Tax Credits Public Accounts Committee 3 Dec 2003

Sir Nicholas Montagu KCB, Chairman, Mr David Hartnett CB, Deputy Chairman, Mr Nicholas Lodge, Programme Director, Tax Credits, Inland Revenue, Mr William Thomas, President, EDS Europe, Middle East and Asia, and Mr Craig Wilson, EDS Enterprise Client Executive for Inland Revenue, Electronic Data Systems Corporation, examined.

Q57 Mr. Gerry Steinberg (City of Durham): You were a collector of taxes, doing a very good job, and now, with benefits, you appear not to be doing such a very good job. Are you comfortable with the situation now?

Sir Nicholas Montagu: I am very happy with the functions that the Chancellor has given us, Mr Steinberg. I would, as you might expect, take issue with the last remark. I have readily admitted to the Chairman that I greatly regret the effects that our systems failure had, but I also have to point out that now, just under 6 million families are benefiting from new Tax Credits. This represents a 98% take-up of those who were expected to benefit and I regard this as a vindication, if I may say so, of the Chancellor's decision to give the administration to my Department. I also come back to the point that I made earlier, that I am extremely proud of my people's response to the considerable difficulties earlier this year.

Q58 Mr. Gerry Steinberg (City of Durham): That is all well and good. I know it might be painful, but have you ever had your accounts qualified before?

Sir Nicholas Montagu: No, and as I said, it gives me no pleasure at all that Sir John felt constrained to do so, but equally I have to say that it does not altogether surprise me, given that he qualified them in respect of what was in its essential form still an old-style benefit, which had been run by a Department whose accounts had been qualified for every year since it had first been introduced.

Q59 Mr. Gerry Steinberg (City of Durham): That is the whole point. I was trying to be helpful. I was trying to make the point that here you were, a successful Department, collecting taxes in, enabling the Health Service and the Education Service to function, and then suddenly, here you are, a doler out of dole, and everything goes wrong.

Sir Nicholas Montagu: No. One thing went wrong. What went wrong was the failure of the IT systems. As I have indicated, given that it went wrong, I think my people coped well. It is now going right. I come back to that figure: just under 6 million households are benefiting.

Q60 Mr. Gerry Steinberg (City of Durham): They were benefiting before, under the old system - not so many, but they were benefiting before - and now people who were OK under the old system suddenly found themselves in some cases without any money at all. As a conscientious constituency MP, and I am sure all my colleagues are the same, I would say that the fiasco of the Tax Credits was the biggest postbag we had in years, apart from fox hunting, which we will put right anyway, I understand.

Sir Nicholas Montagu: I have to be thankful for small mercies, Mr Steinberg. Fox hunting is not a subject about which you write to me. If I might make the point, I do think that the new Tax Credits are very different from Family Credit in every way. They go to far more households, they are at a higher rate, and they are calculated on a different basis.

Q61 Mr. Gerry Steinberg (City of Durham): The fact is that, in terms of the Tax Credits, I am not arguing against the system at all. All I am saying is that at the end of the day, I, and I suspect other Members, were inundated with complaints. I have two secretaries working full-time in my office and they spent all day for about a fortnight or longer dealing with nothing but Tax Credits, having to ring up your Department, having to ring up the helpline, which eventually had to be changed because it was inundated, to get people enough money to last the week on. That cannot be condoned at all.

Sir Nicholas Montagu: I would not attempt to condone it, Mr Steinberg. Indeed, I have said I deeply regret it, but that is why we paid out the interim payments through our local enquiry offices to people who needed them. That is why we extended the helpline, and that is why we set up the MPs' helpline. My point is this. We were fire-fighting. I would much rather that there had been no fire, but I believe we now have a stable system, working well, and working in the way that Parliament intended when it passed the legislation with 98% of those predicted to benefit doing so.

Q62 Mr. Gerry Steinberg (City of Durham): I am not criticising your Department at all, but is the ethos of a tax collector the same as the ethos of a benefits distributor?

Sir Nicholas Montagu: I do not see any contradiction between them, in this sense: that obviously there are some people whose job will be mainly on what you call the benefits distribution side, and there will be some, for example, in my Special Compliance Office, who are dealing with the hard end of enforcement. But essentially, what all my people are trying to do, regardless of which bit of the business they work in, is to make it as easy as possible for people to understand what they owe us or what they are due from us, and to pay it or to get it. That is the common theme. We want to help customers - and, as you know, I use that term unapologetically - to get it right first time.

Q63 Mr. Gerry Steinberg (City of Durham): I very rarely do this, but I actually wrote to the Accounting Officer - I have only done this once before, to another Accounting Officer - and I must say you were very helpful, and I thank you very much, because by writing to you, we sorted one problem out in four weeks, which we could not sort out at all. I have had a letter today, for example, from a welfare rights worker in Ripon Citizens Advice Bureau giving an example of a case similar to the one I had.[2]

Sir Nicholas Montagu: If any member of the Committee wants to write to me about that case, I will, of course, look into it.

Q64 Mr. Gerry Steinberg (City of Durham): In the case that I wrote to you about, somebody was overpaid in their Tax Credits, and it was not their fault at all. They had received interim awards, and this had not been taken into consideration, and they were paid too much. Then you came along as a Department and demanded that money back immediately. That to me is very unsympathetic. If people are on Tax Credits, they are very poor in terms of the vast majority of people in our society. To expect them to come along and pay back, without any compassion at all, is just not on, frankly. You put that right for me, and that person will have to pay it back eventually, but they will pay it back next year. But the case I have here today is where somebody on Tax Credits is now having to pay back over £38 a week. They have written to the Inland Revenue and they cannot get any satisfaction at all. What worries me is that the ordinary punter who does not have an MP breathing down the neck of the Accounting Officer does not get the help they need, whereas we do. That is what we are there for, but everybody should be treated the same. How can we guarantee that, and that nobody will be left destitute?

Sir Nicholas Montagu: You are absolutely right to raise that, if I may say so, Mr Steinberg. The plain answer again is that if the case you mention was handled in that way, I can only apologise. Basically, we think we are getting the overwhelming majority of cases right, but if you are paying out Tax Credits on the scale that we are, there will be some slip-ups. Where we identify an overpayment, unless it results from our error and was on a scale where the person could reasonably have supposed it to be correct, we do, obviously, owe it to the public purse to recover it, but we will do so in a number of ways. We will never do so if it involves hardship. We will do so at different rates for people, let us say, on the full rate of the tax credit and on the standard rate, and we recently published on our website a code of practice about overpayments which emphasises that we want to be flexible and sympathetic, and that will be appearing in paper form very shortly.

Q65 Mr. Gerry Steinberg (City of Durham): I will hand this over to you so you can get that one sorted out. It is not my constituent. Mr Thomas, whenever there is a problem with a system, invariably we discover it is the IT that has gone wrong. I do not know how many times we have sat here and that has been the case, and of course, this fiasco in April was no exception. How much of the blame do you accept?

Mr Thomas: First of all, I do not think there are any IT projects; I think they are business projects. We accept responsibility for giving the best advice we knew at the time to the Inland Revenue. That advice proved to be wrong, but we think that, based on the data we had at the time, it was the right decision to make. It proved to be wrong and I have to take responsibility.

Q66 Mr. Gerry Steinberg (City of Durham): How many other contracts do you have with government?

Mr Thomas: I do not know the precise number. We have a number of very large relationships with government.

Q67 Mr. Gerry Steinberg (City of Durham): How many have gone wrong?

Mr Thomas: At various times we have had various problems on our contracts. We have a challenging situation with the Child Support Agency at the moment and we are talking to DWP. We also have some very successful projects with DWP.

Q68 Mr. Gerry Steinberg (City of Durham): I am not interested in them. I am only interested in what has gone wrong. It is nasty, but that is the fact. Can you tell us how many contracts you have and how many of those contracts have gone wrong during the lifetime of those contracts? Finally, do you agree that you will expect to pay compensation?

Mr Thomas: We agree that we bear some responsibility for the problems that were caused in the country when this went live, and we are very open to a constructive conversation about compensation.

Q69 Mr. Gerry Steinberg (City of Durham): You will pay some compensation out of the £12 million profit you have made.

Sir Nicholas Montagu: Chairman, could I possibly ask for a degree of protection here? We are discussing compensation with EDS at the moment, and the Committee will understand that this is a commercially quite sensitive issue.

Q70 Mr Field: Why is it?

Sir Nicholas Montagu: The discussions between us and EDS over how much is due, within the terms of the contract, are covered by normal terms of commercial confidentiality that extend to negotiations between partners.

Mr Field: I think that is just crap.