Memorandum submitted by One Parent Families
INTRODUCTION AND
SUMMARY
1. One Parent Families is the national charity
representing the 1.9 million lone parents and the three million
children living with them in Britain today. Formed in 1918 as
the National Council for the Unmarried Mother and her Child, the
charity has worked since then to tackle the poverty, social exclusion
and stigma still faced by too many of those who live in one-parent
families.
2. The charity campaigns actively on policy
issues, runs a help and advice line, and runs training and back
to work programmes for lone parents. We receive an average of
around 20,000 calls a year from lone parents, on a wide range
of issues including around one quarter of calls which deal with
benefits and tax credits.
3. One Parent Families welcomed the introduction
of tax credits and the significant additional financial support
provided to families. However, we have expressed concerns about
their implementation, and in particular the impact of the recovery
of overpayments. As we stated in our submissions to the Committee's
previous inquiry, we welcomed the reforms that the Government
announced in December 2005 to improve the operation of the tax
credits system. However, we remain extremely concerned that the
deadline for implementation of, in our view perhaps the most important
reform, the introduction of automatic limits on overpayment recovery
was missed.
4. We also called for further reforms to
the system, including the introduction of an independent right
to appeal, and have not changed our view that these remain necessary.
5. One particular problem we would like
to draw to the committee's attention is the interaction between
overpayments of tax credits and payment of Income Support. At
present we believe that the rules function so that claimants lose
out twice.
6. Finally, we believe that there remains
a case for meeting the costs of childcare outside of the tax credit
system. Although this is a policy rather than an administrative
issue, we believe that it would significantly lessen the administrative
burden placed on the Revenue.
OUTSTANDING REFORMS
7. In our previous submission we called
for:
— The right to an independent appeal
of the decision to recover an overpayment; and
— The need for better explanation of
why an overpayment has occurred and a delay in the recovery of
overpayments for 30 days.
8. Recent cases from our advice line highlight
the need for such reforms, and for better explanation from the
Revenue when things go wrong:
A caller rang who had received a letter from
HMRC giving her one day to pay a tax credit debt of £5,000.
She had previously contacted HMRC and been told that she had no
record of an overpayment outstanding.
A caller rang who was having her tax credits
reduced and struggling on a low income. She did not know why she
had been overpaid in the first place, and therefore was not challenging
this decision.
A caller rang who had received an overpayment
when she was in a couple. She did not know why, but had assumed
that this would prevent her from claiming as a lone parent.
DELAYS IN
IMPLEMENTATION OF
REFORMS
9. We were extremely disappointed by the
Paymaster General's statement in December that HMRC had been unable
to implement the proposed automatic limits on the recovery of
overpayments. Although we have been told that a solution will
be implemented by April, given the first missed deadline we are
wary about such assurances.
10. We have been told by the Revenue that
a "manual" work around has been found so that the policy
intention, that those on low incomes are protected from drastic
reductions in their tax credits, is met. However, we have seen
recent cases on our advice line where callers appear to still
be facing 100% recovery rates.
A caller rang at the end of January who was
claiming Incapacity Benefit. She had been overpaid and was now
facing a 100% recovery rate of her Child Tax Credit.
A caller rang in December who had phoned
to inform the tax credits office of a change of circumstance which
reduced her entitlement to tax credits. She was told that she
had now received all of her tax credits for the year and that
payments would stop—while in actuality she still had a substantial
continuing entitlement. She told us that she currently did not
have enough income to live off.
THE INTERACTION
BETWEEN WORKING
TAX CREDIT
AND INCOME
SUPPORT
11. An issue has recently come to our attention
regarding the treatment of overpaid Working Tax Credit (WTC) and
its interaction with Income Support. When somebody claims Income
Support after leaving work, Jobcentre Plus inform HM Revenue and
Customs (HMRC) of the change, which is reported electronically.
HMRC are expected to stop WTC within 24 hours through this process,
but we have seen several cases where this has not happened, and
WTC continues in payment. In this case, the continuing WTC is
counted as income for the purposes of Income Support, which is
reduced accordingly. When the overpaid WTC is recovered by HMRC
at a later date, there is no legal provision to review the earlier
Income Support decision; the claimant therefore effectively pays
twice.
A caller rang who was having her overpayment
recovered at a very high rate, despite being on Income Support,
due to failure to implement the new in year recovery rates. the
overpayment had occurred because HMRC had not stopped paying her
WTC and the childcare element after she stopped work. As a result,
Jobcentre Plus would only pay her £12 in this period while
she was out of work.
12. We have been told by officials in Jobcentre
Plus that a solution to this problem is actively being pursued.
We would urge that this is implemented as soon as possible, as
at present claimants are substantially losing out due to errors
on the part of a Government department.
THE OPERATION
OF THE
CHILDCARE ELEMENT
13. As the cases above illustrate, tax credit
problems can be compounded by the fact that support for childcare
is paid through this system. We remain unconvinced that the Working
Tax Credit is the best place for the demand side of childcare
funding. Take up of the childcare element is relatively poor,
the latest figures show that 258,000 lone parents who work and
claim tax credits use the childcare element, whereas 700,000 in
the same situation do not.[1]
We hope to see alternative forms of subsidy for childcare pursued
in the Government's spending review.
CONCLUSION
14. One Parent Families has welcomed the
reforms to the tax credit system which should ensure that tax
credits play their vital and welcome role in delivering financial
support to families. Yet although we believe the system has stabilised,
there remain outstanding problems. The real test of the system
will come when we see the latest figures for the numbers of overpayments.
If these remain high, there may be a case for returning to a system
of fixed six monthly awards.
February 2007
1 HMRC Analysis Team (2006) Child and Working Tax
Credit Statistics December 2006 HMRC. Back
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