Tax credit overpayments reach £1.8bn
The Liberal Democrats have called for the minister in charge of tax credits to resign after the government admitted £1.8 billion was overpaid in the system last year.
The figures for 2004-05 show an improvement on the previous year’s total of £2.2 billion, but do little to dispute the conclusion of a committee of MPs in April that overpayments are “inherent” in the tax credit system.
According to statistics from HM Revenue and Customs, almost two million individuals had their tax credits overpaid, of which 52 per cent – or 900,000 – were to people on an income of less than £20,000 a year.
Campaigners have warned that many families face major financial difficulties when this overpaid money is taken back, usually through their bank account without prior warning.
Chancellor Gordon Brown last year announced plans to make the system more flexible and reduce the number of people who were receiving more than they were entitled to.
He refused to scrap the system, which was claimed by 5.6 million low-income families in 2004-05, saying it had lifted thousands of children out of poverty.
But he admitted changes were needed, and increased the amount by which a family’s income could change, from £2,500 to £25,000, before they had their credits cut. He also put a cap on the level of overpayments that could be taken back in any year.
However, opposition MPs have seized on today’s figures as proof that the system is not working, and Lib Dem work and pensions spokesman David Laws insisted the minister in charge, paymaster general Dawn Primarolo, must quit.
“Last May, the paymaster general claimed that the system was working well for the vast majority of families. But today’s figures show that the minister is clearly in denial,” he said.
Mr Laws added: “Recent modifications to the system are too little too late. Meanwhile Dawn Primarolo continues to bury her head in the sand and blocks parliamentary scrutiny of this crucial issue.
“New ministerial leadership is now needed to introduce a radical overhaul of the way tax credits are administered.”
However, the Conservatives insisted the ultimate responsibility lay with Mr Brown. Shadow paymaster general Mark Francois warned: “This government is in meltdown and they have Gordon Brown to blame for it.
“He has created a system of tax credits which is far too complicated. Apart from failing the needy, the system is not fit for purpose.”
Last night a spokesman for HM Revenue and Customs insisted lessons had been learnt from the problems encountered in the first year of the tax credit system.
“These changes give greater certainty to families while maintaining flexibility to respond to changing circumstances,” he said.
“The 2005 pre-Budget report set out a further substantial package of measures. Once fully implemented, they are expected to reduce overpayments in future years by around one third.”
