Tax credits may have been more instrumental in causing child
poverty than alleviating it during this first year of its muddled
inception. While this was probably not the government’s intention,
the reality is that those affected by the appalling administration
of tax credits are spending long periods of time unnecessarily
below the poverty line.
When launched, the scheme, by brilliant sleight of hand, appeared
to put more money in the pockets of the low-paid in such a way that
few people could understand and, therefore, criticise. In theory
the figures add up, but the practice does not.
The decision to transfer income maintenance from the Department for
Work and Pensions (DWP) to the Inland Revenue is akin to a company
moving responsibility for its accounts out of the finance
department and into sales.
The DWP has some 60 years’ experience in its various guises working
out people’s benefits to the last penny on a weekly or even a daily
basis. The Inland Revenue, on the other hand, is more accustomed to
looking at figures across a year, making a rough calculation and
then sorting out the difference in the following year.
Accordingly, the Inland Revenue runs a massive call centre staffed
by people with only a hazy idea of how tax credits work, but who
readily assure customers that this really is a good product and
they should definitely have some more of it. So people sign up,
receive some inexplicable paperwork and, if they are lucky, some
payments. Of course, sometimes there is an obvious mistake – such
as child care costs taken into account at a rate of £2,700 a
week instead of a year (which really happened). Experience suggests
that people who notice the error and call the Inland Revenue to
advise them are too often met with assurances that the payments are
correct and the customer should not worry.
They do, however, begin to worry when, later, their payments are
stopped because the Inland Revenue has spotted its mistake and
realised that this customer will be massively overpaid by the end
of the year. So, to prevent disaster, the Inland Revenue has
decided to take immediate action and stop all payments.
At this point, some readers may be wondering what these families
did with all that excess money flowing into the domestic coffers?
Why were they not, in Gordon Brown’s terms, prudent?
The answer is simple. My clients are people on low incomes. They
are used to getting by, but they never have enough to cope with any
extra expenses, such as household repairs. They constantly rob
Peter to pay Paul just to keep the heating and lighting on and the
water connected. There is no financial help for this sort of
expenditure. In most cases, like the rest of society, they are in
debt. So, like everyone else (though with more justification), they
spend what they have coming in. One client, after such a scenario,
suddenly found her tax credit payments reduced from £119 to
£40 a week for a while, then to £15 a week, and then
suddenly to nothing. The family of four were left to live on
jobseekers allowance and child benefit totalling just £112.55,
which left them £65.95 a week below their total benefit
entitlement – which is, coincidentally, the official poverty
I wonder how any of us would manage if the wages department paid
all our annual salary in the first nine months of the year, and
then told us we would have to wait until the new year for any more
money. We could have top-up payments if we were in real hardship,
but these would have to be taken off next year’s salary.
This is a fiasco with dramatic consequences, but it has more
sinister connotations. It coincides with a gradual erosion of a
system based on rights, which was a reasonably straightforward
structure moving logically from a claim to an internal review, to
an independent appeal and then upwards even as far as the House of
The nibbling away at the edges of justice began in a small way with
such wheezes as making some parts of a claim a “secretary of
state’s decision” against which there is no appeal. A bizarre
consequence of this was pensioners’ claims for income support being
thrown out because they had failed to include all the necessary
information within four weeks of their claim, including such vital
details as the name of their nearest post office, even when they
had elected (as the government desired) to have their money paid
directly into their bank accounts.
It is tempting to conclude that as soon as government officials
were released from the accountability of an appeals system, they
abandoned any notions of justice and lost any instinct to explain
or to reconsider their decisions in the light of logic or common
sense. As a welfare rights officer I knew that had I been able to
take such cases to an independent appeal I would have won every
time. So did they, but as they could not be called to account they
carried on meting out rough justice.
The Inland Revenue has taken this to new depths. It sends out
notices which are not decisions, merely estimates of entitlement.
Decisions are made at the year end, and appeals are only allowed
against the figure work. Under the DWP rules, if there is a
mistake, the claimant cannot be asked for the money back. So the
DWP is, therefore, very careful. Under the Inland Revenue’s rules,
there is no such thing as a mistake, just a rough guess which can
be “reconciled” at the end of the tax year. You can see that the
Inland Revenue has less incentive to be accurate: it just recovers
its mistakes from its customers.
After this first year of tax credits, the Inland Revenue will be
sending out renewal claim forms until July, and expects to make
decisions some time after that. During this time they will continue
to pay credits based on the previous year, leading to guess what?
More overpayments – which presumably will be recovered in the same
erratic, draconian manner as the previous year. I can see no time
at which the majority of claimants will be in receipt of their
So, as there is no appeal against errors made by the Inland
Revenue, my clients will continue to pay for mistakes not of their
making. And this will mean that they will be forced to live below
the poverty line for long periods of time as their tax credits veer
from overpayment to underpayment.
I am sure this was not the chancellor’s intention, so I have a
suggestion for him. Wouldn’t it be easier to come out of hiding and
pay families universal benefits, such as child benefit, at adequate
rates? It is transparent, easy to administer and, above all, allows
people to budget. If you are worried that some people will have too
much money, thereby reducing the nation’s funds unnecessarily, you
could always use that old-fashioned tool: income tax.
Rochelle Wilson is welfare rights officer at