Those parts of the welfare state used by everyone at some point in their lives, like health and education, feature constantly in the media. Welfare benefits, unless the story is of scroungers and fraud, are minority issues, difficult to understand or explain. This applies even more to tax credits, in spite of the large amount paid out—£13.6bn to over 6m people in low-paid jobs last year. The term "tax credit" still puzzles many people.
But the extraordinary overpayment of £1.9bn in tax credits to some of the poorest people in the country did cause a brief media storm at the end of June, following the publication on the same day of reports from the parliamentary ombudsman, Ann Abraham, and the charity which I run, Citizens Advice. The attempt to claw back at least some of the money (from nearly 2m families) created thousands of sad stories about those made ill with worry by the demand to repay huge sums, £5,000 in many cases, over short periods. Within hours of the publications of the two reports on 22nd June, Tony Blair was apologising to the victims and Gordon Brown was pledging to do whatever was necessary to put matters right.
The concept of a tax credit—of people on low wages receiving money from the inland revenue instead of paying tax—is simple and politically attractive. The objective—which underpins the government's "welfare to work" strategy of "making work pay" by creating a relatively generous system of payments for people who move from total dependency on benefits into low-paid work—is a good one. In total, 6.1m families containing 10.3m children have been awarded tax credits over recent years. A lone parent with one child, working 20 hours a week earning the minimum wage and paying £80 a week for childcare, would be entitled to over £10,000 a year.
That such a decent policy intention—of providing a guaranteed minimum income to give people the security and confidence to enter the job market—should create insecurity and worry for about a third of recipients is a reminder of the gap between intent and impact in public policy.
What went wrong and what can be learnt? It was logical that tax credits should be run by the inland revenue (now merging with customs and excise), but was it wise to use, like the tax system, an annual accounting period with no safety net? Overpayments made are clawed back within the year, when it is known that those on a low income budget weekly. Given the track record of government IT systems (think of the child support agency), was it sensible to set up a largely automated system to deal with the frequently changing circumstances of the least well-off?
It seems that around 1.9m of the 6m awards were overpaid. Many of these were through error, many because circumstances changed—in some cases changes were reported by claimants immediately and in others there was a timelag. Recipients were unable to tell whether they were getting too much or too little, because the award notices they received were impossible to understand, even by experienced Citizens Advice workers who deal with hundreds of cases. Calling one of the inland revenue's helplines did not help. Its operatives could not see the details of the caller's entitlement on screen or explain the award notices.
Flawed design? Yes, in part. Rushed delivery to meet a political deadline? Yes, in part. Another government IT failure? Yes: the revenue is still considering legal action against the system's architects, EDS, but many of the faults were designed in and those who commissioned the system must take some responsibility.
More worrying has been the reluctance of the government to respond to warnings. Feedback from people like Citizens Advice and the ombudsman has been consistent since the early days of the scheme. It has largely been ignored. Even on the morning of the 22nd June, the paymaster general, Dawn Primarolo, the treasury minister responsible, was playing down the size and significance of the problems. Now, after the storm has died down, there is little sign of urgency within what was the inland revenue. Indeed there is a fear that the process of merging with customs and excise, bringing together 104,000 staff with over 250 different IT systems, against a backdrop of commitments to the treasury to achieve "efficiency savings," will make it harder to sort out the tax credit problem.
Elsewhere, at the department of work and pensions (DWP), plans are afoot to reform another part of the benefits system—to move more people with disabilities and long-term conditions off benefits and into work. Again, the intention is laudable. But the reforms will require systems and procedures which can make accurate and subtle judgements about the lives of millions of people. Will those who run our benefits system learn the lessons of the tax credit debacle?
