1 The service provided to tax credit
claimants
1. In April 2003 Child Tax Credit and Working Tax
Credit (tax credits) replaced the previous tax credits system
as part of the Government's reforms of the tax and benefits system.
The new arrangements were designed to help families with children
and working people on low incomes. HM Revenue and Customs (the
Department) has paid some £65 billion of tax credits in the
first four years of the scheme and it has estimated that an average
of 5.3 million families benefited in 2005-06.[1]
2. The Department has increased the numbers of staff
employed in managing the scheme from 7,300 in 2003-04 to 10,120
in 2006-07. Over the same period the administrative cost has risen
from £406 million to £587 million.[2]
3. This Committee has previously reported on the
poor quality of service given to tax credit claimants.[3]
A significant number of the complaints are about the Department's
process for handling recoveries of overpayments and the misery
that this causes. The Department accepts that it has not made
enough progress in its handling of disputed overpayments and complaints.[4]
4. The Ombudsman's October 2007 Report, 'Tax Credits:
Getting it Wrong?' has also drawn attention to a number of continuing
problems in the administration of tax credits.[5]
While the Report pointed out that tax credits work for a lot of
people, there are continuing problems with the unfair and inconsistent
application of the Code of Practice on the recovery of overpayments,
the unduly harsh nature of the decisions on recovery and the fact
that some of the Department's decisions seem to run counter to
the aims of the tax credit policy.[6]
The report also pointed to a particular group of the poorest people
in the United Kingdom who are saying that their experience has
got them into debt where they previously had not been in debt—causing
distress, anxiety and even family break-up—and wishing to
have nothing more to do with the scheme.
5. The Code of Practice on the recovery of overpayments,
introduced in April 2006, provides for the Department to suspend
the recovery of disputed overpayments in cases of genuine hardship
until the dispute is resolved. It will also write off overpayments
where it is responsible for the error and the claimant could reasonably
have thought the payment was correct. In 2006-07, 371,282 households
disputed the recovery of overpayments, less than 3% of which resulted
in write-off. The number of overpayments written-off following
dispute is significantly lower than the levels experienced in
2005-06, as shown in Figure 1.
Figure 1: Disputed overpayments
| 2004-05
| 2005-06
| 2006-07
|
| Disputes received
| 216,679
| 364,380
| 371,282
|
| Number of overpayments written off following the dispute
| 10,300
| 160,702
| 9,912
|
Source: HMRC
6. Many claimants have been concerned about the Department's
application of the "reasonable belief" test in determining
whether overpayments should be repaid or not. The Department is
reviewing this test to seek to make it more objective, and less
reliant on difficult judgements about what people could reasonably
believe. Under the new test the Department will be more explicit
in setting out the information it expects claimants to check.
The Department is also considering its own obligations to act
promptly in response to revised information from claimants, for
example, by not pursuing overpayments where it has received information
but failed to act on it within a given period.[7]
7. The Department has operated a relatively uniform
process for dealing with tax credits claimants. It accepts that
its approach has lacked the flexibility to provide a service tailored
to the circumstances of claimants. It is seeking to move to a
system which is more flexible with the aim of uniformity of outcome
rather than relying on uniformity of process.[8]
It has piloted service improvements for those who need to make
a new claim following the breakdown of the household which ended
an earlier joint award. Other improvements involve proactive questioning
to establish all relevant facts to allow the effective processing
of awards where the circumstances of claimants change.[9]
8. A number of the difficulties experienced by claimants
stem from the problems encountered with the tax credits computer
system following its implementation in 2003. A number of enhancements
have been made to the system to improve the processing and payment
of awards and the information provided to claimants. The Department
considers that many of the original problems encountered with
the system have been largely resolved and that the system is now
stable, although software errors continue to result in incorrect
payments, and some claims are still processed manually. It also
considers the system to be fragile which makes it difficult to
develop further.[10]
9. The Department has targets for processing information,
but these do not show how accurately it is paying claimants. Whilst
the Department wrote off £61 million in respect of official
error in 2006-07, it does not know the full extent to which official
error causes incorrect payment. It is now designing a new check
which aims to establish if it is paying the right amount to the
right people at the right time.[11]
COMPLAINTS
10. Claimants can complain where they are dissatisfied
with the Department's handling of their case. In 2006-07 the Tax
Credits Office received 54,483 complaints, representing 55% of
all complaints received in the Department.[12]
The majority of these complaints relate to the Department's handling
of disputed overpayments.[13]
If claimants are unhappy with the Department's initial decisions
they can ask it to review their case again. If claimants continue
to be dissatisfied, they can ask the Adjudicator to review their
case.
11. Claimants can also ask their Member of Parliament
to refer their case to the Ombudsman. During 2006-07 the Ombudsman
reviewed 393 cases, and either fully or partly upheld 74%.[14]
This percentage is lower than the 90% of claims fully or partly
upheld in the previous year, but still remains higher than for
other Parliamentary complaints investigated by the Ombudsman,
where 58% were fully or partly upheld. The Department acknowledges
that the proportion of cases being upheld is too high.[15]
1 C&AG's Report, Standard Report on the Accounts
of HM Revenue and Customs 2006-07, Part Two: Tax Credits,
Figure 1, page R15, HC (2006-07) 626 Back
2
C&AG's Standard Report 2006-07, Part Two: Tax Credits, Figure
1, page R15 Back
3
Committee of Public Accounts, Twenty-second Report of Session
2006-07, Tax Credits, HC 487 Back
4
Q 10 Back
5
Parliamentary and Health Service Ombudsman, 5th Report,
Session 2006-07, HC 1010 Back
6
Code of Practice 26: What happens if we have paid you too much
tax credit? HMRC Back
7
Q 34 Back
8
Q 57 Back
9
C&AG's 2006-07 Standard Report, para 2.44 Back
10
Q 93 Back
11
C&AG's 2006-07 Standard Report, para 2.40 Back
12
C&AG's 2006-07 Standard Report, para 2.47 Back
13
C&AG's 2006-07 Standard Report, para 2.47 Back
14
C&AG's 2006-07 Standard Report, para 2.51 Back
15
Q 78 Back
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