Examination of Witnesses (Questions 20-39)
HM REVENUE AND
CUSTOMS
14 OCTOBER 2009
Q20 Mr Bacon: I know that organised
fraud is categorised separately according to this paragraph; could
you tell us what are the figures for fraud and error and organised
fraud? You see, £1.58 billion and £1.84 billion in total—forgetting
organised fraud for the minute—is fraud and error.
Ms Strathie: Yes.
Q21 Mr Bacon: How much of the £1.58
billion and £1.84 billion is fraud and how much of it is
error?
Ms Strathie: Roughly 10% is fraud
and the remainder is error and, as you say, that does not include
the serious and organised criminal attacks on the system which
are a bit more difficult to quantify. Our approach to fraud and
error—and indeed this is something that the Chancellor has
given us in his remit this year—has been to break down what
is fraud and what is error, and indeed we have an aspiration to
break that down further between our customers and our own people
in the organisation. Basically you are looking at 90% customer
error and if you want to look at that on another level, many of
these errors are around child care costs and child care provision,
so we are pretty clear on where things go wrong but the vast amount
of customer error is because people fail to tell us that things
change, that they have changed their circumstances. We have actually
introduced quite a number of approaches, including a very proactive
health check of contacting customers, just to check before renewals
if anything has changed in their circumstances.
Q22 Mr Bacon: You mentioned that
it was difficult to quantify the value in relation to organised
criminal attack, but you presumably make some attempt to do that.
Ms Strathie: Yes.
Q23 Mr Bacon: What is the rough value
that you have estimated?
Ms Strathie: I do not have the
figure for that, do you?
Mr Summersgill: No. The last figure
that was published was for 2007-08 and was in the order of £66
million. That was organised fraud prevented by our activities.
Q24 Mr Bacon: But you do not have
the figure for organised fraud that was not prevented. Do you
have no estimate of it? I am interested in this for two reasons;
one generally because I do not like fraud against the taxes paid
by my constituents and the second reason is that an HMRC civil
servant leaked to me a dossier containing evidence of organised
criminal attack. Fortunately I was not taken away by the police
and arrested, but until recently until the arrest of my colleague
I did actually have his mobile phone number on my BlackBerry—I
can tell you it is not there now. He disclosed an organised criminal
attack that was possibly involving tens maybe hundreds of million
pounds where people came to this country from Eastern Europe,
set up low paid jobs with British bank accounts so that they got
tax credit payments, then went back home where, in Slovakia, they
took the money out with a cash card, did not tell you about their
change in circumstances and it was sometimes 12 months before
you caught up with them, and £5,000 or £6,000 later
they had enough money to buy a house. That was being done on a
widespread scale, and after I publicised the fact of it and handed
on the dossier I had received to the predecessor of the predecessor
of the present C&AG it was closed down quite quickly; there
was a lot of effort that was put into it. You must in that process
have had some estimate, and in other similar attacks, of what
the value was.
Ms Strathie: What we are saying
is the last published figure is the one that Mr Summersgill told
you about. It is really important when we look at our very serious
and organised measures to understand that threats do not generally
come under one single head of duty and one single line, nor does
our intelligence come from any single source in HMRC. We are constantly
reviewing the threat assessment; some of it is against tax credits
and we were successful in shutting that down. More recent attacks
have focused on the self assessment system and on carbon credits.
Basically, the reason why things do not come necessarily in neat
packages and it could only ever be an estimate of value is because
generally these are interwoven into total loss. When people are
serious and organised they are generally attacking or attempting
to attack on several fronts.
Q25 Mr Bacon: The Report says you
are increasingly prioritising debts by risk rather than by value,
which one can see might make sense in some ways, especially if
you assume that even a high value debt is likely to be repaid,
but that must have some consequence for the recovery of large
numbers of small debts, does it, and what do you do about it?
Ms Strathie: You are talking about
debt generally, Mr Bacon, not just tax credit debt, yes?
Q26 Mr Bacon: Yes.
Ms Strathie: Where we saw that
increase in debt that took us to around the £20 million pre-recession
and then the further increase, a lot of that was because we were
focusing on very, very high value debt. All of this is about prioritising
resource and we had considerable success there, but we did see
an increase in small debt rising over that period. Basically the
revised strategy on our approach is to cover all of those areas.
Basically we have debtors who can pay, are willing and able and
just need some help to do it, so we have introduced new methods—people
can pay on-line et cetera and there are time to pay arrangements.
We have people who just need a bit of help to do it and we have
introduced various different ways that people can pay. Then we
have people who do not really want to pay but could pay.
Q27 Mr Bacon: Sure. Specifically
on tax credit debt, low value tax credit debt, are there large
numbers of small tax credit debts that have not been chased as
vigorously as they might have been because you are placing emphasis
on high value debt within the tax credit system?
Mr Summersgill: In the past there
has been the possibility of that; clearly a lot of our focus in
the Department has to be on the higher value debts. One of the
things we have learnt is that the sooner we collect a debt, while
it is young—as early as possible after the debt has crystallised
following the finalisation process—and the more we can offer
claimants the opportunity to pay off the debt by a debit against
an ongoing payment then we are much more successful.
Q28 Mr Bacon: I noticed that from
figure 30; does that mean you are going to be doing more of that
recovery through ongoing awards?
Mr Summersgill: Yes. We are reviewing
our whole approach in this area and, as Lesley mentioned earlier,
a couple of things we are looking at are piloting the recovery
of tax credit debts through as the pay-as-you-earn system.
Q29 Mr Bacon: I have run out of time
so let me just ask you a question about PAYE and then you can
answer it at as much length as you like. Very quickly, I was interested
in that earlier answer from Ms Strathie; it is great that you
are doing it through PAYE but what proportion of tax credit claimants
are now having that recovery where it is required done through
PAYE?
Mr Summersgill: It is a pilot
so this year we offered it to a number of people with a debt less
than £2,000 and within the pilot 1700 households are having
a debt coded out. We will review how it has gone at the end of
the year and then if it is successful we will look at the scope
for rolling it out further.
Q30 Mr Bacon: Are you happy to take
it over quite a few years in such a way that even a poor person
might not notice £5 a month over three or four years—you
could pay back a small debt that way.
Mr Summersgill: That is effectively
the approach we take now in our time to pay arrangements. If it
is not a debt we can collect from the ongoing tax credit award
we will typically immediately allow a 12 months time to pay and
we are always prepared to consider longer periods depending on
individual circumstances.
Q31 Chairman: Thank you Mr Bacon.
Ms Strathie talked about the limitations of the system, perhaps
I could ask the Comptroller and Auditor General if he has any
views on the systems of debt collection in HMRC?
Mr Morse: Thank you, Chairman.
We think that HMRC is wrestling with an enormous issue, particularly
following the consequences of the recession and we understood
that there was intention to invest further in systems and to improve
the systems infrastructure. I notice Ms Strathie mentioned the
limitations of the system; we really feel that every £1 spent
on improving this is about £100 yield in terms of what you
can collect on behalf of the rest of the Government and it really
is urgent that there should be investment in this area. We briefed
the Committee on that before the hearing so I am glad to have
a chance to testify to it on the record.
Q32 Chairman: Do you want to comment
on that?
Ms Strathie: Yes, indeed. It is
important that we understand how far HMRC has come in modernising
a vast and complex business, and you cannot change every system
overnight. If we had greater investment in this particular area
then understanding very, very quickly the age and value of our
debts would help, but secondly there is an opportunity for us
to use more modern methods including debt collection agencies
in some of this work. What we are seized of at the moment is you
either reduce the head count in HMRC to free up the resources
to do that or we strike some sort of agreement with our Treasury
colleagues that we pay for that to an extent through the revenues
that we collect. I know from all my experience of debt collection
in DWP that the older a debt is the less likely you are to collect
it, and therefore we feel that we have made incredible productivity
gains in this area but we still have system limitations.
Chairman: Thank you. Don Touhig.
Q33 Don Touhig: Sticking with the
question of tax credits do you believe that HMRC must try to recover
overpayments to which claimants are not entitled—you must
do it?
Ms Strathie: Yes, our starting
position is that if the money is owed to the Exchequer, unless
we believe there is no chance or it is so vastly expensive, then
we should try to collect it.
Q34 Don Touhig: Is this objective
pursued with a passion regardless of the consequences on the individual
claimant?
Ms Strathie: I would like to think
that in any service that I have delivered in government I start
with the customer, and working with our customers generally speaking
gives you the best dividend. We do need to understand that people
who are in the tax credit regime are not always people who live
organised lifestyles and quite often get themselves into debt
with us and many other agencies that they owe money to. That is
why we have tried to work on different ways to help people make
those payments.
Q35 Don Touhig: I share that view
very much, although a former Chancellor, Dennis Healey, once said
there are two statements to treat with caution, the first one
is "The cheque is in the post" and the second one is,
"Hello, I am from the government, I am here to help".
You told us in answer to earlier questions that you work closely
with DWP in order to help recover money from people who have been
overpaid, and you also in answer to questions from the Chairman
said that there are some large organisations you have been seeking
to recover money from for 16 years. Have you not just taken the
soft option, let us pursue the little man and get the money back
that he was overpaid and this multimillion pound corporation we
will treat a bit differently?
Ms Strathie: In scale and context
tax credit debts are relatively small if you compare them with
many other tax debts; on the other hand they are pretty large
compared to many of the other welfare benefit debts. I believe
in a refreshed strategic approach; we need to work much more closely
on tax credit debt within DWP's overall approach and use our resources
equally to best effect rather than see the tax credit debt in
the totality of everything else. I have been in HMRC 11 years
and I have not come across one company yet or one chief finance
officer who has told me we take a soft approach with them.
Q36 Don Touhig: How many overpayments
are due to HMRC errors and how many are due to claimant errors,
or do you assume all are claimant errors?
Ms Strathie: The way that error
has been calculated and the business design process if you like,
the customer journey to achieve tax credits and to renew tax credits,
is one where there are lots of checks and balances in the system
to help the customer get it right. One of the things that I feel
quite strongly about looking forward is that we need to break
that error figure down to address any potential error on the part
of our staff. At the moment we have simply fraud and error combined
of which we know broadly 10% is fraud and the rest is customer
error. Like you I do not believe that every single person who
works for me does everything perfectly every day.
Q37 Don Touhig: What you have just
said is that it is customer error.
Ms Strathie: I am saying we are
scoring customer error, we are not scoring our staff error. We
have an accuracy measure in lots of our different regimes right
across the Department and we collect together accuracy figures,
but that is not then taken forward into one of our key measures
and it is something that we are now looking at going forward as
to how we work on that. I do not have a figure for staff error.
Do you need to add to that?
Mr Summersgill: Could I just add
to that? It is probably worth making a distinction between official
error within the error and fraud statistics—which is actually
very small and difficult to measure—and official error that
leads to an overpayment. If official error leads to an overpayment
then under the revised Code of Practice 26 if it was entirely
down to us and there was no fault on the customer's side we would
write that overpayment off.
Q38 Don Touhig: But is not the culture
always to assume that it is the customer, the client, who is at
fault?
Mr Summersgill: No, and indeed
when a customer writes to us or you write on behalf of your constituents
it will be looked into. Something that occasionally happens is
that a customer will have notified a change of circumstances and
for various reasons we may not have processed that timeously.
We will listen to the phone conversation, which we record, and
if we are satisfied that it is our error then we write the overpayment
off.
Ms Strathie: I would have to say,
Mr Touhig, that I deal with all these cases personally, the ones
where you write to me on behalf of your constituents, and we are
quite generous in accepting that we may have contributed to the
error.
Q39 Don Touhig: I will pursue that
further. We see at paragraph 5.14 that Mr Bacon has referred to
that 6% of overpayments are less than £250 and the C&AG
has told us that every pound you spend brings you back £100.
Is it really cost-effective to pursue such small sums?
Ms Strathie: That goes back to
what I said to Mr Bacon earlier; we are reviewing our approach
on all of this. There are lots and lots of people who have paid
back those sums and we have to reach a judgment as to whether
the people we are pursuing can pay and will not pay or actually
cannot pay and then take a view on the cost-effectiveness of collection.
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