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Tax Credit Overpayments

I agree with my hon. Friend on the popularity of winter fuel payments, although tax credits are pretty popular too: take-up is very high. I understand the concern that some may have about not applying for tax credits because of the worry about overpayments, but actually, in 2005-06, take-up of the child tax credit was 82 per cent., with more than 90 per cent. of the money available being claimed. Take-up among those with incomes of less than £10,000 a year is now 96 per cent., up from 93 per cent. in the first year of tax credits. Those figures are encouraging and partly reflect the fact that the service has become considerably better since the initial problems, which undoubtedly there were—I readily acknowledge that there were serious problems in the early days, but there have been considerable improvements since. In many respects, Her Majesty's Revenue and Customs is now providing a good service, although I entirely accept that there is room for further improvement. I am determined to ensure that we do improve it further, as I have made clear during my couple of weeks in my current role so far. We are certainly seeing fewer overpayments caused by IT or administrative error, and accuracy in processing and calculating awards has risen substantially. I very much hope that through the tax credits transformation programme, which started in 2006, we will see substantial further improvements still. My hon. Friend made a number of very important points about overpayments. End-year adjustments leading to an overpayment fell significantly in 2006-07 to £1 billion, as a result of the successful implementation of a package of measures to improve tax credits administration announced at the 2005 pre-Budget report. They are now less than half the level of the first year of the system and constitute just 5 per cent. of gross spending on tax credits, which is better than we projected in the 2005 pre-Budget report when we anticipated that overpayments would fall by about a third—in fact the fall has been about 40 per cent. The number of families affected by overpayments is down significantly from 1.9 million to 1.3 million, and the average overpayment is down. But I agree that that is no grounds for complacency, so in May we published ““Tax Credits: improving delivery and choice””, which was a discussion paper showing the Government's commitment to ensuring that the system is working for families. It explored proposals to improve choice and certainty for tax credits customers, as part of a strategy of encouraging customers to take more control of their tax credits awards. My hon. Friend argued for simplicity. One of the themes of the document, particularly on support for child care, was about how the system could be simplified while still meeting its objectives. We received very good input to that exercise from advice organisations, and this debate gives me the chance to put on the record my thanks to those organisations for the effort that they put into responding to that consultation. HMRC's policy on recovering overpayments is set out in its code of practice 26—““What happens if we have paid you too much tax credit?””—which was significantly amended at the start of this year. Previously the policy was that an overpayment was written off if there was an official error and it was reasonable for the customer to believe that their award was correct. The reasonable belief test caused a good deal of concern particularly because people's perception of what is ““reasonable”” can vary widely. My hon. Friend has raised a number of issues about that since the introduction of the system. At the end of January, we replaced the belief test in code of practice 26 with a clearer test setting out the responsibilities of HMRC and customers to check factual information. In effect, that is a contract of responsibility. It builds on the existing practice of giving people responsibility for checking the factual information. HMRC plays back to them in the award notice information such as how many children they have and what their income is. People are expected to check that that information is correct and that the amount that goes into their bank account matches the award notice. There is no expectation that people will know the formula and I sympathise with the points that my hon. Friend made about that. As before, they will not be expected to check the calculation. However, if there is an official error and customers meet their responsibilities, the overpayment should be written off. The new code of practice goes further. HMRC now has a time limit of 30 days to process reported changes of circumstances. In addition, where HMRC makes an error any overpayment will be remitted if the customer reports the error within 30 days of receiving the award notice. HMRC will also remit all overpayments arising following a report from a customer of an error by HMRC. The changes will create a fairer balance of responsibilities between individuals and HMRC. I hope that that will allow us to make significant progress in bearing down on the scale of the problems caused by overpayments. The early-day motion put down by my hon. Friend aimed to question the way in which HMRC recovers overpayments when a customer has not renewed their application. I will give some background on this issue. Tax credits are claimed annually. The renewals process serves two purposes. First, it finalises the award for the previous year. Secondly, as he said, it acts as a claim for the current year. While the claim is being renewed, HMRC will pay provisional payments based on the previous year. In the absence of a claim, the award is ended and provisional payments become repayable. My hon. Friend believes that overpayments should not be recovered when the person has failed to make a claim in time but would have been eligible had they done so. There is a problem with that, which was the reason for my intervention. There are deadlines for good reasons and I do not think that anyone, including my hon. Friend, can say that those do not matter. The longer that families are on provisional payments the more likely they are to have their current award based on out-of-date information. We have shortened the deadline by two months. As a result, just after the end of July this year around 2 million fewer people were on provisional payments than three years ago. That has helped. HMRC must put out a strong message that deadlines are important and that people must get the information in on time. HMRC makes every effort to get people to renew on time, including an extensive campaign of radio and television advertising. As part of the tax credits transformation programme that I mentioned, HMRC has proactively contacted 85,000 of the most vulnerable customers either early on in the renewal process or if they had not renewed by the deadline. HMRC offered help by renewing awards immediately over the phone where possible or, if they had already been renewed, checking that the renewal had been processed to encourage timely renewal in the following year. As a result of that exercise, more than 10,000 claims were renewed immediately over the phone and more than 20,000 claimants agreed to call back on a special number. More than 20,000 claims had already been renewed by the time HMRC had spoken to the claimants. Those figures indicate that that was a worthwhile exercise in ensuring that people got the information in. If someone misses the end of July deadline, their payments will be stopped shortly afterwards. After that, HMRC allows customers 30 days to restore their award without any quibble. They can be allowed longer if they can demonstrate a good cause for their not renewing by the deadline. My hon. Friend asked how often that discretion has been exercised. Unfortunately I am not able to give that figure, although I understand the point that he has made. I can tell him that for this year's renewals round overall, HMRC has restored nearly 200,000 awards to date. I am not able to say how many of those were on the good cause basis, but nevertheless, a lot of rewards have been restored. It was interesting to hear the two examples that my hon. Friend referred to in his speech. I have not seen the details of those cases before. If he passes the details to me, it would be interesting to look at whether the good cause basis should have applied in either case. I would be happy to check that. If someone has not restored their award and they make a new claim, that can be made that can be backdated by up to three months. HMRC has no interest in forcing people into hardship. We want to strike the right balance between a payment plan that can be met without undue hardship and the recovery of overpayments. There are well established processes in place to do that, including for those whose awards have been terminated, using 12-month instalment plans with longer repayment periods where necessary. The code of practice on recovering overpayments makes it clear that exceptional circumstances will be taken into account.