Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80-99)


14 MARCH 2007

  Q80  Mr Todd: Do you have any evidence that the HMRC staff have been involved in fraud in relation to this scheme?

  Dawn Primarolo: There are strict controls and monitoring with regard to the staff, particularly when you think of the example of what happened with the e-portal and through a secure route from another department, but would you like a note on the internal checks on making sure that staff—

  Q81  Mr Todd: Yes.

  Dawn Primarolo: I could not quote today but I am happy to get the information for you, and also whether anybody has been prosecuted.

  Q82  Mr Todd: Turning to prosecutions, again your own data shows that the number of cases in which your compliance checks yield some sort of penalty and criminal prosecution are actually relatively low. Is that reassuring or is it simply that you have not got the resources to pursue a full investigation to the point where you could take criminal charges?

  Dawn Primarolo: Where there are criminal charges the Department will take them. There are different points in the report on prosecutions. The figure in the table, which I think is the penalties, reflects error as a mistake on the part of the claimant and where that has been accepted and therefore it would not be appropriate to use the penalties and fine them.

  Q83  Mr Todd: Okay, but you have actually only had 289 criminal prosecutions in the last year for which you can give figures.

  Dawn Primarolo: The criminal prosecutions are complex and they change as each case comes through. Again, we report that both to the NAO and to other bodies and it changes as we get through the cases, but again I can give the most up-to-date figures, although I do not have them here. I wonder whether we could cover cases in investigation as well as cases pending prosecution and cases that have been prosecuted.

  Q84  Mr Todd: I think that one of our difficulties here is that we are looking at data which is quite old about what you have been up to and it would be helpful on that kind of thing, where I would assume information does exist, to get a more up-to-date picture. Can I just turn to the e-portal. The impression one has from this is that some of the warnings that were available in terms of the advice from the Office of the E-Envoy on how to set up a portal of this kind and the security aspects may not have been taken entirely seriously until the point when the fraud was uncovered. Do you feel that you complied with the guidance given?

  Dawn Primarolo: The e-portal was set up before the guidance existed. Actually the NAO comment on it and accept that the way that the portal was dealing with—

  Q85  Mr Todd: — Some guidance existed in 2002.

  Dawn Primarolo: But after the planning and the e-portal itself was set up and when HMRC had in place their judgment that the compliance and the risks on the e-portal were proportionate and in line with what they were planning for. Sarah can expand on that but this is prior to the e-portal.

  Q86  Mr Todd: So you were already designing this at a point when the advice appeared and someone did not check it, because you only shut the e-portal in 2005.

  Ms Walker: Late 2005.

  Q87  Mr Todd: So the advice had already been in place for some three years before that even though you may well have designed the system at that point.

  Ms Walker: At the point the system was designed it complied with the guidance that was in force at that time. You are right that shortly after that the guidance was changed. The approach that the Department took was that we would monitor very carefully looking for signs of fraud through the portal. We were trying to strike a balance all the time between making the system as accessible as we could for genuine claimants at a stage where this was a new system and we were trying to make it easy for people to get into it while monitoring any signs of persistent fraud in the system.

  Q88  Mr Todd: I take it that your judgment is that having an e-portal at all is now too high risk and you are not intending to reopen it?

  Dawn Primarolo: My judgment is that without proper identification checks on the e-portal it should not be reopened. The Department advised me that by the summer of 2008 the necessary IT and identification checks built into the system will be available and it could reopen then, but you are quite right in your assumption that until I have that absolute amendment it will not reopen.

  Q89  Mr Todd: I think I would urge on you that there are many higher priority items in your information systems requirements than that.

  Dawn Primarolo: I think that it is important to prioritise, you are quite right, about what we should approach and what we should not. There are a lot of suggestions being made in relation to the IT system and those will certainly need to be considered as a part of that can we do without the e-portal?

  Q90  Mr Todd: I have to say in the normally admirable and harassed parliamentary response team from tax credits I still receive responses saying, "The system has a fix that is required here, we are waiting for it and until then we cannot deal with your constituent's problem". I have to say those answers have maintained consistency over several years in some cases. Certainly in one case I can think of a fix that has not occurred in four years in spite of it being promised. What are the disciplines for choosing what goes into the releases that you do eventually put out?

  Dawn Primarolo: It is partly what the recommendations—

  Q91  Mr Todd: Perhaps she is the only person who suffers from this problem.

  Dawn Primarolo: It is partly the recommendations that the parliamentary committee has made to the Department and expect them to respond to, the e-portal being one of them. You are quite right that it is necessary to look in terms of IT releases, which are basically twice a year on to the system, what should have the highest priority and what is doable and how those resources should be used.

  Q92  Mr Todd: Just on one measure, manual payments would suggest system fault and those have increased recently according to the CAB. What does that tell us?

  Dawn Primarolo: There were some manual payments that were necessary as a result of what happened on the IT release in November. The figures in terms of manual payments, the numbers that are given, are the actual number of manual payments as opposed to the household number. Apart from the result of the problem caused in November, which I reported to the House, the manual payments are around about—

  Ms Walker: The current number is roughly 34,000 and of that about a third is caused by this one temporary IT problem which will be fixed in April. The steady state number is around about 20,000.[4]

  Q93 Mr Todd: Which is lower than it was, is that right?

  Ms Walker: Which is lower than it has been but it is still too high. We do have a current programme of work to fix those problems that are causing cases not to be able to be processed through the system.

  Q94  Mr Todd: How do you rank that workload in terms of your release strategy? I have taken up a lot of time, perhaps someone can give me a note on your release strategy and how you decide it.

  Dawn Primarolo: Yes.

  Q95  Mr Newmark: I want to focus a bit on write-off of overpayments and recovery. I know we touched on this a bit earlier. According to the National Audit Office, and I am not very good with numbers, in 2003-04 £37 million was written off according to the HMRC, in the following year, 2004-05, £123 million was written off, and that is a 300% increase, and then the following year, 2005-06, £397 million in tax credits was written off, which is another linear movement of a 300% increase. I think that means the Government has written off over half a billion in debt, which is taxpayers' money, in the first three years of the new tax credits. In addition, the total provision just in the years 2003-04 and 2004-05 is £1.3 billion that has been made in the Trust Statement account for overpayments expected to be written off. All of us in this room are taxpayers and I am as curious as other people to know what further tax credit debt you expect will eventually have to be written off.

  Dawn Primarolo: The doubtful debt figure which you quote is a requirement under UK accounting standards and the Department is required to put those figures into the accounts, and I have explained that at previous committee meetings. In terms of the profile between the years that you identify, the second year reflects the settlement of overpayments resulting in the early operation, the surge through of a large number where it was quite clearly an error in the way that the system was performing. You can see the cluster at that point.

  Q96  Mr Newmark: You still see the linear progression and I am concerned that for year one it is here, for year two you have a 300% increase in the amount that is being written off and then on the basis of that higher number you have another 300% increase. We are now in 2006-07 and I am worried that the direction is if you maintain that 300% you are going to have another 1.3 billion written off and that is in addition to the Trust Statement.

  Dawn Primarolo: No, I have just explained that is the time lags in the system of when the cases were actually settled in terms of writing them off. It does not necessarily—

  Q97  Mr Newmark: I know, but when you do your accounting, and perhaps Tony can help me with this, and you do a write-off, I am assuming the write-off is for the year in which that error is made or when you decide to make a write-off does it not matter whether it happened in 2003-04, you are doing it in 2004-05 because that was when you recognised it?

  Mr Orhnial: To the best of my knowledge it is entered for the year when the write-off actually takes place.

  Q98  Mr Newmark: Not when the error is made?

  Mr Orhnial: No.

  Q99  Mr Newmark: So this is a cumulative effect then, after two years you identified more errors and therefore wrote-off a two year build-up of those errors effectively, is that correct?

  Mr Orhnial: That is my understanding. It took some time to clear up 2003-04.

4   Note by witness: These figures refer to the number of families where manual payments are being made. Back

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