The Government's flagship policy to make work pay by helping around six million low-paid families through a system of top-up payments in the form of tax credits has sailed into rough seas.
'Money with your name on it' was the slogan used by Chancellor Gordon Brown to urge families to claim their share of an extra 2.7bn this year when the payments scheme was launched in April.
There has been plenty of name-calling since then as the introduction has been dogged with delays. Over 400,000 applicants received their first payments late and thousands are waiting for their claims to be processed.
The Inland Revenue blames its computer system which got clogged, resulting in a flood of calls swamping the telephone helpline.
The most damning criticism comes from an inquiry conducted by a sub-committee of the influential House of Commons Treasury Select Committee and chaired by Michael Fallon, the conservative MP for Sevenoaks. The inquiry refers to a 'series of failures in administration' raising 'serious questions about how the Department has been led'.
Mr Fallon says, 'The problem was the computer system. Within four days it went wrong. Then the helpline couldn't cope. This was a tax credit change that had been prepared for and planned for two to three years.'
He and the committee insist that individuals who lost out should be compensated by the Inland Revenue which in turn should claim compensation from EDS, its IT company.
Treasury claims
But a Treasury spokeswoman says, 'For over 90 per cent of applicants, the new tax credits have worked smoothly. Where there were problems these have now largely been resolved. Over 4.25 million claims are now in payment and we are processing some 100,000 more claims per week on average.
'We have claims from 4.5 million families and have awards in payment to 4.25 million families. We have rejected 130,000 claims so far and are still working on 186,000 claims. Sixty per cent of these (111,600) arrived since 1 June and of these 50 per cent arrived in the two weeks to 7 July.
'The Inland Revenue has a system whereby people can claim compensation if they suffered financially because of mistakes by the Revenue.' (See box, below.)
Emergency payments
As a result of delays, the Revenue has made nearly 200,000 emergency payments through its local offices, says the Commons Committee report, but it is not yet known how many families these relate to.
Meanwhile, up to one million families have not applied, according to shadow work and pensions secretary David Willetts, either because they were deterred by the complexities of the system or were unaware of their eligibility.
In their report, the subcommittee MPs acknowledge the scale of the administrative task in processing the credit applications but note, 'It is clear that some applicants have not received the service from the Revenue that they were entitled to expect.
'Over 400,000 applicants (or 7 per cent of the total) received their first payment on a later date than the one they had been notified of. In addition, hundreds of thousands of people received a payment before they received their award notice.
'The Government has rightly apologised to these families, while the Revenue is working hard to remedy the problems. A "flagship project" in the important reform programme that will integrate tax and benefits got off to an unfortunate start.'
Some childcare professionals are more critical. National Day Nurseries Association chief executive, Rosemary Murphy, says, 'It is disappointing that rather than helping working families, the new tax credits have been badly mishandled, leaving hard-pressed families and childcare providers bearing the brunt of the financial impact. NDNA urges Dawn Primarolo, paymaster general, to make sure this situation is rectified as soon as possible.
'The report highlights the extensive administrative failures at the Inland Revenue. Indeed, it seems that the Revenue may not be the right agency to deal with an initiative like this.'
Without warning
The subcommittee report notes, 'Staff using the IT system to process applications and respond to queries from applicants have suffered slow response times and system downtime of up to four hours a day while the system is flushed to clear internal queues. 'This level of performance is wholly unacceptable and it has led to pressures which at times have swamped both the ITsystem and the Revenue's staff.
'These technical difficulties were not identified by the testing undertaken before the system went into operation and were a bolt out of the blue for the Revenue.
'We are extremely concerned that problems of this scale could arise at the last moment without any warning. We expect the Department and EDS, working together, to remedy the problems and establish why the trial tests failed to show potential problems.'
The Revenue expected to field up to ten million calls between January and March lasting around five minutes each but it was inundated with, on occasions, up to two million calls a day. This volume of calls was because delays in issuing award notices compressed the period when people called, so the peak of calls became far more pronounced.
The delays also prompted people to ring to check applications had been received; media coverage fuelled anxieties resulting in more calls and the slow computer system meant calls took twice as long. Meanwhile, people who could not get through constantly hit the re-dial button further jamming the network.
The report says, 'We note the Revenue's evidence that no call centre could have handled the number of call attempts at their peak - up to two million in a day. The inability of members of the public to get through quickly, or in some cases at all, only added to their anxieties.'
Late claims
However, late claims also contributed to the problems, according to an Inland Revenue spokesman. 'We said at the outset that we needed completed application forms for tax credits by the end of January in order to sort out and check everything to start in April. We had something like 500,000 people apply in March. As you can imagine trying to process these applications and get the money paid out in two to three weeks was physically impossible.
'Some families' forms were incomplete and had to be returned or additional information was required and the Inland Revenue had to write for information from the Department of Work and Pensions. It then had to hold on to the application until it received a reply.
'Things like that have caused delays. We can't process an application unless we are satisfied that everything is fine. If we were to pay out public money willy-nilly, we would be criticised.'
No time to learn
One of the major changes under the new system is that awards run for a full year, compared with six months previously, during which time the Inland Revenue plans to check all claims to weed out fraudulent applications. But observers are in some doubt as to whether the system will be running sufficiently smoothly for that to occur.
Indeed the Treasury Select Committee report notes, 'The Department has little time to learn the necessary lessons to ensure that it will be able to cope next year when the first end-of-year reconciliations and resulting under- or overpayments of tax credits are due to be processed.' NW
TAX CREDITS
Child Tax Credit and Working Tax Credit are the two new tax credits designed to make work pay. They were introduced in April and they replace:
* Children's Tax Credit
* Working Families Tax Credit (WFTC)
* Disabled Persons Tax Credit (DPTC)
* From April 2004, the money for children in Income Support and income-based Jobseekers' Allowance
* The New Deal 50-plus Employment Credit.
Working Tax Credit supports working households on low incomes by topping up earnings. It is made up of a number of elements including help with the costs of registered or approved childcare, known as the childcare element which is worth up to 70p in tax credit for every 1 a week spent on approved childcare, up to a limit of 135 a week for one child and up to Pounds 200 a week for two or more children.
Child Tax Credit provides support for families who are responsible for children aged under 16 (under 19 where the child is studying full time up to A-level, NVQ Level 3, or equivalent). The amount is based on household income.
People wanting to register a complaint/compensation claim against the Inland Revenue need to complete form COP 1 Putting Things Right, available from local tax offices and the Inland Revenue website: www.inlandrevenue.gov.uk
