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Last Updated: Wednesday, 1 February 2006, 00:02 GMT
Tax credit minister faces critics
By Julian Knight
BBC News personal finance reporter

Dawn Primarolo
Paymaster Dawn Primarolo is likely to face criticism
Dawn Primarolo, the Paymaster General, could be forgiven for feeling some deja vu during the meeting of parliament's Treasury Select Committee on Wednesday.

Ms Primarolo will again be defending her department's handling of the government's flagship tax credits.

It has been nearly three years since the minister first faced the Committee over the then newly launched credits.

At the time, she described the credit, designed to aid low income working households, as a "huge success."

But set against a string of problems for people looking to register for the credit and for those suffering the aftermath of widespread overpayment, the minister's upbeat assertion has been met with derision.

'Lost control'

At the height of the chaos, the BBC News website was receiving hundreds of e-mails a day from frustrated tax credit claimants, many of whom had fallen into debt because of delayed payments.

In a heated Treasury Select Committee hearing in July 2003 one MP asked Ms Primarolo: "Have you not lost control of your department?"

The minister will not receive a friendly reception... MPs on the committee have been besieged by constituents who are in a mess
Lorely Burt MP

Ultimately, Prime Minister Tony Blair had to stand up in the House of Commons and issue an apology for tax credit chaos after the National Audit Office (NAO) identified "unacceptable" levels of fraud and error.

In total, the NAO estimated that 1.8 million claimants were overpaid in 2003-4.

Many of them subsequently faced hardship after being asked to repay money they had already spent.

Rough ride

Wind forward to 2006, and Ms Primarolo is likely to be in for another rough ride.

"The minister will not receive a friendly reception... MPs on the committee have been besieged by constituents who are in a mess," Lorely Burt, Liberal Democrat MP and member of the Treasury Select Committee told BBC News.

"Credit overpayment is still causing horrendous problems and the charities, like Citizens Advice, are frankly doing the government's job for them by dealing with it."

Under attack

The latest problem dogging tax credits is fraud.

Fraud specialists believe the gangs view the tax credit system as "low-hanging" fruit

As the BBC News website first exposed last October, the tax credit system is under attack from gangs of organised fraudsters.

According to an investigation by Liberal Democrat MPs, the first signs of the fraud were showing up as early as 2004.

And parliamentary questions have exposed that HM Revenue and Customs were becoming worried by January 2005, while Ms Primarolo was told in June of that year.

Among the danger signs was a 91% rise in claims from "single disabled adults without children" in just a year - well outside expected norms.

By late 2005, it emerged that the personal details of up to 13,000 Department for Work Pensions staff had been stolen by tax credit fraudsters.

The result: the closure of the online portal for applications on 1 December.

Since then, rail unions have been infuriated by the theft of 4,000 Network Rail staff details. The blame for both incidents is being laid at the door of the tax credit fraudsters.

And this may only be the tip of the iceberg, there is as yet no definite figure available for the amount of money being pocketed by the fraudsters.

Job Centre plus office
Job Centre staff have had their personal details stolen

The Revenue has identified irregularities in 30,000 claims, a spokeswoman told BBC News that a "large element of these are suspicious."

The Treasury Select Committee are likely to demand more definite answers on Wednesday.


But the Revenue claims to have got its act together over tax credits.

The problems are being combated and reduced a great deal... Tax credits have been a huge undertaking with more than 6 million families benefiting
Revenue & Customs spokeswoman

After the horror headlines of last summer, Ms Primarolo instituted a six-point plan for reform of the tax credit system.

Clearer guidance for claimants, improving customer service and IT systems are at the heart of the reforms.

Crucially, the level of income that claimants can earn in a tax year before the Revenue claims back previous tax credit payments was increased ten-fold in December.

The Treasury is hoping this large increase in what is called "earnings disregard" will prevent 95% of people whose fortunes improve from having their credits clawed back at the end of the financial year.

"The problems are being combated and reduced a great deal," a Revenue spokeswoman told BBC News.

"Tax credits have been a huge undertaking with more than 6 million families benefiting. Upwards of half a million children have been lifted out of poverty as more people on low or moderate incomes have been reached more than through any other single measure," she added.

As for fraud, the Revenue spokeswoman points out that it was its own internal checks that detected the problem in the first place.

"We take this very seriously indeed and have being passing on information to the banks," she said.

"We have ensured that DWP staff and those at Network Rail have not been too badly affected - for example, we have advised them how to check their consumer credit records."

On Wednesday, though, in front of the Committee Ms Primarolo may feel she has heard it all before.

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