MPs open fire on tax credits system as overpayments bill hits £5.8bn

MPs have renewed their criticism of the troubled tax credits system, which overpaid £5.8bn to claimants in its first three years of operation.

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MPs have renewed their criticism of the troubled tax credits system, which overpaid £5.8bn to claimants in its first three years of operation.

The tax credit IT system has been repeatedly hit by crises, contributing to overpayments to claimants totalling £4bn between 2003-04 and 2004-05. Since then the government announced changes to the tax credit scheme, while a series of changes have been made to the IT system.

Last year, paymaster general Dawn Primarolo told the Commons Treasury committee that the IT problems had largely been ironed out. “IT performance has been significantly improved. In total there have been 300 improvements made to the system since April 2005,” she said, adding that a new software release in November 2005 had delivered “real improvements in operational performance”.

But in its fourth report on tax credits, the powerful Commons public accounts committee paints a picture of continuing overpayments and a lack of basic information about the payments being made.

The MPs’ report notes that the overpayments total has now risen to £5.8bn over the first three years of the scheme, although changes are expected to eventually reduce overpayments by one third.

But HMRC “does not have complete information on the causes of overpayments and is uncertain about how far each measure will reduce overpayments”, the report says.

The MPs’ findings echo concerns raised in the Treasury committee’s report of June last year that HMRC had no idea what role IT systems had played in the tax credits fiasco. “We have seen nothing from the department attempting to assess the contribution made by IT system error,” the Treasury committee said.

The PAC’s inquiry found that while the design of the tax credits system results in overpayments, “there have also been unforeseen overpayments due to software errors”.

The committee’s report say there were still 199 known software errors in the tax credit computer system in October 2005, but the “majority of these errors have since been resolved”.

The report reveals that HMRC has already written off more than £500m of overpayments as unrecoverable and is “unlikely to recover” a further £1.4bn of debt.

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