By Richard Johnstone | 14 February 2013
Revenue & Customs has missed its own target to cut fraud and error in tax credits, with more than £2bn in incorrect payments made in 2010/11, the National Audit Office said today.
The watchdog’s report, Tackling tax credits error and fraud, examined R&C’s progress in reducing the proportion of wrong payments from 9% of the total paid in 2008/09 to 5% by 2010/11.
It found the department had failed to hit this target, with losses still around 8%, or £2.27bn, in that financial year. An extra £850m was lost compared with the target.
While the department had made efforts to reduce error, it had not yet developed an ‘effective response’ to the problem and was not achieving value for money, the report said.
When setting the target, R&C put in place a new approach to process tax credit claims, with improved checks from April 2009.
Through a range of activities, including providing better support to claimants and tackling non-compliance by applying a risk-scoring criteria to applications, the department believed it would meet the target. However, it overestimated the impact of its activities, and an initial estimate that losses of £1.4bn had been prevented in 2010/11 was revised to under £500m.
A substantial number of incorrect awards were made, the report added. In 2010/11, around 1.4 million awards were made paying claimants were paid more than they were entitled to.
In June last year, auditor general Amyas Morse qualified R&C’s accounts because of the level of error and fraud in the payment of tax credits.
Speaking today, he said the tax credit system was ‘complicated’ and R&C faced ‘significant challenges in achieving value for money.
He added: ‘R&C deserves credit for demonstrating innovation, but it has further to go to achieve sustainable reductions in tax credits error and fraud. To tackle error and fraud effectively, there needs to be an improved understanding of risks and better use of information.’
R&C said it had further strengthened its approach in 2011/12 through better use of data analysis, and managed to stop £620m in incorrect payments that year compared with £480m the previous year.
A spokesman added: 'We are now taking a more strategic approach to managing our resources, resulting in us answering phone calls faster and turning post around more quickly than ever before.
'The NAO have recognised how well HMRC manages change, and how cost reduction and reinvestment plans are aligned with long-term plans to maximise revenues, and improve customer service.'
However, Public Accounts Committee chair Margaret Hodge said R&C had missed its own target ‘by a mile’.
She added: ‘There are some signs of improvement. Since 2009, R&C has tried to be smarter and sharper in the way it tackles error and fraud, and has taken steps to improve its understanding of the problem in order to target resources more effectively. It has made welcome inroads into tackling some categories, such as childcare and disability.
‘But R&C has made little progress in other areas, such as claims that do not include a partner or provide an accurate number of hours worked. These two risk categories alone account for over £1bn worth of the total value of error and fraud in 2010/11. R&C needs to develop a rigorous plan for routing out error and fraud in each and every category if it is to achieve a sustainable reduction in losses.’