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15 Mar 2007 : Column 165WH—continued
Danny Alexander:
I agree. I made that point and attention was drawn to it in the report. It is important that people understand the reasons for an overpayment
and, as mentioned but not yet implemented, there should be a pause so that people have time to reflect on their situation and decide whether to challenge an overpayment. As it is, the process could be a long way down the road before people decide on a course of action. Given the experiences that people have had, it is somewhat surprising that they still have faith in the HMRC and believe that if they get a letter from Revenue and Customs, it is likely to be accurate. Although people’s experience may be somewhat to the contrary, they still believe that and therefore will not challenge the claim of overpayment unless repaying it causes them such hardship that they are forced to go to see their local MP, citizens advice bureau or other local advisory agencies. Such agencies would then perhaps provide more details and support them in appealing.
HMRC should reverse the burden of proof where the error has been caused by HMRC itself—a point also made by the ombudsman. The assumption should be that an overpayment is not recoverable unless it is reasonable to think that it would have been clearly obvious to the claimant. That is what claimants find most frustrating: that the burden of proof is on them. People may have phoned the tax credit helpline and given precisely the right information about changes in circumstances at the right time and in the right way, but even though they have done all the right things and the error was an official mistake, an IT system problem or some other cause that was clearly not the claimant’s fault, they are still asked to pay it back. I have had cases like that and I am sure that other hon. Members have too. To many of my constituents that seems utterly unfair.
What does such a situation mean for the culture of HMRC? Errors made in transcribing content or resulting from poorly operating IT systems have no consequences at all for the management or staff concerned. They only have consequences for the claimant. Clearly, improvements need to be made at an official level and I know that some have been made.
Let us consider the IT system. In the evidence given to the Sub-Committee yesterday, the director of benefits and tax credits at HMRC stated:
“The IT system is working well”,
“There are the problems with introducing the restricted recovery of overpayments”,
which are currently dealt with in “a semi-manual process”. She goes on to state that a fully automated system will be brought in by June. That analysis of the IT system is not consistent with my experience when dealing with constituency cases. I have had many cases resulting from technical problems. In one particular case from last May, I was told by HMRC that technical problems resulted in an apparent clerical error in connection with the declaration form. The original application was made online and was stopped, payments were stopped and an error resulted. After considerable chasing and seven months after my original letter to HMRC, I received a reply that closes with the following sentence, which puts into perspective some of the points made by hon. Members:
“in order to closely monitor your constituent’s claim, we will continue to monitor their claim and will let you know when the problem has been resolved”.
That does not suggest a system that is on top of the technical problems that have been described.
Hon. Members also spoke about staff training, a subject that was mentioned in the report. The point was rightly made that it is of benefit that recordings of phone conversations are now being made available to claimants. Despite the best efforts of HMRC staff in call centres and so on, it is obvious that many staff either do not understand the full system or, as was made clear in the report, are responsible only for a fairly narrow part of the system and have no reason to understand the rest of it. As a result, the advice offered or the questions asked do not always give the full picture or say what factors might affect a claimant’s circumstances.
For example, I listened to a call last night about a case in which I am involved. The question of whether a child had reached the age of 16 was in dispute, so the claim had automatically been stopped. Only after several minutes of discussion, and incomprehension on the part of my constituent, did it became clear that the child was still in full-time education, at which point the tone of the conversation changed entirely.
Helpline operators also need to track the progress of individual cases, a point also made in the report. The Government’s response said that that facility would be in place by October. Is that still on track, so that helpline operators will be able to keep track of cases in the system?
Local face-to-face contact is important, a point made by the hon. Member for Leeds, East (Mr. Mudie). It could be of benefit to claimants, particularly in the most complicated cases and the most difficult situations. I am concerned that the reductions in the number of HMRC staff will make matters worse. Representations have been made to me by people who work in the HMRC offices in Inverness. They are worried that plans to reduce the number of staff by nearly 50 per cent. will affect the quality of service available to people in the highland and islands.
Dawn Primarolo: I give the hon. Gentleman an absolute assurance: no HMRC inquiry centre—they are sometimes called contact centres—that is currently open will do anything else but stay open. If anyone suggests to him that a centre will close, they are giving him the wrong information. The face-to-face contact that exists now will continue, and not only on tax credits.
Danny Alexander: I am grateful for that reassurance. I shall certainly relay it to the staff I met, and follow it up, perhaps engaging in dialogue with the Minister or her Department on the subject.
Dawn Primarolo: The hon. Gentleman could write.
Danny Alexander: I have written to the Paymaster General on the subject. As I am awaiting a response, she now has more information with which to fill it out. I look forward to receiving it.
It is also right to say, as several other hon. Members have done, that the appeals process, such as it is, seems to have become increasingly tough. The Treasury is
getting tougher with disputed overpayments, which is causing even greater hardship. The Committee reported receiving evidence that the process had become more “harsh and exacting”. The process was streamlined, and then the streamlining was stopped.
Various interpretations have been offered to explain that, but the fact remains that a rate in 2005 of more than one in every two disputed overpayments being written off has fallen to a rate of one in every 25. In 2006, 350,000 claims were disputed and only 14,000 were written off, compared with 162,500 in 2005. That is a huge difference, and I would be glad to hear a little more about the reasons for that.
A number of hon. Members mentioned the risk that all those things could have an impact on wider Government policy, particularly on welfare reform and welfare to work policies. It will not encourage people to return to work if they believe that work will not pay. The financial advantage arising from earned income may be overshadowed by the problems caused by the alteration to tax credit awards because of higher income and increased hours. Although tax credits provide an incentive for people to find work, the high marginal deduction rates that arise when the tax credit system is combined with the benefit system can lead to a disincentive to work longer hours or to get better jobs for some groups of claimants.
In some cases—these figures come from tables published by the Department for Work and Pensions about the interaction of the tax and benefits systems—people can face marginal deduction rates of 90 per cent. and more, which means that for every extra £1 people earn, they keep only 10p. [Interruption.] The Minister can consult the tables, which makes the point clear. It must be a serious worry that overpayments will counteract the incentive for people to return to work. High marginal deduction rates will also reduce the incentive to change jobs to earn a better salary, if people are worried about the sort of trouble that their awards will cause.
The Committee highlighted at several points in its report the difficulties that it had in obtaining up-to-date, accurate and timely information from the Treasury. Many hon. Members will have had the same sense of frustration with parliamentary questions. However, there is one area where a big improvement could be made. It is totally unacceptable that all Social Security Advisory Committee reports are published except those that scrutinise Her Majesty’s Revenue and Customs reports on benefits such as child benefit and tax credits. The Treasury continues to deny public access, and it continues to deny Parliament access to those reports. Will the Paymaster General ensure that it happens? If it requires a legislative change, will she ensure that her ministerial colleagues in the Lords table an appropriate amendment to the Welfare Reform Bill, which concerns matters relating to the Social Security Advisory Committee, so that the change can be made as a matter of urgency?
The Paymaster General, in one of her interventions, asked about the reforms to the system proposed by the Liberal Democrats. I shall refer to them briefly, Mr. Marshall, while not wishing to test your patience unduly. A case can be made for a return to a system of stable awards—perhaps six-monthly fixed awards—to help end the instability and chaos that some experience
under the current system. The ombudsman noted that the instability of the system raises the fundamental question that, for people on modest incomes who have to budget and plan their finances carefully in order to manage their lives, such inbuilt uncertainty or instability rarely works. Of course, such a system could be designed to build in some degree of downward protection, but none the less I believe that a system of fixed awards would offer a great deal more reassurance to many claimants.
Clearer and simpler award notices must be an important part of reform. Progress has been made, but a great deal more could be made. Likewise, action against organised crime remains a problem. In that respect, publishing clear information on fraud and error in the tax credit system would be a major benefit. I gather from the remarks of the hon. Member for South-West Hertfordshire that the issue was referred to yesterday. I hope that the matter will be pursued by the Committee as assiduously as it has pursued other matters.
Most important, however, we need an immediate end to what the ombudsman called the “systematic maladministration” that has beset the tax credit system. We want an end to automatic recovery without checking if the overpayment is recoverable—that is the pause. We want a statutory right of appeal against overpayments, with all that are due to official error being written off—a key recommendation of the ombudsman. We want to improve the tax credit IT system and to overhaul the automated payments system, which has led to considerable failures, often resulting in the need to make costly manual payments.
With those reforms we can achieve those worthwhile objectives, which are shared by all hon. Members, of having a tax credit system that boosts the incomes of low-income families, creates greater incentives to work and relieves child poverty. The system achieves that for many people. For it to achieve that for the entire claimant population, a thoroughgoing and radical reform is needed.
4.29 pm
Mr. Mark Francois (Rayleigh) (Con): It is a pleasure to serve under your chairmanship, Mr. Marshall. It is also a pleasure, as always, to be opposite the Paymaster General. We have debated tax credits on a number of occasions since I began shadowing the right hon. Lady in 2005. This afternoon, in the words of Yogi Berra, the American baseball player, is déjà vu all over again.
Our debate is informed by the Treasury Committee report on tax credits administration and by the Government’s response thereto, which appeared in June 2006 and November 2006 respectively. The Committee report was introduced if I may say so very ably this afternoon by my hon. Friend the Member for Sevenoaks (Mr. Fallon).
The debate is timely in the light of the Treasury Sub-Committee having taken further evidence from the Paymaster General only yesterday—evidence to which I shall refer in the course of my remarks. The Committee report points out that the tax credits system faces a number of problems, such as IT systems error, the level of overpayments, the recovery of overpayments, fraud, error and organised crime, and
even the availability of information about the tax credits regime as a whole. I shall refer to a number of those issues as well.
One of the problems that has dogged the tax credits system is the unreliability of the associated tax credits IT system which has been highlighted previously by the hon. Member for South Derbyshire (Mr. Todd), whose expertise in such matters the House would acknowledge. Unfortunately, the complexity of the system devised by the Chancellor of the Exchequer, combined with the historical unreliability of the associated computer, mean that mistakes in the system are now legion. That is partly why Her Majesty’s Revenue and Customs sacked its IT contractor, EDS, and brought in another contractor, Cap Gemini, to try to salvage the whole complicated process.
Independent commentators have made a big issue of the IT problems. Robert Chote and Michael Brewer of the Institute for Fiscal Studies pointed out in a newspaper article in September 2006 that:
“A combination of IT problems, an overly complicated design, and the inability of many families to provide information to the Revenue as quickly and accurately as expected has meant around £2bn a year has been handed out in overpayments. Not all of these overpayments were mistakes. But they lead, at best, to inconvenience and at worst to anxiety and real hardship. Some recipients have had no idea when they were being deliberately overpaid. Often cash-strapped households, they simply spent the money they had been given—and then became distressed when they were required to pay it back.”
If, as Ministers like to claim, the computer system is now stable, why did the Paymaster General issue a written statement to the House last December that said that further anticipated changes that should have gone ahead, including the migration on to the tax credits system of jobseeker’s allowance cases involving child tax credit, had been delayed yet again? That subject cropped up in yesterday afternoon’s proceedings.
According to a recent series of parliamentary written answers, the Treasury’s IT systems as a whole are now running a combined total of some 17 years late. For the Department charged with the ultimate protection of public funds, that is clearly highly embarrassing. The IT system problems have presented a major problem in relation to tax credits in particular, and they continue to do so.
A further major drawback of the tax credits system as it is currently configured is its inherent complexity. That complexity partly results from the fact that the Chancellor, whose personal brainchild the system was, is by nature an inveterate lover of complexity. We should like to debate the system with the Chancellor himself one day, but when it comes to debating tax credits the Chancellor is like Macavity—he is never there.
The figures are quite stark. The latest year for which we have fully audited figures from HMRC is 2004-05. Of the slightly more than 5 million families in the United Kingdom who were claiming tax credits in that period, almost 2 million were overpaid and more than 900,000 were underpaid. In other words, more than half of all the payments in the entire system were wrong.
In 2005, the Parliamentary Commissioner for Administration issued a detailed examination of the weaknesses of the tax credits system, entitled “Tax Credits: Putting Things Right”. That report stated:
“A heavier burden was placed on customers than was reasonable to spot the wide variety of mistakes and omissions which occurred as a result of processing faults.”
The commissioner attributed that to, among other things:
“customers’ unfamiliarity with the new system”—
“its sheer complexity—particularly when customers’ circumstances change”.
No doubt when the Paymaster General winds up she will seek to argue that, two years on, to coin a phrase, “Things can only get better.” According to the Government’s reply to the Select Committee report, however, in the year 2005-06, 367,500 people appealed against an attempt to recover overpayments by HMRC. That means that more than a third of a million families were having very real difficulty with the tax credits system. That statistic rather belies the Paymaster General’s frequent claims that the problems in the system are isolated and infrequent.
It has fallen to individual constituency MPs and organisations such as citizens advice bureaux to try to pick up the pieces. According to a memorandum that Citizens Advice submitted to the Committee, citizens advice bureaux dealt with 153,000 queries in 2005-06 and with a further 90,000 in the first six months of 2006-07.
Danny Alexander: The hon. Gentleman rightly draws attention to the important role of citizens advice bureaux in dealing with complaints under the tax credits system. It is worth noting also that they do not receive specific funding for their work on tax credits over and above that which they already receive.
Mr. Francois: I shall allow the Paymaster General to address the issue of CAB funding when she winds up.
Dawn Primarolo: Citizens advice bureaux do receive funding from the Department specific to their tax credits work, and I shall refer to the further work that we are doing with them when I respond to the debate.
Mr. Francois: I entirely accept the Paymaster General’s word on the matter, although I must say that my local CAB has never told me that it was getting an HMRC grant. We have heard much about etiquette this afternoon, so perhaps the Paymaster General will write to all hon. Members present and tell us exactly how much money each of our respective citizens advice bureaux are getting to assist with tax credits problems. That should clear the matter up.
The CAB memorandum to which I referred said:
“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.”
It continues by saying that people are
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