Tax Credits

– in the House of Lords at 3:00 pm on 8 June 2005.

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Photo of Baroness Noakes Baroness Noakes Spokespersons In the Lords, Treasury, Spokespersons In the Lords, Work & Pensions & Welfare Reform 3:00, 8 June 2005

asked Her Majesty's Government:

Whether they are satisfied with the operation of the tax credit system.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip

My Lords, more than 6 million families are benefiting from tax credits, which are more generous and inclusive than any previous system of income-based financial support. Recent statistics show unprecedented take-up success. For the vast majority, the new system is working well, but there are aspects that could be made to work better. That is why my right honourable friend the Paymaster General announced in the House of Commons on 26 May that she has agreed with HMRC six improvement measures.

Photo of Baroness Noakes Baroness Noakes Spokespersons In the Lords, Treasury, Spokespersons In the Lords, Work & Pensions & Welfare Reform

My Lords, I thank the Minister for that reply. The Government have introduced a hugely complex system of tax credits, which results in an error rate of nearly one-third—most being overpayments of credit now requiring repayment. Will the Minister agree with me that the Chancellor, who dreamed up this whole miserable scheme, has a lot to answer for? More importantly, no Minister has yet said sorry to the 1.9 million hardworking families caught up in this overpayment mess. Will the Minister now apologise?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip

My Lords, I certainly will not apologise for the introduction of the tax credit system, and neither should the Chancellor, who has a lot to be praised for in his record on the management of the economy of this country. Perhaps, as this exchange goes on, we can hear whether the Conservatives are going to scrap this policy.

As for the overpayments, it is important that the House understands how most of them arise. The tax credit system is a responsive system, which is designed to ensure that changes that take place in the course of a year can be adjusted in the course of a year. So if a family has an additional child or their income reduces, their credit can be increased in the year. But the corollary is that if someone's income increases, similarly an adjustment will need to arise from that. However, there is a safety net—that if income increases by less than £2,500 in the course of the year, no adjustment is made.

As for the 1.9 million awards which were overpaid, two-thirds of them arise from the fact that family incomes rose by more than £2,500 during the course of the year, underlining the success of the economy. Nearly £1 billion of the overpayment resulted from increases in family incomes of £10,000 or more.

Photo of Lord Addington Lord Addington Spokesperson in the Lords (Sport), Culture, Media & Sport, Spokesperson in the Lords (Disability), Work & Pensions, Deputy Chief Whip

My Lords, if the Government accept that the tax credit is designed to help those on low incomes, do they have some special scheme or mechanism to help those on comparatively low incomes to repay sums of approximately £1,000? What are they doing to help in that regard? Surely those people are being hurt by a system that is supposed to help them.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip

My Lords, the sum of approximately £1,000 is misleading. The median figure is nearer £570, and lots are lower than that. The HMRC has a code of practice that deals with how overpayments are collected; it depends whether the overpayment is identified at the end of the year or during its course. There is a percentage of the current year's award which limits the amount that can be collected in relation to a current payment of credit.

As my right honourable friend the Paymaster General set out in her press release on 26 May, one thing that we are doing as part of her six-point plan is to ensure that we work better with the voluntary sector in providing advice for families who receive tax credits, to see how that can help. There is a helpline, and the facilities to support it have been improved. The Government are mindful that when hardship is involved there is a process by which people can contact HMRC, and these issues will be looked at sympathetically.

Photo of Earl Attlee Earl Attlee Deputy Chief Whip, Whips, Spokespersons In the Lords, Transport

My Lords, how many civil servants administer the tax credit system?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip

My Lords, I do not have that data to hand, but I imagine that it is quite a few, because the system benefits some 20 million people in our country, including 10 million children. It is helping to get people back into work, to combat child poverty and to support families. I should have thought that that was something that we would want civil servants to be engaged in.

Photo of Lord Brooke of Sutton Mandeville Lord Brooke of Sutton Mandeville Conservative

My Lords, if the advice given by an HMRC official about tax credits differs from that given on the relevant part of the HMRC website, which should the taxpayer believe?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip

My Lords, I think that the taxpayer should believe the regulations and Act which introduced the legislation. How that is represented differently in different places, I am not sure, but if the noble Lord could give me a concrete example of that I shall have it looked into and write to him.