Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 100-119)


14 MARCH 2007

  Q100  Mr Newmark: If I move to what Sarah said earlier, when you said the level of mistakes are now much smaller, if I sit here in a year's time, and I hope I have the pleasure of the Paymaster General in front of me, the number I am going to see is going to be perhaps smaller than the 397 million of write-offs of debt that we have seen in this past year, is that right? Do you have confidence in the system now?

  Ms Walker: Absolutely, yes. If you look at the figures in table three of the NAO memorandum it shows that by 5 April 2006 we had written off £0.3 billion in respect of 2003-04 and £0.2 billion in respect of 2004-05. If you look at it in respect of the years that we were dealing with that amount is going down.

  Q101  Mr Newmark: But you have still got this provision of doubtful debts, this elephant in the room in your accounts that is £0.9 billion.

  Ms Walker: There are two things going on here. One is the write-offs that we make in respect of official error and the other is the amounts that we may have to write-off in time because we are not able to collect the money that is owed to us. The provision for doubtful debts is a prudent and possibly generous provision for the amounts of outstanding debt that may not even be recoverable.

  Q102  Mr Newmark: Whether it is generous or prudent, it is a big number, okay.

  Ms Walker: Absolutely.

  Q103  Mr Newmark: So you could be out 10% maybe and things will go to your benefit, 10%, maybe 15%, but you are still talking about total debt of £1.2 billion, £1.3 billion having to be written off from overpayments of £4 billion. That is about 33%, so about one in three pounds of overpayments, that you are stuck with that you are having to write-off, or have I got my maths wrong?

  Dawn Primarolo: It is not written off yet, it is in the accounts as debt that might not be recovered. You are adding together figures that have definitely been written off because the error was accepted in what we are required to do under prudent assumptions in terms of what might not be collected in the future.

  Q104  Mr Newmark: I am assuming that if prudent was a figure half that they would have put that in but clearly they are expecting it to be somewhere around that figure. I am giving you 10% or 15% room for error there.

  Dawn Primarolo: That is kind of you.

  Q105  Mr Newmark: It is not half a billion, it is almost a billion extra. I am saying to you, do you think that is a good sign? Is this something you are proud of, that one in three billion of taxpayers' money is being written off?

  Dawn Primarolo: I do not accept your proposition that adding together what definitely is being written off with what we are required to put in our accounts as doubtful debt that might not be recovered is necessarily—

  Mr Newmark: I guess we are talking at cross-purposes because you are talking about—

  Chairman: Let us have a question.

  Q106  Mr Newmark: I am just getting to the question. You are talking about the accounting standards that you are living by and I am asking you a question about the fact that the numbers I am looking at are showing £1.3 billion out of £4 billion that you are going to have to write-off as overpayments, give or take 100 million. That is a bad number. I am saying to you, is that something that the Government is raising a flag about, is it something it is proud of or do you think there is a problem here?

  Dawn Primarolo: No. I have answered the question about the accounting of doubtful debt and the actual writing-off. There were some in the House who took the view that we should have written off all the debt and the Government did not take that view because it believed that under certain circumstances it was recoverable and that is a matter that continues to be of some discussion.

  Q107  Mr Newmark: This is to do with the same issue Colin was talking about, which is the causes of overpayment and communicating with the public. Citizens Advice have told us that HMRC has "no routine method for explaining the cause of an overpayment" and that it is "frequently unclear how an overpayment has arisen or even how much it is". Why is there no routine method for explaining the cause of an overpayment?

  Dawn Primarolo: There is the improved award notice and the issue of playback by which change is being made into the system that will continue to improve the system and assist with those matters. As Mr Todd rightly said earlier on, in terms of IT releases and having those in the system, they were a priority and are now there. What the Department also has to do is to discuss regularly with the organisations which are part of the consultation framework about issues in the operation of the tax credit system and how to improve that system, and that goes on well with feedback so work is being conducted to ensure that happens.

  Q108  Mr Newmark: Okay, but, again, moving forward a year from now, if I am sitting here before you is there going to be more clarity from those at the receiving end of the notices and letters and everything else that they have as to what is going on? Will the communication be better than it is today?

  Dawn Primarolo: Yes. I have followed the recommendations that have been made to me both on award notices and playback and style of communication to the claimants, and I believe, as do several recommendations from different committees, that will produce a better system whereby there is greater clarity.

  Q109  Kerry McCarthy: We supported in our report the idea that taxpayers should be given 30 days' notice before recovery commenced, and I think in your response to the report you said you entirely supported that, and made a statement to the House that you supported that, but that you would "try and develop opportunities to implement" the pause. Can you explain what you are doing to try to implement that, what the timescale is and what the difficulties are because I understand you described it as technically challenging.

  Dawn Primarolo: It is technically challenging, yes. Again it comes back to the point that Mr Todd made about what is the highest priority in terms of making the system work. Where an overpayment is disputed, in effect the suspension of recovery happens now for the period that the dispute is being investigated and the result sent to the claimant. I am in discussion with the Department who tell me that the introduction of the pause on an IT basis is very complicated in terms of the system and is not as straightforward as it seemed and, therefore, they are considering that. What I have also said to some organisations I have met with the consultation group is all round in the work, both with the Ombudsman and the Adjudicator, in improving what we call Tiers 1, 2 and 3 of the complaints procedure, the correct route is to deal with the complaints promptly at the right time so that they do not escalate into a dispute procedure. I do not have a specific IT release where I will be able to say I want the pause to go in. I am still asking the Department to consider it and look at what the consequences would be.

  Q110  Kerry McCarthy: Am I correct in understanding that at the moment if you identify there has been an overpayment you immediately go into recovery mode and at the same that you tell somebody you are going to recover you start recovering the money?

  Dawn Primarolo: Yes, that is what the system does.

  Q111  Kerry McCarthy: Have you undertaken any analysis as to how long it tends to take people to contact you to say that they want to dispute the overpayment?

  Ms Walker: I do not think we have ever analysed the time lapse between issuing the award notice and people coming with a dispute. I do not know the answer to that.

  Q112  Kerry McCarthy: I just wondered because I can imagine that in some cases it is only when they start seeing how much money comes into their bank account and wonder how long it takes them formally to register there is a dispute rather than making inquiries to try to find out on an informal basis that is something has gone wrong.

  Dawn Primarolo: We do not have that information but it would not make any difference to their dispute. The time period that I have said before to the Committee—

  Q113  Kerry McCarthy: They might have had a period of some weeks in which the money was being recovered from their account.

  Dawn Primarolo: It would depend how they were paid, weekly or monthly.

  Q114  Kerry McCarthy: On this general idea of the burden of proof being on the claimant to prove that they reasonably did not realise they were receiving an overpayment, we are getting quite a lot of evidence from the voluntary sector that this is not being applied consistently, that in some cases the decision is being made on a different basis as to whether the claimant was reasonable in accepting a payment that they were not entitled to. Have you done much analysis of that? People have contacted us from specific organisations, such as the Citizens Advice Bureau, where they have had two people come in to them in very similar situations but in one case you accepted it was reasonable for them to not have realised that an overpayment was being made but in a very similar case it was not reasonable.

  Ms Walker: I am not aware of a problem with that. What we have done over the last few months is first of all clarified exactly what we mean by the reasonableness test, so we are making it clear to people what we expect them to check around their award and what we do not. We do not expect them to be able to understand the whole calculation because that can be quite difficult but we do expect—

  Q115  Kerry McCarthy: It is basic things like they have got the number of children down correctly, the date they started work and things like that?

  Ms Walker: Exactly, and the amount that it says on the award notice is the amount that is going into their bank account. It is a simple thing to check. If they have checked those things and let us know if there is a problem and we have not acted on it then we would accept they should reasonably be able to expect that is right and they have done all they need to do.

  Q116  Kerry McCarthy: That is quite straightforward. I can understand if they have not checked things on the checklist, if the number of children is wrong or something like that, and you say "you should have realised this", but once you have exhausted the checklist, say, and everything on that is accurate, are there examples beyond that where you would still hold that they should reasonably have known?

  Ms Walker: I think there are cases, and it does not happen very much now. In the past there have been cases where, for instance, an unexplained payment of £10,000 has turned up in a bank account and there we would expect the person to query that. Generally, so long as they have checked that the information we played back to them matches what they have given to us then that is all we expect them to check. What we have done over the last few months is extra training for the staff doing those cases and more checking by managers. I can give you a note if you like on the new processes we have got which are trying to ensure consistency in that process.

  Q117  Kerry McCarthy: Yes, please. The percentage of the disputed overpayments that are written off has fallen off fairly dramatically. Is that because on the reasonableness test you have now got firmer procedures in terms of using the checklist and so on and there is less subjectivity in the process?

  Ms Walker: It is partly that. As I say, only 5% of disputed cases actually represent an error. Obviously the first hurdle is that it should be a mistake and then out of those 5% roughly half will meet the reasonable belief test in our experience, so to half of those people we will say, "It was reasonable for you to have thought that was right and we will write it off" and to the other half we will say, "There is something there you should have checked and told us and you did not, therefore we are not going to write it off".

  Q118  Kerry McCarthy: There will be some people, particularly people with language difficulties, where even though the checklist may be quite a simplified procedure now they will not necessarily be able to follow that. Do you take that into account or do you assume if somebody receives something in the post they do not understand then the obligation is on them to go and have it explained to them by somebody else?

  Ms Walker: It is difficult to give a hard and fast rule on those cases but, yes, we do take exceptional circumstances into account.

  Q119  Mr Breed: Carrying on from the reasonableness test, why is the Government still resisting the opportunity for claimants to have a right of appeal to an independent tribunal? Are you basically running away from something or are you not prepared to stand up for the quality of your decision-making?

  Dawn Primarolo: No. The tax credits system operates on the basis that there is an automatic balancing so that is provided for in terms of when an overpayment occurs and then the Department has to make clear on what basis it decides that an overpayment, hence the reasonable test 26—

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