Examination of Witnesses (Questions 80-99)
HM REVENUE &
CUSTOMS
10 OCTOBER 2007
Q80 Angela Browning: I would not
want you to be complacent.
Mr Gray: I am not.
Q81 Angela Browning: What you should
also consider is that these are people who actually take it upon
themselves to contact a Member of Parliament in the first place,
and I do not think any of us who deal with this casework on a
day by day basis imagine that everybody is aware that if they
do contact their Member of Parliament we can use the helpline
and the facilities of the Ombudsman. I want to put to you one
or two things that I think you should focus on and which I would
like your response to because, for example, some of those cases
that went to the Ombudsman certainly went from my office; in fact
I handed in yet another case there this morning because of the
mail strike. One of the problems of overpayment that I have had
a lot of problems with is this astonishing situation where when,
eventually, they say yes, we think we have sorted this out, the
constituent nonetheless still gets direct payments into a bank
account—and I have double-checked, there is no question
there is any problem with the bank account receiving the payments—and
some sort of paper, either a cheque or some sort of order, as
well. I have to put a caveat on the bottom of every letter that
I write, that even when you have sorted my constituent's problems
out, please be aware that you should check your bank account as
there may still be a duplicated payment. Surely that is not getting
to grips with the problem, is it?
Mr Gray: That is an unsatisfactory
situation, I quite accept.
Q82 Angela Browning: It is unacceptable;
totally unacceptable.
Mr Gray: It results from a sequence
of events in which, for a small proportion of cases, we are unable
in the first instance to have the case operated automatically
through the computer system in the way I was discussing earlier
with Mr Curry. In those circumstances, in the interests of trying
to provide as good a service as we can, we make alternative means
of payment, either through giros or whatever, in rare cases actually
hand-collected cheques at our enquiry centres, so that the people
who are entitled to the money get the money through an alternative
source. What we say, and I say this quite often in letters when
I write to you and your colleagues, and you are obviously the
people pointing it out, we will then as quickly as possible try
to sort out whatever the IT problem is that has affected that
small group of cases. But once we have done that we know that
because we have overridden the system in the first place to make
a manual payment, it is likely that an automatic payment will
be generated through the IT system, and we think that as long
as we are up front about this—and we do seek to be upfront
about this—in telling people we will try and sort out your
problem as quickly as we can by finding a work-around, you may
well then be in receipt of a duplicate payment, and we think it
is appropriate to warn people that that will happen and to say
in those circumstances that since we told you this may happen,
if you get that double payment then we will seek to recover it
from you.
Q83 Angela Browning: Let me give
you an example. Last week I sent a case, not to the Ombudsman
but directly to the minister, because we seem to have reached
what I would regard as the reasonableness test, in other words
the detail of the case had been explained and we had had an exchange
of correspondence with your office, in exactly one of those situations
where we had written in the caveat to the constituent, please
be aware that although this is now resolved, we have agreed the
appropriate amount, you may still get duplicated payments through
a bank account and through a cheque. She understood that and then
five months later she received, out of the blue, an enormous cheque,
so she had to think does this relate back to the warning I gave
her five months ago, so she phoned your helpline and said: "Look,
I have got this large cheque, is this mine or not?" "Oh
yes", said the helpline, "we have checked our records,
that is fine." Two months later she gets a letter to say,
"Oh no, it is not". In the exchange of correspondence
I have had with your department we have ended up locked together,
which is why I have sent it to the minister, because your department
is insisting that the reasonableness test which you seem to apply
would be that even though your helpline told her: "That is
all right" and she took the trouble to check it, she still
should not have spent the money anyway, even though she had taken
those steps. I find this cloud-cuckoo land; who is going to advise
these people? These are people on low incomes, these are people
who have double-checked, these are people who have gone through
their Member of Parliament. I really am not convinced that you
have gripped the scale of the problem of overpayments, which is
why I sent it to a minister.
Mr Gray: May I go back to the
point I made earlier. In applying this reasonable belief test
we are in the process of consulting on a way of amending that
in a way which makes much clearer to people what we expect of
them and what they can reasonably expect of us, so that in difficult
cases of this sort we are relying less on what is inevitably at
the margin a subjective assessment of what might or might not
have been reasonable in the circumstances.
Q84 Angela Browning: It is an interesting
word "reasonableness", is it not?
Mr Gray: It is an interesting
word. It is a word that has a long history in the traditions of
the tax system, but in relation to the application of the world
of Tax Credits we are now considering whether we should adopt
an alternative approach and not use that word, although it is
designed to deliver broadly the same sort of outcomes but through
a more explicit set of expectations on the part of the claimants
and ourselves.
Angela Browning: I often think it is
rather like proportionality where a lot of very clever people
could make a case, but those who are less able to make their own
case would be totally swamped.
Mr Curry: I think it is not an appropriate
word.
Q85 Angela Browning: Not an appropriate
word, my colleague says. Thank you, I am grateful to you. Could
I move on to something else. I do say that I think the MPs helpline
is a very good resource, although I think we cynical old politicians
understand why it has been provided for us, so that we phone your
helpline and do not keep jumping up and down on the floor of the
House of Commons embarrassing the Government. I am concerned that
you do not provide such a facility to the Citizens Advice Bureau
(CAB) because a lot of casework comes through to me from CAB offices.
They are well trained people, they are not going to fill you up
with frivolous casework, they will have a good understanding of
what they are putting forward and of course, as MPs, we work in
partnership with advisory bodies like the CAB. I know when I visited
my own CAB in Devon they have been concerned that it takes quite
a lot of time to get through to you in the same way that members
of the public do and I wonder why you do not consider that as
a useful way of helping to resolve some of these cases.
Mr Gray: We do, in fact, have
such a system for the Citizens Advice Bureau. Some months ago
now I spent a day in one of our Liverpool offices sitting with
our staff operating exactly that dedicated line.
Q86 Angela Browning: Is that available
throughout the country?
Mr Gray: I think it is for all
CABs. It is not available for all the voluntary agencies which
seek to support claimants. Perhaps I can make one other point
here, that there is always a difficult trade-off to strike. Earlier
on you referred to the MPs hotline as a Rolls Royce service, I
hope it is a good service. Frankly, I do not aspire to it being
absolutely Rolls Royce because, although we are keen to make sure
that, as an important group, you have a special way to get through
to us, there is always a trade-off. Once you start introducing
specialist lines in any line of business, the more resource you
put in and the more priority you give to specialist lines, other
things being equal, you are having potentially a negative impact
on other lines open to ordinary mortals, if I can put it that
way. Although we have got not only the MPs line but also a degree
of dedicated support for Citizens Advice, just as in the tax paying
world we are looking at special arrangements for tax agents to
be able to contact us. I am always having to weigh what I think
is quite a difficult balance between how much priority to give,
given that the more resource I put into that, the less resource
there is available for the generality.
Q87 Angela Browning: The reason I
particularly raise the CAB is not only the fact that they would
deal with tax credit cases but, of course, they are the major
resource locally for dealing with the expanding problem of personal
debt and there is a real read across when people suddenly find
they are owing money that they had not anticipated they would
owe. They are really at the heart of helping people who in my
constituency earn not just less than the national average wage
but less than the south-west average wage. Personal debt is a
very, very big problem.
Mr Gray: I understand, which is
why we have responded positively to exactly that idea.
Q88 Mr Mitchell: It is a great pleasure
to welcome you back to this poor people's court in your regular
appearances here. First of all, a peripheral matter. I have got
a series of letters and the last culminates in an email on 4 October
from a David Piper of Rye—which I do not know and I do not
represent but I am told it is almost as nice as Cleethorpes—saying
that his company, which is called Future Gain 3000, applied for
VAT registration in January this year and nothing has happened.
He does not know why, he has had no explanation. I gather you
know about the case because we have sent the material along to
you. Why?
Mr Gray: We have been facing challenges
with our VAT registration process. As the Committee knows from
some of its earlier hearings, one of the biggest challenges we
face as a department is the problem of carousel fraud in VAT.
We have been relatively successful in bearing down on that multibillion
problem over the last 18 months. A key requirement or a key aspect
of carousel fraud in VAT is with people who obtain a VAT registration
in the first place. Because that is a key problem, we have very
consciously put extra compliance effort into ensuring that we
are not providing VAT registrations to people who are at risk
of then perpetrating a fraud.
Q89 Mr Mitchell: This is now ten
months affecting business.
Mr Gray: This is ten months. In
individual cases this can present us with a difficult dilemma.
Only 5% of cases through our risk monitoring and risk targeting
go through an extended check process. That has meant that there
have been for straightforward traders longer delays than I would
have liked. We are now progressively getting on top of that problem.
This is not the only case.
Q90 Mr Mitchell: You will deal with
Mr Piper's case?
Mr Gray: We will deal with Mr
Piper's case, along with the many thousands of other cases, but
we will deal with it in a way in which I regard as incumbent on
me to make sure we are doing the appropriate level of checks before
we provide a VAT registration, which is a very valuable thing
for anybody to have.
Q91 Mr Mitchell: I will stop you
there because, as I say, it is a peripheral matter for us. Following
on the point that Richard Bacon made, this representation we have
had from the Low Incomes Tax Reform Group, a body from which Members
of Parliament are excluded since our pay increase, about these
backdated charges on small pensions, it seems daft you have not
charged them for a long time and the costs of collecting are probably
more than the revenue that you are going to get. It is going to
hit people, I have seen after my conversation with the Prime Minister
on Friday about the timing of the election, in 2008 and 2009,
just when he will be going to the country. "The fair and
reasonable approach", say the Tax Reform Group, "to
this issue is to announce that no tax will be collected from a
pensioner up to the point that HMRC write to them to tell them
that they are one of the people affected". Why do you not
work on that basis?
Mr Gray: We are trying to operate
this on the basis we normally operate in the tax system, which
is after the end of the year in question people's tax is brought
to account and if there is a variation between the tax paid and
the tax owed, then we seek to collect it, typically by putting
that adjustment into a future year's coding and that is exactly
what we are going to do here. We are not operating backdating.
Very deliberately I took the decision that although this problem,
which Mr Bacon described the sequencing of, has been clearly in
place for a number of years, unfortunately and unsatisfactorily,
we are not going to go back over those previous years but, having
identified the problem when we have, during the course of 2007-08,
having taken legal advice, I think the right thing is to start
collecting it as we would normally do in relation to any other
tax.
Q92 Mr Mitchell: The advice in local
tax offices in many cases is that they are not liable and it has
not been collected, so as you normally do does not apply.
Mr Gray: I think it is as we would
normally do. If there is an adjustment that needs making we identify
during one year, we bring it to account after the end of that
year and then put it in a future year's tax code.
Q93 Mr Mitchell: Let us move on to
the main issue, the Tax Credits. It does look from the evidence
that the fact is that the computer system could not cope, so you
are transferring it to the National Insurance computer system
in 2008-09 and the fact that you did not have enough staff to
select cases and deal with them as though it was introduced too
fast. Would that be the case?
Mr Gray: It is actually not the
tax credit system we are switching to the National Insurance recording
system, that is the Pay As You Earn system which we are aligning
with the National Insurance system. As far as Tax Credits is concerned,
we are not doing that. We have a free-standing system over which,
as you well know, we had difficulties in the early years, that
is what has given rise to the issue vis-a"-vis EDS,
which I was discussing just now with Mr Bacon. Progressively over
the years of implementation we, and our IT providers, have been
steadily ironing out the difficulties within the system. Again,
my predecessor and I have given evidence here that says we now
believe that system is stable. It is a fragile system, it is very
difficult to make further adjustments to, but we have got it to
a stage of stability.
Q94 Mr Mitchell: Were ministers warned
there would be difficulties in coping with the existing computer
system and the existing staff numbers?
Mr Gray: When new Tax Credits
were introduced, it was a new computer system that was introduced
in order to deliver that system. New Tax Credits were designed
on a completely different basis from their predecessor, social
security benefits, which were fixed-term awards operated by computer
systems, in what is now the DWP, used to that form of operation.
With Tax Credits being designed on an annualised basis, we needed
to have a new computer system, that was the one that was designed
and which was available for implementation from 2003-04.
Q95 Mr Mitchell: My obvious problem
is with pay now, check later, but you have raised the limit after
April 2006 from £2,500 to £25,000 for variations in
salary and wages in the back period.
Mr Gray: In relation to the year
in question.
Q96 Mr Mitchell: Yes, that is right.
That is a reasonable sum, but you are still expecting that will
only lead to a one-third reduction in overpayment. Is it generous
enough? Should you have raised it further? If it is necessary
to raise it to £25,000, should it have been at that figure
right from the start?
Mr Gray: Variations in income
is only one of the reasons that generates overpayments. A number
of the other measures introduced two years ago were looking at
other aspects. One of the other main causes for overpayments is
families overestimating the extent to which their income has fallen
when they seek extra support during the year. We get delays in
notification of changes of circumstance. There is also the point
that Sarah Walker touched on earlier, that since this income disregard,
as it is called, applies only to the year in question, as you
move into the following financial year, the following April, we
continue to make payments on a provisional basis in that year
on the basis of the income information we have got until we go
through the finalisation process. That means a significant part
of the overpayment in the subsequent year reflects that lag in
the system. There are a range of factors here underlying overpayments.
Q97 Mr Mitchell: It is a joke. You
say the computer system has now been reformed, revised, and can
cope. You have diverted extra staff, but at what cost to the other
aspect of your business, getting the money in, I do not know.
You might like to tell us whether there have been any effects
there on collecting money by diverting staff to recovering overpayments,
but even with these changes and the big increase in the limit,
£25,000 average is substantial, you are only expecting a
one-third reduction in overpayments. There must be some endemic
problem if all these steps are being taken and yet still are going
to continue.
Mr Gray: I think the point is,
going back to the point I made earlier, Mr Mitchell, the system
was deliberately designed to be very flexible and to respond to
people's changes in circumstance. From the word go the Government
made clear the expectation that it would generate significant
numbers of overpayments in any year which would then need to be
adjusted and collected in future. What the various changes we
have made have done is bring us much closer to the originally
expected level of overpayments as a design feature in the system
as the consequence of having a flexible system operated on an
annualised basis. As far as your point about administration costs
is concerned, yes, we have put more resource into Tax Credits.
Q98 Mr Mitchell: Is that extra resource
or diverted resource?
Mr Gray: It is resource within
a fixed overall envelope that I have at my disposal, so the number
of staff went up from just under 9,000 in 2005-06 to just over
10,000 in 2006-07, although part of that was a statistical adjustment.
There was an underlying increase of about half that amount. Part
of my job is always trying to get the right margin of decisions
on priorities for placing our staff and other resources. I felt
that the judgments I have made in terms of putting relatively
more resource into Tax Credits and inevitably, therefore, being
able to be less generous in other bits of the Department have
got the right overall balance.
Q99 Mr Mitchell: I hope so too because
I have still got the grudging impression that you do not particularly
want this, you do not like, as a department, handing out money
instead of grabbing money off people. You have gone about it in
a cack-handed way which builds up the sort of resentment that
discredits a system which I strongly support.
Mr Gray: You have put that suggestion
to me before which I do not agree with. I have got a really dedicated
workforce in this area of the Department which is working incredibly
hard, and I believe very effectively, to overcome some of the
difficulties they face and they are amongst the most motivated
staff that I have in the organisation. I am afraid I do not accept
any implication that I have got a workforce that is grudgingly
operating this policy.
|
