Select Committee on Treasury Written Evidence

Memorandum submitted by Child Poverty Action Group


  1.  CPAG welcomes the Treasury Select Committee's update inquiry on tax credits. Though our general view is that things have improved we have significant ongoing concerns, detailed in this note.

  2.  Given the focus on administration this note avoids detailed discussion of policy, but there remain policy issues around which we have concerns, notably the level of the tax credit (in line with policy to halve and eradicate child poverty); the treatment of underpayments (we have concerns about these being "held over" to year end, rather than paid once they are discovered); and around the role of the child care element of working tax credit. Though we are supportive of the responsiveness of the current system, if significant problems persist, the case for a return to a fixed award system may build.

  3.  In preparing this response CPAG has spoken with nine advice agencies from across the country, we use examples given to us to detail some of the issues those advocates raised with us below. We are grateful to those participating individuals. This survey is not intended to be representative but there are themes within it which we raise for the Committee's information in pursing its inquiry.

  4.  There are also a couple of general messages we would suggest for the Committee:

    —  We urge the Committee to use its update inquiry to call on HM Customs and Revenue (HMRC) to conduct and publish more detailed qualitative and quantitative analysis of the impact of the December 2005 announcements—most of these are now in place and it should be possible to begin to analyse these.

    —  In the light of the evidence presented below on communications, we suggest the Committee should investigate the impacts that the efficiency programme and the pre-announced HMRC three year settlement (with its real term cut in resources) is having and may have on HMRC's ability to communicate with claimants.

    —  Third, the difficulties experienced by HMRC in November 2006 in implementing the automatic limits on in-year recovery of overpayments demonstrated the continuing fragility of the IT system. We are concerned the weakness of the system may prevent HMRC from making necessary policy changes (for instance the pause on automatic recovery), and we urge the Committee to investigate the long term future of the current IT system.


  5.  CPAG is very concerned about the way in which HMRC see its role in relation to the appeals process (under section 54 of the Taxes Management Act 1970) in respect of the same (this is a specifically separate issue from appeal rights in respect of overpayments). CPAG would like to see greater clarity about how the decision is made as to whether or not something is an appeal; how the settlement process is operated; and about how the legal ownership of appeals (by the Tribunals Service), is realised given HMRC administer most of the process.

  6.  HMRC's view appears to be that as appeals are made in the first instance to them, it is for HMRC to determine whether the appeal is valid, and it is only what they consider to be valid appeals that are forwarded to the Tribunals Service. Moreover, it seems that it is only valid appeals which cannot be settled that make it to the Tribunals Service. CPAG were provided with statistics in early 2006 from HMRC which showed that 94% of (valid) appeals were settled, and of those settled appeals in only 2% was the decision under appeal overturned. We suggest the Committee asks for a breakdown from HMRC both of what proportion of appeals are settled and what the financial outcomes of this are for claimants (for instance comparing those who settle against those who go to Tribunal).

  7.  CPAG's key concern about the above is that there is no independent oversight of HMRC's decisions as to the validity of an appeal or the settlement process, as it is only valid appeals which cannot be settled that make it to the Tribunals Service and so are subject to that body's independent oversight. A subsidiary concern is that there is no clear, public guidance as to how the settlement process operates.

  8.  CPAG is getting significant feedback from the grassroots that in practice the appeals process is not working at all adequately, and this is not just a concern of CPAG or the voluntary sector. The President of Social Security and Child Support Appeals within the Tribunals Service—His Honour Judge Harris—commented at a CPAG conference in September that he was concerned about tax credit appeals as he had no idea what was happening with them.

  9.  It is CPAG's view that all purported appeals should be lodged immediately by HMRC with the Tribunals Service, so that any disputes about the validity of the appeal may be determined by that independent body. Further, as a settlement takes the place of an appeal tribunal decision, it should be for the Tribunals Service to decide whether the appeal has been properly settled so that it may be satisfied that its jurisdiction has been properly removed.


  10.  CPAG argues that the statutory basis of the Social Security Advisory Committee should be widened to cover HMRC administered benefits and tax credits. We believe to do so would open the process of making regulations to greater scrutiny and, in doing so, enable Social Security Advisory Committee (SSAC) to give better advice to the HMRC.

  11.  Despite the recommendations of the House of Commons' Work and Pensions Committee in its January 2003 report[2] and Professor Genn in her Quinquennial Review of the Social Security Advisory Committee (SSAC)[3] that SSAC's statutory remit to independently scrutinise and advise on social security regulations should be extended to HMRC administered benefits (covering tax credits, guardian's allowance and child benefit), and despite what would appear to have been assurances given to Parliament during the passage of the Tax Credits Bill that advice and/or reports given to HMRC by SSAC in respect of HMRC benefits regulations under a non-statutory role would be made publicly available[4], HMRC has steadfastly refused to put SSAC's role on a statutory footing or disclose SSAC's advice or reports on HMRC benefit regulations. The non-statutory arrangement, under what is called a Memorandum of Understanding, requires that any such advice or report remain confidential to SSAC and HMRC.

  12.  CPAG can identify no discernible or good reasons as to why this secrecy is necessary. The only reasons so far put forward (in relation to a CPAG Freedom of Information request) are (a) that disclosing SSAC advice would be likely to inhibit HMRC civil servants in being free and frank with SSAC and (b) that the Minister is accountable to Parliament for the policy of keeping SSAC's advice/reports confidential, and disclosing these would undermine that accountability.

  13.  As to (a) CPAG cannot understand why HMRC civil servants would feel any more or less inhibited than Department for Work and Pensions (DWP) officials, and SSAC's advice/reports on DWP regulations are required to be made publicly available. As to (b), the Treasury Select Committee's enquiry into the administration of tax credits could provide the opportunity for the Minister to be accountable to Parliament (but this time on a correct factual basis).


  14.  Much was done within the December 2005 changes to improve the way in which recovery was dealt with, and we welcome the implementation of many of these changes (and particularly the cap on in year overpayment recovery rates). Alongside the need for adequate evaluation of the impact of these changes (for instance around whether the percentage withdrawal rates are appropriate[5]), there are two key areas which have not yet been addressed.

Pause before recovery

  15.  Applying an automatic pause (not only when a challenge has been made) between the discovery of an overpayment we believe to be both in the interests of natural justice and a legal requirement of the scheme.

  16.  CPAG remains of the view that the tax credits legislative scheme requires that positive consideration be given by HMRC as to whether it should recover an overpayment before any recovery action is taken. Suspending recovery once a claimant gets in touch with HMRC to query recovery, whilst welcome, does not meet this requirement.

  17.  We understand the Minister to have accepted the case for a pause (though she has not accepted the legal case) but that this has been given a lower priority for HMRC than have other aspects of reform. Though we do not wish other aspects of improvement to be downplayed it is of concern to us that little or no progress appears to have been made on this front.

  18.  Most specifically, we have been unable to obtain a clear idea of when HMRC may introduce the pause—we urge the Committee to call for a working timetable for the introduction of the pause. Without such a concrete timetable positive statements about the need for such a pause may be no more than warm words; and for as long as the pause is not introduced HMRC leaves itself open to legal challenge.

Right of appeal

  19.  Though a right of appeal exists for tax credit awards, it does not for overpayment recovery which CPAG continues to find unsatisfactory. HMRC has drawn a parallel with DWP arguing that no right exists but CPAG strongly contests the view that a parallel may be drawn with what happens with DWP overpayments generated by official error. This is because legally, in our view, such overpayments are simply not recoverable at all. The only DWP overpayments which the DWP has a right to recover are those arising because of claimant error—that is, where there has been a failure to disclose or misrepresentation by the claimant (per section 71 Social Security Administration Act 1992)—and disputes about whether there has been such claimant error do carry a right of appeal. There is no right of appeal needed in respect of any other DWP overpayments (ie official error overpayments) precisely because they are not recoverable (and so legally cannot be recovered).

  20.  However with the tax credits statutory regime all overpayments are in law recoverable and the only issue is the proper exercise of discretion by HMRC as to whether to effect recovery on the facts of each case. Any legal inhibition on recoverability of tax credit overpayments (to which a right of appeal could then attach) can only be effected by an amendment to the Tax Credits Act 2002, and it is of concern that HMRC has made no progress at all on this.

  21.  Given the above, it is especially disappointing that progress on introducing a fast-track "right of dispute" to the Adjudicator in respect of overpayments has been very slow indeed. CPAG is of the view that such a dispute procedure would be very much second best to a statutory inhibition on automatic recoverability coupled with a right of appeal in respect of that statutory test (as was the view of the Committee in its May 2006 report), but as there seems to be little or no enthusiasm on the part of HMRC for such a statutory test, it is the most obvious and immediate change which could be effected to protect claimants. However, no such arrangements are yet in place, and it is our understanding that it is only very recently that any substantive discussions have been had by HMRC with the Adjudicator about introducing such a fast-track dispute process: again we recommend the Committee investigate the timing of this measure.


  22.  We do believe that communications have improved and we welcome the extra contact centre capacity which has been brought on stream. Nevertheless the catalogue of difficulties we describe here indicate both how terribly slow progress has been and what delivery challenges persist. This final section draws on a telephone survey with advisors, we quote them here not to offer specific solutions in each case, nor to claim that these problems are being experienced across the system, but because they point up continuing issues of concern. The problems reported straddle the change process HMRC has been going through (examples were collected in January/February)—they should not be rejected as historic.

  23.  Advisers reported difficulties in communicating with HMRC, though it is difficult to gauge the extent of problems the frequency with which these are reported to us imply it would be worth the Committee exploring HMRC's process for handling call-backs, acknowledging and answering letters, as well as its processes for dealing with authorisations to act on behalf of claimants.

  24.   Getting a response: we have had repeated examples and commentary from various agencies of not having responses to queries and problems presented to the HMRC (both telephone and letter), or of this being very slow and requiring chasing. In a particularly poor example (national organisation dealing with disabled client group), no response was given and when this was pursued HMRC did not accept having received correspondence even though some of this was registered post. Advocates expressed general concerns of the speed of response from the HMRC, including raising the following issues: slow/ inadequate processes to deal with, answer or acknowledge post or returning telephone calls.

  25.   Getting HMRC to update records: several examples have been reported to us of claimants reporting either changes of circumstances, or wrong information on the award notice with no action being taken as a result. For example, a West Midlands agency told us a claimant had alerted HMRC that it had recorded the wrong income (£3,000 despite a full time job) but HMRC did not act on this, causing a large overpayment to accrue. We had similar comments from the North West of England who added that the problem was worsened by the continuing difficulty of claimants understanding of award notice information.

  26.   Repayment direct. Where claimants must repay direct, for example where an award has terminated and an overpayment exists, though HMRC should take account of ability to pay, in practice there is no publicly available clear guidance on how this discretion should be exercised. As a result some unreasonable demands are made, as an example a London adviser reported a disabled woman claiming Incapacity Benefit (around £70 per week) and under was pressured to repay more than she could afford, she agreed to repay an unrealistic sum, which she then was then unable to keep to (and HMRC then chased repeatedly for payment).

  27.   Dealing with intermediaries: advocates reported problems with dealing with HMRC on behalf of claimants. A national advice agency reported several letters of authority being written with the HMRC continuing to report not having received these, a West Midlands agency noted that on the expiration of a period of authorisation, HMRC had written directly to a claimant and having no response had closed the case. Given that by the nature of the process an intermediary is needed when there is a question of claimants' ability to deal with HMRC, it is unsurprising that writing direct yielded no result (the claimant may not understand the letter or be frightened by it), and unacceptable that a non-response was not followed up in this circumstance.

  28.   Helpline: as well as some problems in simply getting through (we assume this will have been improved by the extra contact centre capacity, but it would be useful to confirm this), advisers report difficulty in having reported changes of circumstances acted upon and claimants being passed between different members of staff. An adviser from the North West told us it was common for a claimant to report a change and have to speak to more than one person, reporting that claimants were told different things by different people. The adviser commented: "If staff do not know how can the customer be expected to know?" Problems around the interpretation of complex legislation (notably around the disability element of the Working Tax Credit) were quoted to us by a London adviser. A lack of understanding by staff around appeal rights was reported by agencies in both the South East and North West of England, reinforcing the need for (more) adequate staff training, alongside the call centre script.

  29.  The agency from the North West also reported, following problems with the helpline, that though a claimant had the dates, times and names of the persons spoken to on the helpline, the Revenue claimed there was no record of these conversations having taken place making it difficult to prove what had occurred one way or the other (making official error difficult to prove).

  30.   Award notices: though these have been improved to make them more comprehensible, advisors still report problems claimants continuing to have problems understanding award notices. An agency in the North West report the problem of wrong information on the award notice quoting examples of the wrong income, working hours and childless people having children on the claim form. The award notice is difficult to understand and information is presented in a complex way, therefore claimants will not necessarily identify mistakes.

  31.  Difficulties in obtaining copies of award notices were reported by a London agency (these were needed to demonstrate income for a Housing Benefit claim). The agency reported both delays (six weeks was quoted) in obtaining a copy and, separately, of having to contact HMRC repeatedly to obtain copies and these not turning up as promised.

  32.   Fraud: an agency in the North East of England reported a particularly worrying case to us of a claimant whose details had been used fraudulently to claim tax credits and, on trying to claim Job Seekers Allowance, the claimant was incorrectly turned down on the basis they were already in receipt of Working Tax Credit. Though the compliance office put in place arrangements to deal with this problem once it was understood, it left the claimant having no income whatsoever, with rent and council tax arrears and having to travel over 40 miles to prove their identity.


  CPAG is the leading charity campaigning for the abolition of poverty among children and young people in the UK and for the improvement of the lives of low income families. CPAG aims to: raise awareness of the causes, extent, nature and impact of poverty and strategies for its eradication and prevention; bring about positive policy changes for families with children in poverty; and enable those eligible for income maintenance to have access to their full entitlement.

February 2007

2   Work and Pensions Select Committee, 2003, "Social Security Advisory Committee", House of Commons HC 296. Back

3   Professor Hazel Genn, 2004, The report of the Quinquennial Review of the Social Security Advisory Committee, Cm 6189. Back

4   Standing Committee A, 24 January 2002, Afternoon Session, Hansard Columns 261-265 and House of Lords, Third Reading Debate, 20 June 2002, Hansard Columns 954-958. Back

5   CPAG, 2005 "First steps to tax credit reform", available at lays out the logic. Back

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