Tax officials ignored chaos within the outsourcing firm Concentrix and nearly trebled payments to the company despite overwhelming evidence of failure, Whitehall’s spending watchdog has disclosed.
Despite increasing complaints from benefit claimants, Concentrix was paid £23m in commission after its rates were raised from 3.9% to 11%, a report from the National Audit Office states. HM Revenue and Customs has been forced to apologise for management of the contract.
The report’s findings have angered MPs and campaigners who believe HMRC showed indifference to the suffering of claimants whose benefits were wrongly cut or stopped altogether.
Louise Haigh, the shadow minister for the digital economy, said Concentrix and HMRC showed a level of neglect that should have no place in the welfare system.
“We can only conclude that HMRC saw hardworking single parents and families as fair game in their efforts to cut costs,” she said. “This was not just incompetence at the heart of our tax authority, it showed an indifference to the damage their contract was causing that demands answers. This was neglect by design and HMRC should be ashamed.”
The failings have been uncovered by a comprehensive inquiry by the government’s official auditors into the outsourcing deal.
Tax credits were introduced in April 2003. In 2014 ministers brought in Concentrix to clamp down on fraud and error in the system by stopping the benefit being paid to some claimants.
Thousands of claimants came forward to say they had been wrongly sanctioned and their benefits frozen for weeks, and sometimes months, without justification. Some threatened suicide, whistleblowers claimed, and children were refused school dinners because their benefits had been stopped.
HMRC ended its deal with Concentrix in November last year, although the contract will continue to run until May.
Auditors found that during the two-year contract there were 108,000 cases where claimants’ tax credits were adjusted or terminated. Almost a third of those decisions were subsequently overturned after a mandatory reconsideration.
The report reveals that by mid-December 2016 HMRC had paid a total of £86,815 in compensation payments to claimants handled by Concentrix, including almost £68,000 for the worry and distress caused.
The planned three-year deal had been estimated to save £1bn for the taxpayer by reducing fraud and error, but delivered only an estimated £193m. Concentrix was paid £32.5m over the life of the contract but told the NAO it had made a loss of £20.5m on the deal.
In an early indication of the problems, in July 2015 Concentrix answered an average of just 4.8% of calls within five minutes, against a target of 90%.
Despite mounting problems, Concentrix, after threatening to pull out of the contract, was able to renegotiate its deal in October 2015, increasing its commission from 3.9% to 11%.
“Concentrix was set to earn less commission than it predicted as the savings identified by its work were lower than expected, and it questioned the value of continuing the contract,” the NAO report notes.
Problems continued and the firm was “unable to cope” with the volume of calls it received in August 2016, exacerbated by IT failures. At least 19,000 calls for advice went unanswered, but HMRC’s managers failed to engage with the problems, the report indicates.
In September 2016 HMRC stepped in, stopping new cases being passed to Concentrix and allocating the equivalent of 670 staff to help clear a backlog of 181,000 cases.
Frank Field, the Labour chair of the work and pensions select committee, said ministers should now ensure that payments to claimants were paid out. “It is important, of course, for HMRC to learn the right lessons from these problems. Equally important in the short term, though, is to reimburse my constituents – and many other families on low incomes across the country – who went without food and got themselves into huge amounts of debt while Concentrix wrongly withheld their tax credits.”
Senior figures from Concentrix and HMRC will be called before the Commons spending watchdog this month.
The public accounts committee chair, Meg Hillier, said the contract had been “a venture with appalling human consequences”.
HMRC said it was committed to paying tax credit claimants “all the money to which they are entitled, efficiently and on time”, adding that it had terminated the deal “when it became clear it was not delivering the quality of service we expect for our customers”.
A spokesman said: “We apologise to all those who did not receive the standard of service that they should have. The vast majority of people who asked to have Concentrix’s decision reviewed have now had their payments reinstated where that decision was wrong.”
A Concentrix spokesman said: “This was a hugely complex contract and programme and, as the report highlights, a number of issues emerged at the outset which laid the foundations for the challenges experienced throughout, particularly last year.
“We look forward to discussing the report with the public accounts committee in order to ensure all lessons can be learned.”
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