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Tax Credits

Volume 687: debated on Wednesday 6 December 2006

My right honourable friend the Paymaster-General (Dawn Primarolo) has made the following Written Ministerial Statement.

In the 2005 Pre-Budget Report, the Government announced a series of reforms to improve the tax credit system by increasing certainty for claimants. One of these changes was automatic limits on the rates of recovery where awards are adjusted in-year following a reported change. From February 2006, HMRC has widened the availability of additional payments to claimants experiencing hardship following an in-year adjustment to their tax credit payments. Making this process automatic has proved to involve significant changes to the IT system and, after extensive testing, HMRC has concluded that it is not possible to make a risk-free introduction of these automatic limits to the original timetable. Introducing fully automatic limits remains a key priority and I have instructed HMRC, from April 2007, to introduce an IT solution to ensure that claimants will benefit from reduced rates of recovery without their having to ask for this service.

Meanwhile, HMRC will do more to ensure that claimants can get access to the reduced rates now, and anyone who qualifies and contacts HMRC concerning their end-of-year adjustment will be given payments to ensure the reduced rates of recovery apply. HMRC has already taken steps to ensure that this facility is brought to claimants' attention. Furthermore, starting in January, HMRC will introduce an enhanced manual process to identify cases where a restriction is appropriate and apply a restricted rate of recovery without the claimant having to ask for this. In the majority of cases, the restriction will take effect at the same time as their payments are adjusted to take account of the reduced entitlement, thus achieving the same effect as the automatic restrictions.

The Government will continue to make improvements to the tax credit system, including those announced in the 2005 Pre-Budget Report, while minimising the risk of disruption to claimants. To minimise those risks and to ensure that some of the most vulnerable families are protected, the Government will not begin migration of the remaining IS/JSA recipients with children to the child tax credit in 2007. In addition, HMRC is putting in place special arrangements for a small proportion of claimants who may experience disruption in their payments following the processing of changes in their circumstances, and will update the IT system in April 2007 to prevent this.

Delivering a good service to tax credit claimants is, of course, the key priority for HMRC. It is committed to implementing the package of measures announced in the 2005 Pre-Budget Report and to delivering a high-quality service to claimants.