By Andy McCue, 8 September 2005 00:05
NEWS MPs have slammed the Inland Revenue's "nightmare" tax credits system and said it may have been "fatally undermined by its intrinsic complexity".
A report by parliamentary watchdog the Public Accounts Committee (PAC) calls the new tax credits system "frustratingly arcane" and says it has failed to cut fraud and instead routinely overpays hundreds of thousands of genuine, and often vulnerable, claimants.
The report also questions the department's ability to rectify the problems and get the tax credits system working properly.
The government introduced the new tax credits in April 2003 to replace the Working Families and Disabled Person's Tax Credits. The new system was intended to be simpler and cut high levels of fraud and error in administering the old credits.
But the system has been dogged by problems from the outset. First several hundred thousand claimants were not paid on time and then a software error on the EDS-designed IT system resulted in £100m of overpayments to 455,000 households in 2003.
Fraud and error rates under the old system were estimated to be between 10 and 14 per cent. The Inland Revenue claimed the new tax credits would reduce this to around five per cent but PAC said there is no evidence this reduction has been achieved.
The department also discovered in 2003 that routine housekeeping software had incorrectly deleted almost one million taxpayer records between 1997 and 2000, resulting in more than 360,000 unidentifiable taxpayers not receiving repayments worth £82m and 22,000 others not paying £6m of tax that was due.
The software was intended to cleanse the databases of cases more than three years old where the department's work had been completed but the software also deleted live cases. The department now stores deleted taxpayer records on a back-up file so it can reconstitute the information if it is needed.
Edward Leigh MP, chairman of PAC, said there is still a lot of work to be done to get the tax credits working fairly and effectively but questioned the department's ability to do this, especially given that staff are also tackling the backlog of ordinary tax collection work that has built up as a result of fire-fighting the tax credits problems.
He said: "The Revenue has yet to produce reliable evidence that the flood of public money being wasted under the previous tax credits scheme through fraud and error has been stemmed to any degree. There is a general lesson here: that an ambitious scheme might be fatally undermined by its intrinsic complexity."
HM Revenue & Customs, the recently-merged Inland Revenue and Customs & Excise department, is considering its legal options after previous IT supplier EDS rejected a compensation claim for unsatisfactory system performance. A more severe penalty regime that affects the price of the contract has since been put in place with its new supplier Capgemini.
Comments
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1. Guy Reynolds
The biggest problem with the whole tax credit system is that nobody knows how they are calculated. So there is no way of checking for yourself if the Revenue have made an error.
2. John Ray
To be fair to Inland Revenue (HMRC), politicians dream up new legislation with little thought to the implementation.
EDS should repay lost revenue caused by their errors.
3. anonymous
Yes but does the contract say the 'guilty' should pay ?
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Quite probably it doesn't -
Maybe just because for a Post-Contract-Allocation reduction in the agreed charge, any clause requiring suppliers (EDS, etc.) to pay for the cost of their errors being removed from the contract
Been there myself -
IT put in the
'Get it right - or else - it's financial penalties against you!'
clauses -
Contracts management take out those clauses for a reduction in the base contract price.
( so any fixes have to be paid for as 'change requests' )
A similar contract change caused enormous difficulties in an IT department where I worked.
For the 5% contract 'price' reduction the contractor was 1 year late with the initial delivery, and then made over 20% extra during the next year changing the delivered 'stuff' to match the original specification.
Even more fun - the added condition no changes to the hardware OS and development systems during the contract term -
How would you like not being able to apply MS security fixes to windows? )
I never did find out how much bonus the contracts staff got for getting the reduction in the contract price !
4. Andrew Lewis
It took nearly 18 months for me to obtain an application form under the new system and from early Dec 2004 until last week to process the application as it was stuck in the system! We were incidentally receiving child tax credit under the old system.
The Inland Rev were as helpful as they could be but agreed with me when I mentioned that the old system worked and the new one didn't.
The old addage of "If it isn't broken, then don't fix" it springs to mind.
I have always found the IR whether on personal taxation or company affairs very helpful and very good at explaining things if you can be bothered to ask them.
As for politicians....they should keep their noses out of these tried and tested mechanisms and concentrate on something they are good at. Ah yes that would be kissing babies and lying to the electorate!
5. Smith
Why don't they just leave it to the paye taxation.
example if you are not a high earner paying the 40% tax, then just up the 10% level of taxation at a higher rate. Therefore not paying as much tax. Instead of people not working harder because it would reduce their tax credits.
I feel the benefits of the New Tax Credits have not made peolpe work harder. Which we can all put extra hours in if we wanted to.
Also I feel this Goverment have favoured single parents and two parents families which will not between the two parents, put in the hours of work which, before any of these top up in benefits people had to work harder in order to have a little luxury in life! However you define luxury in life is up to you.
6. Mike
What happened to "User Testing" against the User Requirement Spec?
If done properly this would have found the errors.
Independant review of the User spec, before contract could probably have removed a lot of complexity.
It is all very well the commons accounts committee getting involved after it has all gone pear shaped: It would be better if they reviewed the spec before contracts were placed and the contract before it was signed!