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Tax Credit Overpayments

I am grateful for the opportunity to launch this debate on tax credits, and in particular on repayments by those who fail to fill in their forms on time. The introduction of tax credits has made a huge difference to thousands of families in my constituency. Tax credits have made it possible for people with disabilities or young children to take on work and improve their circumstances. I am very pleased with the concept. Across the country, nearly 700,000 children have been lifted from poverty thanks in no small part to the introduction of tax credits, but our ambition to remove 1 million children from poverty by 2010 and eradicate the scourge of poverty by 2020 is a tall order, and every impediment must be removed. The keep the promise campaign rightly recognises that the Labour Government's achievements have been enormous, but it points out, also rightly, that we must still work towards achieving what we promised. If tax credits can be criticised, it must surely be on the grounds that they are just too complex. The average recipient relies entirely on official calculations, and it is nigh on impossible to know whether payments are right or wrong. For my part—and I am a pretty intelligent chap—I have not a clue how the formula works. I will not embarrass my right hon. Friend the Minister by asking whether he can make the calculations; his staff certainly cannot. The calculations are made by feeding the computer with myriad facts and figures, and one simply hopes that the outcome is correct. Unfortunately, the introduction of tax credits was marred initially by computer faults and system failures. That has got much better, but there remains none the less a legacy of victims who, for the most part, simply did not know whether what they were paid was right or wrong, or whether they were overpaid or underpaid. Sometimes rough justice is better than no justice, and I hope that the Minister will still consider how the system can be simplified. A benefit should always have two qualities: knowledge of eligibility and knowledge whether what one receives is right or wrong. It is a simple test that tax credits, sadly, do not meet. However, the concern that I wish to raise today relates to a specific failure in the tax credit system. It is a regulatory issue, but one that casts families into poverty rather than lifting them out. Through my constituency casework, I have been made aware of several cases—I know that many colleagues have had similar experiences—in which an award has been terminated after failure to finalise within the permitted deadline. When that happens, the whole amount paid during the tax year becomes recoverable, even if the family's circumstances meant that they were fully entitled to all that they received. We are not talking about a few hundred pounds. In many cases, sums of £5,000 or £7,000—for some families, that is almost half a year's income—are being demanded. It is a sign of how widespread the problem is that over 100 of my parliamentary colleagues have signed an early-day motion that I sponsored on the subject. I am grateful for their support. It is not my practice to raise such issues in Adjournment debates, particularly with a kind and generous person such as my right hon. Friend the Minister. I would rather deal with them by bringing them to the attention of the appropriate Department. However, that is what I have been doing. Over and over again, my colleagues and I have raised the issue with the Department. Indeed, the Department now has the benefit of an ombudsman's report saying that what is happening is wrong, but nothing has been done and no remedy has been found. I have asked how many households are affected by the issue. I know that my right hon. Friend will not yet have had the chance to answer, as my question was perfected only earlier this week, but so far that information has not been forthcoming. We may be able to find out more about how many families are subject to this draconian measure requiring repayment when they fail to fill in the forms. In the absence of statistical data, all I can say is that the empirical evidence suggests that the issue is not insignificant. It affects certainly hundreds and perhaps thousands of families, and the support for my early-day motion suggests that it is widespread. I shall explain a little about how the problem arises. A family receiving child tax credit continues to receive the benefit after the end of the year for which it is awarded. There is a case for paying retrospectively—that would be a better system, if it could be devised—but that is not how it works. In order to finalise an award, the applicant is required to complete a record of income for the past year not later than 31 July of the following year. That may seem straightforward and perfectly reasonable; indeed, the Department requires the perfected information in order to finalise the award for the current year as well as the previous year. However, sometimes, for exceptional reasons—or, I dare say, sometimes out of ignorance or gross failure—the forms are not returned in time. Sometimes it is alleged that the forms have been returned, but the Revenue denies receipt. Who knows? I do know, however, that the draconian policy in such situations causes harm. In such situations, not only does the current payment cease but all payments made during the current year before that cessation are recoverable in full, even if it is deemed subsequently that the award was fully valid. In short, families are being asked to pay, out of no income or a reduced income, an award to which they were entitled, and are thus being plunged into poverty. That cannot be right. To give an example, one of my constituents has five children, two of whom are severely disabled. Although her husband works, they live on a very low income. They failed to finalise their award within the time scale allowed for by HM Revenue and Customs and were notified by letter that they would need to do so. My constituent says that she then sent off the relevant details. There is proof that the tax credit office received the letter, but it did not contain all the information needed to finalise the claim. My constituent says that they wrote again, but heard nothing further. Some time later, her tax credits stopped altogether, at which point she contacted the tax credit office and was told to reapply, which she did. That was fine—she filed a new claim and started receiving money from November of that year—but all the money that she had received from April to November, even though her income had not changed, was repayable. It came to more than £5,000. The family could ill afford it; in fact, they simply cannot afford it. They have been plunged into poverty as a result of that failure on her part. Whether or not it is her fault, that is simply wrong. That family, with all its problems, was plunged into poverty. Perhaps my constituent should have been more careful to ensure that the information that she sent was complete, or sent the documentation by recorded delivery to be sure, but the fact is that the average recipient family are not solicitors of the Supreme Court or Ministers of the Crown. They act in normal ways. They get things wrong. Life is hard. To punish them for what is either no fault of their own or simple ignorance is just not right. In another case, a man with three children suffered serious mental health problems that prevented him from dealing with his affairs during the months when his annual return should have been made. As a consequence, the deadline passed and he and his family were required to repay more than £4,000, the moneys received during the first nine months of the year. The Minister may well tell me that HMRC has discretion to accept exceptional reasons for failing to submit an annual declaration on time. How often is such discretion exercised? The case worker in my office, Andrea Samuelson, who deals with such matters has made it clear to me that discretion has never been exercised in any case that we have dealt with. It is as bad as that, and the experience of the colleagues to whom I have spoken is much the same. The ombudsman's 2007 report criticises that failure to exercise discretion, saying that continuing to deny reinstatement would"““be far too harsh a penalty for the delay, work entirely against the policy objectives of the scheme and unnecessarily cause customers avoidable distress and hardship.””" In the particular case that I mentioned, HMRC says that it is unprepared to exercise discretion, as the man's wife was capable of dealing with the paperwork. That may be true, but at the time she was supporting the family and, as her husband had always dealt with household money issues, she did not act on the letters received. I fully appreciate why awards need to be finalised and that, for reasons of efficiency, a cut-off date is necessary. If accurate information regarding income is not received in good time, there is clearly a risk that the wrong payments will be made and an overpayment will occur. Of course, I acknowledge that if someone is not entitled to a payment received, they should be asked to repay it, but that is not the issue. I am talking about people who are entitled to the payments that they receive, but who through administrative failure, on their part or the part of others, are penalised in the way that I have described. To plunge deliberately such families into poverty is not just an administrative failing, but something of which we should be ashamed.