Page last updated at 00:41 GMT, Tuesday, 24 March 2009

MPs 'dismayed' over tax credits

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A claimant's income can now rise by 25,000 before a tax credit is revised

The overpayment of tax credits is still continuing at a "dismaying" level, says a report from a committee of MPs.

The Public Accounts Committee says overpayments, which are then clawed back from claimants, are still running at £1bn a year.

The MPs said the overpayments were a burden on hundreds of thousands of the most vulnerable people in society.

Overpayments amounted to £7.3bn between 2003 and 2007 with nearly £3bn likely to be written off as unrecoverable.

"The tax credit scheme was designed in such a way that there was always going to be a degree of overpayment," said Edward Leigh MP, Chairman of the Public Accounts Committee.

"It is the scale of that overpayment that has continually caused dismay.

"It is distressing that many of the families that have to make repayments to the department, on average £770 for a single year, are highly vulnerable and struggling in the economic downturn," he added.


Since the tax credits system was introduced in 2003 its has been dogged by problems including administrative chaos in its early years, overpayments, underpayments, and huge frauds.

We have reduced overpayments by more than half over the last three years and made the circumstances in which we write off overpayments much clearer

The built-in overpayments to claimants, who might then face recovery demands from HM Revenue & Customs (HMRC) if their circumstances improved, was ameliorated in 2006.

The system was altered so that claimants would have to benefit from a much larger increase in their incomes - more than £25,000 - before their claims had to be recalculated with the possibility of triggering a refund to the authorities.

"Nevertheless, overpayments continue to affect many people, including some of the most vulnerable in society," said Mr Leigh.

"Many hundreds of thousands of people are constantly worried about incurring overpayments.

"The department has not given claimants the support they need in making claims and reporting changes in circumstances, and it has assumed too much on the part of claimants in their understanding the tax credits system," he added.


AN HMRC spokeswoman said the system had improved considerably.

"We have reduced overpayments by more than half over the last three years and made the circumstances in which we write off overpayments much clearer," she said.

"When a family or individual reports a change in their circumstances the tax credit award is adjusted to track the change - this means over and under payments will be kept to an absolute minimum."

Tax credits have been a centre-piece of the Labour government's plans to encourage more people to get back into work and lift the poorest families out of poverty.

In the first four years of tax credits, £85bn was paid out to claimants.

But some claimants were underpaid by £2bn in that time, along with the continued overpayments to 1.3 million families, the MPs said.

And by 2006-07, between 7.2% and 8.4% of all claims were still mistakes due to error or fraud.

In their report the MPs also pointed to problems with the PAYE income tax system, which they said had a huge backlog of 16m cases, as of March last year, which need manual checks to ensure they are accurate.

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Yorkshire Post MPs slam 1bn fiasco of tax credits scheme fixed by Brown - 33 hrs ago
The Register Failed tax system still causing grief - 35 hrs ago
Grimsby Telegraph Families fear tax credits clawback - 44 hrs ago
Telegraph People 'too scared' to apply for tax credits - 46 hrs ago
Guardian Unlimited Families fear tax credit claims, warn MPs - 47 hrs ago

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