Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



  60. I would not like to think I owed the Inland Revenue much.
  (Mr Montagu) I would not like to think you owed us much either, Mr Steinberg.

  61. Let us move on. I want to talk about working families tax credit, paragraph 4.2. I want to talk not about specific constituency issues but ones that have been raised by people in my constituency, small businesses. This is the payment of working families tax credit. Is it fair to burden small businesses with the administrative work of carrying this out?
  (Mr Montagu) I want to be helpful to the Committee, Mr Steinberg, but I have to be a bit circumspect. The decision that the working families tax credit should be paid via the employer was a major plank of government policy. As I see it our task since then has been to try and make it as easy as possible for small businesses and others to meet that obligation.

  Mr Steinberg: So you will not answer the question?

  Chairman: Order, order. The witness is in order to—

Mr Steinberg

  62. Fair enough. Let us try to put it a different way. If there are some small businesses that have one or two people working for them on a part time basis and they are having to administer the working families tax credit, do you see that as being burdensome on the administration of a small firm?
  (Mr Montagu) I have to give you the same answer, Mr Steinberg, that if these are people who are entitled under the law to the working families tax credit and if under the rules the employer has the obligation, then what we will do is to try and make it as easy as possible for the employer to meet that obligation.

  63. How many complaints have you had from small businesses about the burden of the administration?
  (Mr Montagu) We have had quite a few because this is a new scheme; it is something totally new.

  64. When you say "quite a few", how many do you mean? Two, three, a hundred, a thousand?
  (Mr Montagu) No. We have probably had more than that, but what is very noticeable is that our Employer's Helpline is now, having had something like, from memory, ten per cent of calls being complaints, finding it is down to half that. Inevitably new tasks for employers are ones which they will find difficult and, as inevitably, small employers tend to lack the resources of the big ones to help mitigate that so that disproportionately we tend to hear from them and for that reason disproportionately we tend to concentrate on them through the Business Support Teams, through targeted Helplines, through targeted workshops and so on.

  65. If a small business has to pay out more in tax credits than they are actually taking in in tax and national insurance contributions how quickly do they get their money back?
  (Mr Montagu) Very quickly indeed.

  66. How quickly is that?
  (Mr Montagu) Within days, to the extent that if they find themselves in that position our Accounts Offices will actually take a telephone call or a fax as a formal request and will put them in funds[8].

  (Miss Chant) And the money is automatic cash transfer and it is through in four working days.

  67. I have not got the answers I wanted but never mind. On page 17, paragraph 4.10, it is talking about risk management for the application of the tax credits, and it says that the main risk effectively in the actual awards includes the accidental or deliberate mis-statement of information by applicants to tax credits. How widespread do you believe that to be?
  (Mr Montagu) What? Fraud and evasion?

  68. Yes.
  (Mr Montagu) First indications are that it is not very widespread. What we have been trying to do (it is a bit analogous to what I said to the Chairman about employer compliance) is to refine our indices of risk so that we can concentrate our enquiries and action on cases where we have reason to believe that a claim for whatever reason is wrong or in some way non-compliant.
  (Miss Chant) Would it help you, Mr Steinberg, if I said that from last August to this August we are carrying out a sample of several thousand cases which will be checked in every respect, which will therefore include any incorrect statements for a whole variety of reasons, and by November or so this year we will have had that to give us a sort of bench mark as to what the proportion is of cases that for a variety of reasons will not have given us the correct information?

  69. Would it surprise you to be told what I was told recently by (I think they call them) whistle blowers? One wrote to me and contacted me by telephone and told me of an establishment where there were dozens of women claiming working families tax credit by stating that they were lone parents when they were not.
  (Miss Chant) I would be interested to hear of that because they would of course have to give details of their employer and they would have to give their wage details, so what is it that this one establishment—it sounds fascinating, does it not? There is one establishment, several dozen women, where all say they are working—

  70. I was also told that not only is it taking place in this particular establishment but in another one as well where it is now common knowledge that when you claim working families tax credit and you claim to be a lone parent or your partner or your spouse is not living with you, no check is made, it is just written on the form and claims are being agreed.
  (Miss Chant) Not correct. I can give you strong authority on that. That is not correct. I am not sure where this busy establishment is with several dozen women—

  71. I can tell you it put me out.
  (Miss Chant)—who are working, and that is the big thing with working families tax credit: you have to be working and you have to produce wage slips and we do thorough risk analysis and checks, but I am just not quite sure—never mind where they live. They are working, the evidence is produced, the fraud is—it does not really matter if they are all living in the same place, does it?

  72. I beg your pardon?
  (Miss Chant) Where they live is not necessarily relevant. You said they were all in the same place.

  73. They are working in the same establishment.
  (Miss Chant) Oh, they are working in the same establishment?

  74. Yes. Sorry; did I not make that clear? They are working in the same establishment and they are claiming working families tax credit by stating on the form that their spouse or partner no longer lives with them and therefore their salary is not taken into consideration and they are being paid working families tax credit, and there were supposed to be over 12 in one establishment. If this is right, and I do not know whether it is right or not, and there are 12 in one establishment doing it, this sort of fraud must be widespread throughout the whole of the country.
  (Miss Chant) If that were the case, and I now understand it is where they are working, not where they are living, certainly the non-declaring of a partner's earnings is something that would particularly be looked at and would rate on our risk assessment. As I said, by the time we have done random sampling over a year we will have a much better bench mark of what the level of fraud or abuse or straightforward mistake might be and we will target our risk checking accordingly.

  75. In figure 5 on page 18, that outlines, does it not, some of the measures that you are taking to stamp out fraud?
  (Mr Montagu) Yes.

  76. Would that sort of fraud be picked up with your risk score card?
  (Mr Montagu) Yes, and the whole aim of the risk score card is to refine the indicators of risk and what risk means so as to target more accurately as our knowledge of the system increases, and I repeat that it is a very new system, which claims look dicey, which ones we should follow up, which ones it is most worth investigating.

  77. But presumably, if that is the case and somebody is telling a lie, a very simple lie if you like, "Are you living alone?", and I do not know what the question is on the form, it is going to be very difficult to pick up, is it not, if not every single person who claims to be a lone parent is not actually checked out?
  (Mr Montagu) If you are saying that we will never succeed in stamping out working families tax credit fraud then I would be very rash to disagree with you, but I think that we will find as we go on, as we do in a number of areas, that a risk score card points to a number of suspicious indicators. We have already looked into something like 29,000 cases. We have come up with a certain number where fraud of the sort you have mentioned is going on.

  78. What worries me, Mr Montagu, is that we are told in the report that the risk score card would be not sufficiently focused, which means that it would result in too many cases being identified for investigation. If that is saying that there are too many cases being looked at to identify fraud, and I am saying to you that if this information is correct that there are thousands more which are not being, how do you reconcile that?
  (Mr Montagu) If there are thousands more, Mr Steinberg, but actually what you have said is quite interesting because, while the risk score card is important, it is also important not to get too hung up on it. It is not our only tool. The sort of thing you have been talking about, such as third party information, is important. So is data matching. We do a lot of data matching with DSS data and with our own data from our other records systems.

  79. The information that has been given to me may well be an absolute load of rubbish, I do not know, but if it is accurate then there is a worry there.
  (Mr Montagu) Yes, and that is why, as Ann said, it is information we would very much like to have too. We use and take very seriously third party information.

  Chairman: This is exactly the sort of thing I had in mind when I was talking about elusive fraud and the weaknesses of risk assessment.

8   Note by Witness: Where employers believe that they will have insufficient tax, National Insurance etc, deductions in hand to cover the payment of tax credits, they may apply for funding in advance of the due dates for payment. So employers do not have to fund tax credits from their own resources and then seek reimbursement. Back

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