Mr Varney: I think the whole spirit of the changes reflects the fact that this is a new way of delivering economic assistance and we are learning what works well, where there are difficulties, how we can improve it. We are on a journey of continuous improvement, and I do not think that is going to stop. I think there will be more continuous improvement. There is not a silver bullet. We are dealing with a society, as you know probably better than I, that will change and present different challenges.

Q64 Mr Khan: The numbers are staggering, are they not? In my constituency, as I understand it, about 10,000 people receive tax credits and across the country that is six million families and ten million children, so by definition it is large numbers?

Mr Varney: It has been the most successful uptake of a benefit delivered through a credit system that there has been. The take-up has been much higher.

Q65 Mr Khan: The Chairman raised this in introduction but are not overpayments inherent in the tax credit system because of the way the awards are provisional and based on incomes in the previous year?

Mr Varney: Yes, the change in the disregard and the obligations on people to keep us informed earlier and the shorter time window, should all help in trying to help reduce the overpayments but there will still be overpayments.

Q66 Mr Khan: Because of the way the system is designed overpayments are inevitable and inherent and what are some of the advantages of having the system designed in the way that it is? That is clearly one of the disadvantages.

Mr Varney: I think one of the clear advantages is take-up has been at an all-time high. 6.1 million families are in receipt of the benefit.

Mr Gray: And there is an opportunity if there are changes in family circumstances, whether in relation to work or numbers of children or whatever, to be able to adjust the awards in a flexible way from the point when that happens.

Q67 Mr Khan: Okay, in answer to one of the previous questions, Mr Varney, you explained and made it clear that your job is to implement the policy and the legislation that we pass and some of the questions are clearly appropriate for other people and not for you. Can you give an indication of how helpful the announcements made by the Chancellor in his Pre-Budget Report are to the job you are seeking to do? Do you welcome all the announcements?

Mr Varney: Broadly what we have been doing is trying to look at the operational implications of the announcement, working with the Treasury to show the consequences of what policy changes they might be thinking about in terms of the administrative challenge and the communications challenge. We have worked very closely with them and this is part of the new division between Revenue & Customs and the Treasury. We have moved our tax policy people over into the Treasury and we concentrate on delivering effectively what the policy is and commenting on the implications of that policy for the way we conduct our operations.

Q68 Mr Khan: I welcome that teamwork but one of the things that initially concerned me, and maybe you can deal with this, is one of the measures announced was that claimants would have to report changes in their circumstances within one month rather than three. How confident are you that claimants will be able to deal with the change from three months to one month? More importantly, how confident are you yourselves in dealing with notifications?

Mr Varney: I think the key thing is communicating this. We will prepare for it and I think we have got notice of what the requirement is. In practice, if we can get to a system where the responsiveness works and where these changes are communicated we will have fewer worried people coming in to find out what their situation is and also it should have an impact on the amount of overpayment and underpayment. We should be able to respond rather faster. I recognise we have got a big communications challenge.

Q69 Mr Khan: Presumably there will be a big publicity blitz to make sure people are aware of the change from three months to one months?

Mr Varney: Yes there will.

Q70 Mr Khan: Can I ask you about two things. One is we heard last week when the DWP were here that the complexity of welfare benefits was clearly a deterrent, for example, to the elderly in applying for benefits. Can I ask you whether you think there is a risk of people being scared to apply for tax credits because of stories they have heard about people falling into debt?

Mr Varney: There is some anecdotal evidence that that happens. I think first of all the overall statistics of take-up are very high. Secondly, I think the changes that have been designed have been designed to make the system work more sympathetically. I think our job is to sell those changes, but there will from time to time be such cases. All we can say at the moment is if you look at absolute statistics less people have been deterred than have been deterred from applying for other traditional benefits.

Q71 Mr Khan: You will have seen, I am sure, the publicity around the concerns surrounding fraud in the last couple of days. Can you in answer to give us an update of what is happening with the concerns raised by some of the staff deal with this balancing exercise? On the one hand, I would assume you are trying to make it easier to claim tax credits but the paradox of that is obviously that it is more susceptible to fraud because, for example making it possible to apply by telephone or the Internet would mean, I assume, less checks than would otherwise be the case. Can you tell us how you are balancing the need and aspiration to make it easier to apply for tax credits whilst at the same time trying to reduce fraud?

Mr Varney: Could I deal with the DWP issue. Let me say first of all that this is not a new tax credits issue, this is an issue about identity fraud, and what we have is the hijacking of 13,000 identities in a particularly virulent way, so what has been captured is data about those individuals which is really quite potent when you come to apply to a system and you present that false identity. There are quite a lot of aspects about it which are challenging. We have always looked at the e-portal as making this balance that you have rightly described between accessibility and control of fraud. We keep a pretty active eye on the extent to which there are attempts at fraud. As I said to Helen, we have got quite a lot of deterrents in that. We have quite a lot of joint working between ourselves and the DWP because the people who attack our systems attack theirs and the people who attack their systems attack ours. Some of it is organised crime. We became aware that there were cases which involved identities which had been highjacked. As we got into looking at that problem we found there were more people involved. We had already been concerned about the extent of the attack on the e-portal and this really tipped us over to the point where we felt the balance had shifted from being in favour of accessibility to being quite a severe fraud risk. Having said that, at this point in time, we have managed to stop the majority of the attempts. We have only been able to look at a small number of the total 13,000 cases that were hijacked but we have stopped the majority of cases getting through our fraud screening. On all of our e-enablements, for exactly the point you have made, and the same with the telephone, we have to worry about whether our fraud defences are strong enough.