Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 80-99)


MONDAY 20 MAY 2002

  80. You said the tax credit system was the biggest change ever to hit you. What is the total cost to the Department of setting up and administering this new system?
  (Sir Nicholas Montagu) Dave can tell you the cost of new tax credits. I certainly do not have a figure to hand, though I could probably produce one, for tax credits as a whole.
  (Mr Hartnett) For new tax credits over a four-year period the figure is about £1 billion.

  81. The cost of administering it.
  (Mr Hartnett) In staff, in computers and everything else which goes with setting up something new.

  82. Would that be a similar figure, would that be a good estimate for what it has cost so far?
  (Mr Hartnett) No; new tax credits, for example, has a computer system which is eight times bigger, more complicated or whatever, than for self-assessment. It is a much more significant structure than working families' tax credit where we were actually able to build, in part at least, on the computer systems which came to us with the Family Credit Unit which became the Tax Credit Office.
  (Sir Nicholas Montagu) On a procedural point, just to avoid my having to send you a note, may I say that I have been characteristically modest. The Committee will have noted that I said five times; Dave is undoubtedly right when he says eight times.

  83. Although the Chancellor does not accept that it is a form of social security benefit, would you agree that the kind of compliance checks you have to run are rather like the old DSS used to run?
  (Sir Nicholas Montagu) No, I do not think I would. I have indicated in reply to an earlier question that the Department of Social Security, now the Department for Work and Pensions, does not apply the kind of risk based approach that we are applying to tax credits. What we are trying to do, and obviously we shall be talking with DWP and picking their brains as well, is to apply the sort of compliance approach that we have found works well for tax to new tax credits. Dave, with his sponsoring responsibility, may want to add to that answer.
  (Mr Hartnett) There are three stages to this. There was the compliance regime which existed for benefits before tax credits were introduced. Some new things have come with tax credits. Nick mentioned one of the most important, which is risk assessment. There is also a progressive compliance response now. In the past it was essential for what is now DWP to consider prosecution in order to make recoveries. We do not have to prove debt now, we can use something like a tax assessment to recover money where we have to recover money.

  84. The Department of Social Security, or indeed the Department for Work and Pensions now, has to be fairly intrusive into people's family circumstances and arrangements. Are you finding, because you are now administering tax credits, that you are having to undertake that kind of intrusive work which perhaps previously you did not have to do?
  (Sir Nicholas Montagu) It is not entirely new to us. Although independent taxation has been in for some time, a lot of our work has turned on households. For example, when an additional personal allowance was paid to a single parent, we needed to be sure that the person claiming that allowance was not living with somebody as a partner. There are new elements to it, but it is not as new as you might think.

  85. It says in this report that you do cross-checks with the Department for Work and Pensions and the data they hold, "where appropriate" is the phrase used in the report. Is it not always appropriate? Often the people you will be dealing with will also be claiming other forms of benefit.
  (Sir Nicholas Montagu) No, it will not always be appropriate. Our basic check is that the person says they are who they are. We then apply a risk assessment. With new tax credits, much of this will be done within the system. If there is an indication that somebody is a risk, then we would cross-check with our own data, for example, with the data warehouse to check on households, we would cross-check with the Department for Work and Pensions. With something like this, whether it is a social security benefit or whether it is a reduction in the tax bill, there is obviously a balance to be struck between proper and rigorous compliance and making it easy to claim.

  86. You are talking about risk assessment. It says in paragraph 3.17 on page R14, ". . . 49,000 cases have been referred to the Compliance Co-ordination Unit" since October 1999. However, limited additional checking allowed you to eliminate a further 22,500. The view here is that your risk approach, particularly your risk scorecard, was basically a complete waste of time.
  (Sir Nicholas Montagu) That is not wholly fair.

  87. When you suspended it at 22,500 there was absolutely no impact whatsoever on the effectiveness of your activity.
  (Sir Nicholas Montagu) Yes, but bear in mind that a major purpose of the risk scorecard was to get staff administering this new system used to doing the analysis of it. By the time we discontinued it, it would have been second nature to many of them. I am not saying it was perfect; clearly it was not. That is why, iteratively, we concentrated on improving the risk scorecard and re-introducing it. As I indicated to the Committee on previous occasions, what we try to do with the whole spectrum of our compliance activity, is constantly to refine our indicators and our analysis of risk.

  88. You further decided that of the remaining 26,500 cases you accepted for inquiry, you would not pursue 3,600 of those. The truth is that you are not pursuing a huge number of these cases, are you?
  (Sir Nicholas Montagu) We are not pursuing them for the sake of pursuing them, certainly. We identify the cases that we think call for further investigation. If they do, we have quite a lot of specialists working on this in tax credits, we then decide whether it should be what we call an aspect inquiry or a more comprehensive one. If there is only one point which needs to be checked up, this is probably done most effectively on the phone from the tax credits office. If more looks wrong, or if there are certain factors present like the claimant having an undeclared partner or self-employed earnings being involved, then we will undertake a full inquiry with the local compliance teams.

  89. Your inquiries take so long that by the time you have completed them you find it very difficult to recover any overpayment you have given because by then you cannot recover it against the current award they have been given.
  (Sir Nicholas Montagu) That is not wholly fair. The length of time for the inquiry looks longer than it actually is. The time is measured from when it first reaches the relevant compliance section. We conduct these inquiries in accordance with the code of practice that we use for other areas of our business. People must be given time to make their representations to us. As Dave has indicated, if we find that people have had more credits than they are due, we have a number of different mechanisms which we can use to recover that money and we shall use them.

  90. In paragraph 3.21 it says, "Delay between an award being made and a decision being taken to recover an overpayment creates a risk that an erroneous award will have expired by the time the need for recovery has been established . . . These may not be easily recovered and in some cases may prove irrecoverable". If you speeded up the time you took to investigate these things, then it would be much easier to recover the money, would it not?
  (Sir Nicholas Montagu) I can totally understand your worry. I hope I can reassure you. The amounts written off from overpayments are pretty small. The specialist debt recovery group remitted under 1 per cent of the amounts sent for recovery in 2000-01. That amounts to under £35,000. Against some of the background we are talking about, that is peanuts.

  91. May I move on to a point Mr Davies made before he left, which I found extraordinary? You have no idea what the total number of eligible people is for these tax credits.
  (Sir Nicholas Montagu) How can we without knowing what numbers in the population are earning below or have income from self-employment below the appropriate threshold? That is why we need to set off the numbers claiming against the Family Resources Survey.

  92. When the Chancellor of the Exchequer is setting his budget, presumably someone must come to him, maybe in the Treasury as opposed to your Department, and say they think it is going to cost roughly X. They must have some estimate for the total number of eligible people or the take-up.
  (Sir Nicholas Montagu) We would have an estimate.

  93. What is the estimate.
  (Sir Nicholas Montagu) Ministers have talked with the present credits in terms of expecting a take-up in the region of 1.4 million; we are at 1.33 million.

  94. Take-up is not quite the same as total of eligible people.
  (Sir Nicholas Montagu) As you know, Ministers are congenitally optimistic. I would have thought that represented a fair view of the number they thought was eligible. I really cannot give you a reply of the precision you would expect until we have compared take-up with the Family Resources Survey.

  95. You have been administering these tax credits since October 1999. Your Family Resources Survey must have taken two or three years to compile.
  (Sir Nicholas Montagu) This is the 2000-01 survey relating to the accounts on which I am being examined.

  96. So you have had previous surveys.
  (Sir Nicholas Montagu) Yes, but remember we are talking about a system which came in at the end of 1999 and with payment via the employer from 2000. In other words, we are talking about the first full year of the system as reflected in these accounts.

  97. It seems striking that when you heard you were going to take over this system or set up this system, which was when the Chancellor first announced it in 1998, you did not say you had better conduct some surveys to see the likely household expenditure and household incomes of the people you were going to be dealing with, instead of waiting until 2002, to do this survey in advance.
  (Sir Nicholas Montagu) I have to give you a `not-me-guv' answer there. The Family Resources Survey comes within the responsibility of the Department for Work and Pensions.

  98. You could have got onto the phone to the Permanent Secretary there. I am sure you are good mates. You could have said it would be very useful to have one of these surveys.
  (Sir Nicholas Montagu) We are very good mates. I am sure that you, like me, have experienced the sort of reaction that Rachel Lomax, for whom I have the highest regard, can give to unwelcome suggestions whether from this Committee or from one of her fellow Permanent Secretaries.

  99. Why would it be an unwelcome suggestion, apart from the fact that you have taken over half her empire?
  (Sir Nicholas Montagu) It would require her to do the job twice, and these things cost money.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 5 December 2002