08 February 2008
The tax credits system continues to lose £1bn a year as a result of fraud, error and overpayment, a report by the Public Accounts Committee has warned.
The report slammed Revenue & Customs for failing to manage the system effectively, despite spiralling administrative costs.
PAC chair Edward Leigh said: 'The tax credits situation is as serious as ever. R&C's attempts to bring the system under any measure of control have so far not been crowned with conspicuous success. The department has accepted our committee's recommendations on the need to set targets to reduce fraud and error. It has still not put any targets in place.'
Tax credits continue to suffer from the highest rates of error and fraud in central government. R&C estimates that claimant error and fraud led to incorrect payments of between £1.04bn and £1.30bn in 2004/05.
Many claimants continue to struggle to understand tax credits and why they are overpaid. There have been many complaints about the process for recovering overpayments and the ombudsman continues to receive and to uphold a large number of these.
According to the PAC report, the tax credits system has plunged 2 million families into debt to the government every year since the scheme was launched. Vulnerable families in particular face a future of trying to repay the money owed.
However, R&C said recent changes had led to big improvements. 'This report relies on data captured only up to 2006,' said a spokesman. 'Overpayments have fallen by a fifth and accuracy in processing payments has reached 97%. R&C's security measures stopped the vast majority of fraudulent claims before any money was paid out.'
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