To ask Her Majesty’s Government whether they will pay taxpayers the same rate of interest for repayment of overpaid tax as they charge them for late payment.

My Lords, for most taxes interest on late payment is charged at a higher rate than the interest applied to repayments of overpaid tax. This is in line with the practice in most other tax authorities and, of course, in business. HMRC has been consulting on a new interest regime, and during consultation it was generally accepted that differential rates were appropriate. Following the consultation, the Government announced at the Budget that they would continue with the policy of using differential rates.

My Lords, I am grateful to my noble friend for that Answer, but I am not sure that I have quite understood it. Will my noble friend confirm that the position is that if any of us as taxpayers owes money, we are charged 2.5 per cent interest, but if the tax authorities owe us money, it is 0 per cent? Why?

My Lords, I endeavour to answer that by reference to the principles on recompense that we apply, which are based on fairness and simplicity. I point out that it is generally the practice of banks to pay a slightly lower rate of interest to those who owe the bank money or replace deposits and to charge a slightly higher rate to those who have borrowed as a positive incentive. Having a single rate for interest charges would make it extremely difficult to choose a rate that did not have the perverse incentive effect of either encouraging people not to pay their tax or, alternatively, to use HMRC as if it were a deposit-taking bank.

My Lords, does the Minister accept that for most people who are owed tax, the most important thing is how quickly they get their money back, not the rate of interest on it, particularly since interest rates are very low in any event? Can the Government give an assurance that just as they are making sure at this time that they pay their suppliers quickly, HMRC repays tax quickly as well?

My Lords, I agree entirely with the noble Lord, Lord Newby. It is an issue of the availability of funds rather than the cost of funds which is often critical, particularly to smaller companies, and HMRC is committed to making prompt repayment of overpayment when it becomes aware of such a situation. It endeavours to do this within a 30-day period of becoming so aware. It generally achieves that target with a high degree of success, except at times of peak operating periods such as the end of the tax year.

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My Lords, is the Minister aware that this can be very annoying for the taxpayer? I found myself in receipt of a £13,000 payment from the Inland Revenue when I knew that I owed it money; it did not owe me money. Having notified it of this, it said that I would have to pay interest on the money. It took six letters or more, each time referred to a higher level, to have the matter reviewed. In the end, it said that it would not charge me any interest on the money. There was every reason to have just stuck to the £13,000; it was so difficult to give it back. What must that have cost the public in administration? What does the Minister think? Could money not be saved there?

My Lords, I am sure the noble Baroness was extremely clear and forthright in her representations to HMRC. I imagine that mistakes occur. Taxes are extremely complicated, particularly where people have multiple sources of income, and therefore at times overpayments or overcredits will take place. HMRC is committed to rectifying such mistakes as swiftly as possible, but I am sure there are particularly complex cases where it will take a little longer. I am delighted to hear that the noble Baroness in the end achieved the outcome that she believed was right. I hope that we made good use of the funds while we held them.

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My Lords, I apologise to the noble Baroness for rising to ask a question before her, but the 30 days repayment has really struck home. I was informed at the beginning of March that I would receive a repayment of tax. Two months went by, and I asked why I had not received it; HMRC said it was not sure about my address. For 39 years I have lived at and paid tax from that address. When I asked for the cheque, HMRC said, “Well, it will take 10 days for you to get your cheque”. Is there a strategy to delay repayment of tax?

My Lords, I feel I am going to be drifting into answering individual tax queries on behalf of noble Lords. Rest assured, there is no strategy other than to ensure that people pay the right amount of tax at the right time; if they overpay, that they receive that overpayment as promptly as possible; and, in a more normal interest rate environment—that is, not one characterised by 0.5 per cent base rates—there would be some compensation. In the event that the individual does not pay a sufficient amount, they will be pursued to do so and will be charged for late payment. That seems to me to be an equitable and fair approach. How the Inland Revenue was able to contact the noble Lord to tell him that he was owed money but not able to contact him to get the money to him baffles me at the moment. I am sure the noble Lord will tell me outside the Chamber if he feels that I should have more information.

My Lords, I will ask the Minister a general question. In most of the authorities and government departments in which I have worked, statistics have been kept of the number of complaints and the number of outstanding amounts that needed to be repaid and the amount of interest, at whatever rate it was. Does the tax office have these kinds of statistics and, if so, can they be published?

My Lords, HMRC sets performance objectives in these areas and monitors progress against those objectives. That has quite an important influence on the allocation of resource if it is falling short of its targets.

My Lords, the Minister referred to tax being very complicated. Who was responsible for the tax advice manuals going from one volume to almost an entire library in the past 10 years?

My Lords, the complexity of tax reflects the increased complexity of life in the economy.

My Lords, since the underpayment of tax, particularly capital gains tax, is more topical these days than the overpayment of tax, what interest will people who have underpaid their capital gains tax be required to pay?

My Lords, I believe that the rate of interest chargeable is 2.5 per cent per annum.

My Lords, given the Minister’s remarks about tax being somewhat complicated, is he therefore denying the HMRC advertisement that says that,

“Tax doesn’t have to be taxing”?

My Lords, that is just an interesting play on words that no doubt came from an inspired copywriter and was designed to encourage people that, as far as basic tax for the ordinary working person is concerned, it is a fairly simple exercise that should not be intimidating or daunting. The literature and websites that are available are designed to facilitate understanding in order that people can make their full and proper contribution, as I am sure they would wish to do.

My Lords, does my noble friend have among his papers information about the sum of money that is charged to taxpayers on the 2.5 per cent basis and how much is owed the other way?

My Lords, that is an interesting question. I thought I had those data, but apparently I do not. From recollection—I have found it. Interest charged on direct taxes in the year to October 2007 was £957.8 million, a not insignificant amount. Interest charged on late payment of VAT in respect of 2007-08 was just under £100 million.