Tax Credits

– in the House of Lords at 11:30 am on 11th October 2007.

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Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Spokesperson in the Lords, Treasury, Spokesperson in the Lords, Work & Pensions 11:30 am, 11th October 2007

asked Her Majesty's Government:

What action they will take on tax credits in response to the report, Tax Credits: Getting it Wrong? by the Parliamentary and Health Service Ombudsman, published on 9 October.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, Her Majesty's Revenue and Customs intends to respond to the ombudsman's report positively. The report makes useful recommendations on the changes to the proposed procedures for recovering overpayments which will help make them successful.

Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Spokesperson in the Lords, Treasury, Spokesperson in the Lords, Work & Pensions

My Lords, I thank the Minister for that reply, but it completely fails to match up to the scale of the problem. This is not about the HMRC. Do the Government accept the ombudsman's finding that complainants frequently explain how they budget carefully to avoid debt and have little or no savings to fall back on, and then how distressing it is for them that the tax credits system lands them with a significant debt at the end of the year? Do they accept the finding that the annualised system is basically a serious design fault? In particular, do the Government accept the ombudsman's call that Parliament must examine the whole structure of the tax credits system? This is not about HMRC but about a Government sorting out a failed system.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, whether Parliament addresses itself to this issue is of course for the respective Houses to take decisions on. The Government will of course present a strong case for the benefits that tax credits have brought to the country—reducing child poverty and bringing returns to poorly resourced families.

There are problems with administration which the ombudsman quite rightly addressed. When she reported in 2005, HMRC responded positively; in fact, she commented on the positive response. Of course, HMRC intends to respond to the detailed criticisms in her present report.

Photo of Lord Higgins Lord Higgins Conservative

My Lords, were the Government not warned time and again of the danger of getting the Inland Revenue to give money away rather than collect it? Has it not proved to be the case that they have been grossly inefficient in distributing the money, and very tough indeed in how it is being collected? As a result, an immense amount of misery has been caused to a large number of the poorest members of our community. Is this not the fault of the previous Chancellor, who was determined to switch this from social security to the Treasury?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, as I have already indicated, there have been difficulties, but the House will appreciate that in the first years of the scheme the success rate was about 79 per cent. It is now up to 97 per cent in terms of accurate assessment of what the Revenue should pay or collect. Of course, we will not rest satisfied until we are as close to 100 per cent as possible. We are mindful of the fact that every weakness impacts upon our fellow citizens but we should not detract from the enormous benefits that the scheme has brought to our people.

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury

My Lords, the Minister just quoted a figure for accuracy which does not stand up to examination. The plain fact is that £1.7 billion was overpaid; that was the third year of the figure being nearly £2 billion. This system more regularly makes mistakes than gets it right and desperately needs a complete rethink. When will the Government deal with it?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, if the system more regularly got it wrong than right, the number of recipients dealt with accurately and effectively would, by definition, be below 50 per cent. As I have already indicated to the House, we are dealing with this on the basis of judgments being 97 per cent accurate. That does not alter the fact that the ombudsman has clearly identified weaknesses in administration. I make the obvious point that that is the ombudsman's task: she will have areas of weakness drawn to her attention. That should not detract from the success of the scheme and, as I have indicated, the value it has brought to large numbers of our people, including children in poverty.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Labour

My Lords, is not the problem we are addressing the fact that wages do not reflect family size and family need? Equally, neither do tax bands because of individual disaggregation. That means, therefore, that tax credits uniquely bridge the gap between family size and family income in a way that has transformed—transformed—the life chances of hundreds of thousands of children and thousands of lone parents who, as a result of those tax credits, now see their take-home pay doubled and that work pays.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I am grateful to my noble friend. The House will recognise her well earned expertise in this area. The House will appreciate my noble friend's long-standing commitment both on the Back Benches and at this Dispatch Box with regard to these issues. Her testimony on this matter is therefore to be taken seriously by the whole House.

Photo of Lord Trimble Lord Trimble Conservative

My Lords, the point is that mistakes are made by the Revenue. As my noble friend said, those mistakes amount to nearly £2 billion per annum. Why should the recipient be penalised for mistakes made by the Revenue?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, the recipient should not be penalised and the ombudsman identifies what the Revenue must do to improve its performance. As I have indicated, we responded positively to the report in 2005, and we intend to respond positively to her recommendations for the improvement of the scheme contained in her report published on 9 October.