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Lord McKenzie of Luton: My Lords, I shall deal with the point about the error rate. The statistic that is quoted is misleading. The suggestion that overpayments are inevitably an error is a misunderstanding of what is happening in the system. It is a responsive system, which means that, if the income of a family goes up during the year by more than £2,500, there is the prospect of an overpayment. That is a consequence of the way in which the system works; it is not, in those terms, an error. The issue is how we encourage people to report changes more effectively, so that those changes can be reflected more quickly in the payments that they get. We need to see that in context.

A fundamental issue is the assertion that is made about financial instability. It goes to the heart of the way in which tax credits are constructed. It was debated extensively in another place, and the majority there was very clear about what it wanted. The CAB, which was consulted at the time, wanted a system that was responsive and flexible and took account of changes for families during the year. I ask those on the Conservative and Liberal Democrat Benches whether they want to pull all that back and go for an inflexible, fixed, flat system that is not fair to families and does not adjust to reflect family circumstances during the year.

A question was asked about the 800,000 families that are due to be transferred into the system. As my right honourable friend in another place explained a short while ago, the plan is still to transfer them into the system by the end of the year. We will monitor the system continuously this year to make sure that the
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transfer can be done safely and will report to the other place if there are any changes in the plan. I am happy to make the same assurance to your Lordships' House.

The issue of hardship was raised. Of course there is sympathy for families that end up having to deal with repayments. But in the code of conduct and procedures of HMRC there are processes to protect people. Those need to be reviewed, and that is one of the undertakings given by my right honourable friend. HMRC paid out £170 million in 2003–04 to mitigate hardship.

On the issue of whether the system is too complicated, in its first year of operation—2003–04—the take-up of child tax credit was about 80 per cent, which is better than the take-up on family tax credit. As I said earlier, 6 million families are benefiting. That seems to me to show an understanding of the system.

On the ability of people to spot overpayments, they do not have to understand how the system technically works. The key to it is the data that are provided when the award is made; that is, the size of the family and the family income. Those items should be easy to spot. Nevertheless, one of the undertakings given by the Paymaster General is to review award notices to see whether they can be improved to help communication. Indeed, the noble Lord, Lord Oakeshott, asked whether we accept the issue about increased and better communication. The answer to that is "Yes". It was dealt with in the Statement made on 26 May. That must be carried through.

On the issue of over-optimistic assurances, it may well be the case that they were over-optimistic. But as a greater understanding of how things are working in practice has developed, the Government have looked at the issue speedily and have responded.

On the issue of whether heads will roll for this, the politicians involved have fully accounted for themselves in another place as the matter has developed. What happens to employees of HMRC is an internal matter for that department.

All of the administrative issues raised in the ombudsman's 12 recommendations had already been covered in the Statement of 26 May, and they are being tackled. There were recommendations in respect of writing off overpayments caused by official error. They will be written off if they are the result of official error, as long as it is reasonable for the claimant to believe the payments to be accurate and appropriate.

The recommendation to set in-year recovery rates at the same level as those for previous years is not accepted. This is part of the balance of how we deal with recoveries of genuine overpayments. The problem is that if recovery rates are limited in-year they are stacked up in subsequent years, and life is no easier down the track.

The issue of suspension of over-payments in official error cases has been taken up. It has been announced that when there is a dispute the process of recovery will be suspended until it has been resolved.

I think that covers pretty much all of the recommendations that were made. Crucially, most of the issues raised in the recommendations were already being dealt with as a result of the Statement of 26 May.
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Other questions were asked. I cannot reasonably comment on the matter of the contractor, EDS, and the Identity Card Bill, and I am not sure that the noble Lord would expect me to do so. I cannot give the House an answer about the outcome of the discussions with our former IT partner, but I shall see that noble Lords are written to on that subject so that they can be sure about what is happening.

Lord Oakeshott of Seagrove Bay: My Lords, can the Minister tell the House the name of the former IT partner?

Lord McKenzie of Luton: My Lords, the noble Baroness, Lady Noakes, referred to EDS and I can confirm that it was the former IT partner.

Lord Oakeshott of Seagrove Bay: My Lords, can the Minister tell the House the name of the current IT partner?

Lord McKenzie of Luton: My Lords, I shall give you an answer to that question shortly. It is Cap Gemini.

I have already dealt with the question of writing off in cases of official error. It will be done if the claimant reasonably believed that the payment was appropriate.

We accept the issue about communicating errors and mistakes to claimants. That is being dealt with as part of trying to improve the nature of communications so that people are more fairly alerted.

I believe that I have covered all the points raised, except for the matter of negotiations with EDS, about which I shall write to noble Lords, but doubtless noble Lords will prompt me if I have not.

5.27 pm

Lord Barnett: My Lords, I declare a past interest as I made a modest living from complex tax systems and an even more modest living from introducing them as Chief Secretary to the Treasury.

These are two serious reports. I know that my noble friend will not have underestimated the serious criticisms within them. I understand from what has been said that the Treasury and the Inland Revenue—although we must now refer to it in a different way as HMRC—are looking into these major problems. But if able and successful businessmen found the tax system very complex, even when they were advised so well by professionals, how difficult must millions of the very lowest paid people who have no benefits advice at all find it?

It is not surprising that the computer system could not cope with the system. Indeed, I have problems with just one computer, so I understand that there were problems there. On the other hand, reading these reports, if one is not careful one can lose track of the objective, which is to help the lowest paid people in the land. In fairness, I am bound to say that I have not heard any alternative proposal from the noble Baroness, Lady Noakes, or the noble Lord, Lord Oakeshott, that would help the lowest paid in the land.
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Some of the lowest paid are clearly not benefiting from the system. They are not only not benefiting but are suffering from the way that it is operated. We must recognise that. I know from what the Minister has said, and from what my right honourable friend in another place said, that the Government recognise the difficulties that have arisen. I am pleased to hear that the Treasury has agreed and the Paymaster General has instructed the Revenue to suspend the reduction of income where there is a dispute. It is not enough just to do that in the case of a dispute. Many of the people we are talking about do not even know that there is a dispute. It needs to be more carefully handled.

I know that there is a helpline, but most of these people do not know how to press buttons one, two, three and four, which you are usually told to do when ringing a helpline. It is important that there should be greater understanding, sympathy and care in the Revenue departments for the people concerned. It is no use saying, "We should sack the people who handled this". They were handling complex issues, and making party political points is not helpful to the people concerned.

One of the major recommendations of the Citizens Advice Bureaux report is that all adjustments to payments should be limited to ensure that claimants cannot be left with weekly incomes below minimum levels. That is an important recommendation. Will my noble friend say that that has been accepted and that the Revenue will be told that that must apply? We are dealing with people on the very lowest level of income. We do not want to see that made worse rather than better, which is the objective of the scheme.

Of course, I appreciate that where there has been overpayment there is a case—I am glad that the Government have accepted it—for writing some of it off where serious administrative errors have been made by the Revenue. However, one has to recognise that we are dealing with many hundreds of millions of pounds of overpayment. Before we start writing off public money in that way, the Government have to be very careful that it is being written off in appropriate cases.

As I say, and as we all know, the tax system is complex. Normally, it is in one year that a tax adjustment is made. If that happens, people with low levels of income can be forced to repay sums in a very short space of time. I would like an assurance from my noble friend that even though repayment may have to be spread over a longer period of time, it will be so spread in order to help the very people that we are trying to help.

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