Clause 27 - Overpayments
Tax Credits Bill
5:00 pm
Mr Paul Boateng (Financial Secretary, HM Treasury; Brent South, Labour)
I am grateful to the hon. Gentleman for his careful explanation of the amendments. I well understand his concerns. We have rightly debated at length the way in which the new tax credits system is designed to provide continuity of awards, with the capacity to adjust awards to reflect the changing needs of claimants. In particular, we have discussed the way in which the system will work in relation to changes in circumstances during the course of an award, and therefore the flexibility that clause 7 engenders in dealing with responses to income change. One key part of the work to be done on decisions about thresholds under clause 7, which I know is of great interest to the hon. Member for Northavon (Mr. Webb), will concern scope for overpayments of tax credits. To a certain extent, decisions made during the formulation of regulations on thresholds will have some bearing on the outcome of the scenarios that he described. He will understand why I do not intend to go down that road this afternoon.
Amendments Nos. 67 and 68 relate to the circumstances in which the Inland Revenue would be entitled to recover an overpayment of tax credit. By importing wording from social security legislation, they would limit those circumstances to cases in which there has been a failure to disclose a material fact or misrepresentation. In a previous sitting, we had a discussion instigated by the hon. Member for Northavon about the extent to which the provisions
would reflect elements of both social security and tax legislation. Elements have undoubtedly been taken from both, but the whole is, and is intended to be, very different from that for social security benefits.
The provision that he described made a lot of sense in relation to social security benefits but would not be appropriate for the proposed system. As I said, claimants to new tax credits will have access to guidance and support through a variety of means to help them decide when they should notify the Revenue of a change that might affect their entitlement to tax credits. It is in no one's interest for people to run up debts that they will subsequently find difficult to repay. On the other hand, we do not want to impose obligations across the board for notification of changes when there will be a substantial number of people—for example, those who receive only the family element of child tax credit—for whom major changes would not affect their award. Why should we put them to the bother of notifying a change?
As I have said on numerous occasions, we must strike a balance. We want to minimise the scope for overpayment of tax credit through support offered to claimants and the type of regulations that will be made under earlier clauses. When awards are reconciled at the end of the year, some people will find that they have been paid too much tax credit with no fault on either their part or the Revenue's. In some cases, people may decide to wait until the end of the year before they finalise their entitlement. Provided that they have told the Revenue all that they should have done, that is fine and it is their choice.
It is only right and fair, however, to other recipients of the credit that the Revenue should be able to recover overpayment, just as it would pay out extra tax credits that were due. The same principle applies when the Revenue recovers tax that has been underpaid with no fault on either side. We have all been through that process. Some years we get something; other years we find ourselves paying more. It would not be right to constrain the Revenue as the amendments would.
The hon. Member for Northavon gave an example about hours worked and the annual average. The system would not work in that manner. Entitlement will be based on current non-financial considerations and income will be assessed annually. That is not a question of averaging out in the way that he suggests. People who worked 30 hours a week for the first six months of the year, would receive the 30 hours credit. That would not be clawed back, even if they did not work during the latter six months of the year. We make no attempt to average that out: people receive the credit when it is due. If they stop work or undertake fewer hours, they are not subject to clawback.