|Tax Credits Bill
Mr. Webb: I am grateful to the Minister for the spirit in which he responded to the amendments. He says that this problem is technically challenging. Indeed, it is. If it is technically challenging for the combined brains of the Treasury and the Inland Revenue, what will it be for the claimant? If it is so difficult to draw up rules that will embrace all the possible changes in circumstances, how can we come up with something that will prevent claimants—due to no fault of their own—running up overpayments that have to be recovered? We are trying to say yes in the case of fraud and failure to disclose material facts. In those complicated changes of circumstances at the margins, however, there should not be a presumption that overpayments will be reclaimed.
Mr. Boateng: A television is a technically challenging invention. People worked long and hard to create that form of broadcasting. It is simplicity itself to turn on and off, once one has got over the cultural predisposition to have it on all the time, which my hon. Friend the Member for Warrington, South (Helen Southworth), who sits silently behind me, clearly shares. Despite the technical complexity of the instrument, once it is in place it is simple. My hon. Friend the Paymaster General pointed that out clearly and succinctly last Thursday. The whole point of this provision is to get the legal context right so that the regulations and explanatory documents that we will have available at our surgeries will enable people to access the help that they need when they need it.
Mr. Webb: I am grateful to the Minister and I hope that he is right. I hope that once the wits of the Treasury and Inland Revenue have got together he can design some streamlined amendments that are straightforward for the claimants. I still have reservations. In answer to my query about someone working 30 hours, 29 hours, 30 hours and so forth, he said that it was the normal hours in the current circumstances that mattered. Normal implies some sort of short-term averaging. Clearly a snapshot of one week is not what is meant; it must take one week with the next and perhaps one month with the next. That immediately leads us to issues of reporting and what people have to say.
I am trying to knock this on the head. We have a couple more sets of amendments on overpayments, so I will not pursue this amendment any further. I am grateful that the Minister says that these matters continue to be considered. I trust his assurances that he will come up with some streamlined regulations to deal with my concerns. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Webb: I beg to move amendment No. 116, in page 19, line 13, at end insert—
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The Chairman: With this we will consider clause stand part.
Mr. Webb: Here we are again.
The Low Income Tax Reform Group and other organisations have expressed reservations about the recovery of overpayments. Amendment. No. 116 is intended to prevent the powers under clause 28 from being exercised until the board has told people what to expect with regard to the recovery of overpayments.
One of my worries about the Bill is the loss of certainty. Working families tax credit may have had its problems and inflexibility and lack of responsiveness may have been among them, but that lack of responsiveness lasted for only six months. However, the National Association of Citizens Advice Bureaux and other organisations have suggested to us that claimants valued the certainty of that tax credit; they knew what they were going to get for six months.
I understand that a balance must be struck between the conflicting qualities of responsiveness and certainty, but what concerns me and organisations that deal with people on low incomes is that uncertainty might hang over such people; they might worry that at the end of the year the reassessment will leave them out of pocket, and that it might be decided that overpayments should be recovered from them.
That uncertainty is inherent in the sort of system that we are discussing. People ought to be informed of the sorts of circumstances in which overpayments will be recovered—it might be possible to do that when they make a claim, by handing them a sheet of paper that lists such circumstances. They should also be informed about the mechanism by which that overpayment might be recovered. If, at the end of the year, someone found out that they owed a few hundred pounds, they should know in advance how that would have to be repaid—as a lump sum, for example, through the tax code, or through underpayment of future tax credit—and how that decision would be made. That matter links in with the next clause.
The amendment is not intended to prevent the exercise of the powers provided in the clause. It is intended to ensure that people know, before the powers are exercised, the criteria for applying them and their mechanisms and practicalities. That would give claimants a degree of certainty.
Mr. Flight: Clearly, we cannot have such a vague and woolly system. Those who are entitled to tax credits should be required to follow simple rules that they can understand—regardless of whether those rules address every conceivable matter of fairness. If the rules are not easy to understand, people will either be put off applying, or they will make mistakes. The situation will be a mess.
Those rules also need to contain a fair and firm system for the return of overpayments. If that system is loose and woolly, people will exploit it to the maximum. Logically, the system should operate in a similar way to the underpayment of income tax—but the other way around as, regrettably, people will probably be excluded from subsequent tax credits and
Column Number: 184they will be required to make a payment if they no longer qualify for such credits.
To borrow the Minister's metaphor, if a black box—a television—was invented that would deliver a lovely picture if it was switched on, but nobody understood that it was a television or knew how to switch it on, I cannot see how it could operate. With regard to tax and tax credits, it is axiomatic that people should understand what they are—and are not—entitled to. They cannot have a dialogue with the Revenue—or with anyone else—unless that is the case.
Mr. Boateng: In our debates on amendments Nos. 67 and 68 and earlier clauses, we discussed overpayments that might arise as a consequence of the new fiscal tax credits, but through no fault of the claimant or the Revenue. I explained to the Committee that we want the tax credit system to adjust to meet changes experienced by claimants, but without it imposing a disproportionate burden on them or subjecting them to intrusive monitoring. We want people to receive what they are entitled to at the right time.
I return to the theme that has been characterised in my responses and those of my hon. Friend the Paymaster General. The Revenue will be providing guidance to ensure that that is so. It is inevitable, however, that when the final entitlement has been determined, some people will have been overpaid or underpaid for the year. People who have been subject to numerous changes during the year may choose to wait until the end of the year to sort matters out, while others may find that their income for the year, when finalised, produces a change in their entitlement.
When debating clause 7, we referred to the importance of any threshold that had been set under the regulations and the care that we are taking about the decisions to be made in such matters. People who have been underpaid will have the extra tax credit paid into their bank account. Overpayments of tax credit are dealt with under this and the following clause. Clause 27 establishes that there is an overpayment, while clause 28 provides for the means of recovery. No doubt Opposition Members will have views on that.
Clause 25 gives the Revenue the power to decide whether all or part of an overpayment should be recovered. It makes the claimant liable for that repayment. With joint claims, the clause makes both claimants jointly and severally liable. However, the Revenue may also decide that each partner should be able to repay a specified amount of that overpayment. Such a decision might be made when it was clear that the overpayment was the result of action by one partner, of which the other knew nothing. Overpayment arises when a final decision is made under clause 17.
There will be times, however, before the decision has been made, when it is clear that there will be an overpayment. For example, a claimant may have been receiving tax credits in respect of two children, one of whom has gone to live with someone else during the award. It may be some time before the Revenue is notified of that. The clause also allows payments to be adjusted to recover an overpayment in anticipation of
Column Number: 185the final decision about the award. It is right that the Revenue should have that power, but we aim to ensure by advising and educating the claimant that the number of tax credit overpayments to be recovered is kept to a minimum. That is the reason why the information must be given, why the advice should be made available and why we should make the system as clear as possible for those who are to benefit from it. When overpayments arise, clause 27, together with clause 28, will enable the Revenue to deal with them fairly and sensibly.
Amendment No. 116 would require the Inland Revenue to consult on its policy about the recovery of an overpaid tax credit and to lay a statement before both this House and the other place. Only then will it be possible for the board to start recovering overpayments. I can well understand the objectives of the hon. Member for Northavon in tabling such an amendment, although I do not consider that its procedure is necessary or right. It is overly cumbersome and procedurally fraught. However, I understand what he is getting at and I assure the Committee that we shall continue to ensure that we take into account the worries that have been expressed by NACAB and others about the measure. That is why the Revenue plans to produce a code of practice on its compliance work in relation to new tax credits. It will also set out how it intends to exercise its discretion in the recovery of overpaid tax credits, provided for under clause 27.
So we will certainly consider and reflect the views of others in preparing that code. My hon. Friend the Paymaster General will be taking a close, personal interest in the Revenue's proposals. The code of practice will be made available in draft for comments, so there will be plenty of opportunity for NACAB and others to form a view. Indeed, there will be an opportunity for the hon. Member for Northavon and his colleagues to form a view as to whether the code is fit for purpose. The purpose of publishing it and making it available in draft for comments is to make sure that we get it right. As hon. Members on both sides of the Committee have said, even if one supports the objectives, the aims and the means of the legislation, one can honestly have different views about how best to achieve them. That is why we are making the draft code available for comments.
I hope that in the light of that assurance, and with the prospect of having a personal input into the thinking of the Revenue—[Interruption.] Well, it is an opportunity not to be sneezed at. I hope that the hon. Gentleman will feel able to withdraw the amendments.
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