Memorandum submitted by HM Revenue and
1. The Committee asked for a memorandum
on the progress made on tax credits since the publication of its
report, The administration of tax credits, in June 2006
(Sixth Report of Session 2005-06, HC 811-I). The Government's
response described how HMRC had already responded to a great many
of the Committee's concerns expressed in their report and this
memorandum describes further progress under the broad headings
set out in the Committee's report. In summary:
The latest set of statistics confirms
that around 6 million families and 10 million children continue
to benefit from tax credits.
In 2004-05 take up of the Child Tax
Credit rose from 79% to 82% with 91% of the money available being
claimed. Take-up amongst those of incomes of less than £10,000
is now 97%; and take-up amongst lone parents is now 93%.
The Tax Credits Office has driven
forward their change programme, introduced customer-focused improvements,
and stabilised workloads.
An earlier deadline of the end of
August was set for renewals of tax credits claims in 2006. This
was successfully implemented which meant that the length of time
that some customers were receiving payments based on out of date
information was reduced, thus reducing the amount of overpayments.
Changes to make reporting of certain
changes of circumstances compulsory have been implemented, to
reduce the risk that overpayments will accrue as a result of late
The amount by which payments can
be reduced in order to recover an in-year overpayment has been
restricted for low-income customers.
A pilot will start in the next few
months to provide an independent review of HMRC decisions on whether
to recover an overpayment caused by official error.
HMRC has published the results of
the 2003-04 random enquiry programme together with "Tackling
Error and Fraud in the Child and Working Tax Credits"
setting out its plans to reduce error and fraud.
2. HMRC published its six monthly snapshot
of the number of people benefiting from tax credits as part of
National Statistics on 22 December 2006. They confirm that tax
credits benefit around 6 million families and 10 million children,
nearly 20 million people. 396,000 families were benefiting from
the childcare element and the average weekly help with childcare
costs for these families rose to £60. 103,000 families benefited
from the disabled worker element and 34,000 benefited from the
severely disabled adult element.
3. HMRC also published on the 1st March
2007 new figures which show that overall Child Tax Credit take-up
was estimated at 82% by caseload in 2004-05up from 79%
in 2003-04. Take-up rates by expenditureie the proportion
of available money taken upwas 91% in 2004-05 for Child
Tax Credit, compared with 87% in 2003-04. Take-up rates by caseload
are now 90% plus for many key groups. Low income working families
with children have take-up of 90%. Take-up amongst those on incomes
of less than £10,000 is now 97% (up from 93% in the first
year of tax credits); and take-up amongst lone parents is now
93% (up from 91% in the first year of tax credits).
4. The 2006 Pre-Budget Report announced
that the child element of the Child Tax Credit would increase
by £80 to £1,845 from April 2007. This is in line with
the 2006 Budget commitment to raise the child element at least
in line with earnings until the end of the Parliament. The 2006
Pre-Budget Report also confirmed that the disabled child element
of the Child Tax Credit, and the elements of the Working Tax Credit,
would increase in line with inflation.
Pilot with the Adjudicator's Office
5. The Government's response to the Committee's
report said that HMRC was exploring with the Adjudicator the feasibility
of introducing an independent review of HMRC decisions on whether
to recover overpayments caused by official error. Such an arrangement
has now been agreed and HMRC and the Adjudicator plan to pilot
them in the next few months, with a proportion of cases being
offered this new service. If a claimant disputes the recovery
of an overpayment and after review the Department concludes it
is recoverable under the Code of Practice 26, they will give the
claimant the option of having this case reviewed by the Adjudicator
by a fast track process. This will be an alternative to the current
procedure where the claimant then has to make a formal complaint
about the handling of their case, and that case has to be first
reviewed as part of the Department's complaint handling procedures.
6. As promised in the Government's response
to the Committee's report, IT changes to automate the process
to suspend recovery of overpayments while they are under dispute
(instead of the previous manual process) were introduced in autumn
2006. Another enhancement introduced, which the Committee were
keen to see implemented, improves the information contained in
the Renewal notice so that the customer can check a full history
of the changes made in the period of the award.
7. Other changes, including the introduction
of a delay in recovering overpayments to allow the claimant to
register a dispute, remain under consideration but implementation
will depend on an assessment of the risks involved to the continuing
IT service. HMRC are committed to implementing the package of
measures announced at the 2005 Pre-Budget Report and have already
made good progress in doing so, as set out in the following section,
and to delivering a high quality service to claimants.
8. HMRC published on 7 July 2006 the results
of a random enquiry programme for 2003-04 which estimated that
the total error and fraud that favoured the claimant represented
around 8 to 10.6% of finalised entitlement for tax credits in
that year. During 2005-06 HMRC prevented three quarters of all
attempted organised fraud that has been identified, protecting
£409 million in payments.
9. HMRC also published "Tackling
Error and Fraud in the Child and Working Tax Credits"
setting out its plans to reduce error and fraud. This included
strategies to reduce customer error by improving communications
to ensure they are easier to understand, improving the quality
of advice and work done by contact centres and providing better
access. Strategies to tackle fraud included further developing
risk assessment procedures, embedding compliance specialists in
contact centres and working with other Government departments
and the private sector to combat identity fraud.
10. HMRC are embedding compliance specialists
in contact centres to provide additional support and specialist
knowledge to assist staff working on the tax credits helpline.
So far 10 specialists have been placed in 6 centres and by April
2007, 16 specialists should be working in all HMRC's tax credit
contact centres. Early indications are that raising fraud awareness
in contact centres is working, with contact centre staff referring
more high-risk cases for detailed checking by compliance staff
and HMRC estimate to date this has had a yield of around £15
11. The Committee reiterated its welcome
for the package of tax credit reforms announced at Pre Budget
Report (PBR) 2005 in its report. Good progress has been made in
implementing this in a number of areas.
12. Each year HMRC reviews all tax credits
awards. It finalises the position for the previous year's award
and determine the amount of tax credits for the current year based
on the information given by the claimant.
13. In PBR 2005 the Government announced
that, from 2006, the deadline for the return of this information
would be moved forward from the end of September to the end of
August. This reduces the time that recipients are being paid provisional
payments, calculated on the basis of possibly out of date information
from the previous tax year. This in turn reduces the need to make
end of year adjustments.
14. When the Committee reported, HMRC was
midway through the renewal process for 2006-07 for the first year
on the shorter deadline. This was implemented successfully. It
was supported by an advertising campaign throughout the period.
The helpline increased its capacity to deal with a potentially
more concentrated number of calls over a shorter time period.
By 31 August HMRC had finalised 4.3 million cases compared to
2.9 million cases on that date in the previous year. So 1.4 million
more claimants were no longer receiving provisional payments by
31 August. By 1 October 2006 HMRC had finalised 6.2 million renewal
cases, 2 million more than it had achieved at the comparable point
15. As a result of this significant progress,
the Government announced in PBR 2006 that the deadline for the
return of renewal information will be moved forward a further
month from 31 August to 31 July, and starting in 2007-08, thereby
further reducing the time that claimants may be paid on the basis
of out of date information.
New reporting requirements
16. One of the themes of the package of
measures announced in the 2005 Pre Budget Report was that claimants
would receive clear messages that they need to report changes
quickly and would be helped to keep their records up to date.
From November 2006 it became mandatory to report ceasing to work
at least 16 or 30 hours; ceasing to be responsible for a child
or young person; and a young person or child ceasing to qualify
for support. HMRC wrote to all claimants to tell them about the
new requirements. This was supported by an advertising campaign
which ran from September to December on TV, radio, women's magazines,
online and in other targeted media such as payslips.
17. The Government also announced in PBR
2005 that HMRC would contact key groups of tax credits recipients
to collect up to date income information before the start of the
new tax year, allowing provisional payments up to the time of
renewal to be set more accurately and so helping to reduce overpayments.
HMRC wrote to over 2 million families on the maximum award or
the first income taper during late January and early February
asking them to give up to date information on income.
Automatic restriction of recovery for in year
18. The Government announced in PBR 2005
that there would be automatic limits on the rates of recovery
of overpayments where awards are adjusted in year following a
reported change of circumstances which reduces entitlement. This
change was planned to be introduced in November 2006. Making this
process automatic has involved significant changes to the IT system
and, after extensive testing, HMRC concluded that the IT changes
raised an unacceptable level of risk of incorrect payments to
claimants. A decision was taken not to make the change on the
original timetable. This was reported to Parliament by the Paymaster
General on 6 December 2006 (Column 14WS-15WS).
19. However, the Government remained committed
to ensuring that claimants could access the benefits of automatic
restriction. HMRC therefore introduced a process involving IT
supported clerical action to ensure that the rate of restriction
could be applied to payments to claimants. From November, anyone
who qualified and contacted HMRC about the adjustment to their
payments had their payments restored to the rate taking account
of the restriction. HMRC immediately took steps to ensure that
this facility was brought to claimants' attention further. In
January, HMRC introduced an enhanced clerical process with IT
support to identify cases where a restriction was appropriate
and apply a restricted rate of recovery automatically without
the claimant having to ask for this. Currently these cases are
being processed within 2 to 3 days of the change of circumstance
being reported. This means that the in year restriction takes
effect in the vast majority of cases by the next pay date or at
worst by the following pay date. This is no different to what
will be achieved by an automated restriction.
20. The overriding aim continues to be to
implement changes safely without adding undue risk to the system's
performance in paying claimants. HMRC are working hard to replace
the current process with a fully automated solution. Based on
the balance of risks and the need to implement this safely, HMRC
are planning to do this by June 2007.
Tax Credit Office
21. The Committee's report stressed the
need to provide a claimant centred approach in administering tax
credits and the Tax Credit Office has continued to drive forward
its change programme which was described to members of the Committee
during their visit to Preston on 13 March 2006.
22. The office has since been fully re-structured,
creating "clusters" of similar work and breaking down
the silo-based approach which the Committee commented upon in
its report. Front-line staff are increasingly engaged in developing
and implementing customer-focused improvements. More responsibility
has been delegated to junior and middle managers to help them
drive up quality; deliver productivity improvements; and get decisions
and responses back to customers as quickly as possible. And senior
managers have begun to roll out programmes to coach and develop
junior and middle managersto improve TCO's overall management
capability and performance.
23. This is already paying dividends. Since
the Committee's visit, work volumes have stabilised significantly.
For example, the TCO now routinely delivers a decision to most
claimants within four weeks of recovery of an overpayment being
disputed. TCO has managed to halve the number of complaints on
hand at any one time and most claimants will now get a reply in
less than six weeks. In addition, during this period of cultural
and structural change, in 2006-07 (end February) TCO's accuracy
figure is 97.8% against a PSA target of 95%.
24. HMRC Contact Centres has also been driving
forward with an ambitious change programme with significant success.
In 2006-07 we expect contact centres to handle over 24 million
tax-credit calls, 1.4 million more than we did in 2005-06. We
expect to answer over 99% of callers on the day they phone in
2006-07compared to 98.1% in 2005-06. In 2006-07, we expect
to reduce the number of calls who received an engaged or busy
tone by almost 60% compared with last year. We also expect to
report improved numbers of calls being answered in 20 secondsrising
from 57% in 2005-06 to around 83% for 2006-07.
25. The Government's response to the Committee's
report mentioned that HMRC was also working on an improved business
design to deliver tax credits in the future. This now forms part
of the Department's transformation programme designed to improve
effectiveness and increase efficiency by improving our understanding
of customers and basing the design of our processes on that understanding.
For tax credits, the aim is to design a model of service delivery
that takes account of the needs of individual customers and targets
assistance and support on those who are most likely to need it.
26. We are also designing variants on the
service we offer customers to suit different circumstances and
plan to pilot these over the next few months. For example, we
recently wrote to customers who had not given us an up to date
estimate of their income for 2006-07, so that we would have more
accurate data on which to base provisional payments for 2007-08.
27. The Committee felt that HMRC should
publish more statistical information on tax credits. As the Government's
response to the Committee's report makes clear HMRC already publishes
a great deal of information on its website, which includes analyses
of tax credits recipients in each local authority. There have
been many requests for data for smaller areas from, among others,
the voluntary and community sector, local authorities, the compilers
of deprivation indices, local government, and the devolved administrations.
In February, HMRC published data for each lower layer super output
area, which are about the same size as wards, and is the National
Statistics standard measurement for areas of this size. HMRC are
seeking feedback from users about their compilation, presentation
and dissemination, and their priorities for further improvement.
In addition from January 2007, HMRC also has published figures
of net payments of tax credits in each month, split between negative
tax and payments of entitlement, going back to April 2003.