HM Revenue & Customs chief executive Jon Thompson has told MPs that his agency’s fraud and error rate for Tax Credits is likely to rise from 5.5% to 7.5% over the next couple of years, because of the “deeply flawed” benefit.
This year the department’s annual accounts needed to be qualified for the second year running because a target for fraud and error was exceeded. HMRC clocked in with a 5.5% rate, equating to £1.57bn. Its target was 5%.
Quizzed by MPs on the Treasury select committee today, Thompson said he believed HMRC would continue missing the target for as long as Tax Credits existed, and that it would be missed by an increasingly wide margin.
He said a ministerial decision not to invest in-house in a fraud-and-error-checking replacement for HMRC’s scrapped Concentrix contract, and benefits changes introduced by HM Treasury, were exacerbating the situation.
“The Tax Credits system is deeply flawed, the policy was deeply flawed – it was trying to achieve too many things with a benefit that has an annual cycle, which then requires a reconciliation at the end of the year about everything that has changed within the course of the last 12 months,” said Thompson, who is also HMRC’s permanent secretary.
“Given that people’s lives change very dynamically within the course of the year, there are a significant number of people who get to the end of the year and then discover that they’ve either had an over- or an under-payment.
“The level of fraud and error in the system – mostly error – therefore, is very, very high. The target is that we should try to get to 5%. We are not going to be able to get to that.
“It is my opinion that for however long Tax Credits is in place, and remember the government’s strategy here is to ultimately migrate everything to Universal Credit – so there will be an end to Tax Credits – we’ll be qualified until the end of Tax Credits.”
Thompson said he saw "no prospect" of HMRC getting below the 5% target.
“If anything, the level of error and fraud will rise to somewhere between 7% and 8% under policies introduced by Treasury ministers,” he said.
Thompson said a Tax Credits change for the self-employed introduced by former chancellor George Osborne had represented a positive decision to implement a policy that would reduce the level of benefits paid by around £500m, but which would increase the level of error.
“Our estimate is that that will add at least 1% to the overall fraud and error rate,” he said, adding that the fallout from the end of the Concentrix contract would add “another 1%” to the overall figure.
“The rate of fraud and error within Tax Credits will rise over the next two years, heading towards something like 7.5%,” he said.
The session also saw Thompson quizzed by Labour MP Alison McGovern about HMRC’s gender pay gap.
He said he believed it would be within 2% “at all grades”, and urged committee members not to assume that women would be trailing men.
“We do not believe we have got a pay-gap problem,” he said. “We are a majority female employer.”
Thompson said he would write to the committee with grade-by-grade details of gender pay within HMRC.