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Tax Credits

Volume 464: debated on Thursday 18 October 2007

1. If he will make a statement on the findings of the Parliamentary Commissioner for Administration’s report “Tax Credits: Getting it Wrong”. (158859)

As the House knows, tax credits benefit some 6 million families and nearly 20 million people. We remain committed to continually improving the operational delivery of tax credits. I intend to respond positively to the ombudsman’s report which, for example, makes useful recommendations on the changes to the proposed procedures for recovering overpayments. In the introduction to her report, the ombudsman states:

“I know from HMRC’s response to my first report, and the dialogue that they have since continued to have with my Office, that they are committed to understanding and improving the customer experience.”

I assure the House that I welcome the ombudsman’s second report. It is a helpful and valuable tool that we will use to inform the development of the tax credit system.

I thank the Minister for that answer, but errors are still made in approximately 2 million of the 6 million claims for tax credits. As a result, many people entitled to tax credits do not apply for them. Will the Minister give the figures for my constituency—or for the whole of Edinburgh, including the Chancellor’s constituency—for those who are entitled to, but do not receive, tax credits?

I do not have that specific breakdown, but I can tell the hon. Gentleman that, in Edinburgh, West, 7,300 families and 12,200 children benefit from tax credits. He may also like to know that, in families with children whose household income is under £10,000, 97 per cent. of those entitled to the benefit and support of tax credits are receiving them.

In my constituency, 9,500 families get tax credits, worth an average of £3,000 a year. Recently, I surveyed the almost 150 constituents who have contacted me about tax credit problems: 94 per cent. said that they were satisfied with how their complaint was dealt with, and three quarters of the cases were resolved in the constituents’ favour. Does my right hon. Friend agree that the real threat to tax credits is not miscalculation, which affects relatively few people, but the fact that everybody’s tax credit would be at risk if the Conservatives were ever to get back to power?

I agree with my hon. Friend, and am grateful for the detail that he has provided about customer satisfaction. However, I acknowledge that the ombudsman’s report was highly critical, in particular of Her Majesty’s Revenue and Customs’ decision making about recovery of overpayments. I can tell the House that HMRC will replace the so-called and very disliked “reasonable belief test” with a clearer test that will set out customers’ responsibilities for checking factual information. HMRC will play that information back to customers but, importantly, it will have a time limit for action on mistakes reported to it. I believe that that will lead to a fairer allocation of responsibilities between the customer and the Department.

This is the most damning report, and all of us know from constituency experience that every word is justified—indeed, the language is very moderate. Do not the Government realise that if they give a couple of thousand pounds to a family, that is agreeable to the family, but if they want a thousand pounds back, that causes financial disaster? Will the Government recognise that with this complicated system, it is those who most need help who are least capable of dealing with its complexities?

I acknowledge a degree of justice in what the hon. Gentleman says, but HMRC has taken note of customers’ experiences and feedback in its response to the problem. That response has also been informed by the first report from the ombudsman and by the issues that hon. Members have raised with Ministers in this House. As my hon. Friend the Member for City of York (Hugh Bayley) rightly pointed out, the HMRC is responding in a way that is improving customers’ experience, although I accept that we are not where we want to be when it comes to the delivery of services. A further improvement will follow from the pilot that HMRC began in March and, under the transformation programme, people who report that their household has broken down will be allowed from November to terminate their old joint claim and make new, single claims in one telephone call. So far, more than 70 per cent. of customers involved in the pilot suffered no break in their payments and their new claims were processed within a week. I think that the result will be a material benefit to the more than 170,000 tax credit customers who, unfortunately, find themselves in those circumstances, and we are working to improve the system all the time.

May I say to my right hon. Friend that, when tax credits work, they work very well and are welcomed by everyone, but that the big problem arises when they go wrong, as they stay wrong even when every effort is made to put them right? I look forward to hearing her say that more money will be made available for training and that the software involved will be refined. That is needed because, at present, it fails to recognise when a problem has been rectified. Those are the difficulties that we need to concentrate on, so will she use her good offices to put them right?

I will certainly do that. I assure my hon. Friend that we acknowledge and accept that training is an important aspect of the improvements that HMRC can bring to the customer experience. Indeed, training will be ongoing over the next few weeks to deal with a number of issues across tax credits. However, that is not the only area that we will improve. A lot of work is going on, and I commend the staff of the tax credit offices for their enthusiasm in bringing about improvements to the tax credits customer experience.

Does the Minister accept that there is absolutely nothing in the ombudsman’s report that we and the Prime Minister have not known about for the past two or three years? Why has it taken so long for the Government to get on top of the shambles that has seriously affected many of the people whom the tax credit system was designed to serve? When will the Minister give this new guidance, and will she assure us that she will first consult hon. Members who are concerned about the issue? Will she respond to the ombudsman’s recommendation—

The hon. Gentleman asks a series of questions. I will have to check Hansard if I am to respond to all of them—obviously they were part of his leadership campaign.

The take-up of tax credits is at an unprecedented level. New figures that were published in March showed that 97 per cent. of families on incomes below £10,000 were claiming their entitlement to child tax credits. The changes that I have proposed today, the detail of which will become public after we have finished the consultation with the ombudsman and other organisations with which we are engaged, will improve the way in which customers of the tax credit system are dealt with when overpayments are made. There is a range of reasons why an overpayment can occur. However, the House acknowledges—indeed, the Conservative party has come to acknowledge—the value of tax credits in tackling the serious problem of poverty in society.

For the past two years, HMRC accounts have had to be qualified by the Auditor General because of the tax credit shambles that the ombudsman described in her latest report. The Minister does not sound confident, but can she assure the House that it will be possible to sign off next year’s accounts?

I accept that a position in which the accounts are not signed off is not a good place to be. We are working to bring about changes that will enable the tax credits office to correct that situation. I welcome the Conservative party’s acknowledgment that poverty is a threat that challenges society. It also now accepts that tax credits are proving highly successful in combating child poverty. I go further and welcome the comments of the right hon. Member for Witney (Mr. Cameron) on Tuesday 16 October:

“Do not tell me that a society which can decode the human genome…build the world’s greatest financial centre…and provide the young men and women that form the finest armed forces on earth…cannot fight and win the battle against poverty.”

That is precisely what we in government are doing.