1.On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) and Concentrix. In May 2014, HMRC signed a three-year contract with Concentrix. The contract aimed to provide additional capacity and analysis to conduct checks for possible error and fraud in tax credits. Error occurs where claimants give HMRC incorrect information on their circumstances that they believe to be correct, or where HMRC makes a mistake when processing the claim. Fraud occurs when claimants knowingly withhold or give inaccurate information to receive more money. Since 2009, HMRC’s strategy to reduce error and fraud in tax credits has involved targeting an increased number of compliance checks at claims with the greatest risk of containing error or fraud. This strategy has helped to reduce overpayments in personal tax credits due to error and fraud from 8.9% to 4.8% between 2008–09 and 2014–15.
2.In 2013, HMRC aimed to reduce error and fraud in personal tax credits to no more than 5.5% by 2014–15. In order to achieve its target, HMRC estimated in 2013 that it needed more than 1,000 further staff checking claims. With pressure on public spending and resources, HMRC considered using third parties to increase its capacity. It conducted a pilot study in 2013, which concluded that the private sector could provide additional capacity to review tax credits awards. Following its pilot, HMRC contracted with Concentrix. Concentrix undertook some of the processes usually carried out by HMRC to check for error and fraud in tax credits. Concentrix contacted tax credits claimants, collected and assessed evidence and made changes to their tax credits entitlement. Concentrix was required to innovate in its use of data analytics to better target compliance checks at claims with the highest potential of containing error or fraud. HMRC retained overall responsibility for the tax credits system. HMRC also retained responsibility for an established part of the tax credits renewals process, where it stops payment when a claimant does not renew their claim by 31 July. It does this to manage the risk of paying claimants who are no longer entitled to tax credits and minimise the level of overpayments.
3.We have raised concerns with HMRC on several previous occasions about the service provided by Concentrix. In September 2015, we concluded that Concentrix’s approach to obtaining large amounts of information from claimants in a short timeframe and cutting off benefits from those who failed to do so was “excessively threatening”. We were also concerned about Concentrix’s approach of focusing on finding out whether single parent claimants were in a relationship when they had provided relevant evidence to HMRC. HMRC told us, in July 2016, that it had worked with Concentrix to bring the service to an acceptable level but, in August 2016, instances of poor customer service and decision making were widely reported. MPs and claimants raised concerns that Concentrix had suspended their tax credits awards. Substantial numbers of claimants also had difficulties contacting Concentrix to discuss their awards. The Work and Pensions Committee also highlighted, in December 2016, that vulnerable people lost benefits to which they were entitled “as a consequence of avoidable failures”.
4.On 13 September 2016, HMRC announced that it would not extend the contract with Concentrix, citing poor customer service levels. In November 2016, HMRC and Concentrix agreed to end the contract as it was not working as HMRC intended. We took evidence against this background to examine the poor performance that occurred, its impact on tax credit claimants and how HMRC plans to deliver a better service for claimants in future.
5.HMRC expected Concentrix to provide good customer service standards for tax credit claimants through meeting key performance targets. In reality, however, Concentrix consistently missed its key performance targets for opening post, answering claimant calls and the quality of tax credits decisions throughout the contract. Between November 2014 and September 2015, Concentrix met 104 of a total of 242 applicable monthly performance targets. Its performance was worst in July 2015 when it answered an average of 4.8% of calls within five minutes against the target of 90%. We asked Concentrix whether claimants received a poor deal in the management of the contract. Concentrix accepted that it missed service levels and its performance was below target.
6.In July 2016, HMRC told us that it had worked with Concentrix and “succeeded” in bringing its service up to an acceptable level. Concentrix’s performance for handling post and calls, however, fell significantly between May and September 2016. In June 2016, for example, Concentrix’s sub-contractor opened, scanned and returned 32% of post within 15 working days of receipt, against a target of 80%. Concentrix also answered only 76% of calls in June 2016 against a target of 90%.
7.Despite Concentrix missing its targets for answering calls and post from May 2016, in August 2016, HMRC stopped 45,000 payments reviewed by Concentrix to claimants who had not responded by the annual deadline. Concentrix told us that this was more than double the planned number of 21,000 payments. Concentrix did not accept that the “failure of customer service” was the “sole responsibility of Concentrix”. It said that it received 400% more claimant calls than it had planned for and agreed with HMRC and upon which it had planned the level of call centre staff. As the number of terminations was twice as much as it had expected, it told us that “this is what drove significant volume into the system”.
8.HMRC told us, however, that the responsibility “lies between us in different parts of the Report”, suggesting that “there are failings on both parts”. It said that it took a “different view” of what happened during the renewals period. HMRC said that Concentrix did not handle the planned number of compliance cases before the renewals process, which led to both a backlog of open cases when the renewals process was due to end and the increase in termination of awards. HMRC highlighted that it would have stopped fewer than 45,000 cases if Concentrix had met its plan. The National Audit Office noted in its report that between May and July 2016, Concentrix closed an average of 6,200 compliance cases per week compared with a planned number of 30,000 cases per week. This led to a backlog of open cases when the renewals process was due to end in September 2016. It also meant that the planned level of resourcing in Concentrix’s call centres could not meet the increase in calls from 11 and 12 August 2016 when HMRC began to terminate payments.
9.HMRC told us that it was conscious of the impact of the contract failure on claimants, and recognised the contract was not value for money for customers. It apologised for not providing the payment of a timely and accurate benefit, and Concentrix also apologised for what happened.
10.If a claimant is not satisfied with the decision reached on their tax credit award they have the right to request a review of their decision, known as a mandatory reconsideration. Where a claimant is able to provide additional evidence to support their claim, HMRC will reinstate their award. The National Audit Office reported that of the 45,000 claimant awards terminated and 73,500 awards adjusted in 2016, a total of 34,500 claimants requested a reconsideration of their decision. Of this, a total of 29,500 decisions were overturned and these awards were reinstated.
11.Concentrix emphasised that the renewals process needed review because the burden of proof is on claimants, which it said can cause “a lot of pain” for claimants. HMRC said that it will be making changes to the renewals process in 2017 and said it plans to clarify the renewal letter sent to claimants inviting them to renew their claim, to improve the response from claimants. It also told us that it plans to introduce an online tool for claimants to report changes in circumstances. In response to the Work and Pensions Committee’s recommendations on Concentrix, HMRC made several commitments to review its tax credits compliance process. This included plans to detail the reasons fraud or error is suspected in letters to claimants challenging entitlement to tax credits and reconsidering the 23,000 remaining awards that Concentrix reviewed during the 2016 renewals process where claimants did not request a reconsideration. HMRC said that it is reviewing these cases to establish that decisions made by Concentrix were properly made and communicated to claimants.
12.Constituents and MPs outwith this Committee also reported concerns that claimants may have further lost out when tax credits refunds (either as a lump sum or regular increased payments) take them above income thresholds for other means-tested benefits. We asked HMRC what action it had taken to address this situation. It said that it had clarified with the Department for Work & Pensions that the repayment of tax credits as a lump-sum should not affect eligibility for other means-tested benefits, including housing benefit. It explained that lump sum tax credits payments are now flagged as a lump sum in the information systems used by the Department for Work & Pensions and local authorities to avoid impacting on other benefit payments. It acknowledged, however, that further discussions were needed to make “absolutely certain” that affected claimants do not suffer and receive the amounts of money that they are due.
13.HMRC paid Concentrix £32.5 million over the life of the contract. At November 2016, the contract had saved an estimated £193 million at November 2016 against an original expectation of £1 billion. We asked HMRC whether the contract, in hindsight, was worthwhile. It said that the investment of £32.5 million for a saving of £193 million represented a reasonable rate of return. Nevertheless, HMRC told us that it would not repeat this type of contract in the future.
14.Concentrix reported that it made a financial loss of £20.5 million from the contract. It said that the assumptions from HMRC’s pilot about the number of available tax credits claims for review proved to be incorrect. In the contract, HMRC passed tax credits claims to Concentrix for review. Concentrix applied data analytics to these claims in order to filter claims based on potentially inaccurate information. HMRC estimated in the contract that Concentrix would investigate up to a further 1.5 million awards per year. Although Concentrix applied its analytics and filtered these cases to investigate 324,000 awards, Concentrix highlighted that HMRC still expected it to review a higher number of cases.
15.We asked HMRC how much of the £1 billion of estimated savings it could have achieved from using its own resources to conduct compliance checks, rather than using a private-sector provider. HMRC was unable to provide us with an answer but suggested that it was possible to model the likely error and fraud reductions from employing a certain number of people. It committed to provide us with a written answer on this. It also said that the 250 staff that have transferred from Concentrix created additional capacity to reduce the level of error and fraud in tax credits.
1 C&AG’s Report, Investigation into HMRC’s contract with Concentrix, Session 2016–17, HC 915, 17 January 2017
2 , paras 1.1–1.8
3 , paras 1.10–1.14
4 , summary para 3, paras 2.2, 2.6, 3.28
6 Oral evidence taken on 13 June 2016, HC 78,
7 , 26 July 2016
8 For a selection of press articles and Parliamentary Questions, see House of Commons Library, , Debate Pack CDP 2016–0190, Kennedy, S. and Adcock, A., 24 October 2016
9 , summary para 4
11 , summary para 15
12 ; , para 6
13 , 26 July 2016
14 ; , para 3.15, Figure 17
16 ; , paras 3.16, 3.21
17 , , summary para 4, paras 2.13, 2.14, Figure 7
19 Work and Pensions Committee, Eighth Special Report of Session 2016–17, Concentrix: government response to the Committee’s fourth report, HC 1006, 6 February 2017, p. 4
22 ; , paras 1.17, 1.19, 3.45
23 ; , paras 1.17, 3.48, summary para 10
4 April 2017