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09/05/2007
£1.4bn set to be written off Tax Credits
The Public Accounts Committee has indicated that £1.4 billion looks set to be written off in the struggling Tax Credit scheme administered by HM Revenue and Customs.
The Chairman of the Committee of Public Accounts, Edward Leigh, said: “This is the fourth time that this Committee has had to examine the current tax credits system – and it will not be the last. Billions of pounds, far more than those who thought up the system ever envisaged, are still routinely overpaid to claimants. Very large amounts have to be written off. And the attempts to recover overpayments from genuine claimants have caused significant suffering to many vulnerable families."
Mr Leigh questioned if the changes made to the system would make any difference. He said: "HMRC itself is uncertain how effective they will be. Nor does it have up to date information on the amount of public money lost through claimant error and fraud. It is quite extraordinary that the Department doesn’t routinely estimate this and or set targets for reducing levels."
The committee have pointed out that tax credits suffer from the highest rates of error and fraud in government and that HMRC seems "incapable of mounting a credible and effective response to the flood of money being wasted."
HMRC has paid £47 billion under the current tax credit system in the first three years since it was introduced in 2003.
Tax Credit awards are based on the claimant’s circumstances for the full tax year and payments are provisionally made on the basis of circumstances for the previous year. However, final awards are based on actual circumstances and, because incomes tend to increase, many overpayments are made. These are calculated to be around £5.8bn in the first three years of the scheme.
Despite radical alteration of the income change threshold which was raised from £2,500 to £25,000, the PAC said it was unlikely to recover a further £1.4 billion of debt.
Meanwhile, the National Audit Office had separately estimated the cost of the changes in the system to between £400 and £600 million.
Tax credits suffer from the highest rates of error and fraud in government.
In 2003–4 between £1.06 billion and £1.28 billion was incorrectly paid to claimants. Despite these high levels, targets for reducing them were not expected to be introduced until spring 2007, when the error rates for 2004–05 were calculated.
Following attacks by organised criminals, HMRC closed the tax credits website in December 2005.
(SP/JM)
The Chairman of the Committee of Public Accounts, Edward Leigh, said: “This is the fourth time that this Committee has had to examine the current tax credits system – and it will not be the last. Billions of pounds, far more than those who thought up the system ever envisaged, are still routinely overpaid to claimants. Very large amounts have to be written off. And the attempts to recover overpayments from genuine claimants have caused significant suffering to many vulnerable families."
Mr Leigh questioned if the changes made to the system would make any difference. He said: "HMRC itself is uncertain how effective they will be. Nor does it have up to date information on the amount of public money lost through claimant error and fraud. It is quite extraordinary that the Department doesn’t routinely estimate this and or set targets for reducing levels."
The committee have pointed out that tax credits suffer from the highest rates of error and fraud in government and that HMRC seems "incapable of mounting a credible and effective response to the flood of money being wasted."
HMRC has paid £47 billion under the current tax credit system in the first three years since it was introduced in 2003.
Tax Credit awards are based on the claimant’s circumstances for the full tax year and payments are provisionally made on the basis of circumstances for the previous year. However, final awards are based on actual circumstances and, because incomes tend to increase, many overpayments are made. These are calculated to be around £5.8bn in the first three years of the scheme.
Despite radical alteration of the income change threshold which was raised from £2,500 to £25,000, the PAC said it was unlikely to recover a further £1.4 billion of debt.
Meanwhile, the National Audit Office had separately estimated the cost of the changes in the system to between £400 and £600 million.
Tax credits suffer from the highest rates of error and fraud in government.
In 2003–4 between £1.06 billion and £1.28 billion was incorrectly paid to claimants. Despite these high levels, targets for reducing them were not expected to be introduced until spring 2007, when the error rates for 2004–05 were calculated.
Following attacks by organised criminals, HMRC closed the tax credits website in December 2005.
(SP/JM)
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