MPs have renewed their criticism of the troubled tax credits system - the flagship welfare scheme introduced by chancellor Gordon Brown - as new figures reveal overpayments in to claimants have hit £5.8bn 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 as Brown prepares to take over as prime minister from Tony Blair, the powerful Commons public accounts committee has painted a picture of ongoing crisis in his flagship progranmme, with continuing overpayments and a lack of basic information about payments, fraud and error levels.
The MPs’ fourth report on tax credits 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.