21 November 2003
MPs on the influential Commons' Public Accounts Committee will question Inland Revenue chair Sir Nick Montagu in early December over the National Audit Office's refusal to sign off the Revenue's 2002/03 accounts without comment – the first time that the department's annual figures have been qualified.
PF has learnt that members of the PAC will quiz Montagu over his stewardship of the department. He is due to retire in April next year.
PAC chair Edward Leigh has already warned that the Revenue must now 'restore its credibility, which has suffered'.
In a report published on November 19, the NAO revealed that the IR overpaid up to £710m in working families and disabled person's tax credits during the financial year 2000/01. The errors were attributed in large part to fraudulent claims and ineligible applications that passed through the department's vetting system.
The revenue made the information available to auditors only this year and, although NAO chief Sir John Bourn stated that the levels of error since 2001 'would not necessarily be as high', he said he had seen 'no evidence to demonstrate that changes [since] would have reduced error significantly'.
Bourn concluded that the probable rate of error in 2002/03 remained 'unacceptably high', and qualified the latest set of accounts, which means the Revenue's budget was not used for the purposes intended by Parliament.
Privately, however, the NAO acknowledged the situation could be even worse.
One source told PF that auditors believe it 'likely' that up to £700m per year has been wasted on tax credits since they came into force in 1999 – a total of £2.8bn in overpayments.
Tax credits were overhauled in April this year, but the revised system also came under fire from the NAO after it was bogged down by IT problems, leaving a backlog of 220,000 payments.
Despite the NAO's criticism, a spokeswoman for the IR said the new system would 'greatly reduce overpayments through tighter controls'. Auditors claimed, however, that the backlog would not be cleared until 2005.
Other blunders at the Revenue in recent years include the decision to award, without ministerial consent, a contract to lease the department's own buildings to a company based in a tax haven.
The unauthorised suspension of National Insurance deficiency notices in 1998 and other failures to inform ministers of problems led the Commons' Treasury committee to 'raise serious questions about how the department has been led'.
PFnov2003
