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Tax Credits

Oral Answers to Questions — Treasury – in the House of Commons at 10:30 am on 11th May 2006.

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Photo of David Evennett David Evennett Opposition Whip (Commons) 10:30 am, 11th May 2006

What measures he is taking to reduce overpayments of tax credits.

Photo of Jeremy Wright Jeremy Wright Conservative, Rugby and Kenilworth

What steps he is taking to reduce overpayments of tax credits.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Overpayments are a consequence of a responsive system, under an annual system. Given that a family's final entitlement cannot be known until the end of the year, some end-year adjustment will be necessary. Such adjustments could be avoided only by moving to an entirely fixed system. The 2005 pre-Budget report announced a series of measures to improve tax credits that would reduce overpayments by about a third once they are fully in effect. Overpayments amounted to £2.2 billion in 2003-04. The Public Accounts Committee announced on 25 April that Her Majesty's Revenue and Customs estimates that the figure will be similar in 2004-05, and national statistics on tax credit overpayments for 2004-05 will be published on 31 May.

Photo of David Evennett David Evennett Opposition Whip (Commons)

I thank the Paymaster General for her reply. The Chancellor said that tax credits are both symbol and substance of the Government's ambition for Britain. Is it not therefore appalling that the administration of tax credits has been so shambolic and that the recovery of overpayments has forced many people below the bread line and into mounting debt?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The hon. Gentleman is completely wrong on that, and he needs to ask the thousands of families in his constituency who are benefiting from tax credits. Some 700,000 children have been lifted out of poverty since 1998-99. Four in 10 families now pay no net tax, as a result of tax credits. Families are helped with child care. Families are supported in building on their affluence by changing jobs and increasing their hours. Tax credits are a fundamental part of supporting families in a flexible way, and if the hon. Gentleman is proposing to take them away from his constituents, he will hear a very different story from them.

Photo of Jeremy Wright Jeremy Wright Conservative, Rugby and Kenilworth

The Paymaster General will be aware that a substantial number of the overpayments are due to official error. In those cases, claimants are expected to identify and challenge the error if they want to avoid repaying the money. She will also accept that there are many cases where the claimant receives a large number of award notices, all of them different, and that task can be extremely difficult. Why should tax credit recipients, who have done nothing wrong, spend so much time correcting the Government's mistakes?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

It is indicative, if I can remind the hon. Gentleman, that about 10,500 families in his constituency receive tax credits and that the vast majority of them are receiving their tax credits at the right time and correctly. He will know—I have already said this in an answer to him, but I am happy to send the details—that the question of error and whether it is reasonable to expect the claimant to notice the error is a matter for the procedures used by HMRC, which are well publicised and were repeated in the PBR in 2005.


Photo of Kerry McCarthy Kerry McCarthy Labour, Bristol East

When the Minister gave evidence to the Treasury Committee in February, she suggested that she might be thinking of placing HMRC staff in citizens advice bureaux to run specialist advice surgeries on tax credits. Will she update us as to where we are with those proposals? At the risk of exposing her to a conflict of interest, may I suggest that Bristol would be an ideal place for a pilot?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I could not possibly comment on whether Bristol would be a sensible place for a pilot. Areas of work between the department and the citizens advice bureau are continuing to develop. Tax credit staff can be in citizens advice bureaux, citizens advice bureaux can have access to hotlines and special advice for their staff, and can be located in the department's inquiry centres to assist constituents who require that more detailed assistance from the citizens advice bureau.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

From what I have seen, the Inland Revenue staff have worked extremely well to take up and deal with complaints and problems relating to the tax credit system and I welcome the changes that were announced. In the case of the child care tax credit, will the Paymaster General say whether she would be prepared to look at an amnesty or some changes in relation to overpayments? The benefits are important and generous and have helped women. However, because the system is generous, if there are overpayments, they tend to be quite high.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

As my hon. Friend will know, the same regulations and procedure with regard to overpayments apply if there has been an overpayment of the child care element. Yes, of course, I am open to suggestions about how to improve the process—bearing in mind the need to maintain flexibility, provide certainty and make sure that the tax credits respond to the changing needs of families and the income in those families. If she has suggestions that she would like to put to me, I would be happy to consider them.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

Does the Paymaster General remember telling the House a year ago that the problems with the tax credit system affected only a small proportion of families? Does she agree that that was utter nonsense? Why is there still administrative chaos in the tax credit system?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Six million families are claiming tax credits and some 10 million children in those families are benefiting. We are paying out something like £15 billion-worth of support to them. If the hon. Gentleman wants to abolish that system, what does he propose to put in its place? Finally, I wish that he would stop running down the staff of HMRC and tax credits by saying that the system is in chaos when it certainly is not.

Photo of Clive Efford Clive Efford Labour, Eltham

The tax credits have been a major success of this Government and have assisted in lifting hundreds of thousands of children out of poverty. However, we would be remiss if we were not concerned about parents who receive overpayments and suffer some hardship in making repayments. Judging by my casework, it seems that they come up against bureaucracy. Is there any way in which we can allocate specific caseworkers to families to assist them in taking their case through to a swift conclusion? Some of the problems are caused by the length of time that people are forced to wait for the payments to be sorted out.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

My hon. Friend will know that I have announced a number of changes—both last May and in the pre-Budget report in 2005—to improve the system. Those improvements are progressing. If he has further suggestions, I will certainly consider them, but I remind Members that tax credits have been the most successful element of raising children out of poverty, supporting families and helping them to move into work. A flexible system gives the best result and that is what we need to preserve.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

Talking of running down the tax credit system, the Paymaster General may have read a recent report by the Fabian Society that said that tax credits were associated with "complexity and administrative problems", that they posed "risks" for low-income families and that they were "perceived negatively" by many families. The report was welcomed as "very important" by a very important person: the new Economic Secretary to the Treasury, whom we welcome to his post. Indeed, we read that he actually helped to launch the report. Is it not significant that criticisms of the system made by Conservative Members and echoed by others are now shared by the second most important member of the Treasury team?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The hon. Gentleman misrepresents the views of the Fabians—I cannot think why he might want to do that. He knows full well that the report first contained statements of support for tax credits and noted the contribution that they have made, especially to lifting children out of poverty. Secondly, the society raised various questions about whether or not tax credits and child benefit should be combined. That argument is a matter for the society, but it certainly did not run down tax credits or say that they should be abolished.