7 Mar 2013 02:59pm

HMRC sees RTI as “panacea”

Margaret Hodge, Public Accounts Committee chair, has accused HMRC of viewing Real Time Information (RTI) as a “panacea” to solve a multitude of problems, including tax credit error and fraud

Speaking at yesterday’s PAC hearing on “tax credits fraud and error” Hodge said RTI benefits would not kick in until 2017-18, and that tax credits had to be “saved”.

However, HMRC chief executive Lin Homer argued RTI would be a “real boon in the area of tax credits” as it would improve recorded work and hours, an issue the MPs claimed causes most problems.

Homer and Nick Lodge, director general of benefits and credits at HMRC, were called before the committee following a damning National Audit Office (NAO) report that revealed HMRC was “not yet achieving value for money” in this area, and is set to miss its 2015 targets by substantial margins.

The report found that although HMRC had improved its approach on the issue, it still lost £2.3bn in 2010-11.

Hodge began by saying that she was “shocked” and “hugely disappointed” at the “mega problem” of tax credits error and fraud.

She argued HMRC “does not know what is error and what is fraud” and that the period of time between problems being indentified and dealt with is “plain bonkers”.

Homer, replied that “70 to 80% is error not fraud” and that an inbuilt element of the complex tax credit system inevitably leads to error and a “difficulty in understanding for the public.”

Homer said that one in five people are overpaid on all tax credits, hugely out weighing the number under paid.

Despite this Hodge said, “Here’s the government trying to cut the deficit and you’re ability to cut the deficit and you’re ability to prevent fraud is very poor.”

Homer said there is a great deal of work being done to prevent error at the initial consultation stage, but admitted that is “very difficult for people and very difficult for us.”

The hearing's most heated exchanged centred on the Revenue's unwillingness to reveal exact figures to Parliament on how many children and adults are claiming tax credits abroad.

Tory MP Richard Bacon said he found it “unbelievable you can’t tell Parliament the amount of taxpayer money this is costing.”

Lodge said that 4,000 families and 7,000 children are currently claiming tax credits abroad.

Stewart Jackson MP dismissed the figures saying he “simply didn’t believe them”. Jackson said the exact numbers have been requested numerous times by various MPs from HMRC but requests were refused for “going against the principles of openness and transparency.”

On whether HMRC has worked in consultation with government to the improve systems, Homer said, “we have made a number of proposals and they have been accepted.

“I am absolutely determined to use our data better. Our frontline staff are frustrated,” she added.

The NAO predicted HMRC will not achieve its target of £8bn of tax credit savings between 2011 and 2015, a prediction unanimously backed by the PAC.

When questioned on the target, Homer all but admitted it will go unmet, as the Revenue are only on course to meet a third at its current pace, “but that’s why we need to improve.”

Raymond Doherty


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