Tax credit problems 'cost £1.5bn'

Up to £1.5bn in tax credit payments was lost to fraud, accidental overclaims and other errors in 2006/07, the National Audit Office says.

This accounted for 7.2% and 8.4% of all the money given out in credits during this period, it added.

The NAO's head, Tim Burr, said the size of the problem facing HM Revenue and Customs was "significant".

But the proportion of tax credit funding lost in this way was falling, the NAO's report said.

'Respond effectively'

The figure for 2006/07 was between £1.28bn and £1.5bn, it was calculated. This was down from between £1.3bn and £1.64 the previous year.

Mr Burr, the comptroller general, said: "Levels of tax credits error and fraud are significant when compared with the expenditure on the scheme...

"HMRC now has a target and has developed a strategy for reducing error and fraud. It will need to monitor how the measures it adopts are contributing to the achievement of the target and to respond effectively."

Treasury Minister Jane Kennedy said levels of fraud and error were falling, and that no more that 5% of tax credit payments should be lost in this way by April 2011.

Liberal Democrat work and pensions spokesman Jenny Willott said: "The tax credits system is so complex that it is abused by fraudsters, misunderstood by claimants and mismanaged by officials."

Earlier this year it was revealed that rightful tax credit claimants had been overpaid by £1bn in 2006/07.

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