Tax Credits Bill

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Mr. Flight: I do not want to add more points, but I would like to sum up and repeat a point that I made at the beginning of our deliberations. The Paymaster General says that the Inland Revenue has greater powers in terms of inquiry and discretion than was the case with the former Department of Social Security and the old benefit regime, and that that is an important element in changing the administration from the DSS to the Inland Revenue.

Dawn Primarolo: It is true that the Inland Revenue has greater powers in terms of investigation for fraud and negligence than, with the exception of Customs and Excise, any other department.

Mr. Flight: I spoke about both powers and discretion in terms of how to respond and whether to make payments.

Dawn Primarolo: I want to be careful with the question of discretion because it is a specific term. The Inland Revenue must follow the procedures that are laid down in the Bill, and it has no discretion to vary those powers. However, if by discretion the hon. Gentleman means that, on the first assessment of an application that clearly contains something that is incorrect the official concerned should return the form or make inquires, they have the discretion to move the form on although it may be incorrect.

We would monitor where there were repeated errors of a similar type. One offence that would make an application high risk over a period of time would be where there was repeated concealment that was discovered and corrected, and it happened again. That might trigger a further investigation. As I understand it—I shall double check this—there is no discretion for the Inland Revenue to say that it will not proceed to an investigation if the criteria are met. Prosecution is a matter of evidence being sufficient and the legal advice being the same as that which the Crown Prosecution Service would apply with regard to the use of public courts. I am uneasy about using the word ''discretion'' because it has a specific meaning in this area. If the hon. Gentleman will forgive me, that is something at which I shall look more closely.

The most serious cases go forward for consideration for prosecution, and I can update the figures. Prosecution orders have been issued in 40 cases of which 22 have been concluded. A further 100 cases are in the process of consideration, preparation and investigation. Of the cases that have been concluded, custodial sentences have been imposed in five, and they range from three months to two and a half years. Non-custodial sentences were applied in the other cases. I cannot tell the hon. Gentleman how many people were involved in each case. He will understand that we are looking at cases where there is a systematic number of people. I do not accept that the policy that we are operating is not working. In serious cases, a custodial sentence has a far greater effect than going to court and getting away with it, or a conditional discharge.

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I shall now deal with some specific points that have been made during today's sittings. I have an example that sheds some light on our belief that an increase in the maximum penalties is unnecessary. One of the most serious cases of tax fraud in recent years was when, in February 2001, a tax barrister was found guilty of cheating against the public purse. I remind hon. Members that, as well as the provisions within the Bill, it is also possible to take a case where the custodial sentence is unlimited, or limited by the courts' discretion. Such a case is called cheating against the public purse. That would apply here.

On the range of criteria we are considering for serious cases, I can give a list of the criteria used when deciding whether to prosecute. They are deliberate concealment or deception; false or forged documents; certificates, statements or claims prepared with the intention to deceive; conspiracy; corruption; a second or subsequent serious offence; additional books or records for accounting tax contribution or other tax credit purposes prepared or used with the intention to deceive; organised or systematic fraud against tax contributions or the tax credit system; unusual frauds of novelty or ingenuity—that is a very interesting category; theft or misuse of Inland Revenue documents; and assaults on, threats to or impersonation of Inland Revenue officials. Clearly, that is an impressive range. The Inland Revenue's care and management power in securing the collection of tax demonstrates its wide experience and expertise in ensuring that it manages the system well.

The hon. Members for East Devon and for Fareham both mentioned the collusion of employees. I think that I have dealt with that in terms of examining other types of information such as the profiles of companies. The Inland Revenue also policies the national minimum wage. We have quite a lot of information that we can use. The Bill provides for information gateways to relevant Government Departments to ensure that we can use subsequent information to establish the facts, if we need to. That is dealt with carefully in the Bill.

Another issue is requests for information from claimants by the Inland Revenue. The hon. Member for East Devon mentioned that. Additional information that we might ask for includes bank statements, passbooks, payslips or receipts. That would be the sort of information we might ask for once we were investigating because we suspected someone.

The hon. Gentleman also referred to the experience of other countries. Canada's experience has led it to come back and design a system that is now very similar to ours. The United States has an interesting system, but ours is very different from it. The level at which payment is made and the way in which the system buttresses the Government's overall strategy in tackling poverty makes it different. France and Germany have been interested in our tax credit system because of its effectiveness to date. We have had much discussion with them about it, and we have given them a lot of information and support.

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3.15 pm

The hon. Member for Hertsmere mentioned 1.5 per cent., a figure that the hon. Member for East Devon also used. In explaining how the process works, I have tried to show that we do not set a percentage. Instead, we rigorously assess what is happening at every point and ensure that that is correct.

The hon. Member for Hertsmere mentioned data sharing.

Mr. Clappison: I have other questions to ask about the 1.5 per cent. I presume that 1.5 per cent. relates to the number of inquiries generated by the system of risk assessment that the Paymaster General took us through earlier. The figure of 1.5 per cent. that I was quoting, however, came from the Inland Revenue's annual report, which said—I can find the document if she wishes—that it was the Inland Revenue's aim in its first year to undertake inquiries into 1.5 per cent. of applications. That figure came from the Inland Revenue itself.

Dawn Primarolo: I must be honest and say that, in my opinion, the figure of 1.5 per cent. is not necessarily a good guide to the system that I have described. I might need to look specifically at what that figure referred to, and I am happy to come back to the hon. Gentleman on it.

Mr. Clappison: Can I assist the Paymaster General?

Dawn Primarolo: Well, the hon. Gentleman can, but I shall still be unable to answer further.

Mr. Clappison: I think that it would assist the Paymaster General if I quoted from the Inland Revenue's annual report, which said, under ''Specialist Activities, Tax Credits'':

    ''During our first full year, our aim was to open enquiries into 1.5 per cent. of applications.''

Dawn Primarolo: I suggested to the hon. Gentleman that I should examine that to make sure that we were talking about exactly the same thing because we are aware of high-risk areas because of the information that we hold. I referred to that at the beginning of my remarks. Those areas have our attention from the very beginning, whereas a compliance system operates for the vast majority. Unfortunately, it is necessary to give a certain profile of application more intense consideration from the very beginning. Before saying anything further in Committee, I wanted to check whether that 1.5 per cent. was referring to what we consider to be high-risk applications, which we would therefore already be looking at closely, as opposed to those of any risk, across the whole tax credit population. Given what I have described, I think that the hon. Gentleman will appreciate that 1.5 per cent. is not the only figure with which we are concerned.

On data sharing, hon. Members will know that there are strict legal obligations to maintain the confidentiality of the information that the Inland Revenue holds. I know that it is important that I assure the Committee as far as possible that the right processes are in place for fraud, but I am somewhat constrained. I should like to be able to give some examples, but unfortunately I am not permitted to do

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so. I am sure that members of the Committee will understand why.

In the past, restrictions were a little tighter than was necessary, which hindered criminal investigations and prosecutions. That is why the Anti-Terrorism, Crime and Security Act 2001 provides additional gateways. The Bill will allow the Inland Revenue to disclose information for the purpose of assisting criminal investigations or proceedings, including where such proceedings should be brought to an end. Schedule 5 provides for sharing information with certain other Departments to achieve that.

On the benchmarking report, I told the hon. Member for Hertsmere that the Inland Revenue are considering the details and a report will come to me. It is already using that information to inform people about the new provisions. I cannot give him a guarantee that I will be able to publish that information because it deals with specifics of possible frauds that it would be unwise to put in the public domain. However, I will consider how to ensure that he is properly informed so that he can discharge his parliamentary duties.

The hon. Gentleman asked about the hotline. I do not have that information to hand, so I shall write to him. In respect of progress since the Scampion report, I dealt with some of his points about co-operation on pursuing other kinds of frauds.

I have tried to cover the full range of methods that are available to the Inland Revenue in dealing with fraud. Those powers are proportionate, but it is a question of balance. As I said to my hon. Friend the Member for Regent's Park and Kensington, North, the regime must not deter people. The vast majority of claimants are law-abiding in seeking their entitlements. I hope that members of the Committee will agree that the arrangements in the Bill are satisfactory and that the amendment is unnecessary. If the hon. Gentleman feels that he must press it to a vote, I shall have to ask my hon. Friends to oppose it.

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