Memorandum submitted by Child Poverty
Action Group
INTRODUCTION
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.
THE APPEALS
PROCESS
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.
THE SOCIAL
SECURITY ADVISORY
COMMITTEE
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).
OVERPAYMENTS
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.
COMMUNICATION
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.
ABOUT CPAG
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 http://www.cpag.org.uk/cro/Briefings/First-Steps_to_Reform_Tax_Credits.pdf
lays out the logic. Back
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