End of year adjustments are an integral part of the flexible system that responds to families’ circumstances as they change. Eliminating the need for adjustments would require a move to a fixed system, where eligibility would be based on the previous year’s income and circumstances, which would diminish responsiveness. The Government have introduced administrative enhancements and policy developments to improve the operation of the tax credits system, which includes measures to reduce overpayments.
I hope that that works. Last month, the Paymaster General wrote to me confirming that, after an examination of the transcripts of a constituent’s telephone calls to the Revenue, the Revenue acknowledged that it had incorrectly advised the constituent, that the constituent would not have to repay the sums involved and that the constituent would be compensated. Given the clear evidence that staff are finding it difficult to cope with the system, the lack of staff training, the evidence of fraud and the injustice to so many thousands of citizens who have claimed those credits and who have been forced to pay them back, will she acknowledge that the Revenue should always examine the transcripts and not persist in issuing denials when the mistake is usually theirs and not the constituent’s?
Improvements to the tax credit system have been discussed in detail in this House, and I am sure that those discussions will continue. I cannot comment on the specific case raised by the hon. Gentleman, but the system to determine whether an error has occurred and whether an overpayment should be written off is clearly defined and clearly followed. If he believes that that has not happened in the individual case that he has mentioned, I am happy for him to bring it to me again.
My right hon. Friend will realise the hardship that is caused to many families who have to repay tax credits, but does she recognise, as I do, that only a fool or a knave would ever pretend that we will get this 100 per cent. correct? I assure her that I would rather be struggling to defend overpayments than underpayments under this scheme.
My hon. Friend is making a very clear case. Some 6 million families are receiving tax credits, and their role in lifting 700,000 children out of poverty is making a huge contribution to all our communities. Their flexible and responsive nature is particularly important for families whose incomes fall and who therefore need more tax credits. He will know from last year’s figures that 700,000 families’ incomes fell significantly and they then received extra support from the tax credits system, which the system supported by the Opposition—the Liberals and the Tories—would have denied them.
Yet another question on tax credits; yet another occasion on which the Chancellor has failed to defend his own failed policy. In 2004-05, almost half of the 6 million tax credit payments were wrong. This week, the Institute for Public Policy Research, Labour’s favourite think-tank, produced a report that said:
“as the system currently operates, there are real doubts about whether this is an effective policy mechanism.”
When will the Chancellor accept personal responsibility for his creation of a massively over-complicated system that is causing misery to millions of families and needs to be reformed?
It does not matter how much the hon. Gentleman wriggles in trying to disguise the fact that the Conservatives want to abolish tax credits and take them away from millions of families, because he cannot deny that whenever this has been discussed in the House, including by the Treasury Committee, it has been concluded that tax credits are a significant contribution to challenging and eradicating poverty. The basic policy is correct, and the administration must follow that.
There is no doubt that tax credits have helped millions of families—thousands in North-West Leicestershire and in every other constituency—in tackling poverty. However, can my right hon. Friend reassure the House that the substantial income disregard that is being implemented is the best way of tackling poverty? Is it not at least possible that it will be a significant incentive to collusion in fraud in some cases? What assessment has been made of the cost of this new initiative?
First, as my hon. Friend can see, the package of announcements, including the disregard, is in the pre-Budget report books. Secondly, tax credits have two objectives: first, to assist in the eradication of poverty; and secondly, to help people to into work. The disregard is designed specifically to help people to transfer into work and to support them in that early period. Thirdly, I can give my hon. Friend the undertaking that he seeks in that the tax credits system will continue to ensure a robust compliance strategy.