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Tax Credits

Volume 455: debated on Thursday 25 January 2007

7. What estimate he has made of the level of overpayments of tax credits reclaimed by the Government in the last three years. (111026)

10. What estimate he has made of the level of overpayments of tax credits reclaimed by the Government in the last three years. (111030)

Her Majesty’s Revenue and Customs’ trust statement and the Comptroller and Auditor General’s standard report on its accounts for 2005-06 show that, in total, £1 billion of overpayments had been recovered by 5 April 2006.

What would the Minister say to my constituent Mr. Roy Taylor, whose tax credit payments were stopped in August following a typing mistake by officials? He was told about the mistake but still received a repayment demand for more that £1,000. Is the system so flawed that officials send out repayment demands even when they know that they have made a mistake? That has caused enormous distress to my constituent, and to many other people in similar circumstances.

I am sure that the hon. Gentleman has written to me about this case, but if he has not I shall be happy to deal with any correspondence. However, I remind the House of what I have said many times—that many thousands of families in this country, including in his constituency, benefit from tax credits. They get the right money, at the right time. If that money were taken away, thousands of his constituents would find it very difficult to balance paid work and child care. It is about time that the hon. Gentleman recognised the benefits of the system, instead of concentrating on individual cases.

Does the Minister recall that I have written to her about people in my constituency being required to repay overpayments, even though HMRC has admitted that it was at fault, not my constituents? Will she think about this matter again? Is it not inherently unfair to require people to repay overpayments for which they are not responsible, but which the HMRC has admitted were caused by its own mistake?

As the hon. Gentleman knows, the operational rules that apply when an error is entirely the fault of the Department, and when the person involved could have had no knowledge of it, are the same as those in the tax system. He will know, too, that the system has always worked that way and that similar rules applied under the previous Conservative Government. When claimants give the details of their income, those details are played back to them in an award notice. They are asked to check that notice and confirm that the information is correct. The procedures that have been put in place have increased the accuracy of the notices enormously. The rules are perfectly fair, and they have worked for decades in the tax system.

In my constituency, tax credits have played a vital part in taking thousands of families out of poverty, and they have enhanced the position of children in particular. However, one or two well-publicised mistakes by officials have undermined that success. Will my right hon. Friend assure me that everything is being done to refine the processes involved, so that the enormous benefit that tax credits offer is not brought into discredit?

Yes, I can absolutely assure my hon. Friend about that. The accuracy rates for processing have risen to 97.7 per cent., which means that the vast majority of people get their tax credits on time, and at the correct amount. He is right to point out that the system has contributed to lifting 700,000 children out of poverty and to helping families to care for their children while taking part in paid employment.

In answer to an earlier question, my right hon. Friend the Chancellor said that tax credits had brought a lot of children out of poverty. Of course, they have also given women a great opportunity to get into work. However, there are issues concerning the clawback of overpayments. Can my right hon. Friend give me advice that I can pass on to my constituents on how they can appeal against an overpayment decision?

I am happy to advise my hon. Friend. The obligations of his constituents are to check that the information that they have given to the Department is correct and to notify the Department if their circumstances change. Where they dispute an overpayment, they can dispute it initially with the Department, then with the adjudicator and, if they are still dissatisfied, with the ombudsman.

Like other hon. Members, many of my constituents continue to suffer because of overpayment difficulties. I wish to raise one specific area. Does the Paymaster General agree that where a couple in an overpayment situation have separated and one has paid their share of what is due, it is invidious to pursue that person for the dues owed by their ex-partner, who has often separated in difficult circumstances?

The hon. Gentleman raises an important point relating to particularly difficult circumstances that can occur when there was a joint assessment of two partners and one of them continues to receive tax credits when they are not entitled to. I agree that I need to look at that and I assure the hon. Gentleman that I am doing so. However, when people make an application for tax credits, they do so jointly and accept joint responsibility for what is paid.

I have to admit that I am not clear what backlog of overpayments my hon. Friend is talking about. I presume that he is referring to the arrangement made to pay out at either 10 per cent., 25 per cent. or 100 per cent. and the arrangement for the hardship test to ensure that those who would suffer serious hardship as a result receive additional payments. That is proceeding well.

I must press the Paymaster General on the point raised about couples who split up. Recently, she admitted that the Treasury was pursuing 250,000 claims for tax credit overpayment against couples who have separated since the overpayments were made. That leaves thousands of women not only holding the baby, but struggling with their ex-partner’s tax credit overpayment debt as well. Are not some of the most vulnerable people in our community paying the price for the Chancellor’s chaotic tax credit system?

No. I am not sure what message the hon. Lady wants to send out. Is it that if a couple are overpaid and do not want to pay back their tax credits, they should split up? [Hon. Members: “No.”] There is a serious question about the application for tax credits when it is made by a couple. Some circumstances warrant further attention on policy grounds. I confirmed that I was doing my best to look at that. The hon. Lady has a cheek to raise a question on joint and several liability when her party, when in government, introduced it for the poll tax. Let us remember that two signatures go on the forms, the application is jointly made and the tax credits are jointly paid. If they are overpaid, they must be recovered.

May I point out the important linkage between the tax-credit-paid child care, the higher level child trust fund and Healthy Start vouchers, which have been well received. Whatever the problems of overpayment, they are vastly outweighed by the important practical help that tax credits and their link benefits have provided to some of my most needy constituents.

I agree with my hon. Friend. What the Opposition always refuse to recognise is the fact that 20 million people—6 million families, including 10 million children—are benefiting from tax credits. Four in 10 families pay no net tax as a result of tax credits. A family with two children on a single earner salary of £21,800 would have no tax liability until their income reached £420 a week. Those are the benefits of tax credits, but the Opposition do not want to recognise them because they are not committed to eradicating child poverty.

The Prime Minister told the House that people who had been overpaid tax credits would not have to repay them. The Revenue and Customs code of practice said that people would have to repay if it was their fault—Revenue and Customs always says it is their fault. The adjudicator says that Revenue and Customs is abiding by its code of practice, so that is all right. The ombudsman says that the adjudicator is right, so that is all right. So when the Paymaster General gets to question 9, will she just say yes?

When I get to question 9, I shall answer question 9. I draw to the hon. Gentleman’s notice the parliamentary ombudsman’s press release, issued on 13 July 2006, in which she commented on the

“positive way in which HM Revenue and Customs had worked constructively with her office on the issue of tax credits”.

She noted that

“substantial changes to the administration system”

had been agreed. They are progressing, and she is happy with that progress.