Tax credit claimants paid nearly £87,000 after outsourcing plan bungled

Compensation payments totalling almost £87,000 have been paid out to tax credit claimants who suffered as the result of a botched outsourcing plan.

HM Revenue and Customs (HMRC) ended its deal with contractor Concentrix in November last year after a series of problems with the arrangement, which ended up saving less than a fifth of the £1 billion originally estimated.

Concentrix was brought in to help HMRC reduce fraud and error in the tax credit system, in some cases by stopping the benefit being paid to some claimants entirely.

Spending watchdog the National Audit Office (NAO) found that during the life of the contract, between November 2014 and its early termination in November 2016, there were 108,000 cases where claimants' tax credits were adjusted or terminated.

But almost a third of those decisions were subsequently overturned following a mandatory reconsideration.

The report revealed 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 £1 billion by reducing fraud and error but only delivered an estimated £193 million of that sum.

Concentrix was paid £32.5 million over the life of the contract, but told the NAO it had made a loss of £20.5 million 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 the problems, Concentrix 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 noted.

Problems continued and the firm was "unable to cope" with the volume of calls it received in August 2016, exacerbated by IT failures.

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.

The NAO report said: "In August 2016, MPs and the public raised concerns that Concentrix had incorrectly suspended or terminated a number of claimants' tax credits awards.

"For example, Concentrix mistakenly believed claimants were living with individuals unconnected to them.

"Substantial numbers of claimants also had difficulties contacting Concentrix to discuss their awards.

"It became clear the contract was not working as HMRC intended.

"Concentrix was not working on as many cases as HMRC had expected or meeting performance standards.

"In November 2016, HMRC and Concentrix agreed to end the contract and a number of Concentrix staff transferred to HMRC."

Senior figures from Concentrix and HMRC will be called before the Commons spending watchdog later this month to explain the fiasco.

Public Accounts Committee chairwoman Meg Hillier said the contract had been "a venture with appalling human consequences".

She said: "We will be examining the NAO's findings closely and holding senior officials from HMRC and Concentrix to account on the issues highlighted when we take evidence from them on January 25."

Public and Commercial Services union chief Mark Serwotka said: "The failures at every level of the Concentrix deal, from mail-handling and customer service to a lack of staff and poor contract management, shows perfectly why our public services should not be farmed out for profit."

HMRC said it was committed to paying tax credit claimants "all the money to which they are entitled, efficiently and on time" and it terminated the Concentrix 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: "We welcomed the opportunity to engage with the National Audit Office in its inquiry.

"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."

Labour blamed the Tories for "failing to act" on serious failures in the operation of the Concentrix contract.

Shadow Treasury chief secretary Rebecca Long-Bailey said: "Despite HMRC saying they prioritise claimants in delivering a public service, it's clear this didn't happen in this case.

"Some families have suffered extreme hardship, poverty and stress as they saw their tax credits cancelled for supposedly living with fictitious characters.

"This is a damning indictment of the Tories' desire to outsource HMRC services to private organisations whose primary focus is profit delivery."