THE TAX CREDITS SHAMBLES

The tax credits shambles is proof of Gordon Brown’s failure to ensure the most vulnerable people in society receive help efficiently – even though this was his driving mission. The system doesn't work properly and needs to be reformed.

Robert Key says...

We are all delighted for those people who have benefited from tax credits. But I can tell you from scores of constituency cases that because it has been so badly conceived, very many vulnerable people in Salisbury and South Wiltshire have been hit hard - particularly by overpayment and the inevitable extra hardship of clawback. Official Customs and Revenue figures for Salisbury Constituency show that last year there were 11,600 Tax Credit awards to our local people. Of these, 1,500 were underpaid by £1m and 3,500 were overpaid by £2,8m. Scarcely a week has gone by without me taking up cases with Treasury Ministers. Gordon Brown must accept personal responsibility for this. Must try harder, Gordon.

Key Facts

• Nearly a million of the most vulnerable families in Britain actually receive less than they are supposed to.
• Approximately half of all payments are wrong.
• Nearly 2 million households have been overpaid tax credits to the tune of £2 billion.
• Fraud is costing the system almost half a billion pounds a year.

Relevant Background

Failure to help the most vulnerable. The current tax credit system has been dogged with problems ever since Gordon Brown introduced it in 2002.

• Frank Field, Tony Blair’s first Welfare Reform Minister, said that the Chancellor’s approach is ‘like attempting keyhole surgery with a hacksaw’ (The Mirror, 1 June 2006).
• Alan Milburn has said ‘while more people are better off, poverty has become more entrenched’ (Hansard, 28 March 2006, Col. 710).
• In the last twelve months, the system has been criticised by the Parliamentary Ombudsman (June 2005), the National Audit Office (October 2005), the Commons Public Administration Committee (January 2006), and the Committee of Public Accounts (April 2006).
• In May 2006 the Labour-dominated Treasury Select Committee accused the Government of:
  • failure to acknowledge that official error is a significant problem;
  • failure to provide claimants with an adequate means of redress where overpayment is disputed;
  • failure to act over fraud;
  • evasiveness over the costs of the measures announced in 2005;
  • failure to consider the needs of claimants when designing administrative processes, and
  • fundamental design flaws in the Working Tax Credit.
• The Citizen’s Advice Bureaux have pointed out that, by saddling many low-income families with overpayments which they then have to pay back, it has ‘plunged many below the breadline and into mounting debt’ (Money with your name on it? June 2005). CAB received 144,000 inquiries about tax credits in 2003-4. The number rose to 151,000 in 2004-5 (Comptroller and Auditor General’s Standard Report on the Accounts of the Inland Revenue 2004-05, para. 2.35).
• The Parliamentary Ombudsman says that many ‘have to borrow money from family and friends to support their children, using up their life’s savings or running up credit card debts in order to pay for childcare costs, buy food and get to work’ (Tax Credits: Putting Things Right, June 2005).

Complexity: The system has overwhelmed the staff who are supposed to administer it, the computer system that is supposed to run it, and many of the claimants who are supposed to benefit from it. As a result:

• Approximately half of all payments are wrong.
• Nearly a million of the most vulnerable families in Britain actually receive less than they are supposed to.
• Overpayments total nearly £2 billion a year.

In the 2005 Pre-Budget Report, Gordon Brown announced several measures to improve the operation of the system. The so-called ‘income disregard’ was increased tenfold, making the system much less responsive to changes in claimant circumstances, and thus negating one of its central objectives. But the Government has now admitted that these changes will not eliminate the majority of overpayments.

Fraud: The Government was forced to take the online applications system offline in December when it emerged that criminals were using it to fleece the taxpayer of millions.

• The National Audit Office refused to approve the Inland Revenue’s 2004-05 accounts due to the ‘unacceptably high’ level of claimant error and fraud, which it estimated at some £460 million (Comptroller and Auditor General’s Standard Report on the Accounts of the Inland Revenue 2004-05, p1).
• In 2004-05, HMRC identified 17,164 suspected fraudulent claims; but in the following eight months alone, there were 38,924.

As The Opposition argued in The House last Wednesday, this is another Labour policy that isn't working. We will reform it when in Government.