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15 Mar 2007 : Column 159WH—continued
“shorter window for notifying change of circumstances and the other issues around that”.
I press the Paymaster General to outline the details of her calculation about the areas of saving, if not today, then in the fullness of time. We now have details about the additional cost of the disregard, but it would be helpful if the Committee had greater details about the savings that were made by the various reforms.
I return to the evidence that the Paymaster General has not seen which was provided by Mr. Cockfield. He raised a point about the risk of fraud, and that specifically that more people might wrongly claim to be lone parents, which would be accentuated by the change in the disregard. Essentially, his argument would be that if one is a lone parent and enters into a relationship, the improvement in financial position over the course of that year would be more likely to be disregarded under the reformed system. The incentive in the following year to announce that they were still a lone parent might be stronger.
There is historical evidence that many people claim to be lone parents when they are not. I refer to the press release issued by the Institute of Fiscal Studies in March 2006, which states:
“The Government thinks it is paying out tax credits or out-of-work benefits to around 200,000 more lone parents than the Office for National Statistics estimate live in the UK”.
“it is often financially worthwhile to pretend to be a lone parent”.
Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): The hon. Gentleman is entering an important part of the debate. Is he aware that in addition to the report to which he refers, the charity Christian Action Research and Education has published a report that examines the question of incentives in the tax credit system for living alone or as a couple? CARE argues strongly for clear disincentives in the tax credit system against people living as couples. Is not that a negative part of the system that needs to be considered?
Mr. Gauke: The hon. Gentleman makes an important point. A presentation to the Institute for Fiscal Studies made by Don Draper and Leonard Beighton in September 2005 made much the same point. That is quoted in Nicholas Boys Smith’s work on “Reforming welfare”, which was produced for the Reform think tank. The hon. Gentleman makes an important point about the tax credit system as a whole.
Let me return to the point about fraud, as it might be called, and the inaccurate figure for lone parents. One of the understandable arguments used by the Paymaster General is about the impressive take-up figures that often apply to tax credits, at least in respect of the amount claimed, if not to the numbers of claimants. If the take-up figure among lone parents is somewhat more than 100 per cent., that brings into question the veracity of those take-up figures.
Dawn Primarolo indicated dissent.
Mr. Gauke: But the evidence from the IFS would appear to bring into doubt at least some of the take-up figures, although there might be a technical explanation for that. If there is, I look forward to hearing it.
The take-up figures were used by the Paymaster General a week or so ago in the debate on the uprating of tax credit benefits. She used it to dismiss the argument of the hon. Member for Yeovil (Mr. Laws), who claimed that he regularly dealt with constituents who were tempted not to take part in the tax credit system because of the difficulties of overpayment. The Paymaster General was characteristically forthright and said that it was an extraordinary claim. The evidence that has been presented to the Treasury Committee suggests that the hon. Gentleman might be on to something. Citizens Advice gave evidence that states:
“We are seeing a steady stream of clients whose bad experiences of tax credit overpayment recovery are causing reluctance to continue with their claim. Others have heard about problems and do not want to claim at all.”
The Paymaster General might not recognise the problem, but it is recognised by that organisation and by other MPs.
Official error was an important part of the Committee’s report in June 2006. Given that the Committee is a cross-party body with a majority of Labour MPs, it was extremely critical of the evidence given by the Paymaster General and her officials. In paragraph 28, we stated:
“The factors cited by the Paymaster General and her officials as contributing to the problem of overpayments do not appear to us to give a comprehensive account of the reasons which overpayments have arisen...it is obvious to us that the Paymaster General’s account makes no reference to causes of overpayments which have arisen as a consequence of the Department’s own processes”.
“It is clear that official error has been a cause of overpayments in a significant number of cases”,
and in paragraph 35, we stated:
“The Paymaster General has said that no complete analysis exists of official error causing or contributing to overpayments. This is a significant gap in HMRC’s understanding of the reasons why overpayments arise. If HMRC is to succeed in improving the administration of the tax credits regime, the first thing it needs to understand is what is going wrong within its own processes, before it looks to problems elsewhere.”
What progress has been made since June 2006? We learned yesterday of a pilot scheme that reviewed a small sample of disputed payments. It is to be expanded for all disputed payments from April. The hon. Member for Newcastle upon Tyne, Central (Jim Cousins) made it clear in forceful terms, as I am sure the Paymaster General will recall, that that is still some way short of the procedures undertaken by the Department for Work and Pensions, which, as we heard from other hon. Members, produces an estimate of fraud, customer error and official error for every benefit based on all cases, not just those where a dispute has arisen. Pressed by the hon. Gentleman about whether such figures should be produced, the Paymaster General stated that
“there is no reason why we should not be able to do that and we will look at doing that.”
We have a sample, and it revealed a 5 per cent. official error rate in respect of overpayments. This seems to me a significant figure. If we look at the disputed overpayments that have been written off as well, and also that 5 per cent. figure, we see something
quite striking. The percentage of disputed overpayments for 2005-06 was 44 per cent. For the 2006-07 year to date, it has fallen substantially to just 3 per cent. When asked about that, an official replied that
“the cases we were dealing with in 2005-06 largely related to the very early days of the system...in the very early days of the system, regrettably, we were making a lot more mistakes and therefore a lot more of those disputes were justified”,
and therefore overpayments were written off. The official also said that
“our current accuracy rates are much better and the level of mistakes is a lot smaller.”
That would appear to be good news indeed, but the implication is significant. If the improvement in the size of amounts that are written off is because there has been a substantial reduction in official error, which was the evidence that we heard yesterday, and if the amount that is written off has gone from 44 per cent. to 3 per cent. and we now have a level of accuracy that is 5 per cent. of disputed payments, it begs the question as to what the level of inaccuracy was when the amount written off was up at 44 per cent. It almost suggests, if the problem was purely down to official error, that the level of official error for the cases that were examined in 2005-06 would be about 44 per cent., and possibly higher.
There may be other explanations. We could be talking about desk-clearing, as the hon. Member for South Derbyshire (Mr. Todd) said, but we are talking about 2005-06, not the dim and distant past. The explanation might be in the argument that my hon. Friend the Member for Sevenoaks made about a toughening up of the appeal process, but the officials said yesterday that it was a matter of improved accuracy rather than less official error. If that is the case, the historical levels of official error were very high, which brings us back to the criticisms that were made by the Treasury Committee in June 2006. They were not only justified but relatively mild and restrained.
“It is obvious to us that the Paymaster General’s account makes no reference to causes of overpayments which have arisen as a consequence of the Department’s own processes”.
It is outrageous that no reference was made to official error when the figure, at least as the evidence appeared yesterday, could be up by 40 to 50 per cent. When the Committee said that it was clear that official error had been a cause of overpayments in a significant number of cases, it was an understatement.
It is extraordinary that the Paymaster General said that
“no complete analysis exists of official error causing or contributing to overpayments”,
because if the level of official error was as high as I suggest, or as the evidence that we received yesterday seems to suggest, it beggars belief that there was no complete analysis of official error and the role that it played in overpayments.
At times, there have been allegations of secrecy when it comes to the tax credit issue. Sometimes it is difficult to get information on it. I know that complaints have been made about the fact that the Social Security Advisory Committee reports on tax credit administration are not published, and that parliamentary questions are not
always answered, but I do not think that that is the problem in this case. There is simply a failure to try to get to the bottom of the problem of official error. Only now is that being addressed, and I believe that it is because of the work of the Treasury Committee that that is being achieved. Because it has been such a large problem for such a long time, it appears that there has been a failure of leadership in Her Majesty’s Revenue and Customs and in the Department. It is right for us to highlight it, because it is an enormous problem that has caused enormous hardship to many of our constituents throughout the country.
Mr. David Marshall (in the Chair): Order. It may help if I intimate to Members that, following the speeches of the Front-Bench spokesmen, the Chairman of the Treasury Sub-Committee and initiator of this debate may have a few minutes, if he so wishes and with the leave of the House, to respond to the debate.
4.6 pm
Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): It is a pleasure to serve under your chairmanship, Mr. Marshall. It is the first time that I have served in Westminster Hall with you in the Chair.
I pay tribute to the hon. Member for Sevenoaks (Mr. Fallon) for the way in which he set out the powerful conclusions that the Select Committee put in its report, which it seems was published quite a while ago—it was ordered to be printed in May 2006. As has been said, a lot of water has flowed under the bridge since then, not least the figures for 2004-05, which I believe came out about a week after the report was published. We look forward later this year to the figures for 2005-06.
One of several strange points about tax credits is that it seems to take a long time to get annual information out. The hon. Member for South-West Hertfordshire (Mr. Gauke) made that point.
Dawn Primarolo: Given that the report includes information that cannot be assessed until the year is completed, and information about self-employed people that cannot be completed until the end of the self-assessment period, which has a different time period, will the hon. Gentleman explain exactly how we can get the information apart from using real data when they are available?
Danny Alexander: I am grateful for that intervention. [Interruption.] As the hon. Member for North Thanet (Mr. Gale) says, that is one of the flaws in the system. It is hard to keep track of what is going on because it takes such a long time to get information out.
Dawn Primarolo: Is the hon. Gentleman suggesting that we should have not a flexible system but a fixed one with a shorter time period?
Danny Alexander: I am suggesting that, and I shall come back to it.
It is important to say at the outset that the idea of a tax credit system that boosts incomes of low-income families, relieves child poverty and makes work worth while—makes it pay—is a good one. Liberal Democrats support such a system and wish to ensure that it works effectively. Indeed, it is precisely because of those important social objectives that the tax credit system seeks to serve that the problems with it generate such anger and frustration, some of which we have heard about today. Liberal Democrats share the frustration and irritation that a system that promises so much causes so many problems for a huge number of claimants.
We have heard examples from constituencies across the country. Those suffering from overpayments might or might not be in a minority. The Paymaster General has often pointed out that they are a minority, but the hon. Member for Sevenoaks pointed out that some 60 per cent. of claimants had, in his view, suffered overpayments or underpayments, in which case we are actually talking about a majority. The Paymaster General may wish to dispute that.
It is clear from having read the report—couched though it is in the most moderate of parliamentary language—that members of the Committee share the anger and frustration felt by those constituents adversely affected. The report makes it clear that, over the past year, progress in many areas has been inadequate. It states that
“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...around the needs of claimants.”
That is the real issue: the needs of claimants.
As we have heard, overpayments cause hardship, and the case research highlighted by the Committee shows how the incomes of low-income families are highly volatile. In a third of the cases that the research looked at, tax credit awards and the overpayments that followed made the incomes of those families more volatile. As the Committee said, those findings suggest that the tax credit scheme
“could be aligned more closely to the financial needs of such families”.
For families who budget weekly or monthly, the financial roller-coaster that overpayments cause undermines, in some cases, confidence in the system itself. The hon. Member for South-West Hertfordshire made that point as did my hon. Friend the Member for Yeovil (Mr. Laws).
I and many hon. Members will have tried to persuade constituents who are dissatisfied by how the system has treated them to stay in the system. Of course, people should stay in the system to receive the financial support to which they are entitled. However, we must be frank about the impact that such changes—the overpayments and fluctuations—have had on our constituents, particularly on the confidence that some people have in the system.
The report makes important criticisms of the system. It was published following the important report of the ombudsman, as made clear by the hon. Member for Sevenoaks. As far as we can establish, only four out of the 12 recommendations made by the ombudsman in the “Tax Credits: Putting Things Right” report have been accepted and implemented. Despite a number of
attempts, including written parliamentary questions, I have not had a clear answer from the Paymaster General on the following points: how many of those recommendations have been implemented and which ones are they; how many have been rejected and why; how many of those not implemented does she plan to implement; and when does she plan finally to bring the implementation of those important recommendations to fruition?
The most important of those recommendations have not been acted on. For example, it is recommended that when there is an alleged overpayment, the claimant is sent a letter clearly stating how the overpayment occurred. That would give time for a challenge to be made before the recovery of the overpayment. The letter should also clearly set out what right of appeal exists. At present, such letters are, at best, uninformative.
As has been made clear by a number of hon. Members, there should be a statutory test for the recovery of overpayments consistent with the social security benefits test. There should also be a right of appeal to an independent tribunal. Under the social security benefits test an overpayment must only be repaid if the claimant has misrepresented or failed to disclose a material fact. It is unreasonable to expect the claimant to be responsible, as the current system implies, for identifying errors on behalf of Her Majesty’s Revenue and Customs. The system assumes a higher level of knowledge about how the tax credit system operates than it is reasonable to expect most claimants to have. In that, I agree with the remarks of the hon. Member for North Thanet.
Mr. Gale: The situation is worse than that. Is it not a case of Revenue and Customs saying, “We can’t get it right, but despite that we expect you to get it right without the information that we have got”?
Danny Alexander: That is absolutely right and cuts to the point made in the report about the culture within the department. After all, an official error, computer error or transcription error made over the telephone only has consequences for the claimant and if they fail to spot it, they will eventually have to pay the money back. That seems a hard system indeed and one that has little sensitivity towards the needs of claimants or the ability of claimants to understand and peruse what, even with the minor improvement made to award notices, are complicated letters and systems to understand.
Mr. Francois: Does the hon. Gentleman agree that although some additional information has been provided on award notices—I emphasise the word “some”—a particular weakness is that when people receive a demand for overpayments, little information is given? Usually people are simply informed of the amount that they must pay back, which often causes panic and means that they get on the phone to the tax credits office and confusion is multiplied. Would it not help if people were given a clear breakdown of an overpayment and why it has occurred? They could then straight away work out whether or not to challenge it.
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