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16 May 2007 : Column 291WH—continued
Before the hon. Gentleman intervened I was dwelling on a point about responsibility. Sadly, it seems in the case of tax credits that while Ministers are not willing
to take responsibility for their own mistakes the system requires claimants to take responsibility for the mistakes made by officials. That suggests a topsy-turvy world where responsibility is assigned completely wrongly. That point was initially made in the excellent report by the parliamentary ombudsman, to which my hon. Friend the Member for Edinburgh, West referred in his speech. As far as we can ascertain—I have asked about this several times before, and perhaps the Minister will find a way to respond today—it seems that only four of the 12 recommendations that the ombudsman made in her report “Tax credits: putting things right” have been accepted and implemented. If the Minister could give a definitive answer about what has happened on the implementation of the other eight recommendations, that would be of great benefit to the House.
The most important of the ombudsman’s recommendations seem not to have been implemented. She recommended, for example, that when an overpayment is alleged, the claimant should be sent a letter, clearly stating how it occurred. The point was made earlier that not only should claimants be told that an overpayment has been made; they should be given details of the calculation that led to the overpayment. The system has serious shortcomings in that regard. The recommended approach would give time for a challenge to be made before recovery of the overpayment began. My hon. Friend pointed out the need for a pause, and Citizens Advice and the Child Poverty Action Group have also argued for a pause before the reclaiming of overpayments. I understand that the Department has been looking into the matter, and I should be grateful for an update on progress, and on whether such a change will be implemented soon.
The ombudsman also made the point that there should be a statutory test for the recovery of overpayments, consistent with the social security benefits test, and with a right of appeal to an independent tribunal. It is utterly unreasonable for Revenue and Customs to assume that claimants should take responsibility for identifying errors made by tax credit office officials. Yet that is the system at the moment. Hon. Members will often have encountered constituency cases, as my hon. Friend mentioned, in which constituents have continually updated the tax credit office on the changes in their circumstances. A constituent of mine, in a recent example, had kept the office up to date with changing circumstances at every stage, but, having failed to spot one error in a blizzard of 13 different award notices sent in a short period, was held responsible for the overpayment. The burden of responsibility and proof is the wrong way round. That was among the most important of the ombudsman’s recommendations: that HMRC should reverse the burden of proof, where the error has been caused by HMRC itself. The assumption should be that an overpayment is not recoverable unless it is reasonable to think that the mistake would have been obvious and, clearly, if the mistake was obviously made by the claimant.
The Public Accounts Committee report is the result of the fourth occasion on which the Committee has had to investigate the system. It concludes that the Treasury has still not developed adequate systems or an adequate response to the large-scale chaos that it has
caused. That is in line with the impression of many Liberal Democrat Members, and the impression that hon. Members seemed to have formed in the Westminster Hall debate in March, that the Treasury continues to be in denial about the level of maladministration, passing it off as teething problems. More importantly, it is in denial about the impact that that has on the individuals who are directly affected. It is clear from both the Treasury Committee and the Public Accounts Committee reports, couched as they are in moderate parliamentary language, that members of those Committees share the anger and frustration about the system that many hon. Members feel on behalf of their constituents.
The Public Accounts Committee concluded:
“Tax credits suffer from the highest rates of error and fraud in central government, undermining HMRC’s reputation for accuracy, fairness and proper handling of taxpayers’ affairs.”
That is a pretty damning indictment. The Treasury Committee report made it clear that progress on the problem had been inadequate in the past year, commenting that it was
“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.”
The needs of claimants are the real issue. That is what motivates so many Members of the House to become involved in the issue; because as well as causing losses to the Exchequer, overpayments cause real hardships to claimants. The Treasury Committee report highlighted the case research that showed that the incomes of low-income families are especially volatile. Tax credits—especially overpayments and the reclaiming of those—can make matters much worse, causing people to live on a financial rollercoaster.
The reasons for overpayments are often unclear to the claimants, who are often held responsible not just for their own mistakes but for those of officials. My hon. Friend referred to such instances. He also made the point that, sadly, such mistakes—and the last figures that are available, for 2004-05, show about 2 million families being affected by overpayments—undermine confidence in the whole system. His account of having to persuade people to reapply to enter the tax credit system, when they are reluctant owing to their own or their friends’ experience, is borne out by the point made by the hon. Member for Braintree about take-up—of working tax credit in particular. That shows that the perfectly fair amount of negative publicity that the system has received, given the incompetent administration that has beset its early years, has affected claimants’ attitudes and experience.
Claimants who engage with the system have recently encountered other problems, including when they use the telephone helpline. That is not a criticism of the staff, who I know, through my dealings with the MP hotline, try to be helpful. A beneficial feature is that it is now possible to get hold of recordings of claimants’ telephone conversations on the helpline, to try to understand the information that was provided. There are examples of claimants who felt that they were offered reassurances that an overpayment would not be recovered until the following year, and of claimants who were advised to appeal, only to be told much later
that in such circumstances an appeal was not possible. Often, therefore, false expectations were raised.
It is clear from listening to phone calls that despite the best efforts of the staff, some do not necessarily understand the operation of the whole system, perhaps because of the way in which they are separated into different management areas of the organisation. However, when making contact via the telephone helpline, the claimant fully expects to deal with someone who fully understands the operation of the whole system.
I am concerned that staff reductions at HMRC will have an impact on the service that tax credit claimants receive. There is already a great deal of centralisation in call centres, but staff reduction in district offices such as the Inverness office will undoubtedly affect claimants’ ability to obtain face-to-face service and assistance. Many claimants find it useful, because it is sometimes the only way in which they feel that they can get their point across, given the difficulties that they experience with the telephone helpline. I hope that the Financial Secretary will address that point in his response.
It is also clear that the appeals process has been made increasingly tough. While millions of people still suffer overpayments, the number who have had their overpayments written off has substantially reduced, causing even greater hardship. In 2005, there were 351,000 disputed overpayments, of which 162,000 were written off. In 2006, there were 350,000 disputed overpayments, of which only 14,000 were written off. The rate of written-off overpayments has fallen from one in every two disputes to more like one in every 25, suggesting that the process by which disputed overpayments are assessed and decided on has become increasingly harsh. Taking up cases on behalf of constituents, Members from all parts of the House have experienced that situation.
Recent parliamentary answers show that the number of cases in which the tax credit office and HMRC have taken legal proceedings to recover overpayments has increased dramatically in the past year. Again, I should be grateful for the Financial Secretary’s comments on HMRC’s increasing willingness to use legal proceedings to pursue families, who are still sometimes on very low incomes, through the courts for the money that they owe.
The provision of information is important in understanding the system and in holding Ministers to account for its operation. In the next week or so, the latest tranche of information on tax credits will be published, probably for 2005-06—18 months to two years ago. The Paymaster General explained the reasons for that situation, but it highlights the difficulty in getting hold of up-to-date information from the Treasury compared, for example, with the Department for Work and Pensions. That point has been made in the recent reports to which I have referred, and the Public Accounts Committee was critical about the lack of up-to-date information on levels of fraud and error.
There is a particular issue about the Social Security Advisory Committee. It has a statutory relationship with the DWP, but the committee does not have a statutory duty to be consulted by the Treasury on the benefits—tax credits and child benefit—that it administers. I should like that duty to be introduced,
and particularly, the reports to be made public, so that people can understand the advice that that body of experts—the SSAC—offers.
What needs to be done? The ombudsman’s recommendations should be implemented in full; the pause has already been mentioned; there need to be greater appeal rights; and the forms must be clearer and simpler. Even after recent efforts, the award notices would still make the Scottish elections’ ballot paper look simple. Given those problems, it is hardly surprising that many people find tax credit award notices hard to understand.
In the long term, the Liberal Democrats would like much more stability in the system, and the reconsideration of fixed awards. That would strip away the instability—the financial rollercoaster—that causes hardship for so many hard-working low-income families whom the system was designed to benefit.
Dr. William McCrea (in the Chair): For the information of Members, this debate will conclude at 4.15 pm, because of the suspension for a division. However, I am not seeking to encourage you to extend your contributions just to fill the time up, as we have two further debates.
3.35 pm
Mr. Mark Francois (Rayleigh) (Con): I am mindful of your guidance, Dr. McCrea. My only challenge is that there has been an incredible amount of business in the tax credit system in the past week alone, so I do not want people to miss their opportunity to be represented.
I congratulate the hon. Member for Edinburgh, West (John Barrett) on securing this Adjournment debate and on introducing it so clearly. It is also a pleasure to be in the Chamber opposite the Financial Secretary this afternoon. I should normally debate the issue with the Paymaster General; indeed, I have done so in the Chamber several times. However, we are well aware why she cannot be here this afternoon, and I, like many other hon. Members, hope that she will continue to recover well. I ask the Financial Secretary whether he would be good enough to pass those sentiments on to her when they next speak.
On 15 March, we debated tax credits in the Chamber based on the sixth report of the Select Committee on the Treasury in the 2005-06 Session, entitled, “The Administration of Tax Credits”. That report was very critical of the operation of the tax credit system, which was designed specifically by the Chancellor of the Exchequer. The report highlighted areas such as IT system 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.
Tellingly, in terms of the extent of fraud and error within the system, the Treasury Committee concluded:
“We are concerned that it is now over two years since the end of the 2003-04 tax year, and yet HMRC is still to establish final levels of claimant error and fraud in the tax credits regime for that year.
That point was well highlighted in the very good contribution from my hon. Friend the Member for Braintree (Mr. Newmark).
Moving forward to today, we can take as our text the more recent report by the Public Accounts Committee, entitled simply, “Tax Credits”, which was published on 9 May, representing the fourth time that the PAC has investigated the new system of tax credits that the Chancellor introduced in 2003. The report was excoriating, pointing out among other things that almost £6 billion has been overpaid to claimants since 2003; that
“tax credits suffer from the highest rates of error and fraud in Government”;
“failed to design the tax credits scheme to give proper protection against error and fraud.”
The PAC’s critical analysis provoked considerable comment in the media, including remarks on almost all national news bulletins, on national radio and in the press. Despite the best efforts on that day of the Chief Secretary to the Treasury to limit the damage, I have a sample of just a few comments that followed in the press.
First, The Daily Telegraph summarised the situation:
“Gordon Brown’s flagship tax credits system has handed out nearly £6 billion of overpayments in the space of just three years, a damning report by MPs reveals today”—
“The scale of the problem is so large that officials have already been forced to write off more than £500 million of overpayments and are ‘unlikely’ to recover a further £1.4 billion, the report said. In a withering analysis the MPs stressed that a further £1.28 billion of tax credits was lost in a single year as a result of ‘unacceptable’ fraud and error.”
The Daily Mail, in an article entitled “£2 Billion Lost to Fraud and Error in Tax Credits Fiasco”, said:
“MPs on the Public Accounts Committee blasted ministers for failing to tackle the ‘unacceptable flood’ of tax credits overpaid or lost through mistakes and fraud.
The all-party committee found Chancellor Gordon Brown’s flagship system was...in meltdown, despite repeated promises that it was being improved.”
In the interests of balance across the political spectrum, I can also tell the Chamber that the Daily Mirror concluded:
“The report slams Ministers and officials for failing to get a grip and Revenue and Customs for not stopping the ‘flood of money wasted’.”
The Guardian, in slightly more detail, put the matter like this:
“The Treasury is poised to write off £2 billion—equivalent to 1p on income tax—as uncollectable from Gordon Brown’s tax credit scheme, a report by MPs reveals today. The figure is almost four times higher than disclosed a year ago.
The complex scheme, which pays out money to the low paid, has been dogged by fraud and error since it was introduced in 2003. Ministers have already admitted that £5.8 billion has been paid to people who should not have received the money.
In evidence to MPs which is published today, the Treasury admits £1.9 billion cannot be recovered. The report details that money collected has often caused hardship to the low paid who were suddenly landed with big bills. The scheme was also vulnerable to fraud and error, and internet claims had to be abandoned in 2005 after ‘sustained’ attacks by criminals.”
Scotland has very much been in the news recently and we would not want it to miss out, so for good measure, here is how The Scotsman put it:
“Billions of pounds are still routinely overpaid to tax credit claimants, years after errors in the system were pointed out to ministers.
The government’s response to the tax credits fiasco, which will cost taxpayers unforeseen amounts, is still inadequate”.
In case the Financial Secretary thinks that I have over-egged the pudding, I have left out quotations from the Daily Express, The Independent and The Sun.
Danny Alexander: For the sake of completeness, the hon. Gentleman should know that the press in the far north of Scotland covered the report in a similar tone and in similar language. That emphasises how widely felt the problems with tax credits are: they are felt across the length and breadth of the United Kingdom.
Mr. Francois: I am grateful for the hon. Gentleman’s intervention. As I am a great believer in the Union, I am relieved to hear that tax credits got the same panning in the north of Scotland as they did in much of the rest of the United Kingdom.
The fundamental problem with the new tax credits system, which the Chancellor has designed, is its inherent complexity, which makes it both difficult to understand by claimants and complex to administer by HMRC. My hon. Friend the Member for Braintree gave the good example of the complexity of the forms and the 56 pages or so of guidance notes, which are available to help claimants to try to fill them in. In short, the currently configured system is not user-friendly—in fact, quite the reverse. As a result, the levels of error are becoming staggering. Of some 5 million families who now claim tax credits, around 2 million are overpaid, while just under 1 million are underpaid. In other words, more than half of all the payments in the entire system are wrong.
Senior HMRC officials recently admitted to Parliament that many claimants do not understand the system because it is so complex. Sarah Walker, the director of credits and benefits at HMRC, said in evidence to the Treasury Committee on Wednesday 14 March 2007,
“we are making it clear to people what we expect them to check around their award and what we do not. We do not expect them to be able to understand the whole calculation because that can be quite difficult”.
The problem of immense complexity, to which even HMRC admits, was well summarised by the Yorkshire Post on 9 May in the following terms:
“Gordon Brown’s masterful use of obfuscation and complexity has born much bitter fruit, and one of the nastiest is his tax credits system.
Since his introduction of the present system in 2003, taxpayers have seen nearly £6 billion of the money they have paid to the Treasury incorrectly handed out.
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