Tagged: tax credits

The Tax Credits fiasco

I’ve spent much of the afternoon listening to the proceedings of the Work and Pensions Committee concerning Concentrix. HMRC had identified 1.5 million Tax Credit cases where they had concerns; they engaged Concentrix, a private firm, to process cases.  Concentrix was reported to have sent out a million letters fishing for information, challenging for example whether they were not living with an undeclared partner; the firm’s representative told the  Committee that they had sent out 324,000, though over a shorter period.  People who did not reply to the letters had their benefits stopped; 90-95% of those who asked for reconsideration had the decision overturned (that was Concentrix’s estimate – HMRC gave a lower figure, of 73%).  HMRC had terminated Concentrix’s contract, but they seemed much more concerned about the collapse of the phone line in August than about the huge number of wrong decisions that their policy had generated. Frank Field MP, the Chair of the Committee, told the Independent:

The Committee was astonished by the extraordinary evidence we heard. From Concentrix we saw a company desperately out of their depth and unable to deliver on the contract awarded to them by HMRC. From senior HMRC officials we saw a palpable disregard for the human implications of this gross failure of public service. From the tax credit claimants we saw dignity in the face of appalling and traumatic experiences.



The Lords delay Tax Credit changes

The  Lords have decided to slow down the rate at which Tax Credits are to be reduced.  There has been some controversy about their ‘constitutional’ authority to do this, but three things have worked in their favour.  The conventions say they should respect precedents, but the Conservative majority in the Lords took as similar line against the last Labour government when  National Insurance thresholds were being reconsidered.  They shouldn’t oppose manifesto commitments, but this measure stood in direct contradiction to Cameron’s undertakings at the last election.  They shouldn’t oppose financial legislation, but the government tried to slip this through without primary legislation.

Tax Credits are not a good way of supporting people in work.  The design is complex, they penalise people heavily for increasing their earnings and they’ve been bedevilled by adminsitrative problems.  These are features they share with a range of other ‘tapered’ benefits, including Housing Benefit and the new Universal Credit.  I’ve argued before that Labour would have done better to have increased Child Benefit and the minimum wage.  Nevertheless, the way out of a problem is often not the same as the way into it, and once you’re out in the middle of the ocean, it doesn’t help much to understand that you’ve set out in the wrong kind of boat.    As things stand, there’s now no way to cut Tax Credits right away without hurting people on very low incomes.

The easiest option for the government will be to introduce transitional protection until the minimum wage is increased.  That might work, but it won’t work well.  Any differentiation between new claimants and existing claimants will make things even more complex – and the government is already introducing a further system in the shape of Universal Credit.  There’s no guarantee that this kind of transitional protection will extend to some of the other circumstances  that Tax Credits are supposed to cover, such as child care costs and disability.  And there are certain to be problems when HMRC tries to recover overpayments at the end of the financial year.

The best way to deal with a complex problem is not to attack everything at once: it’s to break things down into a series of smaller, more manageable problems.  We’re going to need distinct decisions on several  elements: thresholds, tapers, overpayments, child care, disability, and timing – and the government needs to take into account how these will interact with Child Benefit, Housing Benefit, tax and national insurance and school meals.  Unfortunately they’re more likely to rush at things to get a decision by the Autumn statement, and that’s a certain recipe to get things wrong again.