Ombudsman wins minor concessions on tax credit overpayments

The government has pledged to consider introducing a legal test
to assess individuals’ ability to pay back overpaid tax
credits in the future, following a recommendation by the
parliamentary ombudsman.

In a private letter to Ann Abraham, made public this week,
paymaster general Dawn Primarolo said the scope for adopting a
statutory test for the recovery of excess payments would be
considered as part of a review of the code of practice.

In her critical report on the current system published in June,
Abraham suggested that a recovery test based on that currently
applied to social security benefits should be introduced, with a
right of appeal to an independent tribunal.

Abraham also called for it to be made clear to customers receiving
notice of any overpayment that they could challenge attempts to
recover the money if overpayments were due to official error and
they had no reason to think they weren’t being paid the
correct amount. Primarolo said this would now be included in
information given to claimants.

However, the government refused to meet Abraham’s demand for
all excess and overpayments caused by official error during 2003
and 2004 to be completely written off.

“Current policy is for overpayments to be written off where
there was a mistake by HM Revenue and Customs and it was not
reasonable for the claimant to have spotted the error,”
Primarolo said. “The government believes that this
‘reasonableness’ test strikes the right balance between
being fair to those claimants who have been paid the incorrect
amount and being fair to the taxpayer in general.”

But a spokesperson for the parliamentary ombudsman said Abraham
stood by her report and its recommendations. At the time, Abraham
warned that teething problems identified early in the life of tax
credits had not been completely overcome and that families affected
could pay a heavy price when payments were drastically reduced or
stopped altogether to recover overpayments.