Select Committee on Social Security Minutes of Evidence

Examination of witnesses (Questions 280 - 296)



Dr Naysmith

  280. Sorry to interrupt, but does not the Department of Health have a record of every child born in this country and their addresses and who their parents are?
  (Ms Ghosh) They do and it is one of those interesting and insoluble issues about accessing data. Everybody has an NHS number, yes, but in that case, of course, it is about registration with GPs and so on. It is not necessarily entirely compatible with the Child Benefit database.
  (Mr Macpherson) We may not be rationalising everything across the whole of government but we are trying to make a start between the DSS and the Inland Revenue.

Mr King

  281. You were telling us you have got plans to match up this data between the two Departments?
  (Mr Lodge) We will certainly be building links between the two systems.
  (Ms Ghosh) It depends what you mean by "match up". Clearly if we have got a database and we are working within our powers (and under the Tax Credits Act we can use data if it is specifically for a purpose) then that would be a classic instance where we have data about children and we are trying to reach this target audience, so we can use the data.

  282. The Department of Social Security is notorious—I will rephrase that—is well-known for looking at issues such as fraud particularly in relation to cohabitation. We all know the way in which in the end you attempted to define exactly what that meant so that it made sense to people who were in grave danger of losing their benefits. The Inland Revenue, I take it, does not have similar hit squads going round following people and looking at bedroom lights and things?
  (Ms Ghosh) Toothbrushes is always the example cited.

  283. Can I ask what plans you have in order to ensure that the very serious issue of benefit fraud or fraud in relation to the ICC is kept to a minimum?
  (Mr Lodge) It is certainly something that we regard as being extremely important, as you would expect. We do have some experience of compliance work and fraud work within the tax arena. We also have seen the transfer of a number of DSS staff to the Revenue over the past couple of years with experience of the way the DSS approaches these issues, and for the new credits we will be very keen to learn from best practice in the DSS and in the Revenue in designing a system to combat fraud. I think what will be important is striking the right balance between the upfront checks we want to carry out before payment is issued and the importance of getting money into the hands of people quickly, and there are some interesting trade-offs around those issues. We will certainly be wanting to check the identity of applicants, for example. We will want to check the existence and ages and details of children that have to be supplied. We are intending to do a lot of that automatically through data matching. We will also want to continue the approach we have taken for WFTC where we consider each and every claim on a risk-based approach and if we think there are issues to be taken forward for further investigation we might well put the payment into effect, but pick up those issues at a later time. We will want to, as you mentioned, address the cohabitation issue, which is an important one. We do address that for WFTC now. We will in addition, I think, want to use IT in a rather better way progressively so that we can, for example, look at an address and see for tax purposes how many earning adults are attached to that address as opposed to tax credit applications that might be, for example, from a single applicant and in matching those sorts of details establish whether there are grounds for further investigations. That is the general approach we will be hoping to take.

Mr Leigh

  284. The problem with the current interaction of WFTC with Housing Benefit and Council Tax Benefit is that they obviously produce high marginal tax rates which discourage people on low incomes from earning and working. What do you intend to do to improve incentives?
  (Mr Macpherson) We are in favour of incentives so we will look at this. You are absolutely right, the worst disincentives in the system arise when different systems of support interact with each other. You get this multiple taper effect and you end up with marginal deduction rates in excess of 90 per cent. What the Government have done so far on this front is put its eggs into the Working Families Tax Credit basket so for a lot of people it has floated them off Housing Benefit and Council Tax Benefit and the extent of the very high marginal deduction has been reduced quite significantly. I think this will continue to inform our thinking. The more money is put into these particular credits the fewer people will be both on these credits and on Housing Benefit. In principle, you could take a different approach and integrate Housing Benefit and Council Tax Benefit with the whole system.

  285. Why do you not do that?
  (Mr Macpherson) It is something which we do consider. It would be the most radical reform of all.

  286. Are there any technical reasons why it would not be possible?
  (Mr Macpherson) There are technical reasons why we could not do it by 2003. A lot of the Government's agenda is being driven by what you can do and at the moment Housing Benefit is administered by 409 local authorities, and to integrate it with these new credits you would, in effect, have to nationalise it and you would have to replace all those systems administering it at present with a national system. In principle, that is possible.

  287. That would have the virtue of simplicity, would it not, it would be a neater solution?
  (Mr Macpherson) It is an interesting idea. Obviously the transition setting up that national system would be incredibly expensive. If you went down this route the first thing you would do is get the DSS or its successor to administer this national system. You would first get the national system up and running and then integrate it. If you move direct from a local authority administered system straight to a fully integrated system with Inland Revenues credits, that would be a very big step. We were talking earlier about whether we can get the system up by 2003—I think we can—but if as part of the process we were to integrate Housing Benefit as well, you would be looking at 2007/2008/2009.

  288. 3050!
  (Mr Macpherson) Possibly. It would be a massive IT task. You also then have to consider how you calculate Housing Benefit. Will it be on some flat rate basis or individualised in each case, in which case the quite simple form-filling we were talking about in terms of accessing the Integrated Child Benefit would then become quite a complex system. This particular proposal remains on the agenda but in the meanwhile there is the issue of how you improve working incentives. Some steps have been taken around Housing Benefit in terms of run-ons and so on, but I think the key priority with Housing Benefit is not so much how neat the lines look on graphs but how it is administered. If you talk to people—I was in Bradford the other day—about how it works for them, the worry is not so much the lack of potential support in work from Housing Benefit; it is more just accessing it and dealing with the local authority. I understand Bradford is a very good authority in terms of delivery of Housing Benefit but even then there is the uncertainty of moving into work and often because it takes so long to be recalculated that you are faced with requests for large back payments of Housing Benefit which can put you into debt, which makes people very reluctant to move into work in the first place. We have still got to look at the structures and I do not think that anybody would claim the existing system is ideal, but we also need to look at delivery.
  (Ms Ghosh) There is a wider point about delivery and it is something we as a Department are realising more and more. ONE is a good instance. Whatever the technical marginal deduction rates are, it is the way you deliver the thing to the customer that makes the real difference. ONE is a perfect example of the kind of stuff Mary was talking about—a single gateway through the Working Age Agency and the "better off in work" calculations, the New Deal for Lone Parents. In all those things it is delivery that can make an enormous difference. Even if the Marginal Deduction Rate (MDR) is not as good as we might wish it to be, with support and a vision for a better career in the future, that is what makes the difference for individuals and, again, that is something we are trying to achieve through ICC.

  289. Anyway it remains on its agenda which is good news. Would ring-fencing support for children open the door to you being able to take a more rigorous line against work shy people? Would it make it easier to bring in a Workfare type system because you are ring-fencing the support for children?
  (Mr Macpherson) Clearly there are some issues around rights and responsibilities. I think this is an interesting issue in that if you are requiring people to look for work, how do you implement that requirement, and this is something which I think we should definitely look at. In fact, the way the existing system works, as I understand it, is if you do get sanctioned and you are on benefit, on the whole the child payment is protected and it is only the adult bit that is sanctioned. This clearly gives this issue a higher profile. Given that this happens already you are talking about presentation.

  290. You say that this gives this issue a higher profile; in plain English that means it is easy to do, does it?
  (Mr Macpherson) What I am saying is that if you have got a clearly identified adult component and a clearly identified child component then, broadly, yes.

  291. Thank you. For a civil servant to say yes is unheard of. Have you had a chance—I imagine that you will have received advice from the people sitting behind you—to see the written memorandum and oral evidence submitted to us on 29 November to this Committee by Mr Beighton and Mr Draper[9] and particularly their point of view that the present system (particularly the Working Families Tax Credit and offshoots from it) make a two parent family worse off than a one parent family. Would you like to comment on it?
  (Mr Macpherson) I am aware of the evidence and I may have read some of it. As I was saying earlier in reply to your colleague Mr Robertson, the starting point for this is the system which goes back to Sir Keith Joseph who introduced family supplement in the early 1970s. That system paid one adult credit whether or not you were in a couple so lone parents got more per adult than a couple. That is the first point. We start with where we are. I think the next issue is, as I said, not so much about the child elements, which in a sense are separate, but is about how you give tax credits to working adults. The Employment Tax Credit, which we have not really talked about very much today, is going to be the instrument for doing that, and I think that you could make a case for giving an additional credit to low income couples who move into work. It is quite striking if you look at poverty rates amongst childless families that they tend to be most usually in couples who are in low wage work in their 50s. It tends to be an older worker problem. We need to look at that and we need to look at the incentives to work because fundamental to this process is encouraging people to work. Evidence from Leonard Beighton, the former Inland Revenue official, is very helpful in this respect.


  292. Can I ask you one or two very brief questions? Firstly, Karen Buck asked you earlier about the move of the Child Benefit centre and in fact the Secretary of State himself explained to us last time he was here that Child Benefit was going to be moved across to the Inland Revenue. Can you give me an absolutely categoric assurance (because information technology is so important in all this) that that move will not take place until the computers on the Child Benefit side, which we have heard earlier are 21 years out of date, will be able to communicate properly in modern IT terms with the Inland Revenue system. Promise me, if nothing else this morning, that that will not happen unless the computers are compatible.
  (Mr Macpherson) First, Alistair Darling said there was a very strong case for moving Child Benefit over to the Inland Revenue. No final decisions have been taken on this but it is one possible way forward which would deal with the point raised earlier. A key thing here is also to be able to develop the IT systems so that this happens and, even if it is not moved over to the Inland Revenue, the Inland Revenue have got to be very actively involved in the development of those IT systems because there is no point doing this unless you can integrate those systems into one IT system ideally, or at the very least so that they are able to talk to one another. Nick, do you want to talk about IT?
  (Mr Lodge) I think the location of the IT system is probably less important than making sure that it works adequately to support the new tax credits and continues to support Child Benefit. We are already building links and are starting to look at those links between the Child Benefit system and the new tax credit system, and they can be built. Obviously, ideally, we would be dealing with a more modern IT system but it is there, it does work, and we can build links to it that will enable us to support the introduction of the new credits.

  293. I am a bit confused about this. I got a very clear statement from the Secretary of State when he was here that the Child Benefit centre would be folded into the Inland Revenue. I do not think there is a great issue here but you seem to be saying there is still some doubt about that.
  (Ms Ghosh) The point the Secretary of State made when he appeared before you before was the one Nick was talking about, that there is a clear logic to it. You want to administer the two things and you want the income coming in in a single stream and therefore in a sense that is the thing on which we need to focus in the first instance and, as Nick said, we need to work through all the data exchange instances of that. What he did not, I think, say was that a decision had definitely been made in favour of transfer. He is focusing on the important issue which is seamless administration and service to the customer and the single income stream.

  294. I am now more confused than I was.
  (Mr Macpherson) Alistair Darling, as ever, described the situation very well and we certainly would not want to disagree with anything he said. The only point is I do not think a formal decision with a timetable has been taken. That is all I am saying.
  (Ms Ghosh) I think the point he made is that in a sense the badging is irrelevant to the working together and getting the administration working together.

  295. If we all agree, why are we making such an issue of it? Your body language is going very negative, Nick! Seriously, I do not think there is a problem here. It seems crystal clear and if you are saying to me it is less than crystal clear, that confuses me. I think it is inevitable myself. All I am saying to you is that if it does happen we would be looking for some assurances that IT issues are absolutely gold-plated guaranteed fixed before it happens.
  (Mr Macpherson) There is no point in doing this unless you fix the IT systems. The precise order of events is a matter for debate.

  296. That is a better answer. I will settle for that. A final question very briefly; what happens now? Where do we go from here? You obviously cannot anticipate the Budget and I would not want to put pressure on you to do that, but can we expect to see some more flesh on some of these bones come the Budget? When should we be looking for further developments on the issue, apart from our very important report which will be published early in the New Year?
  (Mr Macpherson) I am hopeful that things will begin to firm up through the beginning of next year and as soon as they are firm I am quite sure that Ministers will want to share developing thinking with as many people as possible.

  Chairman: Okay. Thank you very much. I know how much work you put in for these sessions. It has been extremely useful. It is a very important report for us. Thank you very much for all your patience and your attendance this morning.

9  See Ev. 29 November, 2000 (HC 951-iii). Back

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