There’s another dodgy data scandal brewing

The government is reeling from the Post Office Horizon scandal. ‘Lessons must be learnt’, goes the cry around Westminster. But a computer scandal with striking similarity to the bugs in the Horizon system has been brewing under the Department for Work and Pension and HMRC’s noses for over a decade. 

When Universal Credit was introduced to reform and modernise the benefits system in 2013 it needed a data system to drive it. HMRC came up with the solution. The taxman billed its new ‘Real Time Information’ system as the ‘biggest change’ to the tax system since PAYE began in 1944. Employers were mandated to report their worker’s pay every time they ran payroll. It supports Universal Credit by providing earnings data in near real time (it has since been used to support Covid furlough). 

Problems with the RTI system quickly emerged. Automated interventions backed by financial penalties to ensure employers reported earnings records accurately and on time – essential to the proper running of the system – were abandoned after just one outing in March 2014 as soon as the stream was turned on. HMRC’s then head of personal tax acknowledged: ‘We haven’t been able to target them [400,000 automated compliance messages to employers] as sharply as we hoped and they went to people who had complied’. Sound familiar?

With the planned compliance regime turned off and the underlying issues ignored, things got worse. As I reported on Coffee House last October, FTSE 100 companies have experienced their PAYE liabilities misstated by millions of pounds, confidence in the quality of tax data at senior levels in industry has collapsed and the finances of households on Universal Credit are at risk.

At the root of the problem is dodgy data on the earnings of the UK’s 30 million employees. This data is used to calculate 30 million people’s taxes, the benefits of 23 million claimants and the tax liabilities of 1.5 million employers. Often the data arrives late, is incorrect or not captured at all. When things go wrong benefits go unpaid, tax receipts are missed and companies accounting for tax liabilities derailed.

The RTI data stream (provided by HMRC to other departments) perfectly confirms the first law of computer systems: garbage in, garbage out. Late and inaccurate data is not validated in real time (a contract attempting to do this was allowed to lapse early last year) so when garbage data enters the system through human or computer error, its users receive garbage output too. And as long as the problems remain hidden, HMRC continues to declare RTI a success.

HMRC has avoided efforts to produce a proper metric for the reliability of what is one of the government’s most important data sources. Any public estimates have been dragged out through Freedom of Information requests and MPs’ questions in the Commons. Those responses point to an overall error rate of between 5 and 8 per cent, working out to at least 2.5 million incorrect records making it through the system every month. 

Problems next surfaced in August 2016, when Working Tax Credit benefits suddenly stopped without warning for thousands of claimants. MPs’ surgeries were inundated by desperate constituents. A mother of six was forced into debt after her husband had left her and the DWP accused her of lying. Another single mother was accused by benefit administrators of being married to a dead 74-year-old. Another was told she had no choice but to ask social services to take her kids because she could no longer feed them. They’d all had their tax credits stopped without warning. Wrongly. 

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Earnings data had been duplicated within RTI leading HMRC to wrongly terminate thousands of  claims. Leaving hundreds of claimants out of pocket and in a state of despair. This was the Concentrix scandal which The Spectator revealed in October to have been caused by RTI data’s use in calculating Working Tax Credit. In the end, almost all WTC claims terminated during the Concentrix contract were reinstated following ‘mandatory reconsideration’. The final appeal success rate was between 90 and 95 per cent. The computer system was wrong and the people were right.

Cut to the present day and real-time employment earnings continue to be the keystone on which Universal Credit relies. 

The social contract behind Universal Credit is that work should pay. ‘Universal Credit will make work pay for some of the poorest people in Britain’, said Iain Duncan Smith when the new benefits system was envisaged. The principle that the state tops up your earnings every month is fiscally sound. But for that principle to work in practice the earnings data on those claimants who have jobs (usually casual and low paid) must be watertight. It relies on the quality of PAYE earnings that HMRC shares with DWP for UC households’ monthly benefit calculations. The social justice element of UC is reliant on the RTI data stream.

Officially the government recognises an error rate within the RTI derived benefits system of less than 1 per cent. But numbers shared with me last year show that delays in RTI data reaching the DWP lead to a true error figure of about five per cent. With one in 20 Universal Credits claims to in-work households calculated wrongly every single month. The government continues to strongly refute this figure.

A UN Special Rapporteur has even highlighted the risk of ‘destitution’ due to incorrect benefit calculations. RTI errors can lead to overpayments too which leaves claimants at risk of being accused of fraud by the state because of incorrect computer output and like Horizon, the automated computer systems underpinning UC make it near impossible for claimants to set the record straight. Insiders warn of a scandal waiting to happen and online forums for benefit advisors are full of examples of UC disputes caused by RTI and even include messages comparing RTI flaws with the Post Office software. 

Research by the University of Edinburgh that has been shared with parliament’s Work and Pensions Select Committee supports the true error figure I’ve previously published. Their evidence submission includes a freedom of information response from the DWP that points to a higher rate than that in the calculations seen by The Spectator and far higher than the less than 1 per cent error rate the DWP and HMRC stand by to this day. Academics from Oxford and Bath have also found errors in RTI.

The Edinburgh research looked at the human cost of all this too. Interviews carried out for their study found single mothers having to juggle work and childcare (so more susceptible to fluctuating casual earnings) were particularly at risk from RTI error. 

One mum with two kids worked part-time as a school cleaner. She relied on Universal Credit to top up her income. But she’s paid every four weeks rather than on the same day every month. The RTI system doesn’t like that. Once a claim is first set up the assessment dates become fixed. So someone paid every four weeks can end up receiving two payments in one assessment period and having their benefits removed entirely the following month.

Bad enough then when the system works as designed, with correct data fed to it from the RTI datastream. If an employer makes an error when reporting when their staff are paid or the amounts paid then that feeds through to UC payment awards too. Another single mother of two kids academics have interviewed (and the Work and Pensions Select Committee are aware of) had her earnings misreported by her employer. Next month her benefits were reduced by hundreds of pounds. She told her caseworker: ‘There is surely another way to rectify this so that I am not in financial crisis again. This is now adding to my mental health as I am not sleeping worrying.’ 

With the DWP keen to further crack down on fraud and error and with the government desperate to do all it can to reduce a benefit bill that is forecast to climb by over £65 billion in the next five years the environment for error to become scandal is obvious. All the ingredients are there: a laudable goal to cut benefit fraud, a computer system known to be faulty and a government unwilling to properly acknowledge the issue. Let’s hope someone sorts it out before Toby Jones has to learn his lines.

A government spokesperson said:

‘We do not recognise this figure. In the vast majority of cases using Real Time Information (RTI) supplied by employers is an efficient and accurate method of calculating Universal Credit payments – and less than 1 per cent of cases do not match.

If a claimant wishes to dispute the earnings information we have used, they can submit evidence to us, and we will look into the case and make any necessary changes.’

An HMRC spokesperson said:

‘It’s an employer’s obligation to ensure they are sharing accurate information with HMRC, and our clear guidance sets out exactly what is required. We regularly issue reminders so employers are fully aware of what data needs to be uploaded through their PAYE system and when.

The large majority of employers do submit what is required and on time, however when errors are discovered we will contact them to ensure their records are updated and corrected accordingly. Employers who do not submit what is required and who fail to engage with HMRC could face further action, including penalties.’