Examination of Witnesses (Questions 100-119)
HM REVENUE &
CUSTOMS
10 OCTOBER 2007
Q100 Mr Mitchell: I only sought to
say how strongly I support the system. Let us turn to the Ombudsman's
Report, which is pretty damning but it struck me in cases I have
dealt with as a heavy booted way in which you demand money back
from people who are not in a position to pay, working on fairly
tight budgets and suddenly faced with a big bill which is going
to be deducted from future payments. It is going to be crippling
for them. She speaks of: "the unfair and inconsistent application
of rules to claim back the money with distressing, devastating
even, effects on families". It is too heavy-handed, is it
not? Why not have a limit below which you do not claim the money
back?
Mr Gray: I have accepted that
there are those few cases she draws attention to which we have
not handled appropriately. I do not accept your definition of
"heavy booted" about the way in which we approach this.
Q101 Mr Mitchell: I have had people
in tears in surgery faced with a bill and an unrelenting demand
from your Department. It is not right, it damages the system.
The CAB says that more than half of claimants would be less likely
to claim their means-tested benefit as a result of their experience.
Mr Gray: I have obviously read
that. Our data suggests that there is a very high rate of take-up
still in Tax Credits by low income recipients. On your point about
limits, for people who are still receiving Tax Credits we have
very clearly laid down limits on the proportion that we can recover;
for people on a maximum award we can only make a deduction of
10%, so it quite often takes a number of years to recover it.
I do not regard that as heavy booted. For people who no longer
have an entitlement to Tax Credits and from whom, therefore, we
have to make direct recovery outside the system, we have very
clear arrangements for operating principles around hardship. In
the last two financial years we have made over half a million
agreements with people to stagger the period over which they will
repay us to take account of hardship that would occur if we did
that more quickly. Indeed, over 80,000 of those agreements are
giving people periods in excess of 12 months to make the recovery,
so we are trying to be flexible. I do not deny there have been
a few cases where we have not done it as well as we should have
done and we need to get those right. I believe in the great majority
of cases we are striking an appropriate balance.
Q102 Mr Mitchell: It could be more
generous. You do not expect to recover £1.6 billion, which
is a devastating figure. Why go on pretending, grinding these
poor people? They are such a vulnerable section of society. Give
up.
Mr Gray: Which is why in the great
majority of cases we are seeking to do this sensitively and appropriately,
but in the context of this is money that exceeds the amount to
which people are entitled and, as a custodian of the taxpayer,
it is my duty appropriately and sensitively to recover payments
which were in excess of their entitlements.
Q103 Mr Dunne: Mr Gray, in response
to Mr Mitchell just now you referred to the fact that there was
an original design feature that there would be a substantial number
of overpayments in the system. Could you tell us what was the
assumed level of overpayments when the system was originally designed?
Mr Gray: Yes. I think in the initial
documentation the Government produced when the policy was under
consultation the suggestion was that in the first year the level
of overpayments might be about £1 billion and on a continuing
basis it might be about three-quarters of a billion. [5]
Q104 Mr Dunne: Affecting how many people,
families?
Mr Gray: I am not sure whether
a figure has been put on that. Sarah, I do not know if you know.
Q105 Mr Dunne: The original design
of the policy was that there would be a very substantial amount
of money affecting millions, one would presume. Would it be fair
to say millions?
Mr Gray: Certainly hundreds of
thousands, yes.
Q106 Mr Dunne: Hundreds of thousands
of families would be receiving the wrong payment.
Mr Gray: In the interest of trying
to have a flexible system that responded to their changes in circumstance,
then they would receive in a period more than they were entitled
and that would then be adjusted in subsequent periods.
Q107 Mr Dunne: You are accepting
this was a Treasury policy at the time the scheme was introduced?
Mr Gray: I am describing to you
the documents that were produced at the time.
Q108 Mr Dunne: In our Report, the
22nd Report of this Committee, we concluded that the Department's
effectiveness in managing the tax system depended on maintaining
public confidence in its administrative competence and you responded
to that, as did the Treasury. Are you able to update us with figures
for the number of families affected by overpayment and underpayment?
The figures that we have only refer to the tax year ending April
2006.
Mr Gray: I am afraid I cannot.
The figures are produced under normal National Statistics conventions.
It is in May of next year, if I am right, that the data for 2006-07
will be available. I cannot give you any figures beyond the ones—
Q109 Mr Dunne: Available publicly.
Do you have that information?
Mr Gray: No, because, as they
are National Statistics and published under those conventions,
I do not have access to that data.
Q110 Mr Dunne: You have a responsibility
for managing the Department and presumably you have your own management
figures of how many underpayments and overpayments there are in
place from month to month, do you not?
Mr Gray: I have that management
data, yes, but at a particular point in the year, in order to
respect the National Statistics conventions, I cannot draw on
the emerging aggregate data.
Q111 Mr Dunne: Can you tell us directionally
whether there are currently more or less families who are in receipt
of overpayments than the £1.9 million at April 2006 and underpayments
of £900,000 at April 2006?
Mr Gray: Sarah might want to add
to this in a minute, but directionally those numbers are going
down. Others of your colleagues have asked me questions about
the impact of various changes that were announced in the Pre-Budget
Report two years ago, those are being implemented on a staggered
basis. The first of them, the income disregard, which Mr Mitchell
referred to, came into effect in 2006-07, so when the 2006-07
data is available, since that was the first of the measures introduced
and unambiguously that will reduce levels and numbers of overpayments,
we would expect them to be coming down broadly in line with the
estimates that were made at the time.
Ms Walker: I could perhaps help
about why it takes so long to publish the figures on overpayments.
You cannot establish an overpayment until entitlement is finalised
for a year. We finalise entitlement when we get renewal data from
the customer. The deadline for sending in renewals this year was
the end of July for people with employment income; people with
self-employment income, because of the self-assessment timetable,
will have until January to give us the final details of their
income. We then need to process that and that is why it takes
until probably June next year to get the final statistical figures
for overpayments for 2006-07.
Q112 Mr Dunne: Thank you. Take us
on then to the issue you have just been touching on, the income
disregard. The Parliamentary Ombudsman in paragraph 3.3 of her
Report referred to the 363,000 awards of overpayments to households
where the income was less than £10,000, so people on very
low incomes indeed. Is it the case that anybody whose income is
less than £25,000 where there has been an overpayment under
the new regime will not be pursued for that overpayment?
Mr Gray: No.
Ms Walker: No. As I think Paul
explained earlier, there are a lot of different reasons for overpayments
to occur and not all of them are about in-year increases in income.
Where there is an in-year increase in income of less than £25,000
that will not create an overpayment, but there are other reasons
why overpayments might arise for people, whatever the level of
income.
Q113 Mr Dunne: Where there has been
an error by the Department, mis-transcribing income data, would
that then be disregarded?
Ms Walker: We will write off overpayments
caused by error in most circumstances, although we do expect people
to check and notify us. If there is an obvious error they have
not notified us of, then we will seek to recover that. There are
also other examples where people delay in notifying us of other
changes, for instance where their child leaves school, or something
like that, and they have not told us in time, we will sometimes
get an overpayment created for that.
Q114 Mr Dunne: Could I pick up the
point about the staffing levels. You have just told us that the
current number of staff are of the order of 10,000 in the tax
credit team as whole and that has increased from, I think, 7,300
in 2003-04. There is a very interesting table on page 24 of the
Ombudsman's Report which shows that the number of staff who are
authorised to process overpayments, A grade full-time equivalent
staff, has fallen from the third quarter of 2005 of 964 to the
fourth quarter of 2006 to 601. What is the current number of people
who are authorised to process overpayments?
Mr Gray: I do not have a precise
figure with me. I think it may have gone up slightly since that
period. We are right in the middle of a process at the moment
where we are integrating together the staff in both the categories
set out in that page 24 which you have referred to. Up to this
point we have had staff in the complaints teams, the upper table
on that page, organised separately from those authorising overpayments.
We are just introducing a reorganisation in which we are bringing
those teams together as part of our programme of trying to provide
more effective service, picking up Ms Browning's point, since
the great majority of complaints we encounter, as well as those
that Members of Parliament put through to the Ombudsman, concern
overpayments. That is the dominant issue that causes people to
complain. We are integrating those two processes in order to get
a more consistent and more effective handling of both the complaints
and the formal overpayments process.
Q115 Mr Dunne: Is this team going
to be subject to Gershon efficiency saving targets within the
Department?
Mr Gray: Not explicitly. I do
not adopt an approach where I apply a uniform staffing squeeze
to everybody. What I am looking to do, and part of the redesign
process for these teams, is we are implementing under our Pace
Setter Programme lean management techniques which we are applying
increasingly through the Department, where results so far are
showing we get both increases in productivity and very significant
increases in the quality of the work done. I will be looking to
that team to raise its effectiveness and performance but, given
the priority of this area of work, I will make sure there is adequate
staffing to meet the workload.
Q116 Mr Dunne: I am very pleased
to hear that because it does not look to me from the research
that the Parliamentary Ombudsman has undertaken whether you had
given it that priority. If you add the two tables together, there
is still a decline in personnel employed in resolving complaints
about this and the 37.5 % of the families who are in receipt of
Tax Credits who get the wrong money paid into their account. This
should be the top priority of this entire Department.
Mr Gray: You are looking at, I
think, the second half of those tables rather than the full run
of it. During the course of 2005 particularly, we built up very
substantially indeed the numbers of staff who are dealing particularly
with overpayments because we faced a particular backlog at that
time. I made commitments, and the then Paymaster General made
commitments, that we would get on top of that backlog and we would
ensure that overpayment issues were addressed within four weeks.
It was dealing with that backlog that was a very significant part
of the build-up of resources in 2005-06. Having got on top of
that backlog, the fact that the numbers have gone down does not
mean it is less of an ongoing priority for me, it means that we
had successfully tackled a particular backlog problem.
Q117 Mr Dunne: Do the local tax office
staff have a role to play in helping to resolve this or do people
who are in serious trouble have to have the wit about them to
contact their MP altogether?
Mr Gray: Our local staff in our
enquiry centres do not play a formal part in decisions on overpayments.
Q118 Mr Dunne: Could they be helpful
in processing claims?
Mr Gray: They can be very helpful
if somebody wishes to go into one of our offices, they can talk
to our staff who can help them in the process, but the formal
processing and handling of overpayments is done by specialist
staff in the tax credit office, and, as I was discussing with
Mr Curry, in the contact centres.
Q119 Mr Dunne: Mr Gray, I am afraid
that you have the dubious distinction of being, I think, the second
most frequent of my correspondents because I refer cases to you.
I thought your answers at the beginning of the session to Mr Williams,
when you talked about the number of complaints getting through
to the Parliamentary Ombudsman being the tip of the iceberg, did
sound somewhat complacent because people who choose to complain
to their MP are clearly a very small proportion of people who
are in difficulty. If on average there are 10,000 claimants per
constituency and 37 % of them are wrong, that is between 3,000
and 4,000 families per constituency which have got cause to complain
or wrong payments. I find it frankly somewhat bewildering that
you are not throwing more resource into sorting out this problem
which is the biggest in your Department, I would assume.
Mr Gray: As I think I have sought
to explain to you and Mr Mitchell, at a time during which over
the last two years the total amount of staff in the Department
has fallen from 100,000 to 86,000 I have increased in absolute
terms, let alone in relative terms, the proportion of resource
that addresses this problem. I am sorry if I sounded complacent,
I was at pains to stress that I am not complacent and I certainly
am not.
5 Note by witnesses: The figures given are
inaccurate as the Government did not publish a forecast of monetary
amounts but in fact gave estimates of the expected number of overpayments.
In 2002 the Government expected around 1 million awards to be
reassessed as a result of income rises in the first year of tax
credits, compared to around 750,000 in subsequent years (paragraph
4.47 The Child and Working Tax Credits. The Modernisation of Britain's
Tax and Benefit. Number Ten April 2002 published at Budget 2002). Back
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