstances had not arisen in the first place, but since they did, focusing on fixing for the future rather than desperately firefighting the past was probably wise.

However, that decision means that it is now open season for a legal challenge of comparison. Someone might say to the department, “You’re taking this set of rules”—COP 26, which we have discussed—“to deal with this particular overpayment, but previously under this regime you took a very different approach to very similar problems. Is that consistent, reasonable or fair?” I await a well resourced individual challenging the process at some stage, because that would an interesting case to have argued. The Committee tried to get a little more information about how those initial disputes were resolved. That information was thin in the extreme and rather confirmed what I have said, which is that a desperate desk-clearing job was undertaken.

I should like to discuss systems and how problems have arisen. As I said in my earlier intervention, I
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found our visit to Preston very informative—indeed, I was the one who suggested that we should go. However, several observations struck me. First, the people working there were decent people trying to do a job. That ought to be said straight away. It is easy to abuse people who have administered a system badly, but we met people who really were trying to do a decent job, but were confronted with a system that was designed to frustrate. They had abysmal management information. Getting a proper picture of the organisation’s customer base—who it was dealing with, what the common problems were, how they were being resolved, and so on—appeared constantly to require manual processes of counting, rather than saying straightforwardly, “We need this particular report about our system to tell us what’s going on.” As someone who managed a large organisation, I was stunned to find that the software on the system did not enable a suite of reports to be produced that would allow people to work out what was actually happening. I should say that designing the software was not done solely by a bunch of geeks employed by EDS; Her Majesty’s Revenue and Customs would have had a substantial role.

That problem was clear and it has a legacy. The hon. Member for Sevenoaks (Mr. Fallon), the Chairman of the Sub-Committee, spoke about compliance. Compliance is being dealt with through a risk-based approach, but to perform proper risk analysis, tools of analysis are needed. I would be fascinated to learn how appropriate targeting is done to identity the cases that require further scrutiny, given the management information that is available. I saw no evidence of a system that would have assisted exactly that targeting activity.

The second point that struck me on our visit was that the work force was organised in a way that the old management textbooks would have described as Taylorist. That means management simply identifying a particular function and saying, “First you do this, then you pass this paper to this person, who does something else. This bit of the computer screen you can see, but that bit’s too complicated, so someone else can deal with it”. In such a system the work force are treated as though they were ill-trained idiots who are just about able to do one or two simple tasks, but cannot deal with all of a customer’s problems. In the modern organisation, most people seek to avoid such systems. They certainly do not seek to design them, but that is what was done. The system was designed to parcel out functions and it prevented proper communication between those who were trying to solve a problem. We were struck by the number of little working groups that had to be set up. There was no way of seeing the whole thing. A particular case had to be referred to a particular group of people who could consider it specially, because that could not be done within the system. That is woeful.

Attempts have been made to remedy some of the problems, but it is startling that such a system was designed in the 21st century. It would have helped if there had been proper disclosure of the gateway process so that we understood the various tasks done by those auditing what was eventually delivered. I understand why that has not happened; there has, of course, been a dispute with EDS about the delivery of the systems. I would be surprised if it were in the interests of either party for there to be full disclosure of how the project
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was managed. That, however, leaves parliamentary scrutiny in a position of ignorance, guesswork, rumour and informal communication. I have had informal communication with EDS about its perception of some of the issues involved, and it has given me its own rather partial account of some of them.

My right hon. Friend the Paymaster General is a charming person to deal with, and she has also been extremely frank about some of the issues. It would be great if we had a transparent picture of what had happened and why. We may never have one because of the dispute; if so, our learning opportunity will have been shortened.

My hon. Friend the Member for Leeds, East (Mr. Mudie) referred to release discipline, and I shall give a commendation on that issue. The approach taken earlier in the process, when change requests appeared to be thrown almost at random at EDS to try to resolve the numerous problems identified at the start, is the route to further doom in software terms. If release processes are undisciplined, people fix one thing and then do another, instead of taking a total view of the system and deciding which parts are stable, which can sustain changes and which need further strengthening. To be honest, that is not the way to do it.

It is extraordinarily frustrating to people because change requests can sit for a long time and never feature in the priorities for future discipline. That is why during yesterday’s Sub-Committee sitting, I asked for a clear strategy for releases of new software into the system. It would be useful to know what disciplines are in place. I certainly commend the principle of having periodic releases rather than having them over random periods in an attempt to firefight.

I have said enough about those issues, to be honest. I would guess that 70 to 80 per cent. of those who claim in my constituency do so reasonably satisfactorily, without many hitches. It is frustrating to see wholly laudable objectives marred by entirely preventable errors and faults that affect a minority of cases.

Mr. Brooks Newmark (Braintree) (Con): Notwithstanding the hon. Gentleman’s laudable attempt to help the Minister along, may I ask him whether he agrees with the assessment of the hon. Member for Newcastle upon Tyne, Central (Jim Cousins), who said at yesterday’s Sub-Committee sitting, in the presence of all of us here, that

and that

Mr. Todd: My hon. Friend is much more a user of hyperbole than I. In parliamentary terms, I am at the boring end of the scale; I always have been and I accept it. I tend to consider issues in pragmatic and problem solving terms, so I do not entirely share those sentiments. The situation is recoverable.

Mr. Newmark: I want to be clear. The hon. Gentleman is saying, then, that it is satisfactory that three of five people who receive tax credits—97 per cent. of people who earn less than £10,000 receive
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them—are either being paid too much or too little. Is the hon. Gentleman saying that that is not unsatisfactory?

Mr. Todd: I know that I did not say that. I wish that we had the tools to do deeper analysis; a little bit of that would almost certainly show that a significant proportion of those who are underpaid and overpaid handle that circumstance perfectly competently and that it is part of their normal lives. For example, if someone gets a pay increase during the year, that is a laudable thing, their circumstances change and they cope with it. They deal with the underpayment or overpayment and anticipated it happening. We are talking about a smaller community of people, who genuinely cannot cope with that situation. I do not think that the problem is on the scale that the hon. Gentleman identifies and the one that my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) talked about in those terms yesterday.

Mr. Newmark: The HMRC says so.

Mr. Todd: Indeed it does, but as I said, it cites a figure that does not identify the harm that that figure causes.

The Paymaster General (Dawn Primarolo): May I help my hon. Friend? The Department then publishes data by income range and by how much the overpayment is. The point being advanced is that we could drill down deeper into those statistics. Actually, the general proposition is incorrect and it shows a different picture entirely.

Mr. Todd: Indeed; it is fair to say that my speech has not been uncritical of the Government, but I am discussing a smaller group of people. If the problem were on the scale that the hon. Member for Braintree (Mr. Newmark) has talked about, all our constituency surgeries, e-mail systems and correspondence would be clogged on the subject. I agree that they are burdened, but on the basis of the rule of thumb of how often people are in touch with me, I honestly do not think that he has given an accurate reflection of the harm.

My right hon. Friend—and she is my friend; we have talked about this subject many times—the Paymaster General can offer further hope of further improvements to the system. My hon. Friend the Member for Leeds, East correctly said that there had been improvements; I have noticed that from my case load, and the hon. Member for North Thanet made the same point. Even from his perspective, the number of calls for his assistance has declined. There has been progress, but more is required.

3.48 pm

Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to serve under your chairmanship, Mr. Marshall.

Like a number of my colleagues on the Treasury Committee, I should like to return to one or two issues that that we discussed as we took evidence in yesterday’s Sub-Committee, in which the Paymaster General answered our questions.

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I raised issues that relate to the package of measures announced in the 2005 pre-Budget report and asked questions about the disregard, which was increased from £2,500 to £25,000. We discussed the various estimates of the cost of that. Essentially, there are two types of cost: the Exchequer effect, estimated at £850 million over five years by the Treasury, and the somewhat higher effect on entitlement described by the National Audit Office as the full effect of the changes, but over a longer period. The Treasury figure is £500 million per year and that is supported by the National Audit Office, which talks of a range of between £400 million and £600 million. There is no disagreement there.

However, the Treasury Committee has received evidence from Mr. Roger Cockfield, who gave a rather tentative estimate of the cost. His estimate is somewhat higher, at three times more than £500 million.

Dawn Primarolo: I want to make it clear to the hon. Gentleman, in case he is not aware, that the evidence submitted in writing to the Committee is not forwarded to me. He is referring to stuff that I have not seen and therefore cannot comment on. The only two submissions that I saw, in cases when the organisations sent them to us, were from the Public and Commercial Services Union and the National Audit Office. All other submissions are ones that I have not seen. I am sure that the hon. Gentleman will send it to me, so that he can have a proper answer to his question.

Mr. Gauke: The Paymaster General has jumped in. She will find that at this stage of my speech, at least, I will be entirely reasonable. Not only was I not in a position to judge whether that figure was correct, but I have been careful to state that the National Audit Office has supported the Treasury’s position. None the less, we have received that evidence, and I was going to ask the Paymaster General whether I may write to her so that she can respond in due course. I have no doubt that she will disagree with the assessment, but it would be helpful for all members of the Committee to have that on record so that we understand precisely how those figures are reached.

Dawn Primarolo: Just to ensure that we have the etiquette right, I would write in response to that letter to the hon. Member for Sevenoaks (Mr. Fallon) and it would then be circulated to the members of the Committee.

Mr. Gauke: I am grateful to the Paymaster General for her assistance in etiquette.

Let me move on to another issue that arose yesterday, again in relation to the measures for the 2005 pre-Budget report. Last year’s PBR estimated that the cost of tax credits would fall ever so slightly. I asked the Paymaster General why. We have heard from my hon. Friend the Member for Sevenoaks that there is a perception, which I think is widespread, that there will be a fall in the cost of tax credits because, on appeal, the HMRC appears to be taking a tougher line. The Paymaster General’s explanation yesterday was somewhat different, and she referred to the

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