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There were few changes to tax credits beyond those already announced, but HMRC are to outsource collection of tax credit overpayments. LITRG expresses its concerns.

Introduction

The tax credit elements of the Autumn Statement came down to the basic element and 30-hour elements of working tax credit (WTC) remaining frozen; the disability elements in WTC and child tax credit (CTC) rising in line with the CPI measure of inflation; and the remaining elements increasing by 1%.

The second income threshold – that is, the income level at which tax credits begin to be withdrawn from those claiming CTC only – goes up by a small amount to £15,910, having dropped substantially between 2010/11 and 2011/12 and been frozen in 2012/13.

LITRG comments

Fair compared with the public sector but hard on those on lowest incomes

The rise of one per cent is not generous but, as the Chancellor said, it probably makes for greater fairness to those working in the public sector and seeing equally low pay increases. Against that, the very modest increases in the child element of CTC and the second income threshold will do little to tackle child poverty, while freezing the basic and 30-hour elements of WTC will do even less to make work pay.

‘Blunt instrument’ debt recovery?

Meanwhile, the Government announced a payment-by-results pilot on outsourcing the collection of tax credits debt. LITRG questions whether this is appropriate, given that tax credit overpayments are an integral feature of the design of tax credits whereby payments are made on a provisional basis with entitlement being determined after the year-end. With the arrangements that are to be piloted, people with overpayments of tax credits will be dealing not with HMRC directly, but with debt collectors who will be paid by results, and who may therefore be tempted to be less than scrupulous in the methods they use.

HMRC debt collection

The debt recovery arm of HMRC has published specific guidance on tax credits debt which has been developed over the last couple of years. It ensures that people’s circumstances are taken into account in order to set realistic time-to-pay arrangements and that those without the means to pay are able to have their debts suspended or written off in accordance with their needs.

LITRG concerns

Even where overpayments do not arise as part of the normal workings of the system, they are not solely caused by claimant error and fraud. They arise also from official error, and a certain amount of claimant error is generated by wrong information from government sources.

There are serious questions to be asked as to whether dealing with tax credit overpayments just like any other debt, by outsourcing recovery to commercial debt collectors, is an appropriate or proportionate response to the problem. If HMRC do go down this road, LITRG suggests that they must take great care to impose the same standards and safeguards as they would apply themselves when recovering these highly sensitive and untypical debts.