James and his family should benefit from the government review of the tax credit system which followed a Citizens Advice campaign highlighting the problems experienced by our clients.
After receiving regular payments for the first few months of the year they suddenly dropped by more than 50%. James had no advance warning and when he called the tax credits helpline he was he was told he’d been paid too much and his payments would remain at this level until April. He didn’t know what to do. His family’s income had already been low and he had not budgeted for this further drop.
The problem
The Government’s tax credit scheme offered substantial extra cash to low-income families, but overpayments and poor administration plunged many families below the breadline and into mounting debt as The Revenue sought to recover overpaid tax credits.
Many families on low income relied on tax credits to support children and to sustain low paid work. However, recovery of overpaid tax credits left families with incomes as low as £56 a week plus child benefit, with no tax credit payments.
Campaigning for change
In 2004/2005 Citizens Advice Bureaux handled 150,000 tax credit problems. Our Money with your name on it? evidence report, published in June 2005 showed that some families had been left in severe hardship as substantially reduced incomes lead to serious debt and threatened families’ basic financial security.
Citizens Advice called for a limit to the recovery of overpayments from ongoing tax credit payments to ensure that families cannot be left with weekly incomes below minimum levels. We also stressed that urgent improvement in tax credit administration was necessary if the scheme was to achieve its anti-poverty objectives and not frustrate them. The scale of official error was completely unacceptable and the Revenue had failed to live up to its own standards of service and efficiency. The challenge was to make the changes necessary to restore public confidence in tax credits and make the system work properly for those who really need it.
The outcome
The report attracted substantial media coverage and the following day Prime Minister Tony Blair apologised in Parliament for the “hardship and distress” suffered by poor families as a result of the mismanagement of the tax credit system. He told MPs “I accept there are serious issues to be addressed and we are addressing them.”
Ministers told the Revenue to suspend the recovery of “excess overpayment” until it had resolved disputes with claimants and to ensure extra payments were made to the hardest hit.
In December 2005 the Chancellor’s Pre-budget report announced changes to the tax credits system. The statement by Gordon Brown reflected many of the key recommendations Citizens Advice made. In particular, the introduction of a limit to the cuts that can be made to ongoing payments, a move Citizens Advice has argued for over two years should happen.
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