PAYE Contributions

Debate between Michael Fallon and David Gauke

Wednesday 8th September 2010 Commons Chamber

[Mr Gauke]

First, let I say that I am perfectly happy to answer these questions and I am genuinely grateful for the opportunity to do so.

The hon. Gentleman asked about the backlog of cases. That matter has been well known—I believe that he and I have debated it in the past, and a National Audit Office report published on 30 June gave the most recent update on the position. There is nothing new in the backlog that has emerged in recent weeks. There is a problem and we and HMRC are seeking to deal with it, but it is a problem that has existed for many years and we are critical of the previous Administration for the lack of progress in resolving it. A specific concern that has featured very recently is that it has emerged that, in the last two tax years, 4.3 million people have overpaid tax and 1.4 million have underpaid. Our aim is to send cheques to all those who have overpaid over the course of the rest of the year—in dramatic contrast with previous delays in addressing overpayments.

The hon. Gentleman is right to raise the question of changed circumstances, and it is absolutely right that HMRC considers hardship cases. That is why we have announced today that HMRC will show flexibility in some cases to spread payment over three years. As I said, we are not seeking to pursue the matter mindlessly, without taking account of individual circumstances, especially of those owing large amounts.

The hon. Gentleman also rightly raises the subject of fraudsters, and I am grateful to have the opportunity to reiterate that HMRC will not send e-mails to members of the public; communication will be in writing. Of course, people should be cautious.

How long has this problem persisted? The fundamental problem with PAYE, in the sense of there being too many open cases, and underpayments and overpayments, is a long-standing issue. In part it has to be recognised that, inherently in the PAYE system, there will sometimes be underpayments, because not all the information will be available in-year. For example, all the information about benefits in kind, company cars and so on, will not necessarily be available to HMRC or to employers. That will come to light at the end of the year, and then there will be a need for reconciliation, but that problem has always existed.

The hon. Gentleman specifically asked how long Ministers have been aware of the problem. This Minister has been aware of a problem with PAYE since day one, and that is one reason why we made proposals for reform when in opposition.

The hon. Gentleman asked also about future reform. It is important that there is trust in the PAYE system, and it is right to say that in 85% of cases PAYE is correct in-year, but there are still problems, and we are consulting on proposals so that information is more up-to-date—if you like, so that it is real-time information. That means that HMRC will be able to respond to changed conditions much more quickly, and that we will have a system that is fit for the 21st century, in which people move around, change jobs and have multiple sources of income. We think that that is the direction in which we need to move.

[Michael Fallon (Sevenoaks) (Con)]

Is it not rather revealing that this question was not tabled by the Labour party, which presided over such a decrepit system for so long? Does not the sheer number of incorrect payments illustrate the need to move to a system that reflects modern working and allows tax payments in real time, rather than on the basis of either guesswork in advance of the tax year or reconciliation a year or two later?

[Mr Gauke]

My hon. Friend is absolutely right. As the Government, we are seeking to address the short-term issue, which is the overpayments and underpayments. We cannot just brush them to one side or park them for another year; we need to address them. However, we must also look at the longer-term solution, and that, as my hon. Friend rightly says, means moving towards a much more up-to-date system so that the information is more up-to-date and we are able to respond accordingly.