Lib Dems attack tax credit costs

Tax credits are designed to help working families

The costs of managing tax credits have risen from £36.1m to £403m in four years, Treasury figures have revealed.

The statistics also show that 65.5m award notices have been issued in just over two years even though only six million households receive tax credits.

The system has come under fire recently for problems with its payments and the Lib Dems, who obtained the figures, says the scheme is an "expensive mess".

But the Treasury says costs obviously rise as more people receive credits.

It calls criticisms of the figures "ridiculous" as the average administration costs have fallen in compared to total payments.

Following stinging criticism in two reports, the chancellor last month said he wanted to ensure the IT system worked better and that tax credit forms were "clearer".

The figures come as David Varney, chairman of Revenue and Customs, said there would have to be debate on whether the tax credit structure for low-income families was correct if there were real problems in delivery.

But he said it was too soon to make a sensible judgement and a "few cycles" were needed to see how the system worked.

'Nightmare'

Lib Dem work and pensions spokesman David Laws obtained the figures in a parliamentary answer.

He said: "These figures show that the administration of the tax credits system is an increasingly expensive mess.

"Gordon Brown's flagship tax credits scheme seems to have turned into a bureaucratic nightmare.

"The Treasury needs to admit that the current tax credits system just isn't working.

"What we now have is a system which is complex and bureaucratic to administer and in which overpayments are endemic - driving people on low incomes into debt and despair."

Mr Laws suggested restoring a system of fixed half-yearly payments, as were used for Family Credit and Working Family Tax Credit.

'Ridiculous'

But a Treasury source claimed Mr Laws had failed to understand that six million families were now benefiting from a credit system at a lower average administration cost.

The source said: "This is ridiculous. If you are introducing an entirely new tax credits scheme and going from zero take up to 80% take up then of course the absolute costs of administering the scheme are going to rise."

But the administration costs as a share of the total payments have fallen from 3.3% in 1999 to 3% in 2004, says the Treasury.

The cost of administration per family benefiting has also fallen from £105 under the old Family Credit to £72 per family in 2003/4, it says.

The Treasury also says the number of award notices reflects the flexibility of a system which sends notices every time a claimant's circumstances change.

In the wake of the figures and the comments from Mr Varney, Conservative shadow chancellor George Osborne said it was "a scandal that something meant to help people is causing so much misery and pain".

"Gordon Brown needs to acknowledge whether the ongoing problems are a result of his obsession with fiddling and complexity or gross failure of his ministers and department to administer the payments effectively," he said.