Draft Revenue and Customs Appeals Order 2012
The Committee consisted of the following Members:
† Bacon, Mr Richard (South Norfolk) (Con)
† Beresford, Sir Paul (Mole Valley) (Con)
† Blears, Hazel (Salford and Eccles) (Lab)
Campbell, Mr Ronnie (Blyth Valley) (Lab)
† Carmichael, Neil (Stroud) (Con)
Donaldson, Mr Jeffrey M. (Lagan Valley) (DUP)
† Gauke, Mr David (Exchequer Secretary to the Treasury)
† Goodwill, Mr Robert (Scarborough and Whitby) (Con)
† Hemming, John (Birmingham, Yardley) (LD)
† Hunt, Tristram (Stoke-on-Trent Central) (Lab)
† McCartney, Karl (Lincoln) (Con)
† McKenzie, Mr Iain (Inverclyde) (Lab)
† Morris, Anne Marie (Newton Abbot) (Con)
† Skinner, Mr Dennis (Bolsover) (Lab)
† Smith, Owen (Pontypridd) (Lab)
† Stride, Mel (Central Devon) (Con)
† Williams, Stephen (Bristol West) (LD)
Mark Etherton, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Tuesday 21 February 2012
[Mr David Crausby in the Chair]
Draft Revenue and Customs Appeals Order 2012
10.30 am
The Exchequer Secretary to the Treasury (Mr David Gauke): I beg to move,
That the Committee has considered the draft Revenue and Customs Appeals Order 2012.
It is a great pleasure to serve under your chairmanship this morning, Mr Crausby. It is a requirement that I confirm that the provisions contained in the order and regulations before the Committee today are compatible with the European convention on human rights, so before I begin properly, let me confirm that.
The order makes a small but important change to the Tax Credits Act 2002. It inserts a reference to the first-tier tribunal in Great Britain into sections 63(5) and 63(8) of the Tax Credits Act. This corrects an error in the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009. As the legislation stands, the settlement process at the review stage of the appeals process for tax credits applies only to appellants living in Northern Ireland. The order will update the legislation so that appellants in Great Britain are also covered, just as they were before the functions were transferred from the former appeals bodies to the new tribunals.
Let me provide the Committee with further detail on the tax credits appeals review process. There has been an appeals review process in place since April 2003, when tax credits were first introduced. When a claimant lodges an appeal against a tax credit decision, the first step is for Her Majesty’s Revenue and Customs to confirm whether the information used to make the tax credit decision is correct, which is a substantial undertaking on the part of HMRC. In 2010-11, for example, it had to deal with around 40,000 appeals against tax credit decisions, but by actively seeking settlement, around 80% of those cases have been revised and agreed at the settlement stage. Where HMRC’s review indicates that the original decision is incorrect, HMRC will revise it. However, if the appellant does not agree to settle, HMRC will forward the appeal to the tribunal to decide. Once the tribunal receives the appeal request, it will contact all parties to arrange for the case to be heard and may require the appellant to present their case. Even at this stage, if the parties involved agree a settlement, the case will not proceed to tribunal and the appeal will be withdrawn. Of the 20% of cases that go to tribunal, HMRC’s decision is upheld 87% of the time.
That brings me to the need for the order today. According to the appeals process as it currently stands, all tax credits appeals in Great Britain should be sent by HMRC directly to the first-tier tribunal without it having the opportunity to review the case and offer the possibility of a settlement. As I am sure the Committee will appreciate, the settlement process saves appellants from going through what can be an emotionally demanding
and challenging process at tribunal. I would like to reassure the Committee that HMRC has, none the less, continued to review cases since 2009 and has aimed for settlement of appeals in the normal way.The order embeds that process in law for the whole of the UK, not just Northern Ireland. It ensures that the legislation in the whole of the UK is restored to what was the intended policy position when the former appeals bodies were abolished in Great Britain and their functions were transferred to the new first-tier tribunal. That important reference to the first-tier tribunal in Great Britain was inadvertently omitted when tax tribunal functions were transferred to the new tribunal system in 2009. The omission occurred when amendments were made to the Tax Credits Act 2002, and only came to the Department’s notice in January 2011. Let me reassure the Committee that no claimants have been affected by this missing reference in the Tax Credits Act. HMRC has continued to seek settlement for appeals in the normal manner in Great Britain, as well as in Northern Ireland, and when the appellant agrees with the settlement they are asked to withdraw their appeal. Only when the appellant does not wish to settle is the case passed to the tribunal to decide, and even then there remains the option of reaching settlement. The order seeks legally to embed that process for the whole of the UK and ensure that legislation is restored to the intended policy position.
So, the order seeks to remedy an inadvertent omission in legislation from when the tax tribunal functions were transferred to a new tribunal system in 2009. I hope that the Committee will recognise the need for this order so that individuals appealing tax credit decisions in Great Britain do not need, by law, to have their case heard by a tribunal. It ensures that we embed a fair, efficient and transparent system of tax credit appeals across the entire UK and it avoids the unnecessary and burdensome process of taking tax credit appeals to tribunal, thereby freeing HMRC time to focus on its core function of collecting tax revenue. I commend the order to the Committee.
10.35 am
Owen Smith (Pontypridd) (Lab): It is a pleasure, Mr Crausby, to serve under your chairmanship this morning. As the Minister said, the change simply places on the statute book, as intended in the legislation introduced by the previous Government, a policy designed to produce a more coherent and consolidated appeals process. The Minister will not be surprised to learn that we will not oppose today’s change. He revealed that in preparing for today’s Committee he looked beyond the superficial technicalities of the few words we are inserting into the statute book to the underpinning objectives of the policy. He will know that those objectives were to provide a better quality service through the development of a more coherent set of procedures across all the tribunals—in this case, in relation to the tax credit tribunals.
I have a few questions for the Minister regarding this crucial area, which is becoming more crucial as we come to the point in this financial year when significant changes will be made to tax credits. For the tribunal service and the people potentially affected by those changes it represents a watershed in the nature of the tax credit system and the volume of appeals. Having looked at the more profound underpinning issues, the Minister will know that over the past 18 months of his
Government the volume of tax credit appeals has risen significantly, as has the time taken by the tribunal system to deal with them. The time taken from referral to disposal has risen from 15.4 weeks to 17.9 weeks. It is a significant increase, but not as significant as the overall increase in respect of all appeals which has gone up from 14 weeks under the previous Labour Government to 24 weeks under his Government. Those changes occurred before the significant amendments to the tax credit system in April.What concerns does the Minister have as a Treasury representative about the increased cost of the expansion in the time being taken for tax credit appeals from referral to disposal? Secondly, what assessment do he and the Treasury make of the forecast for the volume of appeals likely to be dealt with by the tribunals as a result of the changes being brought in? I was rather surprised to find that in the 2010-11 financial year the anticipated number of overall appeals, which is not broken down to tax credit appeals, was 415,000, whereas the anticipated number for this financial year is just 422,000—an increase of just 7,000 appeals. That surprised me, given that we expect more than 200,000 households in Britain to be dramatically affected by the changes to the tax credit system being introduced in April. I suggest that if the Government simply think that a further 7,000 appeals are likely, there has been a significant underestimate of the knock-on effect those changes will have for the tribunal system. What assessment has the Treasury made of the cost of an increase in the volume of appeals, particularly in respect of tax credits? Are the Minister and the Treasury content that the forecasts being conducted by other Departments, notably the Department for Work and Pensions, are accurate—or might they be inaccurate and lead to greater costs as a result of a larger number of appeals?
10.40 am
Mr Gauke: I thank the hon. Member for Pontypridd for his questions. He has sought to broaden the debate from the specific contents of the draft order to the wider issue of tribunal appeals. Let me see if I can address his concerns. He asked about the time that appeals take in the tribunal service and about the HMRC response to that. That is essentially a matter for the tribunal service, as that process is not governed by HMRC processes as such.
Owen Smith: Does the Minister accept that the Treasury has a responsibility to have an understanding of the costs associated with an increase in the amount of appeals and their duration?
Mr Gauke: It is not just about cost, but also about providing a good service to tax credit claimants. HMRC has increased the number of staff dealing with appeals and settlements to reduce pressure on the tribunal service and to ensure that as good a service as possible is provided.
Owen Smith: I hope the Minister will forgive me for intervening, but he will know that HMRC is reducing its staff to 50,000—a reduction of some 10,000 over the spending review period—so if he is right that more people are working on appeals, in addition to there being more people working on tax avoidance, how many extra people are working on appeals? Does that reflect the
Government’s view that there will be significantly greater numbers of households appealing tax credit and other decisions as a result of the changes?Mr Gauke: As far as the number of appeals is concerned, the hon. Gentleman has set out the numbers provided by the DWP, and there is no reason why I would question them. He is broadening the debate out to something that clearly is not directly related to the matter at hand and I have nothing to add to what he has quoted. I do not have the precise figures in front of me, but I stress that HMRC is ensuring that the settlement process is working as smoothly as possible. In that context, the number of staff dealing with tax credit appeals has increased of late.
Owen Smith: I understand that the Minister does not have the numbers in front of him. Will he therefore write to me with details of the number of staff within HMRC who have been transferred to looking at appeals, and perhaps also with details of where they have been moved from?
Mr Gauke: Yes, I will certainly write to the hon. Gentleman and provide him with more information. On the cost of the process, perhaps I could address that in my letter to him setting out our assessment. We believe that the arrangements in the new system will result in, and have resulted in, a saving for the taxpayer, but let me provide further detail of that in writing on the broader issue of the appeals process. I thank him for his support for the purpose of the order, which is to try to regularise the position.
Mr Dennis Skinner (Bolsover) (Lab): When the Minister writes to my hon. Friend the Member for Pontypridd about appeals and staff shortages, will he also make the same information available to all the trade unions concerned, because they have a very important interest?
Mr Gauke: We will certainly follow the normal procedure. The hon. Member for Bolsover has considerably more experience of this place than I have and he will be aware of the normal procedures when a letter is written following questions in Committee. That letter will be made available to the trade unions and others. I am tempted to move into a broader debate on HMRC staffing numbers—
The Chair: No, that is not advisable.
Mr Gauke: Mr Crausby, I will take your indication seriously and will not be drawn into that debate and the new-found interest in staffing numbers within HMRC from the Opposition. None the less, I am grateful to the Committee for ensuring that the tax credit appeal process will be on a proper legal footing for the whole of the UK and that tax credit appeals will first go through a settlement process with HMRC, which is something that all will welcome. It will avoid the costly burden to HMRC and the difficulty for tax credit claimants of unnecessarily forcing cases to the tribunal stage. I therefore commend the draft order to the Committee.
That the Committee has considered the draft Revenue and Customs Appeals Order 2012.