Examination of Witnesses (Questions 1-19)|
MP, MR TONY
14 MARCH 2007
Q1 Chairman: Minister welcome back to
the Sub-Committee. Could you introduce yourself and your colleagues
Dawn Primarolo: Good afternoon.
Sarah Walker is on my right and is Head of Benefits and Tax Credits
at HMRC. On my left is Tony Orhnial and he is Director of Personal
Tax and Welfare Reform at the Treasury.
Q2 Chairman: Thank you very much. We
have got quite a lot of ground to cover this afternoon, as you
will appreciate, so I am hoping for succinct questions and reasonably
succinct replies if possible and, if necessary, details from your
officials, if that is alright with you Minister. Can I begin with
your response to our report. The main Committee in its full report
said how disappointed it was; it was three months late and it
simply repeated a lot of what we already knew. Did you sign off
Dawn Primarolo: I did sign it
Q3 Chairman: How are you taking forward
Dawn Primarolo: I hope we will
be covering quite a lot in the Committee today. Can I just say,
Chairman, that I apologise; it is not acceptable that there was
delay. I did sign it off. I could cite reasons why it was late
but I do not think that matters and I have made it clear to my
officials, because these are not the only reports that we do within
time periods, that I expect it to be within that time period,
and I offer my apologise to you and the Committee. In terms of
the 52 recommendations, some which we had already done or were
in the process of doing, there is obviously the question of analysis
of errors, and we are taking that forward; the question of the
pause and the guidance on reasonableness; the whole question of
appeals and the Adjudicator; of course the question of contact
centre staff and compliance staff and the increase on the work
that is being done there; more work with the claimants, both the
work we had already undertaken and the additional pilots, which
I am sure we will want to speak about today; of course there is
the new improved award notice, which is a proportionate and flexible
system on the issue of change of circumstances; the question of
the playback; the training of helpline operators. I am flicking
through and I am not going to go through all 52 but it was a series
of recommendations very much in line, I think, with either work
that we were already doing, work we have started to do, or work
that we are doing following on from either the report of the Public
Accounts Committee or the Ombudsman's report, but I hope that
we will touch on as much of that as possible this afternoon.
Q4 Chairman: The regime has now been
going for four years. At what point do you think you will be able
to measure the extent to which you have actually been successful?
Some of the data, perhaps by the nature of the regime, are fairly
dated by the time they are made available. What will be the point
at which you are able to say we think this thing is 60% or 70%
or 80% successful?
Dawn Primarolo: We can look at
the policy objectivesand we can see a lot of those already
presentassisting people into work and making work pay.
We can look at our take-up rates. The most recent figures were
published on 1 or 2 March
showing that the take-up rate for those who are on incomes of
£10,000 a year or less is now running at 97%, and that is
an increase on the previous year, and there are the other figures
in take-up which I could quote. If we look at the childcare tax
credit, the support for people being able to return to work, particularly
a second partner in the household, these are all issues where
we can see that the system is working better, getting to more
people, and has a higher take-up than the preceding systems. Of
course, there will be other assessments to do, particularly with
regard to the PBR changes, changes that we will discuss this afternoon,
when they are finally implemented as to whether they are then
delivering in terms of administration the improvements that we
would want to see.
Q5 Chairman: Will there be a formal point
at which you will assess that or is this just on-going?
Dawn Primarolo: Are we talking
about the success of the system generally or the PBR?
Q6 Chairman: The PBR changes.
Dawn Primarolo: I think the point
at which the releases of all the changes have been made (the IT)
would be the appropriate time then to look back over the whole
package. What we will be able to do as each item becomes effectivefor
instance last year we reduced he renewal periodis to measure
some of them straight away and say, yes, that was very successful;
and that one was so successful that we are going to reduce it
again by a month this year. So some we will be able to do as we
see them operational but we will see the package and its impact
once we have them all implemented.
Q7 Chairman: What has been the aggregate
overpayment for the first three years of the scheme?
Dawn Primarolo: The overpayment
in terms of the first year was £2.2 billion and the second
year £1.8 billion. You will notice that although the amount
went down in 2004-05 the number of families involved went up.
Q8 Chairman: And the third year?
Dawn Primarolo: We will wait and
see the figures when they are published. I do not have those at
Q9 Chairman: And have you estimated
the extent of the losses? Is it still right that £1 pound
in every £3 overpaid is not recovered?
Dawn Primarolo: In the NAO report
and in the reports from the Department it gives a profileand
forgive me I cannot quote the NAO report, I do not have it with
me but I can supply the figuresfor the recovery of overpayments
and it also requires us under accounting procedures to put in
place an approved accounting figure for debts that we might be
unable to recover. The balance here will be between the ability
of the claimant to repay without hardship being caused and that
naturally affects the period over which the money might be reclaimed.
I do not know, Sarah, if you want to add anything on that.
Q10 Chairman: I just want to know
if £1 in £3 is about right? If you have overpaid about
£2 billion a year roughly over the last two years and £1
in £3 is not recovered then in three years you have lost
£2 billion quid; is that right, that is the loss?
Dawn Primarolo: We do not know
that it is £1 in £3 because we are looking at what we
are recovering, what the profile is and what we are required to
have in our accounts as possible losses, and that is an accounting
figure which there has been discussion about. I am happy to go
through the figures again in writing with the Committee if you
would like me to address this specific point.
Q11 Chairman: You have been running
the scheme for four years now and your feeling is that it is not
£1 in £3?
Dawn Primarolo: My feeling is
that if I am going to continue manage a system that is fair to
the claimant in terms of their ability to pay at any one time,
the profile of collecting the overpayment needs to be considered
as well. You are asking me for the first two years and I am explaining
how we are required to account for it. How much we will eventually
collect is dependent on a number of other issues.
Chairman: We will come to those, okay,
Q12 Mr Gauke: Paymaster General,
we have had some figures now on the cost of the disregard and
there seem to be two sets of figures floating around, one the
Exchequer effects and the other the effect on entitlement. Could
you clarify for us which is the figure that gives the best representation
of the full cost of the increase of the disregard from £2,500
Mr Orhnial: If we are looking
at the Exchequer cost then what we need to look at is not entitlement
as such because entitlement would be the cost, if you like, in
a world in which every change in income was reported and acted
on immediately and there were no overpayments, etc. So the figures
that correctly identify the cost to the Exchequer are the ones
in my letter to the Chairman of the PAC on 18 October, which essentially
look at the net impact on Exchequer forecasts as a result of taking
into account a number of things. One is the increase in entitlement,
the others are things like projected overpayments and assumptions
about how long it takes to effect changes. That is the impact
and it is a question of the difference between the money that
would otherwise have gone out of the door.
Q13 Mr Gauke: Just to be clear, are
you saying that but for the increase in the disregard the cost
is, in your opinion, the Exchequer effect and not the entitlement
Mr Orhnial: Yes, that is right.
Q14 Mr Gauke: The National Audit
Office in their written submission to us says that the entitlement
effect captures the full effect of the changes over time. Are
you disagreeing with that?
Mr Orhnial: No, I am not. What
I am saying is that is a figure that takes a very long time to
reach and ultimately depends on the sort of factor that the Chairman
raised a little earlier which is how much of the potential overpayments
are actually recovered after a period of years, so in a theoretical
world at some point the entitlement will be the correct figure.
But I am not disagreeing with the NAO report. I think we are in
exactly the same place. They estimated that the entitlement was
worth somewhere between £400 million and £600 million;
we said £500 million. We both say that is a figure that is
theoretical in the sense that it is in a world in which we had
no overpayments or if we had overpayments they were all recovered.
Q15 Mr Gauke: But when you say over
a period of time, are we saying that eventually we will get to
the entitlement figure or are we saying eventually there are going
to be overpayments that you are not going to recover and therefore
the Exchequer will lose?
Mr Orhnial: There may well be.
We do not reach it within the forecast period. If you look at
the figures which I think the NAO repeat in their note to the
Committee at the bottom of page 6, we are not reaching the £500
million by 2010-11, which is the extent of our projections. A
lot of that is around the sort of thing the Paymaster was talking
about earlier that there is a balance to be struck between the
speed with which we recover overpayments and hardship.
Q16 Mr Gauke: Just to move on, why
was the original figure for disregard £2,500 so ineffective
or why was it the wrong number?
Dawn Primarolo: During the consultation
on tax credits there was a great deal of discussion around how
the system could deal with drops in income and certain rises in
income, frankly, to balance the cost over time. It was at a time
when the data that was around was very thin about exactly what
you should set that figure at. What subsequently has happened,
for which there was at the time no information, is where in a
household a second earner who was not in paid employment returns
to work the number has been quite significant. So at the time
with all the consultation that was done, the £2,500 was set
from what we understood of what was going on in the labour market
and from all our consultations, which in practice demonstrated
that actually the tax credits were quite a powerful draw to have
people return to work. In looking at some of the causes of overpayments
that was one of the issues that was identified.
Q17 Mr Gauke: Given that you have
moved on now to £25,000, have there been any administrative
savings as a consequence of the increase in the disregard?
Dawn Primarolo: We are not actually
looking for administrative savings in tax credits. With all of
the package of changes, whether it be the shorter reporting period,
or the £25,000, if as a result of that there was a reduction
in some administrative practices I would expect to see that recycled
into further types of work that this Committee and others have
identified that needs to be done on delivering the service and
interaction with claimants and how best to support them. So there
is no saving in that sense. If there was a drop in some budgets
it would simply be put somewhere else in the tax credits system.
Q18 Mr Gauke: More generally have
you done any detailed analysis yet on the 2005 PBR measures and
their impact on tax credits ?
Dawn Primarolo: No, well, only
in that for instance the shortening of the renewal period went
through without problems and that was one of the PBR changes,
encouraging people in some of the pilots that we were talking
about before. We have assessments of that and that is informing
what we do next. The new award notice and the consultation around
that and the shorter guidance notes to assist claimants have been
successful but, as I said to Mr Fallon at the beginning, we can
look at different measures but I think we will need to look at
the totality as well. Can I just say of course that going from
31 September to 31 August, and it working, means that we have
announced this year that we are actually coming down another month
because the run-on period whilst that renewal is taking place
means that people could be receiving the incorrect amount and
that could be a source of overpayment.
Q19 Mr Gauke: Given that so far as
the disregard is concerned it clearly has a cost and given also
the fact that the 2006 PBR estimates that actually the amount
paid through tax credits will fall from 2006-07 to 2007-08, albeit
very slightly, on what basis is that happening? Is that a consequence
of anything within the 2005 measures or is it about overpayment
claims? What is driving that?
Dawn Primarolo: We have done our
best to look at the interaction of the package, for instance the
shorter window for notifying change of circumstances and the other
issues around that, so it is the combination of those measures
that will in particular add to our ability to be sure that we
are getting the right money to the people at the right time, and
obviously the renewal window is the biggest factor. If you have
shortened it by four weeks and soon by eight weeks it does make
quite a difference.
1 Note by witness: The take-up statistics for
2004-05 were published on 1 March 2007. Back