02 June 2006
The Treasury this week stood firm over its decision to administer tax credits from the Revenue and Customs department, despite claims that the system is 'in crisis' and should be moved to the Department for Work and Pensions.
Treasury officials this week revealed that £1.8bn in tax credits overpayments were made during the 2004/05 financial year. It follows £2.2bn in overpayments in 2003/04 and indications that overpayments in 2005/06 will also be substantial, despite government changes designed to reduce errors.
Around half of the overpayments in those two years – around £2bn – could be written off.
David Laws, Liberal Democrat work and pensions spokesman, said the latest overpayments figures exposed a system 'in crisis'. He called for the long-serving minister responsible, paymaster general Dawn Primarolo, to stand down and proposed a revised system, with payment levels fixed every six months to reduce errors.
Laws told Public Finance: 'It also seems logical to move the system of payments and administration to the DWP, with oversight of child support payments going to Revenue and Customs from the DWP.'
Laws claimed that tax credits had been housed at the R&C 'merely for matters of political expediency' to keep it close to its Treasury masters. The tax credits system was the brainchild of Chancellor Gordon Brown.
But a Treasury spokesman said: 'The principle behind tax credits was to move financial support for families and children away from the welfare sector and into the tax system overseen by Revenue and Customs: into the realm of work and not worklessness.'
The Treasury's annual tax credits review, published on May 31, revealed that 529,000 families were overpaid more than £1,000 in 2004/05. In the same year, £556m in underpayments were made. Over 44% of the 2.8 million claimants – 1.2 million people – received incorrect payments, according to Laws.
Brown recently changed from £2,500 to £20,000 the annual income increase within which a claimant's entitlement to tax credits is unaffected.
Laws said that was a 'political' move designed to mask what would currently be considered 'overpayments'.
Perhaps unsurprisingly, the Treasury now expects the figure for overpayments to fall by a third. A spokesman said that other recent changes designed to improve the system include improvements to the central IT system and methods to speed up overpayment clawbacks.
Meanwhile, anti-poverty groups provided a qualified defence of tax credits.
Kate Green, chief executive of the Child Poverty Action Group, said: 'Tax credits have helped millions of low-income families, but they have not always worked as they should have done.
'Behind the £1.8bn figure are the stories of thousands of families who have struggled to survive when overpayments have been clawed back.'
Green called for a statutory right of appeal against overpayment decisions and the provision of face-to-face advice by R&C staff in the DWP's Jobcentre Plus offices.
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