Select Committee on Treasury Minutes of Evidence

Further supplementary memorandum from HM Treasury

  In my letter of 12 June I promised to write to you again on two matters: (i) the eligibility rules for the additional payments that go to lower income families and (ii) the problems that have meant that some additional payments have been delayed.


  At the hearing the committee raised two particular areas of concern:

    —  Firstly that HMRC's literature did not make clear enough the impact on the additional payment to the Child Trust Fund of not applying for tax credits within three months of the Child Trust Fund start date.

    —  Secondly that people, particularly those with health problems such as post-natal depression, might be missing out on additional payments to Child Trust Fund accounts because they didn't claim tax credits in time.

  I have considered the points made at committee and sought ways of ensuring that children who are otherwise eligible for the additional payment do not miss out because a tax credit claim is not made within three months.

  I intend therefore to tie the additional payment eligibility window to the CTF voucher window, so that if there is a claim for CTC within 12 months of the CTF start date, and the claimant meets the other eligibility criteria (such as income), then an additional payment will be made into the CTF. The time limit will therefore coincide with the expiry of the CTF voucher.

  I propose therefore to introduce regulations to extend the additional payment eligibility window in the autumn for Parliamentary approval, and they will provide for the rule change to come into effect for children who become eligible for the Child Trust Fund from the 08-09 tax year onwards. I have looked at whether it is possible to make the changes retrospective to cover the specific cases raised in the Select Committee hearing but this would not be possible without primary legislation.

  I will also extend the eligibility window for receiving additional payments to a year for those that receive the child allowances of Income Support and Job Seeker's Allowance in a similar way to that proposed for Tax Credits claimants. This will ensure that the rules are consistent across both routes by which children become eligible for additional payments.

  I am grateful to the Committee for raising this issue with me. As regards HMRC's marketing literature, rather than change it to reinforce the need to claim tax credits within three months of the CTF start date we will instead ensure that it is updated to reflect the new rules.


  When I gave evidence to the Committee on 14 May I mentioned that HMRC had been experiencing a number of issues that had been preventing some additional payments being made on time.

  The IT programming error that we discussed has caused in total some 50,000 additional payments to be delayed. The cause has been identified and rectified and the outstanding payments are already being made. The CTF accounts affected are in respect of children born in 2006-07, and they will receive their additional payments around a year later than would normally be the case. Therefore I have agreed with HMRC that these accounts will receive an additional £20 in lieu of the lost investment growth for that year. This has been set in line with the top yield available in this period from mainstream CTF products. HMRC's IT contractor has agreed to pay appropriate compensation to HMRC for financial losses caused by the IT programming error.

  I also told you that there were a number of other technical problems preventing the making of additional payments. A total of around 80,000 additional payments have been held up because of these other issues, in respect of children born from the outset of the Child Trust Fund scheme. HMRC is able to identify the CTF accounts affected, and will pay the additional payment. These accounts will receive an additional £20 for each year of lost investment growth as above.

  It is of course highly regrettable that these errors have occurred but once the outstanding payments are made along with the further payments in lieu of missed investment growth, no child or family will have suffered a financial loss. HMRC is putting systems in place monitor CTF payments more closely and prevent such problems recurring. The outstanding payments will be made automatically so no CTF provider or customer needs to take any action.

Kitty Ussher MP

17 July 2008

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