Select Committee on Treasury Written Evidence

Memorandum submitted by One Parent Families


  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.


  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.


  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.


  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.


  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.


  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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