UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 811-iii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

TREASURY COMMITTEE

(TREASURY SUB-COMMITTEE)

 

 

THE ADMINISTRATION OF TAX CREDITS

 

 

Wednesday 25 January 2006

RT HON FRANK FIELD MP

MR IAN LAWRENCE and MS LYNNE WALLACE

Evidence heard in Public Questions 216 -303

 

 

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Oral Evidence

Taken before the Treasury Committee

(Treasury Sub-Committee)

on Wednesday 25 January 2006

Members present

Mr Michael Fallon, in the Chair

Lorely Burt

Jim Cousins

Ms Sally Keeble

Susan Kramer

Mr Andrew Love

Mr John McFall

Mr George Mudie

Mr Brooks Newmark

 

________________

Memorandum submitted by Rt Hon Frank Field MP

 

Examination of Witness

Witness: Rt Hon Frank Field, a Member of the House, gave evidence.

Q216 Chairman: Mr Field, welcome to the Sub-Committee. Could you formally introduce yourself for the benefit of our shorthand writer, please?

Mr Field: Thank you. My name is Frank Field, I am Member of Parliament for Birkenhead. Thank you for inviting me to give oral evidence.

Q217 Chairman: Thank you for that evidence. One thing that struck me straight away from your evidence was when you referred to the lack of information on the number of awards that have been reduced. You said: "there is no better illustration between the Treasury's rhetoric and the reality of tax credit administration than the fact that the Revenue does not have information on the numbers of awards that have been reduced in order to recover an overpayment." Could you expand on that for us?

Mr Field: I will, Chairman. I think one of the characteristics of this scheme is the lack of information we have about how it is working. One of the side-effects from the submissions that have been made to you, I hope, and I have been following the evidence that you have had, is the Treasury is going to come back and answer some of the points that we raise because we cannot answer questions that the Committee is naturally interested in in some instances because the information simply is not available. I am not sure whether that is because the programme that runs the computer cannot give the information or whether at this stage the Treasury does not want to disclose that information. The worry I have is that if one is not very careful we might be inventing another CSA. In the CSA the Government has had to admit that the new computer that we put in produced information which for the first two years they withdrew because it was rubbish. They hope the information they have produced for the last 12 months is accurate. Ministers are having to make decisions about the future of the CSA on data that has been produced from the system and two-thirds of the data has been withdrawn because it is not reliable. I think there is a real danger in anybody advocating reform without the relevant information. Indeed, one of the things I want to press on the Committee is not to make too many more changes given what has already happened.

Q218 Chairman: One of the points made to us last week was that there is more statistical information available in other departments, for example your old department, the Department for Work and Pensions, made available to outside bodies and academics and so on. Is one of the reasons you fear this will be the next CSA that the Revenue is just being secretive about information or they think it is corrupt or possibly not robust enough to use?

Mr Field: I think next week you have the Paymaster General back and I hope one of the questions she will want to answer is whether she personally has the information provided by the Department to answer your questions and the questions that others of us have raised in our evidence. The worst possible scenario is that she cannot answer the questions and, therefore, in a sense we are operating in a policy fog. We know the broad outlines of the numbers of overpayments and underpayments but we do not know the reasons for those over and underpayments, and yet the Paymaster General, rightly I think, has brought forward two series of major reforms to the system. I do not know, and I do not think you know, whether she did that just on the basis of her own advice surgery, the sorts of people who are coming in, or whether she has guessed that because it is reasonable or whether there is this information available which none of us at the moment can see.

Q219 Chairman: My colleagues will probably pick that up. Turning to the reforms that she has announced, you indicate that HMRC has failed to make progress on the reforms announced back in May. Is that still your view? Why do you think they have failed?

Mr Field: There were six reforms that were announced in May. May I just go through them quickly and comment on them. On the first one, the Government would ensure that in each case of genuine hardship there would not be a recovery of overpayment if there was a dispute until that dispute had been resolved. As I understand the current system, if you wish to dispute the decision that the Revenue has made you do need to first of all know about and ask for, and then fill in, form TC846. I think that is quite a steep barrier for lots of our constituents to know about the form, to get it and to fill it in. Secondly, the Government gave an undertaking to reduce the unnecessary duplication of awards. I had somebody in my last surgery who had three awards on the same day, dated the same day but arriving on different days in different posts. The third one was to identify families most at risk, and here the Treasury has tried in doing some surveys but it seems to me one move they could make would be in those instances where claimants have already disputed previous tax credits that they do actually check the current tax credit claim with previous claims, because some of the errors that occurred for my constituents were the Revenue thought they had children who had disabilities when they did not and that kept reoccurring despite them telling the Revenue, "I don't". One way of stopping that going into a third year would have been to actually check the claim through on the phone with the claimant in the second year, and that is not happening. You have had comments from the CAB on the fifth objective, which was working with the voluntary sector. The sixth reform was to improve the quality of the helpline. While some of these cases are difficult for MPs to understand, let alone our constituents, there is a tendency to say, "Your problem is being referred to one of the specialist teams". I have one constituent who has been told that her dispute has been referred 21 times to the specialist team and she and other constituents feel that staff under huge pressure now use this as a way of fobbing them off on the phone. Far from the phone service becoming a real entry into solving the difficulties, staff under pressure just say, "That is going to a specialist team". She had the wit to ask how many times had it gone otherwise she would never have known there have been 21 referrals to specialist teams on her single dispute. If you look at those, there is still much work to be done to deliver on that programme, particularly as the second set of measures the Paymaster General brought forward told you that only a third of the difficulties with tax credits would actually be eliminated by those later measures, so two-thirds of them remain and, therefore, at the heart of the reform programme must be the earlier main measures.

Q220 Susan Kramer: Obviously we are looking at the administration of tax credits rather than underlying policy, but I have heard you speak out very warmly in support of the Parliamentary and Health Service Ombudsman and the recommendations that she made last year. From an administrative perspective, one of the recommendations that she made was the write-off of all excess overpayments caused by official error in 2003-04 and 2004-05. Do you see that as an essential to clearing the ground to be able to get to grips with the current system? In other words, if we continue to try to unravel the past are we never going to be able to move forward on this one?

Mr Field: As I understand it, that is the Government's position to do so. The difficulty is convincing them that the error is on their side rather than on the claimant's side.

Q221 Susan Kramer: So would you be in support of a much more blanket mechanism for dealing with the past rather than trying to analyse on a claim-by-claim basis whether or not it was caused by official error?

Mr Field: Chairman, I have brought, which may I leave with you, a letter I received yesterday from the last letter that I wrote in July about a constituent. Her name and address has been taken out. It shows the difficulties of this cumulative impact of arrears in that it is dealing with 2004-05, although reading it you would think there were two constituents in 2004-05, they have got two different paragraphs on that, and then it relates to the previous tax credit year and how they are trying to sort that one out. One of the major impressions that I hope I leave with you is with the best will in the world we got into a huge mess on the Child Support Agency because we, as politicians, wanted to keep putting out sticky fingers in it and changing it and there is a huge danger that we may do the same with tax credits. I think the Parliamentary Commissioner has posed, I am not sure whether it was before your Committee or somewhere else, that there are inherent faults in the system which, if we are going to have a tax credit system, our constituents are going to have to live with. There is no end of the rainbow here of somebody coming before you and saying, "I have got the wonder reform scheme" because there is not a reform scheme that is going to deal with the problems which are inherent in the system.

Q222 Susan Kramer: Under her recommendation 11 the Ombudsman recommended, in effect, a right of appeal to an independent tribunal where these disputes moved onwards based on a statutory test for the recovery of excess. Do you think that would have an administrative benefit to the system if there was an awareness that in the end this could go to an independent body rather than spending its entire life contained within the system?

Mr Field: It might give us less work to do, Chairman, if there was an appeal. Again, I sound a note of warning about that. In a sense it appeals to us to have independent appeal tribunals but I see a real danger of trying to develop the tax credit system into a social work agency. The aim of the tax credit system is to keep the process as simple as possible. The more stages where we think that somehow staff have got to answer the inquiries, then having a review and then having an appeal, it sounds neat on paper but we are trying to keep a major reform on the road and I think there is a real danger of derailing that major reform by putting even more weight on an administrative system which was not designed to take that weight.

Q223 Susan Kramer: HMRC, as you were saying a moment ago, is attempting to improve the clarity of award notices and from April claimants will receive "a two-page summary that explains the most important aspects of their award and tells them what information on their award needs to be checked". Is that going to be sufficient, in your view, considering the constituents you have talked to, provided there is a detailed calculation on request so they can go back and get that?

Mr Field: I think the detailed calculation should be provided for everybody. What we do not know is whether the IT is such that it could deliver that. I have brought this form, not that I am sure any of you need it. When we look at what our constituents go through, that is the claim form, and we know lots of them have difficulty in compiling information like that, and then they get a document like this telling them how to complete it. This is mega stuff. Currently they then get this claim form saying how it is set out but it does not do that at all, it tells my constituent about all her previous overpayments and how they are going to claw it back. They are very precise on that. They do not say the specific information they have taken into account. For example, if they had computed the tax credit because she had got children with disabilities, if that was down there on the side she would immediately know the award was wrong. Then when the award comes through there is another one of these huge documents telling people how it is worked out. I think it is quite difficult for us as MPs to go through all of this, let alone our constituents. Again, I come back to the worry that we come up with such complicated reforms that the process gets into even more difficulties. If the IT could provide the equivalent of a wage slip setting out the main components, that would help enormously in that immediately our constituents would know something was wrong even if they did not quite know how the calculation was wrong. It may be that the IT cannot do that. It would be very interesting to know whether it could.

Chairman: We will ask.

Q224 Susan Kramer: You mentioned a moment ago the problem of the number of award notices that people get and one is different from the other and whatever else. Are you seeing any improvement in that? Is that getting better or are we still where we were?

Mr Field: It is getting better in that fewer people are approaching me as their Member of Parliament. The issues they raise are the same ones they have raised in the past. What we do not know is to what extent will the big changes before Christmas about the earnings changes make a real difference to the ones coming to us. My feeling of those that have come is the tax credit has been computed incorrectly because, as you know, this system was designed to minimise the number of human beings involved so the forms that our constituents fill in are read by computers and you have only got to put lines in the wrong place. For example, the person who for the third year had difficulties claiming she does not have a child with disabilities put a line through that area meaning it is not relevant and the computer read it differently from what she meant. The system is based on minimising the input of human beings to this and the real difficulties are that we start unstitching it all because of the difficulties our constituents are in. At the end of the day, this is a benefit which has given huge amounts of monies generally speaking to people on lower income and I see no way of improving it radically without that money being stopped. If I had to choose, I would choose that the money continues rather than being the person who advocates my constituents lose out. I would be irresponsible, knowing what I do and try and know about the running of the system, if I say they should have the money but keep proposing reforms that the system cannot deliver.

Q225 Susan Kramer: Can I ask you one last question. You said just now that you were getting fewer constituents coming to you. Is this because you think it is now working for more people? Is it possible that some people have been so discouraged they are not making the claim they should make, or are people getting notices requiring repayment and simply giving up and paying it because the system is so overwhelming? We have always been more worried about the people who did not contact us than the people who did.

Mr Field: I have no idea of the numbers who have decided not to claim because of their treatment in previous years. I will let you know after Friday, saying that the numbers with tax credits queries has fallen, whether the trend has reversed at my surgery on Friday evening.

Q226 Mr Mudie: You have mentioned a wage-type slip if it could be produced. In your evidence you suggest TC647 is produced but is not sent unless it is requested. Surely it is not the computer, it is the matter of a decision to issue that, is it not?

Mr Field: You are absolutely right, George. It is still quite a complicated form, I just wonder whether it might be simplified even further.

Q227 Mr Mudie: But it would give the information you require?

Mr Field: Yes, but there is nothing at the moment that automatically triggers it. You have to know about it, or your Member of Parliament has to know about it, to actually request it.

Q228 Lorely Burt: I would like to continue on the theme of customer service, if I may. Talking about the reduction in the number of constituents who are coming to you, we took evidence from the CAB and others from Northern Ireland last week and they were saying people had heard anecdotal evidence of the difficulty of going through this and whole swathes of people were being put off from applying for tax credits altogether, which is extremely worrying. You said that the tax credit system should not be a social work agency, however some of the other people who have given evidence to us have suggested that it would be better if there were more face-to-face meetings between the people who are processing the awards and making the decisions and the applicants. I just wondered if you have got any thoughts on that, particularly in view of the fact that there are six million households that it affects now. Would you see that as a possible way forward?

Mr Field: The Government is committed to reducing the numbers working in the public sector. If we are going to say that there should be an increase in face-to-face contact I think we should suggest to the Government where they might save the staff elsewhere so they could be deployed in this. I am also wary of the fact that I do not believe even if we had a whole army of people answering these queries we would overcome the difficulties which I think are inherent in the scheme because, on the one side, while we call it a tax credit scheme it is actually a benefit. Taxation in this country is based on individual assessment, this is based on family income and family needs. I think we have a very hard choice to make at the end of the day. Are we so disconsolate at the administrative problems that we think the system should be scrapped? You will gather from my evidence I do not think that, but I also think the area for reform is quite limited. When you go through the significant numbers of introductions of tax credits and their abolitions since 1999 I think a period of stability is required, first of all to see how well the two big tranches of reform last year work and, secondly, to try and press the Revenue for information so that we can better understand what are the causes of the disputes our constituents have with them, and we are denied that information currently.

Q229 Lorely Burt: You say that Tax Credit Office staff generally are not "competent enough to support claimants through what is an exceedingly complicated process". How do you think that lack of competence can be addressed?

Mr Field: I think it is two-fold. One is the pressure they are under to answer queries. Secondly, there are these specialist teams and when you are under pressure, as I said earlier, there is always the tendency to say, "That had better go to the specialist team". By having specialist teams, in a sense it de-skills the people who are on the phone because not all of us are bushy-tailed and literally learn everything about our jobs. If you think there is another group of people who might deal with an inquiry, the tendency must be - it is human nature - for some people to say, "I will pass it over to the clever boys and girls who are in the specialist team". I do think if we are having a phone service we want to try and get a phone service that can answer queries and not refer them to somebody else.

Lorely Burt: Your comment earlier about the 21 referrals back as a way of trying to offload the problem because people are working under pressure, I can see that.

Q230 Mr Newmark: I am going to focus on the administrative problems. I see a double-whammy here with information. Does HMRC have the management information it needs to enable it to administer the tax credit system effectively? Compounding that problem of lack of information, are the IT systems themselves, the management information systems themselves, adequate to handle what is necessary to deliver to people who actually need these benefits?

Mr Field: Chairman, I have been following your proceedings as you would expect me to and these questions have been asked of previous witnesses. The truthful answer, although some of your witnesses did answer, is we have not got the information to answer those questions.

Q231 Mr Newmark: On top of that, looking at the systems themselves, do you think the IT systems need a fundamental review?

Mr Field: Again, I am not in a position to answer that question. If you look at the commitment the Paymaster General gave about trying to prevent recovery until a dispute has been decided, since she gave evidence to you at the beginning you then had the Revenue along and the Revenue introduced a totally new stage that I had never heard of before. I understood from what the Paymaster General said that staff would manually try and trip the system to prevent the overpayments being clawed back immediately. When the Revenue came before you they were developing an intermediate stage which would be partly automatic and partly manual. As I understand it, there is then the promise to try and deliver to all our constituents an automatic way of preventing the computer clawing back, although the date for the introduction of that is disappearing into the distance. If one just looks at that one change, which I think is a very important one, that is one which is worth concentrating on and we know about rather than trying to double-guess information the Treasury either do not have or will not give us.

Q232 Mr Newmark: You suggested that there should be no recovery - I think you alluded to this earlier - "until the claimant and his or her adviser has had the chance to appeal against the overpayment and the Revenue has assessed recovery under its own guidelines". Would delaying recovery for, say, 30 days and providing better information about the reasons for overpayment and how recovery can be challenged be an adequate solution, in your view?

Mr Field: The first of the six promises the House was given by the Paymaster General was to deliver that. I do think it is reasonable to expect that people in a reasonable but clearly defined time limit register any dispute and it does not drag on for months and months and months. As you say, I think a month is a reasonable time for people both to realise there is a problem and seek advice.

Q233 Mr Newmark: You recommended that tax credit staff "should be empowered to check a current year's application form with a previous year's form where there is a major difference in the size of the tax credit being awarded". How satisfactory are current procedures to reduce rates of fraud and error? On what evidence is this based?

Mr Field: There are two issues here. I was not suggesting that because people's claims are different that is in any way suggesting fraud. Many of our constituents' circumstances change so dramatically we would expect their tax credits to change. It is just that if there is a significant change and we are trying to eliminate errors, one human way of doing that would be for the staff to check. There is a separate question about fraud. I have to say that when I was in what is now the DWP I failed. I wanted us to undertake a special inquiry into the main means of fraud of Family Credit so that the Chancellor would have that information when he was designing this benefit, so we did the maximum amount that we could to realise what the clever Dicks were up to and make it difficult for them to do that on this benefit. One of the ways has been to try and limit identity fraud. The DWP has given a commitment that it is trying to clean the National Insurance number system. One of the most alarming pieces of evidence that I have had from constituents, but also given before your Committee, is officials are issuing temporary National Insurance numbers and they cannot tell us how many temporary ones they have issued. That means there are all these spare numbers now coming back into the system which can be used in future for fraudulent applications. One of the anti-fraud mechanisms which all departments ought to operate is regularly to check which of its staff are claiming benefits and whether they are entitled to them.

Q234 Susan Kramer: Can I stay on this theme for a second and ask you your opinion about what we have been terming the reasonable test rather than using the conventional test that benefits have been using, this "could you have reasonably known?" We have had mixed responses to that. What is your view about what would be reasonable in the circumstances?

Mr Field: You are absolutely right because what my constituents think are reasonable, the staff do not always think are reasonable. Let us take the case of the mother who crossed through the section about whether you have disabled children. That is how most of us fill in forms, we cross through the bits that we do not think are relevant to us. That was then read as she had children with disabilities. I know I am not supposed to put the question back, but in those circumstances is it reasonable, particularly as she was questioning the size of her tax credit as soon as it came, that she should have reasonable on her side or, because she did not read those instructions at the top about ticking rather than crossing through, is it unreasonable for her to expect that the taxpayer should write off that error? She was very careful because she put the money in a bank account, she was terrified of spending it, as lots of our constituents are, but the aim of this benefit is to get money to people so they can spend it.

Q235 Mr Love: I understand that but the contrary view, and let me put it to you, is there are such large numbers of people involved in this system that if we were to take the time and effort to look at everyone individually that would throw out the whole system effectively, we could not use that system, we would need to change to something more akin to the orthodox benefit system. How do we find a modus operandi that is fair to the client but recognises the limitations of the system we are operating?

Mr Field: It comes back to the point I made earlier. There is always a danger for us as politicians to think we can get to the end of the rainbow and I think the hard question we have to face and then come to a conclusion on is I do not think it is possible to iron some of these difficulties out by the very nature of our constituents' circumstances and the wish to have a computer system which minimises human involvement in delivering a tax credit or a benefit. There is a trade-off here. You had evidence last think where the Institute of Fiscal Studies said that they thought the Government were now at the limit of the reforms that they could make to the structure of the benefit without dire consequences. The Paymaster General has put most of the effort on the size of people's wage packets. Because we do not have the data on why people overall, as opposed to our individual constituents, have difficulties in this, we cannot say whether she has behaved as rationally as we might. We must assume that she was given the data where she thought that this is the one single move that would make the biggest change to messing our constituents about by their wages moving, as we know for many people on low wages their wages do change from week to week and from month to month. As a politician, I think we have to face this very, very hard choice in that we think the redistribution of money from this system is so important that we are going to have to defend an IT system which cannot deliver the individual service that we would like, but on balance we think this is so much better for our constituents generally, though we sympathise with those poor constituents who get caught up in the tangle and we do our best to disengage them.

Q236 Mr Love: Taking that as a solution, and I understand why you would recommend that and would have some sympathy for that position, is there a role for a manual work-based portion of those cases that would be defined by criteria as being so complex that they could not be dealt with simply through the computer system but would have to be dealt with in a more orthodox way in the benefit system and if we kept that to a relatively small number of people it would be worked within the overall IT system? Could that work?

Mr Field: I do not think it can, nor do I think it would be acceptable to the Chancellor. As some of the Members may know, Chairman, I did not think we should go down this route but we have gone down this route and it has delivered substantial monies to many of our poorer constituents. The difficulties are with how this scheme is administered given that the circumstances of our constituents change often. I cannot see how we can devise a more perfect IT system to tailor make to individual constituent's needs. I think there is this terribly hard trade-off that the House of Commons has to make about this system.

Q237 Chairman: You could presumably devise an improved IT system that distinguishes between a tick and crossing through. That cannot be too hard.

Mr Field: The system we have now does not. If you can make a recommendation which you think is workable, I am sure the Chancellor would be very pleased to look at it. It is because I do not believe the main structure is reformable that the four reforms I put forward in my submission are modest ones. One of them is if there is a really big change from one year to another, not because I think there is fraud being suspected, because I do not, it is just that constituents have their circumstances change. It may be it is not possible to deliver that within the restraints the Treasury have on manpower to do that reform.

Q238 Mr Newmark: I want to be clear. I thought you were suggesting earlier that simplifying the information that individuals receive is the best solution because part of the problem is people do not understand what they get, so it goes back to an IT issue. Why do we not simplify it in the same way that with taxation my form VH1 sets out very clearly what I receive? Surely it is not beyond the wit of man, or an IT consultant, to deliver to an individual the information broken down on a monthly basis exactly what they receive because then to unravel it would be much simpler.

Mr Field: I do not think it could be done on a monthly basis. George made a suggestion earlier on, which I hope we will see in the recommendations of the report, in the sense that a form is produced. It may be that when you look at that as a Committee you might want to suggest changes but it would be an improvement for our constituents to automatically get that form. The second stage may be can it be improved. I do not think anyone wants to try and so knock about the system in making it even more perfect that you do not deliver what is deliverable, which is a form which you can only get now if you know it exists and you request it.

Q239 Ms Keeble: You said that you think there should not be major reforms of the system, but I wonder if you could say whether it would be worth looking at two things in particular that have been suggested repeatedly. One is that we should move back to a form of more fixed awards so that you do not get overpayments. The second one is whether the children's element should be dealt with separately because that is a huge amount of money and it can lead to very big overpayments. I wonder if you could comment on those two particular possible reforms.

Mr Field: Until the Revenue gives us the data on the causes of under and overpayment, I do not think anybody can sensibly say whether it would be better to have a fixed system or to continue with the current system. It might be if we had an analysis of all the difficulties rather than just the ones we know from our constituents that you would have to make a trade-off and say it would be better to go back to have a fixed system even though a fixed system itself would have disadvantages. We would have constituents coming to us saying, "It is unfair, my circumstances have changed" and we would have to say, "Sorry, that is the system. That is what we have now changed to". I do not know whether on balance that would give more justice to more people than the current system.

Q240 Ms Keeble: When do you think we are likely to know because you would have to have the system in operation for a few years to have a body of evidence? When would you say that should be looked at again?

Mr Field: One of the reasons why I made a recommendation to you about limiting the number of forms was to try and smoke the Treasury out in that are most of the difficulties our constituents get into resolvable around 12 answers or not, or are they so complicated and so diverse that you need the 100 and whatever forms the Revenue now has to send out to people depending on the issue that they raise. I am puzzled as to why the Revenue has not given us this information. I just emphasise this point again: I hoped we would not go down this route but we have gone down this route and I do not think there is an easy way out of this route, so the job is how do we try and improve it for our constituents and not destroy it. In those circumstances where nobody is calling to try and destroy the system, why is the Revenue not trying to share more information with us when we are trying to have a rational conversation with them? On the second of your questions, I think there is one simplification and that would be to roll-up the family element into Child Benefit because the family element was financed by the abolition of the married man's tax allowance. It is a significant amount of money and it goes to 90% of families with children. The case that I heard you deploy before about the grounds of equity was is it fair because this is a benefit which is targeted on those most in need. We faced that issue when we abolished child tax allowances and rolled the money up into the new Child Benefit because in the end the benefit was fulfilling two functions. It was fulfilling the old function of Family Allowance, which was getting money to particularly mothers with children, but it was also maintaining tax equity between people right up the income scale to take into account whether they had children or not. Therefore, to grant the family element to everybody would reintroduce the tax equity point for higher taxpayers.

Q241 Ms Keeble: Can I just look at that in a bit more detail. First I want to press you again on the childcare issue. You have talked about the family element, and I want to come back to that, but particularly on the childcare issue all the examples you have given about overpayments and things have all been about women. There is a major issue about childcare and the importance of the childcare element of this tax credit system. What kind of data do you have about the numbers, overpayment problems? What implications do you then draw in terms of whether the childcare element should be changed or should be protected in some way?

Mr Field: Because you have raised this in previous meetings I looked at the disputes that we have had in the office and, given that many of them are single parents, I was surprised they were not disputes about the childcare component. It may well be that there is something very peculiar about Birkenhead in that the childcare component actually works rather well. There was a preponderance of single parents but the issues that single parents raised were not different from other married couples who were in difficulties with childcare. The point that you made in other evidence when you said this was something which was particularly important to lone parents is actually a very important one on the sexual division of tax credits. Because I thought you might ask the question again because you had asked it previously, I have not got any relevant information from the base that I have in the constituency to answer the question.

Q242 Ms Keeble: Can I ask you again about this family element because I think this is really important. One of the difficulties about the tax credits and one of the reasons why all previous discussion about can the computers cope with it, etcetera, was because of the numbers. One of the things with numbers is the sheer volume of people applying for it. Somebody said in the previous evidence that one of the reasons why the numbers are so high is because it goes so much up the income scale because you can be earning 58,000 and still claim tax credits, which for most people is high income, it is not even middle income. If we followed the suggestion you have made that you roll up the family element into Child Benefit you would have a very universal award in fact, the top 10% would get the money, whereas if you did the redistributed bit what it would perhaps do is simply not have it so tapered so it did not go right up to 58,000 and thereby you would reduce the sheer volume of people going through it and help to manage some of the difficulties. Would it not be better to move things over to the tax credit system and lower the thresholds rather than migrate stuff over to Child Allowances and have people who are on high incomes getting substantial amounts of benefits?

Mr Field: I think politicians have to make a trade-off. It would simplify the weight of administration if the family element was scrapped and given to Child Benefit, but again I would be cautious about the phasing of that. One would want to know what the Revenue's case would be. What would be the effect on the system if one made such a major change as that? Maybe for that reason alone one would not do it. If you have already got 90% of the population being eligible for the family element it is a pretty universal benefit anyway. Again, it is a trade-off: do we keep it simple and make it 100% or do we, again, become very clever and devise a taper which, if you were only considering one taper in the world, would be fine but our constituents are caught by a multiplicity of tapers and it is not simple to them?

Q243 Ms Keeble: But what it would mean, and this is presumably part of the equation, is that people like me would get even more money to support our families whereas people on low incomes, lone parents, would not get more and there is the equity bit there.

Mr Field: But you should get more money than me because you have got children and I have not.

Q244 Ms Keeble: They are all relative decisions.

Mr Field: That was taken care of in two ways previously: in the tax system and the benefit system. We now mainly have the benefit system and I think things should be rolled up on that.

Q245 Ms Keeble: What you are doing is integrating the tax and benefit systems, which is a very difficult thing to do. Is it not better to do that, to look at the thresholds and to migrate stuff out of the integrated tax and benefit system and put it into child benefit, and we all know with child benefits that they become untouchable because it is money for your children.

Mr Field: I think it is wrong for the Committee to think we are integrating it just because we use the name "tax credits". We are not integrating at all. The Chancellor had three objectives when he introduced this programme. One was to make it a major weapon against child poverty, which in the first five years has been successful. The second was to make work pay. The third was to call it a credit to try and raise take-up substantially because people would not feel stigma. The Revenue have not integrated this. There is a separate system, the tax system, which is individually based, and there is this system which, though it is called a credit, fulfils all the functions of the benefit system because it takes households and households' needs into accounts. What I think we cannot do is pretend it is a benefit and therefore fiddle about with it like we do with benefits. The Chancellor has an IT system in an attempt to deliver a simple form of extra payments, generally speaking, to people on low earnings and we fiddle about with that at our peril. All of us thought we could reform the CSA and look what has happened.

Q246 Mr Mudie: You mentioned inherent problems which have to be lived with. Can you specify what you mean?

Mr Field: I was reciting what the Ombudsman said. She thought that these were built into the system. I have been trying to illustrate to Andy and Sally that in the past we have always thought of income supplements going to households as benefits and that somehow this week's benefit is related to last week's income. This is something totally new. I find it strange that I am defending the system when I preferred us not to go down this route but we have gone down this route. There is no point trying to claim points for failing in advance. It is really relating this year's tax credit payments to last year's pay and it is a very crude way of doing it, but substantial numbers of our constituents benefit substantially. Even with the reforms going through we know that two out of three constituents will not have problems. It is terrible that one in three will have problems but it does work for two-thirds of those who never come to our surgeries because it works. I think there is a danger of saying that we want to be so clever in relating the payment to an immediate period of income that we destroy what was meant to be a simple, crude, additional payment largely to people on low earnings.

Q247 Mr McFall: Frank, I have the same experience as you and I have fewer constituents coming to see me on this. If you believe the Government figures you are talking about 95% or 96% getting it, so we have a small number coming to us. Given that we have to have a trade-off and that, in your words, wise words, we tamper with the system at our peril, what criteria would you employ to assess whether we change this system radically, we tinker with it or we leave it, albeit some constituents have massive problems? It is a small number statistically but it is bad for them in themselves.

Mr Field: Chairman, can I read something into the record which I think emphasises the point, that the Chancellor has been trying to build this system up over a period of time and that we should actually stop trying to fiddle around with it in major ways? If we look from 1999 onwards, the Government abolished family credit, introduced working families' tax credit, introduced the disabled person's tax credit, introduced a childcare tax credit, introduced an employment credit, abolished the married couple's tax allowance, introduced the children's tax credit, introduced a baby tax credit, abolished the working families' tax credit, abolished the disabled person's tax credit, abolished the children's tax credit, abolished the baby tax credit, introduced a child tax credit, abolished the employment credit, introduced a working tax credit. I do think we ought to try and let the system survive. It is like gardeners going round pulling up their plants all the time to see whether the roots are there. For some of our constituents there are real problems with this. I am not so sure, with that list of changes, whether we ought automatically to be thinking that we can make more. There is one I have made with Sally, that we might simplify the system by rolling up the family element into child benefit although there are the disadvantages that Sally put against the advantages that I put. There is George's point about the fact that there is a notice of assessment: a wage slip. Why do we not advocate that? There is the Chairman's proposal: why can the present IT system not read more accurately what our constituents write on the forms? These are all things which would improve it. I do not think we want to pull the plant up any more in the foreseeable future.

Q248 Jim Cousins: You very rightly said that the difficulty of this is that we are splicing together the tax based approach, which is yearly assessments of individuals, and the traditional Elizabethan Poor Law benefits approach and week by week household means tests with immediate recovery and they never will relief it. I have two points. I wonder if you have any idea whether the kinds of changes of circumstance which cause the most difficulty are related to income changes or to household changes, that is to say, relationship changes essentially. If we knew which of those it was that would guide us in how we might deal with that because the mechanisms by which you would report an income change are clearly rather different from the mechanisms you might want to use if you were reporting a household change.

Mr Field: Chairman, I will be very brief. I do not think we can answer that because the Revenue has not provided us with the information. Before the November big changes we had something like 2.8% errors, mainly overpayments, some underpayments. The Paymaster General has presented some very big changes where income changes up to 25,000 will not actually affect your entitlement during the year that they take place.

Q249 Jim Cousins: Making it more tax-like?

Mr Field: Yes, making it more tax-like, but also she admitted that that will only affect a third of those difficulties which the Revenue admit actually occur. It means therefore that two-thirds are not covered by that, which might suggest logically - your presupposition - that therefore it is household composition changes which are the basis of the two-thirds. That is logical, but again we do not have the figures from the Revenue to say your hunch is right. I guess it is, which again says something extraordinary about these changing circumstances of lots of our constituents at the bottom end of the income scale.

Q250 Jim Cousins: How does our system compare to the American earned income taxable system?

Mr Field: Our system compares with both the American and the Canadian systems. Both of them are cruder and they have fewer problems because they are crude. The difficulty that we have been discussing today is that the Government has tried to make this sensitive to some changes. The November reforms are structural changes. The May ones are procedural changes. They have gone down both routes which will make the operation more complicated than either the American system or the Canadian one. If we were in Canada we would just have to say to our constituents, "Lump it. That is how the system works". It is all right for those of us with safe seats. It is not so good if you have a marginal seat.

Q251 Chairman: It has been extremely useful. Can I just ask you about a cultural point that is sometimes raised? You have served in Government. You have described today what is in essence still a benefit system. Hindsight is wonderful but was the Revenue the right body to run this new tax credit system?

Mr Field: I doubt whether any of us have had any number of complaints about the pension credit, which is actually run on the old computer system that was inherited by DWP from the DSS and paying out money is something that the DSS knows something about. The Revenue knows something about collecting money and when the Tories made the distinction, and I do not think I am shopping anybody, Peter Lilley was at the Treasury and he fought like mad for the CSA not to go to the Treasury. Mrs Thatcher then moved him to the DSS where he had the CSA working in a benefit set-up. Culturally the CSA is about collecting money and I think ought to be in the Revenue, while in theory, of course, this ought to be in DWP. This is central to how the Chancellor thinks he is reforming welfare and we could make recommendations till kingdom come that we think it should be moved but I would put my savings on it not being moved and we might as well save the paper for some other recommendation.

Chairman: We will not be able to recommend that. It is too late now. I was asking you the question in hindsight. Thank you very much indeed.


Memorandum submitted by Public and Commercial Services Union

Examination of Witnesses

 

Witnesses: Mr Ian Lawrence, PCS Group Secretary, and Ms Lynne Wallace, PCS Representative, Tax Credits Office, Public and Commercial Services Union, gave evidence.

Q252 Chairman: Mr Lawrence and Ms Wallace, could you introduce yourselves formally please?

Mr Lawrence: Thank you, Chairman. Good afternoon to you all. My name is Ian Lawrence. I am a National Officer with the Public and Commercial Services Union.

Ms Wallace: My name is Lynne Wallace and I am here as technical support for Ian on behalf of PCS.

Q253 Chairman: You are very welcome and thank you for your submission. Can you clarify for me who you represent amongst the tax credit side of HMRC? Do you represent all the people who work there or some of them?

Mr Lawrence: We are working on that, Chairman. We represent around 90% of the staff who work in Liverpool and Preston tax credit offices. I say "around" because, as you will discover when we go further into this, there is a good deal of fluctuation in terms of staffing with a number of short fixed term appointees.

Q254 Chairman: But of the total who work on tax credits what proportion do you represent?

Mr Lawrence: Round about 89% to 90%.

Q255 Chairman: We have had, as you have probably become aware, some difficulty in getting a precise picture of the extent of the problems and specifically we have had no definitive breakdown of the causes of overpayments. We do not know what proportion was error, which is either the computer system or presumably human error amongst some of the people you represent, or inadequate information or whatever. Why do you think this is? Why do we not yet know how much overpayment is attributable to what?

Mr Lawrence: To start with I take you back to the HMRC Chairman David Varney's statement submitted to the PAC when he put a best estimate of 2.2 billion in terms of overpayments. The chief cause of the overpayments problem, and remember the system is designed to accommodate overpayments because of its very nature, is the change of circumstances of individuals and the difficulty our members have in tracking those, going through what are something like 160 core business processes and procedures inherent in the system. That job of work is the chief cause. Added to that are the issues around the provision of IT. I know you do not want to hark back to what was in tax credits at launch but we cannot get away from the legacy of problems that were unresolvable by the previous contractors which have left our members at the front face with some difficulty in providing the sort of service that is needed. On top of that there is the pressure coming from the employer, which you are aware of, to shed 12,500 jobs across HMRC and I have not got a figure for how many of those would fall within the tax credits area. That is a major problem for us in dealing with Government efficiency drives in the current climate.

Q256 Chairman: It is suggested by the Comptroller and Auditor General's report on the Inland Revenue's accounts that the IT system release that would have provided management information was only ever part delivered. Do you have any knowledge of that?

Mr Lawrence: From recollection, and going back to the previous contractors, EDS, who you know were held liable for reparation (and I do not know exactly they paid but it was reported to be circa 61 million), they were unable to provide the full up-front service that the system demanded. I suspect that again a lot of that is a legacy of their involvement.

Q257 Chairman: Do you think management now has access to information?

Mr Lawrence: No. I think the system is still not joined up sufficiently. Typically, an operator, be it in a call centre or in the Tax Credits Offices themselves, will not have necessarily the whole the case history in front of them on the computer screen at any one time. When I was here listening to colleagues from the Citizens Advice Bureau and other voluntary sector organisations they said the same. The chief frustration was that when their advisers were trying to get to grips with the problem the HMRC staff did not always have the most relevant up-to-date information. That is compounded by the fact that at any one time, even if someone is answering a query on a case, that case could be being worked on, say, in Preston or Liverpool. That is disappointing. Equally, with overpayment recovery our colleagues in the Debt Management Banking Directorate do not have the whole cast history in front of them on computer. They have a lump sum to tackle and they then put in place processes which you may wish to ask us about later.

Q258 Lorely Burt: I would like to ask you about staffing issues. Do you know how many staff work in the Tax Credits Office?

Mr Lawrence: I wish I could get that information directly from management. Our understanding is that it is circa 3,000, of which we estimate around 30% is made up of staff on what are called fixed term appointments who work day or twilight shifts, as we call them, late hours working. That fluctuates because of the very nature of fixed term appointment contracts. There is a good deal of turnover amongst those staff, which is hardly surprising when there is a lack of tangible investment in them in terms of training, IT support and, if you like, a corporate approach to tax credits, which we do not believe senior management are applying.

Q259 Lorely Burt: You say that 30% are on fixed term contracts, so are they temporary? If you divided it down into permanent and temporary have you any idea how many that would be?

Mr Lawrence: I would be struggling. We are quite happy to try and undertake some more research on that and write separately to you if that helps.

Q260 Lorely Burt: Perhaps I can ask you about the cuts. You have mentioned the 12,500 jobs. What impact do you think the cuts have had to date on the department's administration of tax credits and what impact would you expect them to have in the future?

Mr Lawrence: People may ask what impact they will have because we are seeing an increase in resources in Tax Credits Offices, and we are; we will acknowledge that from the start, but that ties into my comments about that being necessarily supported by training and IT. We have major concerns based on our understanding of where job cuts are destined to fall. I say "our understanding" because here we are, some one year on, from the Chancellor's announcements about efficiency savings and job cuts across the Civil Service, still not knowing from David Varney and his colleagues exactly where these cuts are destined to fall. I have to say I find that appalling, as do our members. One area where we do have some information to suggest where staff cuts are imminent is in the area of tax credit compliance. We have seen a report which suggests that there is going to be a reduction of around 150 jobs. I would be quite delighted if someone were to come here in the coming weeks and deny that. It would be some reassurance to my members and ourselves. If that is the case, and if it is also the case that there are scheduled to be office closures and therefore in face-to-face contact, we are concerned about that. That is going to worsen an already difficult situation and I would urge some second thinking on that.

Q261 Lorely Burt: What about the experience that staff who are working in the Tax Credits Office have? Do you have the most experienced staff involved in decisions about the most difficult cases?

Mr Lawrence: Our understanding is that management have tried to set up specialist teams to deal with the very difficult and complex cases. We would welcome that; that is common sense. Where we come from, if you read our submission, is about a more joined-up approach, about pulling together the experience, skills and disciplines that people have in a much more effective way. It is nonsense, as I heard two weeks ago, for people to say that they phone up and cannot speak to the same person. That just does not compute, if you will forgive the pun, in terms of what should be on offer to people. That is the root cause of the problem. I alluded earlier to the short term aspects of staffing. Ergo there will be problems in getting to see the same person; there will be a problem in encouraging corporate ownership and we strongly urge that that changes. The problem is compounded by a lack of training where again our understanding is that two weeks is the norm.

Q262 Lorely Burt: Two weeks?

Mr Lawrence: It is two weeks typically. Again, if management can come here and deny that and paint a rosier picture I would be quite willing to examine that, but two weeks and then to put people out in the front line, as it were, is inadequate. Things change, the processes change almost weekly. I will not produce it now but I have a schedule which shows just how many teams there are and the different processes that they are involved in and that is a massive task for people. No wonder stress levels are high.

Q263 Lorely Burt: Indeed. In your submission you say that it is your impression that jobs are being deskilled. I wonder if you could say what you mean by that and where you feel it has taken place.

Mr Lawrence: I think the best example I can give, and these are direct reports from members that we have replicated in our submission, is that the most typical is decisions about difficult cases where in the old Inland Revenue typically they would be taken by a front line manager at the very least, the old band D. Now that work is being farmed out (without wishing to be patronising to our members) further down the line to people with some experience but perhaps not the necessary grounding in the systems to make decisions. There is evidence from our members that that is the case. There are disputes around things like whether the decisions are appropriate to their particular grade and the rate of pay and terms and conditions they are on, and quite legitimately we are concerned about that. Our members locally do a massive job in trying to take those cases forward. There is the issue of functionalisation. I have talked about the core processes in the system. That too invites problems in identifying who is the best placed person to deal with a particular issue. I am not trying to paint a picture that we are callous; I am not. We are still talking about trying to deal with those claimants among the 6.3 million who are in difficulty. It is not all the 6.3 million; we know that, but it is a proportion that is too high, I grant you that.

Q264 Lorely Burt: On the deskilling, when Frank Field gave his evidence he was giving one instance of somebody who had been referred on a dispute 21 times to a specialist team. Do you think that the deskilling is something to do with the fact that people think, "Oh, well, I do not have to resolve this particular difficult case. I can just refer it on"?

Mr Lawrence: I would think that was a factor. If you are there trying to clear 18 cases - and it can be just as time-consuming to clear two cases as it is 18 - then you are going to want to get shut of them. Because of the fact that we do not have enough joined-up sectional working, bringing together a case-working ethos perhaps, which needs to come in (and that is among the many things we have been saying), it does not surprise me if that is the sort of thing that is reported back to us.

Q265 Lorely Burt: Have you had involvement with HMRC management in how to resolve some of these administrative problems?

Mr Lawrence: The best I can say there is that it is patchy. In one of the areas, tax benefits and policy, we are making pretty good progress in trying to establish a relationship, which is pretty important, you might think, after all this time, in terms of where they are headed and how our members might interact with that. I would say on the whole that the interaction is not good enough but I might also say that that is typical of what has happened across the new HMRC Department where it has taken quite a while to come to terms with the new management's approach to good industrial relations. We have struck an agreement called the Jobs Protocol Agreement, which you may be aware of, which affords greater consultation between management and ourselves. I would be looking to TCO management to grasp that nettle and I would be happy, Chairman, to take part in any joint review with them in an attempt to build better industrial relations that would then help claimants.

Q266 Jim Cousins: I have to say that I think that was an extremely helpful exchange from the point of view of the Committee. You say in your evidence that the contact centres do not all have the same level of service or opening hours. Without going into a lot of detail verbally I think it would inform the Committee very helpfully if you could provide the evidence about these variations in service and in opening hours.

Mr Lawrence: I would be quite happy to do that. I could give you quite a lengthy and detailed answer, Chairman, so I am quite happy to write to you on that. Essentially we face similar problems across contact centres where you have a number of staff on fixed term appointments working under different terms and conditions, twilight shifts, terms that are more akin to flexible working and those that are more on fixed hours and that type of thing. That in itself suggests that the department is showing a lack of investment and a lack of will to invest in full time, well skilled permanent jobs. Our argument, which we touch upon in our submission, is that we need to try and get a grip on that so that when the voluntary sector and our advisers, or anyone else for that matter, are trying to make contact with HMRC they know when and where they can do so and also know when and where is the best time to do so to get the right result. It is quite a lengthy issue. I would be quite happy, if that is okay with you, Chairman, to send you a narrative on that.

Q267 Jim Cousins: There has been a lot of emphasis in parliamentary discussion on people ringing up and not being able to get through. Do you have digital telephone systems that record the calls that do not get through which enable you to ring those people back?

Mr Lawrence: No. What I do know is that there is recording of calls, so there are recordings available of transactions over the phone between operatives and the public.

Q268 Jim Cousins: So when callers cannot get through there is no system of tracking where those failed calls have come from, giving you the ability to return them?

Mr Lawrence: Not to my understanding. Our estimate, and this is not just in tax credits, let me make that clear, is that something like 120 million calls to Government call centres - our analysis - have gone unanswered over the past three years. That is 120 million dissatisfied callers to Government call centres.

Q269 Ms Keeble: Forty million a year?

Mr Lawrence: In our estimate it is 120 million calls over the last three years. That suggests one of two things, first, that the technology that you referred to is not available and ought to be.

Q270 Jim Cousins: That would point to a serious technological defect. You heard me ask a question about the significance in the tax credits problem of household changes. If I am ringing up and I am reporting that my partner has left me, producing a massive income change, if I am a woman ringing up is there any ability for me to say, "I want to speak to another woman about this? No disrespect to you, sir, but you are a bloke. I do not want to speak to you. I want to speak to a woman"? Is there any capacity to deal with that?

Mr Lawrence: I comprehend the point fully. No, there is not, and it is something which I think needs to be looked at.

Q271 Jim Cousins: If you explained to somebody over the phone, which I would guess would be extremely stressful, all these things that are changing your life as a result of somebody walking out on you, is there any ability for somebody to ring back and say, "Look: I have already explained this to Jane and Jane understood it and was very helpful and nice to me. Do you think I could just speak to Jane again rather than having to repeat it all to you?"?

Mr Lawrence: The answer is in the negative, and this featured, I know, in your previous session with the CAB and One Parent Families and others, and we very much support that concept. There has to be a service which takes account of people's individual circumstances and you are quite correct: it could be a woman who is a victim of domestic violence and does not wish to discuss the matter with a male, for whatever reason; it could be any number of things. I agree: there has got to be better investment in providing what the public requires.

Q272 Susan Kramer: Can I pick up on this issue of moving much more towards a caseworker based system? We have had a lot of evidence from people in previous weeks talking about just the complexity if you are dealing with a general helpline, with the Citizens Advice helpline if you come from the CAB, the special payments team, the complaints team. Is there any evidence of them working together to deal with a single case?

Mr Lawrence: I have no doubt that the members we represent are doing their level best under difficult circumstances to do just that. What we do know is that the Special Management Unit will pick up the most difficult cases, probably the ones that you people refer, with respect, usually the ones that require those quick answers. I do not see that there is enough going on in TCO to deal with those types of things. The Special Management Unit does seek to deal confidentially with people but if you think about the case loads that are going on then you can imagine the pressure they are under.

Q273 Susan Kramer: And it can integrate all the bits, can it, in that case?

Mr Lawrence: Within that particular team there is an integrated approach. Our issues are around the rest of the core processes.

Q274 Susan Kramer: So are we in effect getting a sort of casework system through the back door in a sense, creeping towards one? Is that what we are looking at?

Mr Lawrence: You could argue that it is a two-tier system. Clearly you would have to create something to deal with the most pressing cases. I have heard the horror stories reported here and in other sessions about the number of times that people have tried to get through and 26 different communications. We want some pronouncements made about the urgency of the cases, clearly, but that is not going to solve the whole issue. The whole issue is about skills, IT, training being in the right place at the right time so that my skilled operatives that have some ownership in the organisation in which they work. If you are a fixed term appointee whose contract expires maybe in March, or it may be that you will be terminated in March and you may be coming back to the Tax Credits Office later in the year, I do not think that gives you the incentive you need.

Q275 Susan Kramer: Can I unpick that very slightly and try to understand whether what you are recommending is that, other than the very complex cases which go off to the special teams, you need to do some various things to improve the situation of other people involved in the system and the technology they have, or that we should go much more towards a general casework approach? If so, how would that work and what would the obstacles to that be?

Mr Lawrence: A holistic approach is something we would obviously favour. The idea of using people who do have some pretty good knowledge of the system in a more effective way and through it encouraging better team working is one way forward. I have seen a consultants' report - and again it was not presented to us, Chairman, we found out about it -saying that one of the root causes of problems in the tax credits system is the lack of corporate approach within TCO as encouraged by management. I have here as a perfect example a publication that was issued by HMRC last week, Working Together. Here we are, nearly a year on from the inception of HMRC, with the Chief Executive extolling the virtues to his managers, the 36 business directors, of working together. I thought that was the message from day one, and where we come from is that that is what we have been saying to HMRC management and what we were saying to previous management in Revenue and Customs as a way of getting the best value for the taxpayer, and still that lesson is unheeded. Still the department insists on going off in silos and creating silo management within structures that are helping to make problems worse, not better.

Q276 Susan Kramer: Can I ask about one last aspect of casework or face-to-face interaction? You say in your written evidence that the HMRC is planning to close various inquiry centres. If face-to-face were to become more extensively used, physically where would such meetings take place?

Mr Lawrence: You would expect me to say that we believe in the idea of locations in the community for HMRC, not just because of members' jobs but because we believe it provides a service that the taxpayer demands. All the evidence from our previous work in this area suggests that that is exactly what claimants want: someone they can go and speak to, someone that knows what they are doing and someone who can get them the best possible answer on the day or at least find someone who can pretty damn quick. Where we seem to be headed with what we know as HMRC's channel strategy is foisting customers down a particular line of inquiry with the sole intention of clearing the case as quickly as possible from the books. Typically, someone could go into an inquiry centre, if they could find one in the locality, and indicate that they had a problem with their tax credits. They might get lucky and find someone at point of contact who could say, "That is the issue", or, "You should ring this number". What is more likely is that they will be directed towards having an appointment. You might think that is s a great idea but if, upon arriving at the inquiry centre a day later, they find that, having had the appointment and having spoken to a person, that person is none the wiser, then it is a waste of everybody's time. What we are talking about is point of contact but underpinned with the right resources, the right technology, the right skills, to mean that that claimant does not have to visit twice. That is just one example. I have talked about closures. We have not yet seen HMRC's plans to close offices beyond those we know are inevitable - lease breaks, contracts on property ending - and so far we are satisfied that there is no detriment there in terms of service to the public with two offices in Sheffield, say, merging into one. What I am worried about are areas where the public have difficulty reaching offices, areas where they do not have any access at the minute, places like Blackburn which has a very high proportion of tax credit claimants. We want to see an improvement in the quality our members can provide, not fobbing people off.

Q277 Mr Mudie: Just touching on fraud, in July the National Audit Office, on the previous year's accounts, reckoned that fraud and errors would account for 460 million, but since then they have given an early estimate of 15 million that has been lost due to organised crime, but that has been overtaken by Works and Pensions' 30 million, and we have not got any detailed figure about Network Rail. All that sounds as if it is making the system worrying vulnerable to crime, and organised crime at that. Did your members sense this or is this what you would expect in terms of a big benefit system?

Mr Lawrence: Any system can be defeated by organised criminals if they have the know-how, so tax credits is no different from any other in that regard. Where we believe things needed to have been done earlier, such as closing down the public portal, is a moot point. HMRC might disagree. I have heard David Varney's report on that. I am quite happy to relay to the Committee from our members in confidence and anonymity their thoughts about some weaknesses in the system. I cannot attribute them, for obvious reasons, and I would not want to repeat them here in the Committee. What we do know is likely to lead to fraud, however, is the use of a fictitious name or false ID for want of a better phrase, like producing forged, counterfeit or stolen bank documents. We know that people try to adopt a real person's identity alive, or dead, we know that people try and use fictitious dependents as evidence of a claim, and we know that people can submit numerous claims using false or hijacked identities and that there is multiple identity fraud. That is not germane just to tax credits; that is any system, so that is the given, what we do know. We feel that the supposed faults in the IT provision did not help matters and opened up a potential gateway to organised criminals to exploit, and evidence suggests they have exploited it. Beyond that I cannot comment because I think there is a criminal investigation going on in at least one if not two of those areas. It has been alleged that those were possibly as a result of in-house criminal activity. I do not know so I am speculating there. The point is that fraud can attack any system. What we are about is making sure that the IT is foolproof, making sure that the training for people having to make very difficult decisions in terms of authorising a claim is better and that they have someone in the chain of command that they can depend upon to make that decision with a reasonable amount of certainty, risk assessment if you like.

Q278 Mr Mudie: When did you, your membership and the organisation, become aware of the vulnerability of the online application system and when did you raise it, because I have read somewhere some time in the past that this was raised with management before the December cancellation?

Mr Lawrence: We certainly tried to raise the issue with senior management in terms of what we had been picking up on the grapevine, if you like. In fairness to them, they closed that down, I believe, in December and it has been reported that that was the earliest they could possibly have done it. I cannot comment beyond that. The fact that they closed it down is welcome and has closed that particular loophole.

Q279 Mr Mudie: Is that when you raised it, in December?

Mr Lawrence: We had made comments previously, in April, when we first got evidence of this.

Q280 Mr Mudie: You can surely stop the system in six months?

Mr Lawrence: I guess they had to make a judgment as to how much of that was acceptable. I think David Varney has reported that he believed the system was under attack from day one, and he might be right, but we certainly picked stuff up from members from round about spring last year and started to try and get those views across.

Q281 Mr Love: Can I press you a little bit on the questions you have just answered because in your memorandum to this Committee you describe the design of the computer system as the provider of "low-hanging fruit" for the activities of organised criminals? What did you mean by that and where do you think the changes need to be made? Clearly, the portal is an issue and is the most-talked about. Where are the other changes that need to take place?

Mr Lawrence: As I indicated, Chairman, I would be quite happy to try and amplify that in a bit more detail rather than try and give you specifics. The four areas I did highlight to you are pretty much in the public domain. One area of weakness is what is known as pre-award checking where a claim is put in, and the decision-maker will have a clear choice: do they fast-track that through to help someone in need or do they add it to a work list requiring further investigation? If it is the latter, of course, that adds to the potential delay for the claimant, and you know the rest: you get the letter through the post.

Q282 Mr Love: So this is the origin of your comment, "air first and check later", or do you think there should be a different emphasis?

Mr Lawrence: I think we have the resources in place. If we have the skilled staff in place that I have been constantly referring to there is a better chance that fraudulent claims will not get through the net. With the pressure that is obviously inherent for people to clear cases and the pressure our staff are under, and I am hearing stories about targets to be introduced in the Tax Credits Office and I am waiting for confirmation of that, I have to tell you we take a very dim view of that. As if they have not got enough to deal with, the idea of league tables and leader boards for these people is unacceptable and is another example of the pressure they are under. I would be happy to amplify a bit more what we perceive to be the weaknesses in the system if that is okay.

Q283 Mr Love: The two estimates that we have had, as has already been mentioned, are that there was early estimate of 15 million for organised fraud and then, when the DWP case came to light, the estimate there was 30 million. If you add the two of those together it only comes to 10% of the early estimate of 460 million claimant error and fraud. All the evidence that this Committee has received, and indeed the Treasury have received, is that the final total of claimant error and fraud will be higher than that 460 million. The question then arises is that by far the greatest proportion is either claimant error fraud. Does the union have a view about the balance between those two and what steps do you think we can take to deal with that type of problem within the system?

Mr Lawrence: I would need to take that away and revise it. I could not comment on that exactly, Chairman. I have seen speculation even higher than that. It depends just who you believe. Given our investigation going on as well, it would be wrong for me to speculate but I will consider that question if I may and see how we can wrap that up in the response that we have offered to give you.

Q284 Mr Newmark: With respect to IT systems, there is clearly a problem with the input side for those putting in the information, there is clearly a problem with the output and there is clearly a problem with resolving those IT issues that are before us. Focusing on your staff, what are the problems with using IT systems from the point of view of your staff in administrating tax credits, what are the limitations of the system and what tends to go wrong?

Mr Lawrence: I think I touched upon this in an earlier answer on the lack of information and the whole case approach, if you like, being available on the screen at any one time. We have written in our report that at the time of writing there were continuing problems of availability of the IT. To give credit where it is due, that in itself has improved. What also has improved is the identification of flaws in the system and what we call trouble tickets created to send to the specialists to resolve them. What has not improved is the time it takes to do so, again, because of the sheer weight of numbers and the capacity of the contractor to do it. It is probably wrong to comment on the performance of the previous contractor; they have been brought to book. We had hoped that it was going to be better from this particular contractor and that is a constant theme among our members. One thing is clear though: all the IT in the world will not replace the real benefit of face-to-face contact and effective point of contact. We see millions of pounds of taxpayers' money continually spent on IT contracts that do not work, not just on tax credits.

Q285 Mr Newmark: I hasten to add that that happens in the private sector as well.

Mr Lawrence: Exactly. I could cite any number of millions spent on consultants -----

Q286 Mr Newmark: That happens in the private sector too.

Mr Lawrence: ----- at a time when we have been told that consultants are going to be eased out in favour of an in-house approach. It happens across both sectors. It is a lot of money. The problems of IT have led to David Varney's suggestion that it is going to take some 18 months to manually put right some of the inherent flaws. Clearly we want better IT, clearly we want better investment but, in terms of the manual approach in getting it right, Frank Field talked about stability. That is what we need. We do not need radical change; we need stability, and if something comes out of this Committee's deliberations to that effect I shall be delighted.

Q287 Mr Newmark: There was one particular thing that caught my eye, which was that Citizens Advice told us that there were problems where a lot of clients drop off the system, particularly around the beginning of October. Can you tell us any more about this, why does this happen, and how many people does it affect?

Mr Lawrence: That is the renewal period, where typically they renew their claim or drop off.

Q288 Mr Newmark: Does it tend to affect a lot of people? I am sure it does.

Mr Lawrence: I have no numbers. We can do some research on it.

Mr Newmark: That would be helpful.

Q289 Chairman: Frank Field referred to a target the Revenue had set itself of suspending all overpayments within five days of a dispute being made and then a decision to be made on the recoverability within four weeks. How is that new target working?

Mr Lawrence: I listened carefully to what Mr Field had to say. We take a cautious approach to that. One of the problems we have is not seeing measures brought in that are going to add more bureaucracy to a system. Of course we support the concept of independent appeals and fairness, we do that in terms of personal business taxation, but I want to be sure that that would not make matters worse. We will take that away and consider it. I go back to an answer I gave earlier. It can take as long to deal with two or three overpayment cases by a specialist as it can to clear 18. All the appeals systems in the world might not hasten that particular aspect.

Q290 Chairman: He also suggested that suspending recovery involves your staff in manually tricking the computer in carrying out some 22 separate tasks which adds around 40 minutes to each case. Is that accurate?

Mr Lawrence: His latter assertion about 40 minutes I could not possibly comment on. I have no empirical evidence of that in front of me here but if what he says is correct our analysis is that that is because they are under pressure to work around it and find solutions; in other words, fast-track the system to clear a case. Anyone with a knowledge of IT can press hot keys and all the rest of it. I guess that is what he is alluding to. Equally, Chairman, I am quite happy to take that away and see if our local people can do some research on that.

Q291 Chairman: Do you have any advice to give us yourself on the reasonableness test as to how your members interpret the word "reasonableness"?

Mr Lawrence: I have got a long screed on that. I am satisfied that our members would try to apply the same principles as they would to any element of taxation: treating the customer fairly, ascertaining the facts and tackling the case in line with existing procedures. I must sit here and defend my members in saying that I am sure they make every effort to apply that test reasonably. I would have to be equally candid and say that I have no doubt they make mistakes. We all do.

Q292 Chairman: But is there a management system that tries to ensure some consistency of application of that test?

Mr Lawrence: Yes, there is. Colleagues who work in debt management and banking have a process for recovering overpayments which is being developed at the moment. There is guidance on that for them. They I know, from colleagues that have spoken to me before, will be doing their best to apply that, but they too suffer the same problems that we have been talking about for the last half hour or so, which is lack of access to a whole joined-up case. Quite simply, it has been found by consultants that staff do not use the guidance notes in front of them because they themselves may be too complex. Typically, if you are in a situation where you are under pressure, you are going to work around it, the Frank Field solution, or whatever solution you can. I have no doubt that in those circumstances it may be that the test of reasonableness is not properly applied and we would be saying that if that is the case we need to look at that. We would also be saying give our people better training, give them better support and we will see a much more coherent approach on that.

Q293 Ms Keeble: In your written evidence you said that the Government proposal to change the income disregard threshold from 2,500 to 25,000 would lead to unfairness in terms of the relative need between claimants with vastly different incomes, especially given what is happening to people who underpay. Does this mean that you disagree with the change?

Mr Lawrence: No, we do not. We understand why the disregard has been introduced. Broadly we welcome it as a short term means of alleviating the overpayments issue. Our problem arises, I guess, around the equity of that arrangement. If someone's income does rise dramatically to circa 25,000 why should they get tax credits to the same tune as they did before? That is a moral issue for your good selves to work through. We have a view about that. It would work fine if we could be satisfied that that person's change of circumstances would be captured at the appropriate time in time for the next tax credit year, because if the current rate of problems continues then that person who does have an income increase to that effect might still get tax credits paid into the next year. If everything is there and can arrest that, fair enough. I am not satisfied at the minute that we are able to do that.

Q294 Ms Keeble: How about the child care or children element, the one that we have been talking about? Do you think that that there should be some protection around that? Do you have any information as to whether this is causing a real problem with overpayments?

Mr Lawrence: From the standpoint of making sure that the most vulnerable people in society are protected the answer to your first question is most definitely yes. I would need to think more about the second question if I may and come back to you.

Q295 Ms Keeble: That would be quite helpful if you have got any information from research that you have done. How about the point that has been made by two people, including Frank, about the family element being rolled up into child benefit?

Mr Lawrence: As a concept we broadly welcome it. As a real do-able thing we are talking in our view about the possible redesign of the whole benefit system.

Q296 Ms Keeble: Oh really?

Mr Lawrence: That is our view. Given that the Child Benefit 2 computer project was scrapped a week or two back purely on the grounds of sheer cost and weight of work, we have doubts whether that is do-able in the immediate future. It would be ideal if it could be done.

Q297 Ms Keeble: How about having a more fixed award system like the old working families' tax credit?

Mr Lawrence: Our view would be that tax credits have indeed delivered two of the main things it was designed to: to help people out of the poverty trap and to enable people to get back to work, and a reversion back, if you like, to a flat rate system is not something that finds favour among our members. I have to say we have never done a straw poll on it but we do not think so from the stuff we have been getting.

Q298 Ms Keeble: Have your members expressed a view on whether they support the new system over previous systems because they have had to administer generations of these things, have they not? What do they think about the present one as compared with the previous ones?

Mr Lawrence: I can say without fear of contradiction that our members support tax credits. We have 325,000 members within the Civil Service. They must be in some shape or form related somehow to 6.3 million tax credit claimants. I do not have one letter of complaint from any member that the system itself is wrong and that it should be scrapped in favour of something else. You might think, "They would say that, wouldn't they?", but actually our members are among the most fierce critics of any system if it does not work and I think is quite a telling point, Chairman. There is not one letter in my postbag suggesting that the tax credits system is flawed and should be scrapped.

Q299 Jim Cousins: If I can just come back to an earlier point about the fixed term awards, you were very clear that you did not approve of that. I am not clear whether your reason for disapproval is, so to speak, a political reason, that you do not think it would be fair, or one based upon working conditions, stress on people and the impact on the work situation. I would just like to be clear about that.

Mr Lawrence: I must on this one effectively revert to what PCS's national policy is. It has a policy of supporting tax credits in its present form and it has a policy of looking open-mindedly at anything that would improve the system. I will try and report back to you but the current census among our members, as I understand it, is that they do not favour reverting to a fixed rate system.

Q300 Jim Cousins: So it is a political view?

Mr Lawrence: Yes.

Q301 Ms Keeble: Apparently the PBR said that, starting early in 2007, HMRC would contact key groups of tax credit recipients to collect up-to-date income information before the start of the new tax year. Do you think that is feasible and, in addition, how would your members feel about contacting people before some of the issues around overpayments and such have been resolved and the new system is properly bedded down?

Mr Lawrence: There are already pilot schemes going on on things like overpayment recovery. Whilst, again, we have not had official feedback on these, we do know the feedback is mixed and if you do not try the pilot you do not get to understand what is needed. Again, as a concept we very much welcome HMRC engaging with user groups, claimants' groups and the like but, of course, I very much welcome the idea of them consulting with us too as our members have a stake in all this. I think good time would be spent if we had the high level discourse with TCO management that we are looking for and I think that needs to be done.

Q302 Ms Keeble: Do your members understand those forms that come out?

Mr Lawrence: The award notices? No, not to a level that I think they would want to.

Ms Keeble: That is reassuring. Thank you.

Q303 Chairman: You very kindly offered us some further information. We are coming to the end of our inquiry so if you were able to do that reasonably quickly we would be grateful.

Mr Lawrence: I hope colleagues have made a note of all the promises I have made.

Chairman: Our Clerk can help you on that. If you were able to supply us with any more information we could, of course, take that into account before we come to framing our recommendations. In the meantime, on behalf of the Select Committee, I would like to thank you and your assistant for coming here today and helping us.