Examination of Witnesses (Questions 120-139)
HM REVENUE &
CUSTOMS
10 OCTOBER 2007
Q120 Mr Bacon: I have a couple of
other questions. One is about the penalties which have been issued
to employers for on-line filing. On 24 September you issued 202,000
penalties but several thousand of them were wrong. My information
is that it was much less than eight % were wrong and you have
corrected that to six %, but it is still over 12,000. This is
the third year in a row in which there have been thousands of
incorrect penalties levied on employers, perhaps representing
hundreds of thousands of employees. Will your Department publish
lessons learned from IT-related failure document following the
example of the Identity and Passport Service Operations Director,
Bernard Herdan, who not only did that for the Passport Service
but challenged other departments to do the same?
Mr Gray: The latest position on
the issue you are referring to is that 11,000 penalty notices
have been issued incorrectly.
Q121 Mr Bacon: Incorrectly?
Mr Gray: Incorrectly, 5.4 % of
the total. This actually was not what you would regard as a pure
IT problem, it was a process problem. We have already put in place
a remedy for this. We are able to identify the employers who have
been sent the incorrect penalties. We have written to them; I
am conscious they may not yet all have received their letters
because of the postal difficulties. We have put information on
our website to indicate that those employers need take no further
action and those incorrect penalties will be automatically cancelled.
Obviously when a mistake like this occurs, we look at it and we
seek to draw lessons from it.
Q122 Mr Bacon: Do you think there
is any purpose in doing what Bernard Herdan of the Passport Service
suggested in publishing a lessons learned document, especially
as this is several years in a row?
Mr Gray: In relation to this particular
issue, I am not sure but we will certainly be doing a lessons
learned exercise. Whether it is appropriate to do a formal publication,
it is certainly something I am more than happy to share with the
Committee, if that would be helpful, what lessons we do draw.[6]
Q123 Mr Bacon: I would like to ask you
also two more questions. One is about migrant workers because
there was an issue with Tax Credits where migrant workers came
to this country, set up jobs which entitled them to Tax Credits,
started to receive them into a bank account and then left the
country. Indeed, this Committee said in an earlier Report that
there is an additional risk where migrants fail to notify the
Department, leave the United Kingdom and fail to cease receiving
Tax Credits. There were cases of people in Slovakia going home
and withdrawing money from a British bank account using cashpoint
cards in Slovakia and other Eastern European countries. I know
about this because some of your employees in your organisation
have come to tell me about it. I am wondering what is the current
position because you said in the Treasury minutes: "The Department
continues to evaluate the amount of risk". I was wondering
where things stood. Are things getting better in this respect
or not?
Mr Gray: We are keeping the situation
under close review. It is clearly a risk. It is not just a risk
that arises in relation to A8 countries, it is a risk that relates
to anybody going to another country, whether they originally lived
in the UK or have come into the UK. We do not actually think that
the risk is particularly large. Such evidence as we have got suggests
there is not a major problem here, but we are seeking to keep
a very close eye on it. If we did identify, which we have not
at this point, that there is a particular problem in relation
to any particular country or nationality, then we will put in
place measures to seek to deal with that.
Q124 Mr Bacon: The last question
is about Sir John Bourn's qualification of your accounts, which
I think is the fourth or fifth. Sir John will perhaps correct
me if I am wrong, is this five years in a row now your accounts
have been qualified?
Mr Thorpe: It is five years, yes.
Q125 Mr Bacon: We are familiar with
the European Union accounts, and not comparing their record yet
and indeed the Department for Work and Pensions' record, but for
a body that collects the money not being able to account accurately
to Parliament how the money is spent and for the Comptroller and
Auditor General to have to write in his trust statement that:
"I have concluded that the payments arising from erroneous
and fraudulent tax credit payments", this is on page 83 of
this document, AHC 626, the accounts for the HMRC, "are not
in conformity with the authorities which govern them and not are
applied to the purposes intended by Parliament. I therefore qualify
my opinion on irregularities in income and expenditure on the
Department's trust statements for 2006-07 because of the probable
levels of claimant error and fraud in the Tax Credits". For
several years in a row it means that you, as Accounting Officer,
are placed in the invidious position of failing in your basic
duty to Parliament as accounting officer of accounting to Parliament
for how you handle this spend, which is your primary lawful duty
as accounting officer. At what point are you going to turn around
to your masters and say, "The policy you are asking me to
implement causes me to fail in my duty to Parliament to account
for how I spend the money that Parliament owns", because
that is what is happening, is it not?
Mr Gray: As you read out there,
the qualification of the trust accounts relates explicitly to
one issue, not to the generality of our accounts, I am pleased
to say.
Q126 Mr Bacon: No, of course. Could
I ask a supplementary. It is the case that Tax Credits itself
means that you have the highest rate of fraud and error of any
central Government department, is it not?
Mr Gray: The figures in those
first two years, 2003 and 2004, were at a relatively high level,
8.7 % in 2004-05. Those figures were somewhat lower than the rates
of fraud and error at similar points in the introduction of major
social security benefits, such as income support. We talked earlier
about the clear intention to introduce targets for the reduction
of tax credit error and fraud, which we will be doing early next
year. Within that context I will be looking to get into a position
in which there is a substantial improvement and I can get towards
a position of non-qualification. The fact is, of course, that
I am not unique in having my accounts qualified in relation to
this broad type of expenditure. At the DWP which operates those
other benefits I have been talking about, they have their accounts
qualified by Sir John in the same way and he has set a particular
value on fraud and error that he regards as a target one needs
to get to for non-qualification.
Q127 Mr Dunne: I have one constituency
issue which is a problem I meant to raise earlier. I received
a letter which was forwarded to you last week from a constituent
of mine who filled in an application form for working Tax Credits
on 8 June using his wife's National Insurance number as a temporary
number. He repeatedly contacted the helpline and was told that
he would have no difficulty in processing the claim using that
temporary number. Eight weeks later he was given contrary information
that actually she needed a permanent number which she then sought
and reapplied. He has been chasing the helpline on a weekly basis
and he is currently told that the claim is being processed and
nobody is able to find where it is in the chain. It does suggest
that there is a major problem with new applicants coming on to
the register where your computer processing intake procedures
do not work. It is four months since he applied so I imagine he
is eligible for hardship, which you referred to earlier. I would
be grateful if you could comment, first of all, on the processing
issue and, secondly, how he should apply for hardship.
Mr Gray: Although you have written
to me, and no doubt the case will land on my desk soon, I am afraid
it has not yet so I cannot really talk about the details of that.
I do not know if Sarah wants to add anything about the temporary
vis-a"-vis the permanent National Insurance point
in a minute. Once we have an application in place we do seek to
process it as soon as we can. There are provisions for backdating
for up to three months to allow for the possibility of delays.
I think you may have misunderstood what I was saying about hardship.
I was talking there about special arrangements we can make in
situations in which we are recovering overpayments as distinct
from the issue of hardship during the claim. Sarah, is there anything
you want to add to that?
Ms Walker: I do not think I can
help you on the specific case. I know we are able to pay Tax Credits
where both claimants do not have a proper National Insurance number,
but I cannot tell you what has happened in this case.
Mr Gray: Certainly I will personally
look into the case and write to you, if I may.
Q128 Mr Mitchell: Given the fact
that immigration is now running on such a big scale and you will
have claims whether from Eastern Europe or outside the European
Union for Tax Credits, how do you check up whether the kids claimed
for actually exist or are dead? Do you endlessly go around and
knock on the door and demand to see the children? How do you know
these children actually exist? Is it easier or more difficult
to recover an overpayment from immigrant workers than from British
workers? Do you keep your figures by place of origin or immigration?
Can you tell us what the figures are for immigrants?
Mr Gray: To a degree I can. The
position on your first question is that we require proof of identity
for a child.
Q129 Mr Mitchell: Is that a birth
certificate?
Mr Gray: A birth certificate.
We require the relevant national birth certificate.
Q130 Mr Mitchell: You do not know
if the child is dead, do you?
Mr Gray: No more than actually
in relation to wherever a child is presented from. I do not think
that presents a risk that is specific to the country of origin,
so we require that documentation. We have regular liaison with
our counterpart organisations in the other countries, for example
in Poland, which is the A8 country from which the largest numbers
of claimants come, we have a close relationship with the relevant
authority there. We request them and they comply to make checks
for us on occasions and 99 % of those checks carried out prove
to be satisfactory. In terms of numbers, the Home Office data
and workers registration scheme shows that there are now nearly
700,000 people in this country through the accession monitoring
report who meet the entitlement conditions of being present, ordinarily
resident and have a right to reside in the UK. That is the entitlement
condition for both child benefit and child tax credit. Out of
those 700,000 the number of tax credit payments we are currently
making to A8 nationals is 40,000, 40,000 in relation to a total
number of 700,000.[7]
Q131 Mr Mitchell: How many of those kids
are now in Britain and how many in Poland?
Mr Gray: I have not got the precise
figures for that but some certainly are in line with the EU entitlement
conditions resident in a country of origin as well as here, but
we go through those checking processes I described in order to
seek to deter any fraud. Were we to find, but we have not found
yet, that there were any particular risks more prevalent in any
particular nationality, then we would take specific intervention
action. We have not identified any such risk, therefore, we adopt
the same antifraud mechanisms for A8 migrant claimants as well
as people who have been resident in the UK throughout, but we
keep that position under very close review.
Mr Williams: Thank you for that. You
had a request to go into private session briefly on one particular
issue, so could I ask those who are not directly involved with
the members and witnesses, please, to leave.
Mr Williams: Richard?
Q132 Mr Bacon: If you are able, Mr
Gray, to give us a brief summary of the position. Just to remind
the members, the original deal cut with EDS, if that is the right
word, was a settlement payment of £71 million following a
claim by HMRC of £209 million. The settlement of £71
million was reached by mutual agreement and involved £44
million of payments initially and I think it was 26.5 or 26.4
million of payments would be staggered in quarterly payments over
a number of years in the future and—this was the key point—to
come out of future revenues of EDS from new contracts with Government,
new public sector work they received and not from any existing
work. I think I am right in saying that was December 2005 that
deal was agreed to. It is how many quarterly payments have there
been since, of how much and how much is left still to pay?
Mr Gray: As on previous occasions,
I am very happy to give that evidence in private. Mr Williams,
since I am bound by a confidentiality provision on this, I would
formally ask the Committee to observe that and not to make the
figures publicly known, but of course I am happy to share them
with you privately.
Q133 Mr Williams: I am sure all Members
understand that.
Mr Gray: Thank you very much.
As you said, Mr Bacon, following those large initial payments,
the balance due from early 2006 was £26.5 million. I will
not give it you to the last penny, I hope that is sufficiently
accurate. We have now had six instalment payments under the formula
that you are aware of, which have totalled a little under * pounds,
so the total balance due is now fractionally over *. It is in
that context and applying my own arithmetic of the sort you took
me through on previous occasions.
Q134 Mr Bacon: Did you work out how
many years it would take? It came to 106.
Mr Gray: No, because it is not
going to take that long!
Q135 Mr Bacon: You just do not want
to be asked questions in 85 years!
Mr Gray: This is a rate that is
well below that necessary to make the repayment within broadly
the three years that we are envisaging and that is the reason
I am taking what was intended to sound like the rather more assertive,
if not aggressive, action that I described earlier.
Q136 Mr Bacon: This is obviously
on the basis of legal advice, but presumably if you were to go
back to court that would be contested in an open court case where
witnesses would be called and so on.
Mr Gray: Indeed.
Q137 Mr Bacon: Are you expecting
that now may have to happen?
Mr Gray: I hope not. I am very
determined about this. The company, having agreed the overall
settlement in the first place, is party to that agreement. The
only issue there is the speed over which the agreed debt is repaid.
Q138 Mr Bacon: Since the speed is
so plainly unsatisfactory, what is your own personal idea of a
sensible timetable for resolving this completely?
Mr Gray: My predecessor's expectation
at the time the agreement was reached was that we were looking
at a period of around three years, two years of that have now
elapsed, so I am still looking towards the end of 2008 as a period
in which I would hope the matter is resolved. I am a realist,
but I hope a very tough realist in these circumstances, and what
matters to me is clear action during the course of next year that
demonstrates a willingness to deliver in something like that timescale.
I am not, frankly, going to adopt a position that says I have
an absolutely precise date by which I must have the whole lot
repaid, but I am taking a very tough attitude on this.
Q139 Mr Bacon: It is fair to say
by December 2008 if this will have gone up by a few hundred thousands
pounds more that, as bunnies go, you would be a pretty unhappy
one?
Mr Gray: Yes, and I think I will
be quite an active one.
6 Ev 23-24 Back
7
Note by witness: Over the period March 2004 to June 2007
around 683,000 applicants have applied to register on the Workers
Registration Scheme of which 656,000 have been approved. Over
the same period there have been around 38,500 applications approved
for tax credits from A8 countries. Back
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