en-us http://backend.userland.com/rss Your Friends @ Myvesta.org.uk (stever@myvesta.org) myvestaukblog_archive.html stever@myvesta.org 114597484055204305 The government has admitted it has massively overpaid tax credits to families for the second year in a row.

The Commons Public Accounts Committee estimates that in 2004-05 Revenue & Customs (HMRC) overpaid claimants by £2.2bn, the same amount as in 2003-04.

The MPs also say problems continue to plague the working of the HMRC tax credit computer system.

HMRC said changes to the tax credits systems would help cut future overpayments by one-third.

But a government spokesman admitted that "we expect the total level for the second year to be similar" to the first year in which tax credits started to be paid.

The MPs' report says it is deplorable for hundreds of thousands of families to have to find the money for repayments.

'Gigantic scale'

"An element of overpayment to claimants was an inherent part of the design of the tax credits system," said the committee's chairman Edward Leigh.

"What came out of the blue for the government was that overpayment would routinely occur on such a gigantic scale - an estimated £2.2bn for 2003-04 and probably again for 2004-05.

"Doubts about HMRC's controls over fraud were certainly not lessened when evidence emerged late last year of a serious assault on the system by organised criminals."

The government has previously admitted that around £1bn of the overspend will not be recovered from the first two years of operation of the system.

And last year, the BBC News website revealed that the tax credit computer system was being targeted by gangs of fraudsters, which led to the closure of the online tax credit application system.

This involved the theft of the identities of thousands of job centre workers and staff at Network Rail.

Computer problems

In the last pre-budget report, Chancellor Gordon Brown announced plans to make things easier for claimants by simplifying the system.

From now on claimants only have to notify the HMRC of their pay increases if they exceed £25,000, rather than the £2,500 limit that operated before.

But Mr Leigh said it was too early to tell if this and other measures would be successful in limiting the scope for overpayments and recovery claims.

The committee's report also returned to the first problem publicly identified with tax credits - failures with the specially designed computer system.

Although the contractor responsible for supplying it, EDS, has agreed to refund the HMRC with £70m in compensation, the Public Accounts Committee cast doubt on the probity of the settlement.

It pointed out that £26.5m would not in fact be paid unless EDS won further government contracts.

Mr Leigh described this as "an invidious position."

A spokesman for HM Revenue & Customs said the government continued to believe a "flexible and responsive" system, with the level of award designed to match a family's needs and change as their circumstances did, was preferable to fixed awards.

He said by increasing to £25,000 the amount a family's income can rise in the year before they lose any tax credits, future overpayments would be cut by around one-third.

"As a result there is greater certainty for families who experience changes in their income," he said.

However this change will not have any effect on past overpayments, as it has only co come into effect in the current financial year - the fourth in which the tax credit system has operated.

BBC New
April 25th, 2006