Tax credit overpayments are ‘breathtaking’
By Jonathan Moore
Between £1.31 billion and £1.54 billion of taxpayers’ money is being lost by HM Revenue and Customs (HMRC) each year through fraud or error, a report claimed today.
In addition, a staggering £7.3 billion was overpaid through the tax credit scheme, of which the government is seeking to recover £4.3 billion but has already written off more than £1 billion, or 14 per cent of payments made.
The report, issued by the House of Commons Public Accounts Committee, also highlighted the backlog of more than 16 million pay as you earn (PAYE) cases waiting to be checked as potentially putting billions of pounds of taxpayer money at risk.
“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,” said committee chairman Edward Leigh.
“The tax credit scheme was designed in such a way that there was always going to be a degree of overpayment. It is the scale of that overpayment that has continually caused dismay.”
He described the level of overpayments as “breathtaking”.
Mr Leigh criticised HMRC’s lack of sensitivity in dealing with the complex issue of tax credits and said they were only now beginning to introduce measures to help people navigate through the procedures.
He was also particularly critical of the enormous sums of money being lost through fraud and error.
“I welcome steps being taken by HMRC to strengthen deterrence and prevention but it should place more emphasis on checking high risk claims,” he said.
“It should also adopt a more realistic understanding of fraud which takes full account, even where there is no clear evidence of an intention to defraud, of groups that set out to exploit the system.”
The report said HMRC had collected £225 billion through the PAYE system in 2007-08. It noted the decision to defer the planned transfer of PAYE to its National Insurance Recording System was adding to the massive backlog of cases currently awaiting a decision.
“The tax credit system is fundamentally flawed,” said Liberal Democrat work spokesman Steve Webb.
“Ministers have refused to make the necessary changes for too long. Rather than offering security, it has put millions of families on a financial rollercoaster.
“Ministers should make tax credit payments more stable so that families know the money they receive is theirs and will not be clawed back.”
The report also noted that between £2.9 billion and £3.7 billion could also be at risk because of the 34 per cent of self assessment returns which were filed incorrectly last year.
