Tax Credits

HC Deb 04 June 2003 vol 406 cc99-122WH

2 pm

Hywel Williams (Caernarfon)

I am glad to have been given the opportunity to hold this debate on the tax credit system. It is very timely, given that problems persist two months into the new system. I am surprised that the Government Benches are so empty. As the subject afflicts many of my constituents and those of other hon. Members, I thought that we might have a better attendance this afternoon.

Before I start in earnest, I assure the Paymaster General that I acknowledge that millions of tax credit claims are being paid and that many people are getting the money that is vital and of great help to them. Hon. Members do not need to be told that again. What interests me and, I suspect, other hon. Members is not how many correct tax credits are paid on time, but how many are not. Why are correct tax credits not paid on time, and what are the Government doing about the problems? Surely, the proof of the system is not that it gets it right sometimes or even most times—it should do that anyway—but the extent to which it gets it wrong and how the mistakes are addressed. There continues to be real hardship.

Although I intend to talk about the working tax credit and the child tax credit, other tax credits are beset with similar problems. I spoke the other week to someone who is involved with research and development tax credits and asked what problems had been identified. There are great potential benefits for those in R and D, but the system is complicated. It is not clear who can apply or how they should apply. There are other tax credits, as well; for example, the pension credit is on the way. Clearly, there are problems and lessons to be learned from our current experience, and I hope that we will have an assurance from the Government that the lessons are understood.

Last week, I wrote to one of my constituents about her problems with a simple claim for tax credit. In my constituency, 75 per cent. or so of the population speak Welsh, so my letter to her was in Welsh. When I was printing it out, I pressed the English spellchecker by mistake. The first suggested correction was to replace the Welsh word "credyd", which means credit, with the English word "Cruddy". Computers are wonderful things—clearly, they see to the heart of the matter.

Cruddy or not, tax credits are particularly important to my constituents, as well as those of other hon. Members. In my constituency, the local rate of economic activity is relatively low. We have many people on low wages in the service industry, and many work in the tourist industry. The predominant pattern of employment is self-employment, which is particularly subject to low earnings, insecure earnings and earnings that can vary a great deal over a short time.

The tax credit system could be very useful in helping people into work and in keeping them in it. That was shown by the wage top-up scheme that was introduced in north Wales and several other pilot areas by the previous Government. It was found to be very useful indeed—anecdotally, at least. I am not sure what the considered research opinion on the matter is, but I know of several people who found and kept work because of that system.

It is clear that the central plank of the Government's anti-poverty strategy is not working as well as it should. For some, the tax credit system is not a means of getting back to work; it has proved to be yet another obstacle to getting back to and staying in work because they are not getting the money on which they have come to depend. In effect, they are having to subsidise the Government's failings, but they cannot afford to do that because, by definition, they are on low earnings. We must also remember that the system is largely aimed at families with children, and lower-earning families with children cannot afford to subsidise the Government even for a short time.

The Government were warned that the system was complicated and would be difficult to implement in April 2003. As long ago as July 2001, the Low Income Tax Reform Group said: "The year 2003 may well prove to be an over-ambitious target if the new tax credits are going to reach out smoothly to those intended to benefit. The LITRG is most anxious to avoid a re-run of the 1999 introduction of the old tax credits where we found that claimant issues had to play second fiddle to administrative necessities." The Government were warned by many organisations that introducing the tax credit in 2003 might be over-ambitious and that it could lead to problems.

I wonder what advice the Paymaster General received to the contrary. Who advised her, and did she act on that advice? If she acted on it, the advice has proved to be hopelessly optimistic, so who should be held responsible and how? Perhaps she did not take advice, in which case the mess is all her own work—and the current situation is still a mess. I suspect that many claims were submitted correctly and on time. A week or more ago, I tabled a question on the matter, asking for figures, but I am still awaiting an answer. Will she tell us how many of the claims that were submitted correctly and on time are still pending?

I know from experience that the public helpline remains clogged, and is usually jammed. I also know that, when one eventually gets through one is often put on hold for up to half an hour, with the line then going dead. That is a common experience. I have also had difficulties in accessing the MPs helpline. The IT system is often down for long periods. Officials have told me that, as a result, they cannot answer my questions, and I am asked to phone back later. I do so, but it still takes a great deal of time to get through, although the IT system may be running by then—or possibly not.

I also know that the staff are under extreme pressure. I understand that they have taken brief industrial action and, although I know nothing directly about it, the system is clearly causing great problems for the staff. It will not be good enough for the Paymaster General to say that most of the claims have been processed, and that many of the others were not properly completed. It will be no use saying that to a constituent of mine, who applied correctly and on time as part of her business plan, but who received nothing until I intervened on her behalf.

That person was previously in receipt of the working families tax credit, and her claim should not have been a problem; as I said, it was part of her business plan. The family have a small farm, and they have diversified, as everyone told them to. They have become entrepreneurs; they ventured into tourism and small- scale retailing. All those businesses are marginal, as they are small businesses in a remote rural area and they make little money. Between them, the family just about succeed. However, the tax credit is akin to Mr. Micawber's shilling. It is the difference between just managing and disaster, and that family have been facing disaster.

Millions of people may already have been helped, but that is of no comfort to my constituent. She is now receiving the proper tax credit, but she had to contact her Member of Parliament and I had to intervene on her behalf. It took some time, but I eventually got a result. Cases such as hers reveal the true level of misery and desperation that people experience, and show the failures of the system and the problems that they cause. Significantly, the damage done to trust in the system in the long term is one of the less obvious casualties.

I shall cite other cases involving not millions of people but individuals from my own dealings with the system. By the way, all those people tried the helpline first, but got nowhere. However, they got through to me and I dealt with their cases for some hours, eventually, I hope, with success. I am sure that many other hon. Members will have similar accounts to tell.

For example, many people in the inland areas of my constituency are called Jones, Hughes or Williams, and many others are called Hughes-Jones, Jones-Hughes, Hughes-Williams or Williams-Hughes. Sometimes those surnames are linked with a hyphen. Apparently, however, the IT system cannot deal with hyphens. I phoned up on behalf of someone with a hyphenated surname and was asked if he had a hyphen in his name. I could not answer that question as I had been contacted by phone, but I was told that the computer could not deal with hyphens.

Mr. Stephen O'Brien (Eddisbury)

I can reinforce the hon. Gentleman's argument. Computers cannot recognise apostrophes either, of which I have personal experience. One therefore tends to get filed under the letter "B" if one's surname is O'Brien.

Hywel Williams

I must admit that I have not come across that problem, but it is interesting. There have been other very serious cases. Some constituents have come to see me literally in tears. One constituent has cerebral palsy. She has done her best and got herself a small job for more than 16 hours a week, earning under £100 a week. She depends on the working families tax credit and, therefore, on receiving a proper payment. Five weeks into the system, she had received nothing and was owed many hundreds of pounds. She was struggling to live on £100 a week. She managed it, but I defy anyone else to do the same.

I telephoned the helpline and was told that there was a mistake in that constituent's address. Interestingly, the mistake was that her house had a Welsh house name, and I was asked what it meant. I said that it was a conventional house name in Welsh, and the response was, "Oh!" I presume that "mistake" was crossed out and the form marked "correct".

My constituent eventually received her benefit. In the meantime, however, she was very badly off and very much in need of the interim payments that the Government offer. I contacted the tax office and off she went, after having had considerable trouble arranging for someone to mind her children and cadging a lift from someone who kindly took her on the 20-mile round trip. Her trip was 20 miles, but I represent a rural district, and it could take a round trip of up to 76 miles for some of my constituents to get to their tax office. She made the 20-mile trip on a Friday and was told that, although she had come during working hours, no one was available who could write a giro for her. So she went home and waited until the Monday—managing on little, if any, money—before going to the tax office and eventually receiving her payment. That caused her many emotional as well as practical problems, and a lot of worry and pain.

I shall, if I may, detain the Chamber a little longer to talk about a few other cases—there are many. In one case, I telephoned the tax office and was told me that it could not pay because it did not have pay-as-you-earn reference numbers for two of my constituents. I told the member of staff that if they looked they would see that they were both self-employed. The mistake was corrected immediately. Another constituent applied by e-mail as soon as an e-mail application was allowed, but was told that her application had disappeared. It is unclear whether she will be paid for the period before she submits a new application. In another case, all that was needed was to check the name on the application against the name on the file. The operation should have taken about 10 seconds, but the applicant had to wait more than five weeks for the money. Lastly, and most intriguingly, the tax office said that some applicants had sent too much—not too little—information. It said that the computer could not cope with information that was not in an acceptable form.

I therefore have several questions for the Paymaster General. First and most important, what assurances can she give us about these problems with payments, IT, helplines and simple mistakes by officials? Is there an end in sight? What steps are being taken to ensure that similar problems do not arise when we have the pension credit in one year hence? What consideration is she giving to compensating claimants who have suffered unreasonable delay? Will they be compensated for their distress and worry? Will claimants be compensated for the financial loss incurred by having to borrow from sometimes dubious sources at high rates of interest? Will small businesses, whose viability depends on these tax credits, be compensated for their difficulties?

There is also the question of compensation for those who have suffered indirectly. A constituent had to lay off her child minder because she could not pay her wages. That constituent had great difficulty keeping her job as a bar manager because she worked irregular hours, but she kept it because she had a good child minder. Now, however, that child minder has lost her job. What compensation might there be for people who lose their jobs through no fault of their own?

Is the Paymaster General satisfied with the services provided by the IT company that established the system? Is she seeking some redress from it for the problems that we have all experienced? Lastly, given the mess that the Government continue to make of the introduction of tax credits, is it not reasonable to expect a full-scale debate in the main Chamber and in Government time?

Several hon. Members

rose—

Mr. Deputy Speaker (Mr. John McWilliam)

Order. Before I call the hon. Member for Aberdeen, South (Miss Begg), I should say that gentlemen may remove their jackets as it is rather hot this afternoon. Ladies, of course, do not need to ask.

2.17 pm

Miss Anne Begg (Aberdeen, South)

I congratulate the hon. Member for Caernarfon (Hywel Williams) on securing this debate. At business questions before the Whitsun recess, I asked whether the Paymaster General could make a statement to the House, but the Leader of the House rightly pointed out that this afternoon's debate would take place. I am therefore pleased to be here and to have caught your eye, Mr. Deputy Speaker. I might add that the Speaker prevented me from finishing my question to the Leader of the House because I wanted to say everything that I shall say this afternoon. Now I have a chance to put my comments on the record.

Like the hon. Member for Caernarfon, I welcome the new child tax credit. I am a great supporter of everything that the Government have done on tax credits. The child tax credit and the working tax credit make a huge difference to those lucky enough to receive them. Such measures are the right way for the Government to proceed.

I have long said that the best way to remove the stigma from the benefits system is to merge it with the taxation system. The responsibility is then on all of us, as citizens, to fill in a form declaring our income every year or every five years. If we are getting too much money, the Government take some from us in the form of tax; if we are not getting enough, they give us more in the form of what is now called a tax credit. Ultimately, that could simplify the benefits system by cutting out some of the poverty traps in which many people find themselves and some of the odd quirks that exist in the system at present. I very much support the thrust of what the Government are doing.

I know that, for many people, the receipt of the child tax credit makes a huge difference to their lives. It is because that money is very important and because it makes a huge difference, that there is a problem. Two months after the tax credits were introduced, there are still people who are not getting the money to which they are entitled. It is no use saying to a mother of two small children who is dependent on child care to keep her job that she will get the money eventually. She needs it now. She will be used to the money that she received through the working families tax credit and, as a result, she is dependent on the weekly income that she should receive through the child tax credit and the working tax credit.

That is probably where the heartache and frustrations have come from. There have been frustrations for people who cannot get through on the helpline and have not been able to get things sorted out, but it is the fear of the lack of income that has probably made the constituents who have contacted my office most upset. They have been quite distressed. They are frightened that they will have to give up their job. They are frightened that their children are going to be kicked out of their child care places because the family have not been getting the money.

Luckily, the Inland Revenue in Aberdeen has been extremely helpful. My office has put a number of my constituents on to the Revenue, and the local Jobcentre Plus has also been helpful in accessing funds for the women who have found themselves in that position. That has certainly eased their fears and prevented them from worrying as much as they did. Initially, in the first two weeks of the tax credits, that process was not in place and local tax officers did not know that.

Although the Inland Revenue has been helpful and has been able to give interim payments, there is still a problem for anyone who takes that route because it can lead to even greater delay in the final settlement of what people should receive through the tax credit. Obviously, those people will have to be reassessed if they have received an interim payment. That is the position that some of my constituents are now in, two months down the line. Having obtained the money through that route, they are now facing further delays and frustrations in getting what they were entitled to in the first place.

Part of the reason that I am here today is that it is two months since the tax credits were introduced. I listened to my right hon. Friend the Paymaster General when she gave us assurances that everything should be up and running by this time. I repeated that to many of my constituents. I told them that, once it was all sorted out, the system would be smashing—everything would be fine and work well. That simply has not happened. I am still getting a number of complaints, which are probably arriving at the same rate per week as they were four or five weeks ago.

The MPs helpline has been extremely useful and, in most cases, my office has been able to sort out my constituents' problems thanks to the helpline, so credit should go to the work that it is doing. It is unfortunate that my office has to take that route and that people cannot use the normal helpline. It is obviously clear that, if there is someone at the other end of the helpline who knows what they are doing, resolving the problems becomes possible. There are still problems, however, and I will come to them later.

Unfortunately, not everyone knows that they should get in contact with their Member of Parliament. I find myself out socially with people from other constituencies and busily give them the phone numbers of MPs of different political parties. I tell them, "Get in touch with your local MP because they will be able to sort it out". I was dismayed that much of the coverage in the press and other media has not highlighted that a Member of Parliament's office is one of the routes for sorting things out. The impression has been given that we do not exist in the equation or that MPs have no role in what the Government do. That has been a shame.

Mr. Peter Duncan (Galloway and Upper Nithsdale)

Does the hon. Lady accept that things should not have to be that way? The problem should be capable of being sorted out without recourse to a Member of Parliament's office. Although I, like the hon. Lady, am delighted to help constituents and have done so, things should not need to be that way.

Miss Begg

I absolutely agree. I honestly wish—and so do my staff who have had the increased work load—that things did not have to be that way. However, there is at least a means of getting a problem sorted out. I pay tribute to the MPs helpline. It would be much better if, in another month, the complaints and problems that we face were sorted out through the normal helpline or did not arise at all. I am fairly sure and hopeful that that will happen.

The Paymaster General (Dawn Primarolo)

My hon. Friend is right that I was not looking to enlist MPs' offices in the administration of the new tax credits. However, I am sure that she is an avid reader of the House of Commons information documents, which list the occasions when someone should contact their MP. If I may say so, my hon. Friend is a fine example of why any constituent should contact their MP.

Miss Begg

I thank my right hon. Friend for that. I was wondering—perhaps I have been doing my job too well—why the number of complaints that have come to me has been so high. Taking the advice of the Treasury and others, I undertook an exercise in informing my constituents about the new tax credit. I wrote to every parent in my constituency telling them about it and giving them my telephone number. Unfortunately, because that was done through the schools and because not everyone who goes to a school in my constituency necessarily lives in it, parents may have received the letter and telephoned my office when, in fact, they are not constituents of mine. That is why I am disappointed and why I am here today—I am an advocate of the tax credits. They are a good idea and will make a huge difference, and I want to ensure that the take-up of the child tax credit is as high as possible.

Let me move on to some of the problems that still exist. There seems to be a major problem with the IT. I serve on the Select Committee on Work and Pensions, and it seems to me and, I think, the other members of the Committee—its Chairman is here today—that every time that the Department for Work and Pensions or the Treasury moves to a new system, there are IT problems. The Passport Agency was one of the first examples, but the same is happening with the Child Support Agency. I have great concerns about that. We are about to introduce such measures as the pension tax credit—another Government policy that I have been proselytising about and advocating—to, I hope, great effect. I want to encourage pensioners in my constituency to be aware of their rights under the pension tax credit and to take advantage of it when it is introduced.

Obviously, we have such concerns with any new system, but I should like to ask my right hon. Friend the Paymaster General what provision will be made with regard to the pension tax credit to ensure that the IT is properly tested and that the unusual circumstances outlined by the hon. Member for Caernarfon will be taken into account. Will the lessons from the introduction of the child and working tax credits be learned in time for the introduction of the pension tax credit? It still seems to be a problem that there is no mechanism for staff at the other end of the telephone on the MPs helpline to change information that is incorrect on the computer. Even though a constituent of mine may have sent in the form properly filled out and with all the correct information, if the data inputter has got the information wrong, there seems to be no way for those operating the helplines to get into the system to put that information right.

For instance, on gentleman who called me did not receive payment because a computer glitch had "cancelled" his children. He was told that he was not eligible because he had no children. We have finally managed to get that sorted out. In fact, that gentleman now thinks that he is being paid too much and he is frightened to spend the money in case it is clawed back.

What will happen in cases in which there has been computer error or other difficulties with the system? If people are paid too much, will the Treasury claw that money back? If so, in what form will that be? Or will people be able to keep the money, because it is the Inland Revenue's error? I suspect I know what the answer will be. What mechanism will be there to deal with such cases?

The IT system seems unable to cope with unusual circumstances. I have a constituent who has twins with cerebral palsy. Obviously, she qualifies for a large amount of money under the child tax credit. Her children are in a nursery provided by the Care Commission, which does not have a nursery or child care registration number. Therefore the system is unable to recognise that her children are receiving child care and that she qualifies. We have got that problem sorted out, but the system still cannot process her claim because it thinks that someone else might be claiming on her behalf. We have not managed to get that sorted out yet. It is important that we deal with fundamental glitches in the way the computer system works and how it copes with the unusual circumstances that some people inevitably have.

Yesterday, I received a complaint from a constituent who receives the working tax credit. The problem may be caused not by the Inland Revenue but by the fact that her employer pays his portion of the tax credit in arrears. By the time that she catches up with the arrears, she has had very little money for almost six weeks. She is constantly running to catch up. As she points out, she has bills to pay today that cannot wait until she has enough money to pay them.

How long will it be before those quirks and problems are sorted out? I appreciate the problem of paying arrears can always take time to work through, but once it does everything is fine. However, we were assured two months ago that the problems would be sorted out in a month. We are now two months into the operation of the system, and there are still problems. My fear is that the bad publicity that the child tax credit and the working tax credit have received will undermine what should be a Government flagship policy. It will put people off claiming when it is important for them to claim. I want the policy to succeed, as I am a great believer in it. I hope that my right hon. Friend the Paymaster General can assure us that the complaints that I and other hon. Members have highlighted will be sorted out as soon as possible.

2.33 pm

John Barrett (Edinburgh, West)

I add my congratulations to the hon. Member for Caernarfon (Hywel Williams) on securing the debate. Many hon. Members have mentioned that this is one of their biggest surgery issues, and my experience up in west Edinburgh is certainly no different. Constituents generally do not contact me to say that their credit has come through on time, but I can accept that a number of people are being processed through the system successfully.

Usually, the problems that people come up against are not major ones, and they go to their MP who often sorts it out for them very quickly. Sometimes they simply cannot get through on the helpline. Something as simple as having their telephone call answered can solve the problem. But whether it is a hyphen, an apostrophe or some other minor detail, people should not have to go to their MP to get the matter resolved, and they should not have to wait week after week for sums without which they struggle to get by.

I welcome the Paymaster General to the debate. I thought that she might feel like a Christian being thrown to the lions as there would be nothing but complaints this afternoon, but most hon. Members will agree that some people are getting the service, although others are not. I should like to highlight a few cases; each individual is not too bothered about the people who are receiving their credit on time. I hope that things have moved on since 28 April, when the Paymaster General addressed the House in a classic new Labour statement, saying that things "could only get better". Sadly, for my constituents, things have not got better in the four weeks since then.

Things have not got better for my constituent Robert Park from East Craigs. He applied for the child tax credit, only to receive a letter asking him for his full name, home address and national insurance number. Considering that the letter came from the Inland Revenue, with his full name, home address and national insurance number as the reference, and that his wife received an identical letter on the same day, it naturally left both him and me puzzled. He is still awaiting further correspondence and payment.

Another constituent in Carrick Knowe submitted forms including pay slips and child care costs to the Inland Revenue as requested. Despite showing a combined income with her partner of well below the Inland Revenue level, the Revenue processed it at above the level, and despite the fact that she had included bills and receipts showing child care costs of £54 per week, it processed her claim assuming zero child care costs. She is still awaiting further correspondence and payment.

Things have not got better for my constituent Shirley Todd in Parkgrove, who has faced frustrating mistakes and delays to her claim. After applying to the Inland Revenue in January—before the Government's 31 January deadline—she heard nothing for over a month. When she managed to get through to the credit helpline, she was told that the computer systems were down and that she would have to wait a further few weeks. Having still heard nothing, she contacted the helpline again on 17 March, only to be told that she would have to fill out a second claim form because she had given birth to a second child since her original claim in January. However, she was informed that any amount owed would not be backdated but instead allocated on the basis of her second application.

In April, Mrs. Todd finally received correspondence from the Inland Revenue to confirm her entitlement. However, the amount was massively wrong, as the Inland Revenue admitted when she contacted the helpline for a third time on 7 April. She was told that it would take another eight weeks to process the correct amount, but when her payment finally did come through, she received only £300—over £1,000 less than the amount agreed with the Revenue. Mrs. Todd is not unlike many of my constituents, and those of other hon. Members, who have faced similar problems, and she remains angry and frustrated at the total shambles of a system. Today, four and a half months after making her original claim, she is still waiting to receive her money, on which she, as a mother of two, is heavily dependent.

As in cases mentioned by other hon. Members, the people concerned are dependent on the Government to give them the money that the Minister says they rightfully deserve. Dozens more constituents have contacted me to say that they are also trying to apply for one of the tax credits or seeking advice or guidance but that they cannot get an answer on the helpline. Who knows how many more in my constituency and throughout the country have not contacted their MP but face such obstacles to payment?

Following the Paymaster General's statement to the House on 28 April, I asked several parliamentary questions about additional resources being allocated to the helpline. She may repeat today what she has said in the House and in written answers about extra money and resources being allocated, but she must understand that we are not seeing those additional resources by way of an improved service.

I contacted my constituency staff again this morning for the most up-to-date situation, and they told me that they are still having trouble getting through to either the public helpline or the helpline for hon. Members. When they get through, they are faced with inconsistent information. They have sometimes been told that officials will contact individual constituents and on other occasions they have been told that that is not agreed practice. Whether a system is right or wrong, it must be consistent, but in my experience, such consistency is not present.

Looking ahead, one of my biggest worries is that the Government will not learn from the mistakes that have been made. If the introduction of the working tax credit and children's tax credit could be messed up to such a degree, what potential exists for similar problems with the pension credits due to be introduced in the autumn? I fear that the mothers and fathers coming into my surgery over the last few weeks about the child tax credit will soon be replaced by worried and upset pensioners who are not receiving the money to which they are entitled.

One of the biggest criticisms of the Government's tax credit system is its sheer complexity. The pension credit was designed to be a super-deluxe minimum income guarantee, and that may still end up being the case. However, whereas the minimum income guarantee was relatively simple, the new pension credit certainly is not. My researcher, who studied mathematics at Edinburgh university, had to go through the Government's allocation formulae three times before understanding the figures. I can only imagine what an old age pensioner in my constituency would do if mistakes were made with the applications, if incorrect amounts were allocated or if no allocation were made at all.

The debate this afternoon has probably developed in rather a predictable way. However, that should not detract from the seriousness of the problems that I and other hon. Members have raised. I often worry that the Government are obsessed with targets, and that they think of people merely as statistics. The ordinary MP, however, who receives letters in their mailbag, telephone calls to their office and visitors to their surgery, sees at first hand the problems and distress caused by the failure of the system.

I am sure that the people of Bristol, South have made the Paymaster General well aware of the problems in her own neck of the woods, but I hope that today has helped to re-emphasise to her that this shambles, which is of the Government's own making, must not be allowed to continue, nor to happen again.

2.40 pm

Vera Baird (Redcar)

I offer my congratulations to the hon. Member for Caernarfon (Hywel Williams) on securing the debate.

I am a parliamentary "secondee" to the One Parent Families charity, with which I have had discussions about the impact of the credits beyond those that I would have had in my constituency. One Parent Families welcomed the introduction of tax credits, due to the significant impact that they are expected to have on child poverty. It organised policy simulations, which were carried out by Holly Sutherland, an academic who is probably well known to my right hon. Friend the Paymaster General. She found that, compared with simulation results for previous regimes, the effect of the credits on poverty rates was expected to be "dramatic"—a word that is infrequently used in academic circles. Compared with 1998–99, child poverty rates are expected to fall by nine percentage points, from 36 to 27 per cent., calculated on an after-housing-costs basis.

The Inland Revenue has, however, faced a massive task in getting the scheme up and running. It has been phased in, with 1,250,000 families on income-based jobseeker's allowance or income support still to be included in April 2004, or in October if they are over 60. It seems that 4.5 million people have been eligible since April 2001. One or two people in Redcar have readily admitted to me that they did not apply early enough—by 31 January—to get their awards processed in time. However, significant numbers of people who claimed in time did not receive their awards very quickly. By 28 April, 4 million claims had been received, 3.2 million had been paid or were being set up, and the remaining 800,000 were being processed as quickly as possible, although further information sometimes had to be requested. I, too, heard the Paymaster General's remarks about that in the House.

In The Times yesterday, it was reported that between 500,000 and 600,000 claims had still not been processed. I do not know whether the Paymaster General will be able to comment on that, and I cannot say whether those unprocessed claims had been submitted punctually. However, lone parents of all groups cannot afford interruptions in income, and tax credits often form a substantial part of their weekly income. In the early days of the scheme, not only the One Parent Families helpline but my constituency surgery received calls from lone parents who were extremely concerned that they might have to give up work or their child care places because of delays in payment. I am sure that most other MPs received similar calls.

I do not pretend to be as good an MP as my hon. Friend the Member for Aberdeen, South (Miss Begg), who spoke earlier, but in Redcar we did our best to encourage take-up. The constituency party organised a concerted campaign to distribute leaflets on the high street, to try to ensure that everyone understood their entitlement to the new tax credit, and to ensure that, if they had not had a response to their written application in time, they had the claim phone number.

When that number was engaged, as it often was, the same constituents were led to phone me, because although they had of course been pleased to receive my encouragement to make the claim, they wanted to hold me responsible for the fact that they were experiencing delays. However, it is my good fortune to have an extremely experienced and well connected caseworker. As other hon. Members have said today, it is plain that MPs' helplines have played a major role in trying to sort out the problem. In my constituency, interim payments have been made from the Inland Revenue inquiry centres, which has been crucial in enabling people to manage until the regular payments come through.

I should like to look to the future. It is important not only that the difficulties that have been experienced this year be resolved as soon as possible but that steps are taken so that people can be confident that the next tranches of claimants joining the system will be paid on time. It is implicit in the system that there will be huge demands on the Inland Revenue's administrative resources at the beginning and end of every tax year. As the majority of people already have awards in payment, I assume that in future years those awards can run on until a new one is made. I also assume that payments of income support and income-based jobseeker's allowance will run on until claimants are transferred to the child tax credit. However, I seek reassurance that I have understood that properly.

Once awards for this year are in payment, attention must be turned to ensuring that there are no problems of over-payment, which again, perhaps, is a danger implicit in the system, excellent though it is. A feature of the system, as I understand it, is that annual awards are made that can be affected by changes in circumstances during the year. The Government appear to expect about 1,750,000 families, which would be 30 per cent. of all claimants, to have some income changes during the year that would affect their awards. One guesses that the figure would be higher in the first year, as the awards are, at the outset, based on income from the previous two years.

There are penalties of up to £300 for failure to report certain changes, such as a change in the number of adults heading the household and significant changes in child care costs within a fixed period of three months. It is vital that an effective strategy be put in place to ensure that people understand what changes will affect their awards. That should include an advertising campaign, with posters in doctors surgeries and on public transport to remind parents of the changes that they need to report. It is crucial of course that staff at Jobcentre Plus and on the tax credit helpline fully understand and can advise effectively on such difficult and potentially troublesome issues.

To speak briefly about the future, One Parent Families would like two policy changes to be introduced in the next pre-Budget report, on top of those mentioned. The first request is that the amount of child tax credit be increased by 2004–05 by at least £5 per child. At the end of the One Parent Families annual general meeting a couple of weeks ago I helped to carry a large box of postcards that those attending the meeting had sent to the Chancellor asking for that change.

The other request is that the proportion of help provided with child care costs be increased above the current 70 per cent. Analysis by the same academic, Polly Sutherland, for One Parent Families shows that for a significant number of parents the gains from being in paid work are still quite modest. The average gain for lone parents who move into paid work at 16 hours on the national minimum wage, for example, is £34 a week. An increase of that modesty can quickly be eroded by the requirement to meet 30 per cent. of child care costs.

Another suggestion is that the Chancellor should consider what could be called a child care cost run-on. Entitlement to working tax credit and therefore to child care assistance ends as soon as a job ends. A run-on for a period would allow lone parents to keep child care arrangements going. After a child is settled, it is good, if at all practical, to keep him or her in that place during a temporary period of unemployment. The danger, of course, is that if a settled place is not available, those in one-parent families are very vulnerable to having to give up work because they have lost their child care place and have therefore been locked out of Fresh employment.

I suggest that those three matters be considered, and I look forward to the imminent end—I assume that it is imminent—to the problems with tax credits. I believe, as my hon. Friend the Member for Aberdeen, South does, that they are a landmark in the process of drastically cutting child poverty. I believe the problems to be teething troubles, although they are extremely troublesome to many people. As soon as they are over, I am clear that not only the non-governmental organisation in question but all the other ones concerned with poverty will see the tax credits for the important development that they are.

2.50 pm

Mr. Peter Duncan (Galloway and Upper Nithsdale)

I am grateful for the opportunity to take part in the debate, which I must say I believed would become more heated. The Room may be warm, but the debate has not quite matched the temperature in it. As hon. Members have said, the issue has fired my constituency surgery, my e-mail account and my mailbag. I make no apologies for asking the Government some pointed questions about how they will deliver an end to this chaos.

I congratulate the hon. Member for Caernarfon (Hywel Williams) on securing the debate. I suspect that there were many hon. Members in that particular raffle. The hon. Gentleman was fortunate, and I congratulate him on coming out ahead of the rest of us.

The widening of the net for tax credits up to £58,000 of family income is clearly bringing more people into the tax credit net, but that obviously also widens the problem of addressing the issues that they present to us. I make no apologies for focusing on families at the bottom end of the spectrum, because they are the ones who have come to my surgeries with the most heart-rending tales and looking for help.

The chaos is recognised by the wider public, claimants, and Members of Parliament generally and in this debate. It is also recognised by Department for Work and Pensions staff. In Scotland and, I believe, the rest of the United Kingdom, many thousands of them staged a one-hour walk out simply to show how strongly they felt and how poorly resourced they were to deal with tax credits.

I, too, can cite examples of simple, administrative errors, to which hon. Members have already referred. I shall not repeat them, but letters have been sent asking for national insurance numbers when national insurance numbers are mentioned on them, as have letters telling claimants that they do not have children when the names of the children are confirmed at the bottom. They are legion, and do not do any credit to a Department that is supposed to be in control of another change.

The helpline is key for my constituents. I represent a very rural constituency, and the hon. Member for Aberdeen, South (Miss Begg) rightly referred to access to the offices of hon. Members, Jobcentre Plus and the Inland Revenue. I know that there are some rural parts in the hon. Lady's constituency. If someone lives in a very rural area and 40 or 45 miles from the nearest of those representative offices, their only recourse is to a helpline. Frankly, the Government have handled it absolutely dreadfully. They have lost all credibility among my constituents and among those who are most dependent on the helpline as the only way to reach Government and sort out their problems.

Vera Baird

I assume that the hon. Gentleman's route to solving all this chaos, as he puts it rather hyperbolically, is simply to abolish the benefit. I have not heard one word of welcome for it yet, but it is an excellent tool.

Mr. Duncan

I am grateful to the hon. Lady for adding spice to the debate. In fairness, tax credits have many plus points, and we should look to build on them. However, the system is overly complex, and it is a nightmare to administer. We have had 14 changes to the system during the past few years, and to a large extent the chaos is of the Government's own making. The chaos was indeed predictable, which I find most disturbing.

My hon. Friend the Member for Havant (Mr. Willetts) said in April that it had been known for many months that it was going to happen. He released one document showing that, at a meeting in January 2003, local authorities had warned Inland Revenue and Department for Work and Pensions staff that tax credit claims had to be processed in time if a housing benefit crisis was to be avoided. Another showed that, in a national survey of housing benefit managers in February 2003, not one respondent spoke favourably about the implementation of the new tax credits. Lastly, in March, local government representatives were so worried that they wrote directly to the Chancellor—they must have been very concerned—to warn him of the impending problems.

That train has been coming towards us for many months, but the Government have not seen it and have failed to take action. That is the substance of my principle criticism. The most vulnerable of my constituents also saw their income being affected by the change in national insurance, and the coincidence of the two did not help.

Most other problems have been examined by previous speakers, but some of the knock-on issues are significant. In recent years, money for local government has become so tight that local authorities—to a degree understandably, but in my view somewhat excessively—have devoted their attention to defaults and late payments of council tax. If two payments are late by only a week in Scotland, the case immediately goes to sheriff officers proceedings. That is a significant side effect of the crisis in tax credits. I have had to extract a statement from Dumfries and Galloway council whereby they agree to hold proceedings for the most vulnerable of local residents who cannot make their council tax payments because tax credits are not coming through.

Two issues have not yet been raised that I would like to put to the Paymaster General, subjects on which feedback from local offices has been variable. Some problems have eventually been resolved, and however it has been done, I am delighted about it. However, when the backdating of that tax credit is agreed, can I have an assurance that the backdating will be paid up to date? Several of my constituents are very concerned that if the payment of tax credit is four weeks late, the money is being paid back over the succeeding 48, 47 or 46 weeks of the year. To many of my constituents, that is not good enough. They are working in debt: the Government's debts have been passed on to them, and they need reimbursement. The payments should be brought up to date at the time. I would appreciate an assurance from the Paymaster General that that can be achieved.

Secondly, several hon. Members have referred to the flexibility of local staff in making interim payments. I want an assurance that when an interim payment is made, further payments of tax credit do not hit the buffer. In my experience, when a problem has been resolved and an interim payment has been made, it gets shunted into a siding and cannot be progressed until someone reviews the case. That is all very well, but if those who are firefighting in the front line are always dealing with new cases, they will never get to those that have been shunted into the sidings. That is a matter of considerable concern.

Finally, the tax credit system depends on people believing that it will deliver what the Government have promised. In my constituency, many people can benefit from the tax credit system, which I welcome. However, one constituent sums up the problems in an e-mail, in which she said: "We cannot avoid the inevitable conclusion that this Labour government is deliberately making it as hard as possible to get what is due to me and my family. The wise words of the Chancellor of the exchequer are a long, long way from the reality of the nightmare we are living through." That is the reality of the day-to-day life of people who depend on tax credits. The Government's complacency does no credit to future tax credits; the pension credit may be the next instalment of chaos at the heart of the Department for Work and Pensions.

3 pm

Mr. Steve Webb (Northavon)

I join in congratulating the hon. Member for Caernarfon (Hywel Williams) on securing the debate on a subject that many of us want to discuss. The hon. Gentleman has done the House a service.

Tax credits, when people get them, help the fight against child poverty. No political party opposed the Tax Credits Act 2002 during its passage through Parliament, but when Parliament legislates for a scheme to give financial assistance to families, it expects the Administration to deliver it. The dispute is not about whether Parliament wanted the scheme—it clearly did—but about why delivery has been such a shambles.

The hon. and learned Member for Redcar (Vera Baird) mentioned art important group that has received no attention during this fiasco: the families on income support who have not yet been transferred to child tax credit. The low-waged families who have been transferred suffered real pain when they lost out, but at least they had a wage to keep them going, yet their pain is as nothing compared to that which will be suffered by families if their income support stops before the child tax credit starts. I hope that the Minister will clarify the position of that group.

A bizarre feature of the system is that everyone who has a child should claim child tax credit even if they know that they are far too rich to be entitled to a penny. For example, a business that usually brings in £70,000 a year for a self-employed person and that is doing well at the beginning of the year may do badly later in the year; the income from the business may fall dramatically, bringing the family within the scope of child tax credit. Unless they claim by July, they are past the three-month deadline and will not get the money from the start of the financial year, but if they claim and receive a letter replying that they are not entitled to anything now, and later in the year they turn out to be entitled to something, the money will be backdated to April, provided they made what is called a protective claim before July. Thus, there is the bizarre scenario of the rich having to rush out and claim the credit because of the three-month deadline.

If the credit is part of the tax system, why does the benefit rule of three months to claim it apply? If the policy is supposed to be about integrating tax and benefits instead of bolting benefits on to the tax system, which is what actually happens, there should not be a three-month deadline. The system would then not have to cope with rich people being encouraged to claim something to which they know they are not entitled, in case they stop being rich. That is a daft way to run a system.

The take-up of the lax credit was raised in the debate and the Treasury has consistently given a misleading impression of the true position. The Treasury says two things at the same time: that nine out of 10 families will be entitled to benefit from the credit and that it expects 5.75 million families to claim. There are seven million families in Great Britain; nine out of 10 gives a total of 6.3 million families. The Treasury's best guess is therefore not that nine out of 10 families will claim, but that 5.75 million families—500,000 fewer—will claim. In other words, the Government's public spending plans build in an assumption that 500,000 families will not claim what they are entitled to. That does not include the 500,000 mentioned by the hon. and learned Member for Redcar and perhaps a further 500,000 whose claims may not have been processed. What sort of system builds in an assumption that 500,000 people will not get what they are entitled to, even when every problem has been sorted out? Is that a rational way to design a tax-benefit system?

Computers always get blamed n these cases. The Chairman of the Work and Pensions Committee, my hon. Friend the Member for Roxburgh and Berwickshire (Sir Archy Kirkwood), who has had to leave the debate, told me that EDS, the company involved in supplying the computer system, has a bit of a track record in that respect. Will the Minister give us a clear answer to the question: has EDS suffered any penalty for the fiasco?

I am still slightly unclear whose fault the Treasury says it is. Some of the Inland Revenue press releases would have us believe that it is the claimants' fault. People did not know that they were entitled to claim under some of the phantasmagorical schemes and they failed to claim three months before they were due to begin. I do not think that it is the claimants' fault. If the Government introduce scheme after scheme, change the names and come up with complicated new rules, and people do not claim three months before those schemes are due to start, is that the claimants' fault?

Is it the computers' fault? We are constantly being told when we ring the MPs hotline that the computer is down. Several hon. Members have had that experience. Whose fault is that? Is it EDS's fault? Is there a trigger point or penalty? Who is going to meet the cost of the compensation and, as the hon. Member for Caernarfon (Hywel Williams) asked, how much will it be?

Mr. Alan Reid (Argyll and Bute)

In my experience of phoning the hotline, part of the problem appears to be with the scanners. One of my constituents had a claim rejected because he apparently earned more than £500,000, which was 100 times more than he actually earned. Apparently, the scanners were scanning in pence as pounds and multiplying incomes by 100.

Mr. Webb

I am grateful to my hon. Friend for raising that point. I defy anyone to read my handwriting at such a distance, but "scanners" is the next thing written in my notes.

When we phone up the hotline we are often told that the forms have been put through a scanner, not entered by a human. They are presumably subject to optical character recognition, which is where the hyphen problem originates. Will the Paymaster General tell the House whether that is the norm? Is that the way Government forms have been processed in the past, or is it a new innovation? Is it the system that will be used in the future? Presumably the Inland Revenue had most of us listed on its computers already and the problem has arisen because optical character recognition has been used with scanned documents and—surprise, surprise—the computer cannot get a match. That is why we get the barmy letters asking for a national insurance number that is printed at the top of the letter—it cannot match up people with the documents. Will the Paymaster General tell us if that is the way things are done in Government now? Is that the root of the problem? Is it EDS's fault, and who is going to pay for it?

As well as people who get no money, some people get far too much money, which could be a serious problem. A member of my constituency office staff, who has phoned the hotline for lots of other people, got a fantastically generous tax credit award. When she told me about it, knowing a little about her personal circumstances I said, "You realise that's wrong, don't you? That's thousands of pounds more than you are entitled to." She was a little concerned about that, so she contacted the Department and—lo and behold—she had been given far too much money. Because we spotted that, she will not get any more, and she will not have received much of an overpayment, but what about people who do not spot it? There are such cases.

If people get 10 times what they should get—£5,000 not £500—at the end of the year there will be a vast overpayment. Normally, overpayments are clawed back the following year by reducing the award. However, if someone owes £4,500 and the next year's award is £500, would they get nothing for the next eight years? I think not. I think that the Inland Revenue would want a big chunk of money. If someone did not know that they were not entitled to the money in the first place, there could be real problems.

I will put the following to the Paymaster General as a written question if it will help. Has her Department tabulated last year's entitlement to working families tax credit plus children's tax credit against the entitlement to the new tax credits for 2003–04? Has the Department looked for cases in which people were given £500 last year, and £5,000 this year? If there are a lot of those cases, is it going to take a sample of them and see whether the system has gone crazy? I hope that the Paymaster General will assure me that such an exercise will be carried out to stop people reaching the end of the year with a huge overpayment.

Finally, the working tax credit component of the system for childless people is the dog that has not barked. Whenever we ask written questions about it, we receive virtually no information. It will bring new people into in-work benefits, but that set of people is not very likely to take up the benefit because they do not know that they are entitled to it. Will the Paymaster General tell us definitively how many childless couples and single people should have been brought into the working tax credit for childless people for the first time ever, and how many people have actually claimed? Something tells me that if the Paymaster General were to give us that answer there would be a big gap between those two numbers.

3.9 pm

Mr. Stephen O'Brien (Eddisbury)

I congratulate the hon. Member for Northavon (Mr. Webb) on a very articulate demonstration of many of the problems. I also congratulate the hon. Member for Caernarfon (Hywel Williams) on securing this timely and important debate. It is another opportunity to hold the Labour Government to account over their tax credit fiasco, which has been experienced by MPs from both sides of the House who have been deluged with complaints from constituents complaining about the failure of the new system. The helpline has been overwhelmed and desperate claimants have besieged benefit offices.

The hon. Member for Caernarfon (Hywel Williams) called into question the absence of any link between the Chancellor's rhetoric on making work pay and the practical application of what is now going on and recognising that the wage top-up scheme has been of benefit. We meet today just two days after tax freedom day, when we can start providing for our families and ourselves. Compared with 1996, we must now work an extra week to pay for the Chancellor's 60 tax rises, which Labour has introduced since 1997. The cry that has gone up is: where are the improvements in public services?

On 6 April the Government launched its latest version of tax credit. Working tax credit replaces working families tax credit and disabled persons tax credit, and child tax credit replaces children's tax credit. Since October 1999, the Government have introduced five new tax credits for families, scrapped four and then introduced two new ones. That averages a new tax credit for families every six months. We supported and continue to support tax credits in principle, but we do not support this stop-go system. It is apparently the Chancellor's flagship, but as he forces the Inland Revenue to become as effective in paying out money as it has been in collecting it from our constituents, his flagship has been sailing into uncharted waters. It has run into a predictable storm and is foundering. Only a Government, Chancellor and Paymaster General in denial would require the Minister when she stands up to carry the can for her boss and to attempt to dismiss the widespread tales of misery, frustration, anger and distress of people throughout the country, especially hard-working mums and dads with young children, often with child care responsibilities, in their dealings with the Chancellor's foundering tax credit system.

The Inland Revenue claims to have processed, but not necessarily paid, 3.5 million of 4 million claims. It admitted on Monday that 600,000 had not been processed—there are 100,000 missing somewhere. What is the precise number of credits claimed but not paid? How many eligible people have not yet claimed? Is it the 1 million that many estimate? If it is, 1.5 million people may be suffering and not receiving what they are entitled to under the Government's new system.

Of those whose claims have been processed, how many are suffering because of sloppy inaccuracy by the Revenue or further failures of the computer system? My constituent, Mrs Catherine McCabe of 45 Bradbury road, Winsford, has made a completed application and received some documents, but her tax is wrong because her earnings were misrecorded. She has three young children, but the Inland Revenue says that she has none. She has had three different assessments. The last stated wrongly that she is entitled to nothing, but £63.13 went into her account, which is a woeful sum compared with the £100 she is due.

I hope that the Paymaster General will tell us whether all those who made a completed application but had yet to receive any money did so by 2 May. She said in the House on 28 April that they would do so "by the end of this week".—[Official Report, 28 April 2003; Vol. 404, c. 54.] How many interim payments have been made? The Chancellor changed the rules and it is up to him to get them right. People have had to go into debt, incur bank charges and interest, and default on paying basic bills. The parliamentary ombudsman has said that she will consider cases in which individuals have suffered financial loss because of delays. Will the Government now come clean, confess their shortcomings and confirm that compensation—not just interim payments—will be paid for financial loss such as overdraft charges? The Revenue is the first to charge interest on late payment of tax and this shambles comes at a time when personal disposable incomes are being hit by the Chancellor's national insurance contributions increase and the increase in council tax bills resulting from the Government's changes to the way in which Whitehall funds local authorities.

Amid all that, the Government have a helpline. Its very name has turned out to be another of the Government's sick jokes to the hundreds of thousands of people who spend hours, days and even weeks trying to get through. At an original cost of £53 million, the Government in their panic rushed in 700 more staff. If callers did not get through they spoke to the "overflow department" which could not answer their questions because it could talk only about the system. What system, one might ask. For a short period, the department offered to ring people back. Mrs McCabe, my constituent, has been waiting since 16 April, and no wonder because the call-back service has now been stopped. No wonder we heard about Mr. Maddison, who had to superglue his hand to a desk in his local office at Bridgwater in Somerset to get paid after more than 200 attempts to contact the helpline. He was eventually paid before his hand was released because it got so sweaty.

Is it any wonder that all those frustrations, coupled with the number and speed of the Chancellor's changes to his own tax credit system is resulting in poor take-up rates? The Council of Mortgage Lenders estimates that one in five who are eligible for £60 a week or more are failing to claim. Will the Paymaster General stand by her Chief Whip's comment to The Scotsman newspaper that "Gordon Brown's flagship system of tax credits is not appreciated or understood by the low paid", or with her Cabinet colleague, the Secretary of State for Trade and Industry, who said that the tax credits system is "not having the transforming impact that we thought it would have and that it should have"? Does the Paymaster General think that the taxpayer has received value for money for the £10 million in round figures that was spent on the promotional campaign for the new tax credits?

What is so utterly despicable is that all the chaos and confusion was predictable and predicted. It was predicted by the official Opposition months before April's implementation. It was predicted by others, who have been mentioned today, including Labour councils, which one would have thought were not political opponents of the Government, and by Inland Revenue internal auditors. The information technology specialists at the Office of Government Commerce warned in December last year—four months before April—that the new system for tax credits ranked as "among the highest across Government for assessed risk". They cautioned that the project was very ambitious and that the "very large and complex" nature of the initiative would rest on unprecedented levels of co-operation between Government Departments. My hon. Friend the Member for Havant (Mr. Willetts), the shadow Secretary of State for Work and Pensions, stated: "The problems were entirely predictable because the computer system for administering credits was rushed into use before it was ready. It was a great pity the Government ignored the warning signs … It is clear the blame lies with the Chancellor himself." Frankly, the Chancellor should be here today to apologise.

It gets worse. The Revenue thought that nothing would go wrong, so it made no contingency plans. That is a pattern for the present Government, as my constituents found during the foot and mouth crisis. Despite the Local Government Association now calling for such plans, today it is reported in the newspapers that the Revenue are rejecting any need for contingency plans—another of the Government's sick jokes. On the subject of sick jokes, the Revenue first said about the new tax credits system that there were "no problems with computer systems", and that the review team's opinion of the project was that "it was an exemplar of good project management and well-equipped to successfully deliver". Only recently did it resile and confess that "The new tax credits system is not yet performing as well as we would like." Spare a thought for the Revenue and benefits office staff who work amid all the Government incompetence, confusion and denial. Hundreds of them staged a spontaneous walkout because of the chaos—the grim situation—that they are faced with in their offices and the sheer pressure heaped on there by the Chancellor, the Paymaster General and the computer system. In the House, we can hold the Minister accountable, but I hope that she will tell us that Ministers are holding EDS and other suppliers accountable. The hon. Member for Northavon also made that point.

Before the Chancellor drives the culture of dependency further and further into decent, hardworking individuals and families up and down the land through his increasing means-testing of the citizens of Britain, this appalling experience must be fully examined. The official Opposition call for a full, open, public and independent inquiry into the systemic failure of the administration of the Chancellor's new tax credits system, for which we did not vote. An inquiry must be held to establish what has gone wrong and why, and the Chancellor's policy decisions that brought about the problems. We welcome the National Audit Office investigation into the way the system was introduced, but it is clear that that is not good enough for the hundreds of thousands of people whose lives are blighted by the system. A full and independent public inquiry must be held to expose the damage and the unnecessary distress caused by the Government's incompetence and to ensure that the lessons are learned. Otherwise, what will we get?

Let us hope against all hope that today the Paymaster General will not repeat her claim of 29 May on GMTV that the problems are caused not by her or Inland Revenue but by late and incorrectly completed forms submitted by claimants. That statement was met by incredulity and anger on the part of huge numbers of frustrated claimants for its sheer arrogance and eye-watering denial. The Paymaster General should not try today to defend the indefensible. She should admit that the Government's incompetence has led to callous chaos and confusion and that their shameless shambles of a new tax credits system has caused unnecessary distress and anger.

The Government are denying a fair deal to the people of this country. They should now add to the apology given in the House by the Paymaster General on 28 April, which I acknowledge, and authorise a full, public and independent inquiry into the predicted and predictable shambles of the Government's new tax credits system.

3.19 pm

The Paymaster General (Dawn Primarolo)

In the few minutes that are left in the debate, I wish to say that the contribution of the hon. Member for Eddisbury (Mr. O'Brien) was particularly breathtaking. He suddenly finds sympathy with the poor, but the Conservative Government drove millions of children into poverty. We are debating this afternoon the introduction of the tax credit, but if the hon. Gentleman wants to see what a system that is not working looks like and how complex it can be, I suggest that he looks at the family credit system under his party's Government.

The hon. Member for Caernarfon (Hywel Williams), who introduced the debate, asked me to deal specifically with several points. I pay tribute to him, not only for acquiring the debate, but for having the good grace to acknowledge that the basic foundation of the tax credit system and its aim to assist people into paid employment is an absolute bedrock that he supports. He recognises that it has never existed before.

I turn to the questions about how many tax credits are left unpaid and where we are in the system. When I made a statement about tax credits to the House on 28 April, the Inland Revenue had paid tax credits to more than 1 million families. As of today—a month on—I am pleased to say that tax credits are being paid to 3.7 million families. About a third of those families are being paid weekly and are now in their eighth week of payment. The other two thirds are being paid on a four-weekly basis, on time and as planned. Last week, they received their second monthly payment.

Those numbers are in addition to the 1.3 million families with children on income support and income-based jobseeker's allowance who will be transferred automatically in April next year to the child tax credit, but who are receiving the increased level of support through their benefits now. The transfer next April means that 5 million families, as opposed to 1.4 million families on working families tax credit, are now benefiting from tax credits. Tens of thousands of additional claims are still coming in each week and the Inland Revenue is paying more than 100,000 more families each week.

Take-up of the new tax credits remains strong. All those families with children with income below £58,000—nine out of 10 families with children—are eligible for child tax credit. In addition, working tax credit is newly available to low-income working families without dependent children or a disabled worker. As of today, more than 4.25 million claims for tax credits have been received. That means that 5.5 million families have either applied for or are already receiving tax credits. As a result, enhanced family support is reaching far larger numbers of people than either the old system of family credit or the working families tax credit.

Far from failing to claim the new tax credits, millions of people have claimed them. Because we want all those who are eligible to apply, our take-up campaign is continuing, and last week we launched a new publicity campaign to encourage people to apply by 5 July, so that if they are entitled to tax credits, their claims can be backdated in full to 6 April. We are also encouraging people to apply if they think that their income will qualify them for payment this year—a matter to which the hon. Member for Northavon (Mr. Webb) referred.

As for turning claims into payments, I can tell hon. Members that successful claims from everyone who applied by the end of April have now been paid, apart from those about which more information is needed or more checks have to be made. The detailed figures at the end of May were that 3.7 million awards are in payment and 115,000 claims have also been decided but the claimant has not met the qualifying conditions and no tax credit is due.

Since my last statement, approximately 500,000 more awards have been put into payment. Of the remaining claims still being processed, the Inland Revenue received more than 200,000 only in the past four weeks, some arriving as late as last week. All of the outstanding claims are either incomplete or require further checks to be conducted to verify information. Last week, the Inland Revenue cleared more than 100,000 cases. At its peak, the system is capable of clearing 25,000 per day, and we are working to ensure that that number is delivered every day.

I acknowledge—I have made no attempt to resile from this either in my statement to the House or in interviews on television and radio—that some families have experienced serious difficulties. I have rightly apologised for that. However, to characterise the whole system as being in chaos is simply wrong. The present position is that about 5 million families are now benefiting from tax credits and the number of awards will continue to rise as more and more claims are put into payment in the coming weeks. I am glad to be able to report that as the number of awards and payments rises, the number of calls to the helpline has fallen—the pressure is easing, although it is still there.

Several hon. Members have referred to selective quotes from incorrect reports, and I should like to correct them. A few months ago, a report suggested that the tax credit system was too risky to go ahead. In fact, the report of the Office of Government Commerce found that the tax credit programme was a model of good governance and careful management of risk. I shall quote the report's key conclusions in December, which are that "The Review Team finds that the programme is well on the way to successful delivery of Release 2 in April 2003 although it still has to complete a large amount of work against a very tight schedule. The Review Team's opinion is that this is an exemplar of good programme management", and the programme is well equipped to successfully manage challenges.

Several other issues were raised by the hon. Member for Caernarfon and others. It is important to point out that claimants in rural areas may be isolated from their nearest Inland Revenue office. I recognise that and we are trying to do several things to address it. First, we can arrange for payment to be sent directly, either couriered or by registered delivery, in particular where there are travel problems because the distance is too great or because travel is not possible owing to family responsibilities.

Mr. Reid

Will the right hon. Lady give way?

Dawn Primarolo

The hon. Gentleman did not speak in the debate, and I have many other questions to get through.

Questions were asked about hyphens. That was a story in the early days, but I assure hon. Members that the system can deal with claimants whose names have hyphens.

Key points were raised about housing benefit, such as the planning that was involved. We have always recognised that the introduction of tax credits will mean new work for local authorities, which is why they received well in advance of £17 million to pay for additional administrative costs. We understand that local authorities face pressure, and that it is sometimes difficult to process queries. However, we have made considerable efforts to get information to local authorities. Housing benefit should not be adjusted until tax credits are actually paid to the customer. Legislation was specifically amended to ensure that housing benefit was not reduced merely because a claimant claimed the tax credits. We have, however, gone further. If a tax credit award includes a payment of arrears, the payment is treated as capital for housing benefit and is effectively ignored. If a lump sum is necessary, it is paid in one go; if any backdating is necessary, it is not spread over the year. Local authorities should only take into account tax credits in payment. They cannot assume that tax credits are already being paid or treat them as notional income.

This is an important debate. Many questions have been asked but because of time constraints, I cannot answer all of them. The policy is to help and support those on the lowest incomes to help them to get into work. The system was not in place before April this year. It will work and I intend to ensure that it does.

Mr. Deputy Speaker:

Order. May I ask those hon. Members not wishing to stay for the next debate to leave quickly and quietly please?