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Tax Credits

Volume 712: debated on Monday 20 July 2009


My right honourable friend the Financial Secretary to the Treasury (Stephen Timms) has made the following Written Ministerial Statement.

Tax credits are delivering guaranteed minimum incomes for working families and families with children, reducing child poverty, and improving work incentives. In these tough economic times they provide support to 20 million people including around 6 million families and 10 million children. Take-up is now higher than for any previous system of income-related financial support for in-work families.

Against this backdrop HMRC has today published its estimate of error and fraud in tax credits for 2007-08. The collection, analysis and publication of these data help inform efforts to strengthen the administration of the programme.

The analysis—based on a sample of 4,100 cases—estimates error and fraud at 8.6 per cent of finalised tax credit entitlements for 2007-08. This comprises error favouring the claimant at 7.8 per cent of finalised entitlements, and fraud at 0.7 per cent. This compares with the 2006-7 central estimate of error and fraud at 7.8 per cent.

The Government are determined to reduce the incidence of error and fraud in tax credits. In July of last year, the Government set HM Revenue and Customs (HMRC) a target to reduce the combined levels of error and fraud in tax credits to no more than 5 per cent of finalised entitlement by the end of March 2011. HMRC is committed to delivering to achieve this target.

At the same time HMRC also published a new strategy for reducing error and fraud. By using the department’s improved understanding of risks and of customer needs, it has already introduced additional checks and interventions tailored to help prevent error entering the system while ensuring those who abuse the system are caught. HMRC has also been embedding this deeper understanding of customer behaviour into its entire compliance programme, deploying resources to areas of greatest risk.

By helping customers to get their claim right from the outset, and to keep their award on track, HMRC is reducing the risk of loss and improving customer service. Through the Tax Credits Transformation Programme it is now offering better support to customers—for example, HMRC is helping new customers to make their claim accurately, tailoring the level of extra support to their particular needs. The department is also contacting large numbers of customers to check that their tax credits award remains up to date throughout the year and continues to reflect their current circumstances. Additional assistance is also being provided to some vulnerable customers when they renew their claims. Overall HMRC is contacting over 500,000 customers this year offering additional help.

HMRC has also introduced additional checks of many new claims, making better use of information it already holds to prevent financial loss from some of the most frequent mistakes. It is also contacting certain customers who have not reported changes of circumstances for some time to offer assistance to make sure their award is up to date and correct. HMRC is also expanding its outreach work through children’s centres by providing advice and support to customers.

On fraud, the department has implemented a range of measures designed to restrict the opportunity for abuse of the system. These include tighter control on the issue of claim forms, fraud awareness training for staff, and deploying compliance officers in tax credit call centres. Efforts to target organised fraud have successfully reduced the level of identified losses due to organised fraud from the levels in 2005-06. HMRC prevented incorrect tax credits payments due to organised fraud of £66 million in 2007-08.

HMRC is also getting tougher on individuals who commit fraud. It is increasing its use of data matching, using information from a wide variety of sources, within government and beyond, to identify those who attempt to abuse the system. It is also sharing intelligence with other government agencies and investigating cases jointly with the Department for Work and Pensions. Those who are caught face being charged a penalty and interest in addition to repaying the amount they defrauded, and in the most serious cases, the department can and does prosecute. This approach is consistent with HMRC’s vision about being passionate in helping those who need it and being relentless in pursuing those who bend or break the rules.

HMRC will use the analysis published today to refine its strategy further.

A copy of these statistics has been deposited in the Libraries of both Houses and is available on the HMRC website.