Clause 28 - Recovery of overpayments

Tax Credits Bill – in a Public Bill Committee at 5:30 pm on 22 January 2002.

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Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 5:30, 22 January 2002

I beg to move amendment No. 52, in page 19, line 35, at end add—

'(6) Where an amount is liable to be repaid under subsections (3) to (5), the amount repaid in any period may not exceed a specified percentage of the person's income during that period, such percentage to be set out in regulations.'.

We are back on overpayments again. Clause 28 allows overpayments to be recovered in one of three ways, as I understand it. A recovery may be made through a request for a lump sum—or an account—through the PAYE system, or through an underpayment of tax credit.

What clause 28 does not do, and what our amendment seeks to do, is to put some sort of ceiling on the rate at which overpaid tax credits can be recovered. We do not want to tie the hands of the Government in any way so our amendment merely provides regulatory powers—with due deference to the Conservative Whip, the hon. Member for Mid-Worcestershire (Mr. Luff)—to pass regulations that would prescribe the percentage rate at which recovery could be made.

Clearly, at the margin, if someone's income has gone up or down a bit and they remain below the threshold, no overpayment will be made. However, when someone's circumstances change—a relationship breakdown or other changehich—it can take several weeks before the authorities hear about it, for understandable reasons, and quite a significant overpayment can arise. A person who becomes a lone parent as result of such a relationship breakdown and who, perhaps, must give up work, could have a large overpayment and a small current income. There is nothing in the Bill that tells us how quickly the board would try to recover the money. Will the Minister tell us the Government's thinking? Would it try to recover any overpayment during the following year? Is that the maximum time during which recovery will be attempted? I would be worried by that. If a person is receiving benefit because they have a low income and a large repayment is to be recovered over a 52-week period, substantial sums could be involved that would leave the person with little to live on.

The precedent for such circumstances—I hesitate to refer to the social security system, but what the heck—are procedures such as the recovery of social fund payments. There are guidelines about the rate at which payments may be recovered. Similarly, even under the convoluted child support legislation, there are ceilings on the percentage of someone's income that may apply in maintenance assessments. Higher ceilings exist for arrears, which is an analogous system to the one that

we are discussing. The concept of ceilings on percentages of income is familiar in the system.

Will there be a ceiling in regulations? Must we force the Government's hand, or are they ahead of us? Have they drafted regulations to that effect? I mention the specific case of a childless person who goes on to jobseeker's allowance but has an overpayment of tax credit. PAYE is not relevant to that person because they do not pay tax. Underpayment of their tax credit by the Government would be irrelevant because they would not be entitled to it. A lump sum bill saying, ''You owe £1,000,'' would not help either. I understand that those are the three ways in which the Government may recover overpayments. Will the Minister address that specific case in addition to our general worry about the rate of recovery of overpayment?

What powers will the Government use to recover money from a person who no longer receives tax credits, who is not handled by the PAYE system and who cannot pay a lump sum? Our worries about maximum thresholds are germane to such a case. I hope that the Minister will reassure us that he is ahead of the game.

Photo of Mr Paul Boateng Mr Paul Boateng Financial Secretary, HM Treasury, The Financial Secretary to the Treasury

The clause provides for the mechanisms by which an overpayment of tax credits may be recovered after provisions in clause 27 have established that that is due. There are three ways to do that, which the hon. Member for Northavon touched on. Money may be deducted from future payments of tax credits, obtained direct from the claimant as if the money were a tax debt—the ordinary law of debt recovery and judgment will apply—or by adjustment to the PAYE coding.

In practice, the first avenue used to collect overpayments would be deduction from future tax credits. The Revenue will establish guidelines under the code of practice to which I referred the hon. Gentleman earlier for the maximum amount by which a future award could be reduced to allow the recovery of an overpayment. That is necessary to avoid people experiencing undue hardship while the recovery is being made. That experience would be self-defeating within a measure that is designed to combat poverty and its effects, particularly if that relates to children.

Further recovery methods may be used if deduction from future payments is impossible. For example, as the hon. Gentleman mentioned, there may no continuing entitlement to tax credits. A debt would exist and a range of measures would be available to those who are entitled to enforce a debt. The ordinary range of measures, which would be available to any of us who are owed debts, will be available to the Revenue. I have already made it clear that the aim is to minimise incidents of overpayment, but the clause provides a variety of means of recovering money in a fair and cost-effective way when such incidents occur.

The hon. Gentleman asks whether we will try to recover everything in the following year. The answer is a categorical no for the reasons that I have described. That would be self-defeating. The time scale for recoveries will and must depend on the claimant's

resources and the amount of the overpayment. Those are the deciding factors.

It is important to consider whether a non-PAYE person or someone who is not in receipt of tax credits should be required to pay the sum at once. Again, the answer is no. The clause simply provides for direct repayment to become due and payable after 30 days. That does not mean that after 30 days a demand for the full amount will arrive for people on low incomes. However, repayment is then due, and one would require the Revenue to exercise proper discretion when considering the claimant's resources—again, the guidance is important—and to bear in mind the amount of the overpayment. The Revenue should proceed accordingly.

Photo of Richard Younger-Ross Richard Younger-Ross Liberal Democrat, Teignbridge 5:45, 22 January 2002

The Minister has kindly explained that there will be no instant demand, and that repayment will be spread over time. When people who deal with PAYE underpayment talk to the tax office at the beginning of the year, they hear, ''You have underpaid £500. We want it now.'' I have experienced two instances of that, and it was the Inland Revenue's fault. There is still the shock of a bill for £500. Will the Minister ensure that the guidelines and regulations make it clear that there shall be no demands such as, ''You have been overpaid £200. We want it back''? The Revenue should state that there has been an overpayment, and that repayment will be expected over a period. It should state how it will deal with the matter, rather than argue about the period for repayment.

Photo of Mr Paul Boateng Mr Paul Boateng Financial Secretary, HM Treasury, The Financial Secretary to the Treasury

The hon. Member for Northavon referred to the collective consciousness of the Revenue. That is a rather scary phrase. One thinks back to watching ''Doctor Who'' in one's youth, and imagines something amorphous and pulsating in a hidden room in the Treasury. There is no such entity, but we are anxious to ensure that we take into account the sort of constructive representation that the hon. Member for Teignbridge made. I do not doubt that the hon. Gentleman's point will be taken into account not only in the guidance, to which I have referred, but in the care that will be taken in drafting the standard communications with those in receipt of tax credits.

The exact wording of those communications is not an appropriate matter for the Committee, but it is important to make sure that the wording of all communications will not be such as will instil apprehension and fear. That is a serious point, because for many people, any communication from what is perceived as authority—or from actual authority—instils fear. That is something that we must take into account. It is important to remember that for those in receipt of income support or jobseeker's allowance there is no power to deduct tax credit overpayments from the amount they receive.

As I said earlier, the Inland Revenue will need to consider cases individually. It will consider the amount of the overpayment and the individual's resources before determining the period over which payment should be recovered. With that explanation, I hope

that the hon. Gentleman will withdraw the amendment.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

A question remains about the Minister's response to my example of a childless person who is not on PAYE and does not receive tax credits. Such people fall into the third category, which is tax debt; they are treated akin to someone who owes tax. However, someone who owes tax on a particular date but does not pay it has to pay interest. Will people in the circumstances that I have described have to pay interest? That would be intolerable, but I do not know whether the relevant section of the Taxes Management Act 1970 implies that or allows flexibility. It would be helpful if the Minister would clarify that point.

More generally, I am not sure whether the Minister said that the code of practice would deal with maximum rates of repayment. He seemed to imply that it was not in the Revenue's interest to push someone into hardship, but as the Revenue has first claim on someone's money, it has nothing to lose by making life tough for them. That was not a tremendous reassurance, which is why we seek to put in place something more meaty in the form of a threshold.

We are concerned about the Minister's reliance on codes of practice as distinct from regulations, for which the amendment would provide. Regulations are not subject to the same scrutiny as primary legislation, but codes of practice are subject to even less scrutiny. Secondary legislation may not receive serious scrutiny, but codes of practice receive none once they have been put in place, and changes in codes of practice are not scrutinised at all. They do not go before bodies such as the Social Security Advisory Committee. I have reservations about relying on a code of practice, which, once we have commented on a draft, we may never see or have an opportunity to comment on again. People need protection and parliamentary scrutiny of that protection.

How hard people will be pursued for debts that they may have incurred through no fault of their own is a fundamental point. I mentioned relationship breakdown. Whether or not a breakdown is permanent may not be immediately apparent. Indeed, it may be weeks or even months before that is clear. If the breakdown is then reported and the Revenue decides that the reassessment should take place from the time when one partner moved out, even though the breakdown was not seen as permanent at that point—that may be a grey area—someone could run up a big overpayment and end up on benefit with a tax debt.

I asked the Minister to clarify whether the debt would incur interest, but even if it did not, the person would still have a big liability hanging over them. The Minister assured us that the Revenue would not push too hard because that would not be in its interest, but in fact very little constrains the Revenue from trying to get its money. The Minister's response did not entirely reassure me, so I shall test the Committee's opinion.

Question put, That the amendment be made:—

The Committee divided: Ayes 5, Noes 9.

Division number 7 Adults Abused in Childhood — Clause 28 - Recovery of overpayments

Aye: 5 MPs

No: 9 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.