A wider view
Jump to
7.1. Tax credits represent a new approach to delivering financial help to children and working families on modest incomes. As indicated earlier, for the majority of the Revenue’s six million or so tax credits customers, the system appears to have worked well. But for a significant minority of customers there have been problems, sometimes very serious ones. This report is concerned with that minority. Although from the Revenue’s perspective they represent only a small percentage of the overall tax credit customer base, there are hundreds of thousands of households who have been affected, the majority of whom are families with children and low incomes.
7.2. The Revenue is now dealing with a client group, a large number of whom rely on its payments as a crucial element in their household budgets. Working Tax Credit, for example, is an essential part of the financial package which makes work worthwhile for 1.5 million families. Child Tax Credit now supports 1.3 million children in the poorest families: those out of work on Income Support and Jobseeker’s Allowance.
7.3. Such families are not only reliant on tax credits to make ends meet, they are also the ones most likely to be at risk from fluctuations in their awards (with possible under- and overpayments arising as a result). This is because of the range of different elements in their tax credits awards which makes them more susceptible to a change of circumstances affecting their level of payment.
7.4. It is clear to me that the Revenue has not taken on board the full consequences of dealing with this new customer group. When things go wrong, the effect on tight budgets, where families will generally have no reserves, can be severe. During the last two years, many families have gone through periods of uncertainty and growing debt as they struggled to deal with the problems affecting their tax credits awards. Some have ended up on a ‘financial switchback’ of initial non-payment, irregular interim payments by girocheque, an overpayment, then reduced payments to recover the overpayments, supplemented later by ATCs to relieve the hardship caused by recovery of the overpayment. The financial difficulties caused, not just by reductions in tax credits, but also by the repeated disruption to tight household budgets, and the effect on customers and their families, is significant.
7.5. In the cases we have investigated, problems with tax credits have led to people being threatened with eviction, having 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. One woman wrote:
‘I [am] frightened of debt and [do] not wish to owe any money as I do not deal with debt very well, due to the fact that my ex-partner put us in so much debt before he left us that me and my children lost our home and ended up in bed and breakfast… Since that time I have never owed anyone any money - ironic really as you can imagine how I felt when I was told I owed thousands [in overpaid tax credits] and didn’t even realise it. I can’t tell how ill this has made me. The pressure of owing money has brought my past back.’
7.6. When payments have been disrupted, or drastically reduced to recover earlier excess payments, people have not always known or been directed to supplementary financial help which the Revenue can make available. There is a ready assumption on the part of the Revenue that customers must take responsibility for their own claim. In principle, of course, that is correct. But the reality is that in a system as complex as tax credits, people need help. It is particularly unfortunate that the tax credits award notice, the main written communication from the Revenue to its customers about their award is such an inadequate document, being simultaneously hard to understand, yet lacking key information to make an award intelligible. When things have gone wrong, it has been hard for customers, often very worried about their financial plight, to gain access to staff at the Revenue who can deal with their situation. The accessibility of the Revenue to such customers has been poor. We can only conclude that the Revenue has still to get to grips with the new customer group it is now serving.
7.7. Particularly worryingly, in the light of the policy intentions behind tax credits, it has led in some cases to a lack of confidence among some customers that they are entitled to spend the money they are sent. In a number of cases, people have been faced with an unexplained girocheque from the Revenue and have been too afraid to spend it, because they are worried the payment will be wrong. A customer who had been notified she had been overpaid but who, after the Office’s intervention, had then been found to have been underpaid wrote:
‘… after careful consideration I have decided not to re-apply for tax credits in the new 2005 financial year despite being eligible to do so. The reason is that I have absolutely no confidence that the TCO will be able to administer my case efficiently or most importantly, accurately… My previous experience of the TCO shows that they are unable to cope with changes in employer or pay scales and I am not prepared to go through the nightmare of trying to get crucial information through to the TCO when the systems they have in place are woefully inaccurate… The hardship and distress that clawing back overpayments causes families… should not be overlooked.’
7.8. Computer problems and Revenue errors have undoubtedly contributed to the severe problems experienced by tens of thousands of tax credit customers during the first two years. Considerable efforts have being made to improve performance in these areas, which are having a positive effect, although I remain to be convinced, in the light of the increasing number of cases being referred to me, that all these problems are resolved. The Chairman has told me that the Revenue believes that the majority of overpayments result from customer failure or delay in reporting changes of circumstances and that the number will therefore decrease as customers’ own understanding of tax credits grows.
7.9. It may, therefore, be thought that once the various technical problems and staff error rates are resolved and the residue of problems they created - backlogs in complaints and appeals and in disputed overpayments - cleared, the tax credits system will finally settle down. But our experience of dealing with tax credit complaints since the start of the new system suggests that there may be more fundamental problems in the organisation of tax credits which need to be addressed.
7.10. The business design of tax credits (see paragraph 2.16) has been built on the assumption that a tax credits claim can be dealt with in a series of self-contained one-off transactions. Work is carried out in separate silos, with no ‘ownership’ of individual cases. Effectively, there is no oversight of the whole of an individual’s case - either the different aspects of a case being worked on, or its evolution over time. This leads to a fragmented and inadequate response when a problem arises, with delays in establishing the root cause of a problem and poor communication with customers about what is happening.
7.11. The business model for tax credits has been designed on the basis of minimal clerical intervention. As one leaflet proclaimed ‘The days of caseworkers working on a claim through from receipt to payment are over.’ This works for the majority. Yet tax credits can be complicated; so can people’s lives. The reality is that, by default, the Revenue has found itself effectively operating an expanding caseworker system, as staff have been drafted in to work on individual complaints, appeals and disputed overpayments.
7.12. It seems to me that the Revenue needs to rethink how it manages its caseload when problems first arise. At present, it is often only when a case reaches the higher levels of the complaints procedure that all its various aspects - the full history of the award, the calls to and from the Helpline, correspondence, and award notices sent to the customer - are assembled and a complete picture established of what has happened and what went wrong. Rather than waiting until a case has been escalated into a full blown complaint before it is looked at as a whole, it would make more sense to pull the different elements together from the start in order to tackle the substantive problem effectively at an early stage.
7.13. A key element in managing ‘problem’ cases must be the ability to provide a considered and immediate response to customers. Rather than one-off contact with Helpline advisers, people with a complex history of a claim are in need of continuous and sustained communication at an early stage from Revenue staff who understand the whole picture. Currently, when a problem occurs, communicating with customers often appears an afterthought rather than an important part of the process of reaching a solution. Customers are often effectively kept at bay by the Helpline, unable to speak to those looking into their case. Yet, they can add useful information to explain the history of a claim. They can also point out when attempts to rectify a problem have failed.
7.14. I recommend that the Revenue reconsider the way it organises delivery of tax credits in order to deliver a better, more complete service to the customers it now serves. A different model is needed in complex cases and where something has gone wrong. More sustained and informed communication with customers about their case is essential, as is a ‘whole case’ approach to investigation to ensure a tax credits award is correct.
7.15. There are also important lessons for the future design of major public service IT projects, particularly in the social welfare sphere. Consideration of the customer must be a central element from the start. The intelligibility of information to customers, good communication, and effective mechanisms to deal with things that go wrong should not be afterthoughts, but central and built into this design.
7.16. As this report is published, the Revenue is about to begin its finalisation of 2004-05 awards. Later in the year, it plans to begin the process of transferring some 800,000 families with children, who currently receive Child Tax Credit via Jobcentre Plus, to the Revenue. These families, on the lowest incomes, are wholly dependent upon Child Tax Credit (plus Child Benefit) for the support of their children. It is essential that, in carrying out both processes, the financial basis of the families affected is secured. That is, after all, the purpose of the scheme.
7.17. Finally, I turn to the fact that a degree of financial uncertainty is built into the tax credits system, by virtue of its design. Excess payments will continue to arise in-year, which will need to be recovered by reducing payments for the remainder of the year. The system appears, therefore, to assume a ‘savings buffer’, which will enable people to survive sometimes significant and unexpected fluctuations in their income. But this is not a reality for a significant number of families within this client group. This has led to the introduction of ATCs, which are intended to alleviate the worst hardship. However, a separate claim has to be made for these payments which are then paid manually, and they, of course, also have to be repaid starting in the following tax year. In addition, overpayments identified at year-end also have to be recovered the following year. A third of tax credits awards in 2004-05 stood to be reduced below full entitlement due to the recovery of overpayments from the previous year. In many cases, due to the size of the overpayment, this recovery action for a 2003-04 overpayment would continue into 2005-06, not counting any further overpayment which might occur in 2004-05. This raises the fundamental question as to whether, for people on modest incomes who have to budget and plan their finances carefully to manage their lives, such inbuilt instability or uncertainty really works. Ultimately, this question has to do with the policy design of tax credits. It is not, therefore, a matter for me. However, in the light of the customer experience for this client group as described in this report, it is, I believe, an important issue that needs very careful consideration.
