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Last Updated: Wednesday, 1 February 2006, 16:46 GMT
Minister makes tax credit defence
Dawn Primarolo
Paymaster Dawn Primarolo said the tax credit system was improving
The minister in charge of tax credits has said the system is getting better at dealing with overpayment problems.

"Accuracy is improving," Paymaster General Dawn Primarolo told the Treasury Select Committee.

But the minister admitted that her department was still failing to meet its target of dealing with tax credit overpayment disputes within four weeks.

The tax credit system has been dogged with problems ranging from clawbacks of overpayment to organised fraud.

As far as overpayment disputes were concerned, the minister told the committee that it was taking five weeks to resolve disputes - with IT problems causing some to take much longer.

The minister also said she had been first told about the potential for an attack by fraudsters on the Revenue & Customs online tax credit application portal in November.

At what point are we going to have a stable state?
Sir Michael Fallon MP

Political opponents have said they believe she was told about the potential for fraud much earlier.

The Revenue's online portal has been closed since early December.


Launched in 2003, the current tax credit system has proved controversial.

In the early days it was unable to cope with the number of applications. Since then, widespread overpayments have seen families lose thousands as excess payments have been clawed back.

Most recently, the system has come under wholesale assault by organised fraudsters.

The Treasury Select Committee decided to launch an enquiry into the tax credit system after the National Audit Office revealed that 1.8 million claimants were overpaid in 2003-04.

This was an "unacceptable" error, the National Audit Office said.

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

Sir Michael Fallon, the Conservative chairman of the Treasury sub-committee, asked: "At what point are we going to have a stable state?"

In response, the minister defended the tax credit system as helping labour market flexibility and the well-being of children.

"700,000 children lifted out of relative poverty since 1997 - they help every family with some families receiving more help when they need it most," Ms Primarolo told the Committee.

Nevertheless, the minister faced tough questioning over the administration of tax credits, IT and a recent attack by fraudsters which has led to the closing of the online application.

The Paymaster General has already been forced to admit in a written Parliamentary answer that she knew about this problem in June for sure, and probably much earlier
David Laws, Liberal Democrat Work and Pensions spokesman

Ms Primarolo said the tax credit IT was "stable" and helpline performance improved with "97% of callers are getting through on the day".

As for overpayment, the minister said that 300 separate improvements had been made to the tax credit system since April 2005.

The minister promised further reforms for 2006, including:

  • From 13 February: extend additional payments to people who are in financial difficulties due to the reclaiming of tax credit overpayment
  • From April: payment to people in financial difficulties to be increased
  • A pilot project will place tax credit staff in some Citizens Advice bureaux

As for the recent attack on the system by fraudsters, the minister said she had only become aware that there was a problem in November 2005.

Responding to Ms Primarolo's assertion, Liberal Democrat Work and Pensions spokesman David Laws said that the minister was misleading parliament.

"The Paymaster General has already been forced to admit in a written Parliamentary answer that she knew about this problem in June for sure, and probably much earlier," Mr Laws said in a statement.

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

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