11 May 2007
Revenue & Customs seems unable to cope with £5.8bn of overpayments made under its tax credits system, according to the Commons Public Accounts Committee.
'Tax credits suffer from the highest rates of error and fraud in government,' PAC chair Edward Leigh said. 'R&C seems incapable of mounting a credible and effective response to the flood of money being wasted in this way.'
Leigh was speaking on May 9 as the PAC published its fourth report on the tax credit system since its introduction in 2003. The committee found that while £47bn was paid out to low income families in the first three years of the system, £5.8bn – or 12% – of this was in overpayments.
Overpayments often result because credits are based on a claimant's financial circumstances and employment the year before. R&C seeks to recover these, but has so far written off £500m and expects to write off a further £1.4bn – equivalent to around 4% of its payouts so far.
Leigh said: 'Very large amounts have to be written off. And the attempts to recover overpayments from genuine claimants have caused significant suffering to many vulnerable families.'
A spokeswoman for R&C defended the department's record, saying: 'Overpayments fell by a fifth between 2003/04 and 2004/05. Accuracy in calculating and processing tax credit awards has risen to over 97%.' She added that R&C was making good progress in implementing more measures, which are expected to reduce overpayments by a further third.
Those measures include raising the threshold for declaring increases in annual income from £2,500 to £25,000. This means that far fewer payments would be classified as 'over' payments.
The R&C told the PAC that this change would increase overall costs by £500m.
But the PAC also complained that a 'pay now, check later' approach still left the system vulnerable to fraud.
PFmay2007
