Tax credit fraud costs billions

The Government has been accused by MPs of failing to stop the "unacceptable" levels of fraud and error in the payment of tax credits.

According to the the Commons Public Accounts Committee around £5.8 billion has been incorrectly paid out since the current system was introduced by Chancellor Gordon Brown in 2003.

HM Revenue and Customs (HMRC) has already written off £500 million while a further £1.4 billion is unlikely to be collected.

MPs complained that when the system was originally designed, HMRC failed to set up proper barriers against fraud and error by adopting a "pay now, check later" approach that relied too heavily on finding false claims after payments had been made.

The internet system did not conform with the mandatory security requirements created by the Government's own e-envoy and had to be closed down in December 2005 after "sustained fraudulent attacks" by organised criminals.

An "adequate response" to the problems had still not been created by the HMRC. "Billions of pounds - far more than those who thought up the system ever envisaged - are still routinely overpaid to claimants," said committee chairman Edward Leigh.

He continued: "Tax credits suffer from the highest rates of error and fraud in government. And HMRC seems incapable of mounting a credible and effective response to the flood of money being wasted in this way."

HMRC said take up of tax credits was higher than any previous system of income-related financial support for in-work families, while overpayments had fallen by a fifth between 2003-04 and 2004-05.

"Accuracy in calculating and processing tax credit awards has risen to over 97 per cent and HMRC are making good progress in implementing the package of measures announced in the 2005 Pre-Budget Report, which has increased the flexibility of tax credits and improved certainty for families," a spokesman said.

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