Tax credit overpayments hit £2bn for second year

The government has admitted that nearly £2 billion worth of tax credits have been overpaid for the second year running.

According to the latest figures from the Treasury, a total of £1.8 billion worth of tax credits were paid in 2004/05, with more than 1.9 million claims being overpaid.

In 2003/04, almost 1.9 million claims were overpaid, at a total cost of £2.2 billion.

Overpayments are a part of the system, which was designed to be "flexible and responsive" and take into account changes in families' income, rather than be based on fixed payments.

The government said that people would not be forced to pay back the money, provided that the overpayment was the fault of the system, rather than a change in circumstances.

However, Citizens Advice warned that the situation had previously forced families into poverty in the past.

The scale of the overpayments forced the government to introduce some changes to the system, which were outlined in the 2005 pre-budget report. The government said that the changes would help to reduce overpayments by around a third, once they were fully implemented.

The Treasury also said that the value of the overpayments had fallen by more than a fifth since the first year of the operation.

However, the Liberal Democrats have described the administration of tax credits as "a system in crisis" and called for Paymaster General Dawn Primarolo to be sacked.

Work and Pensions Secretary David Laws said: "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 - in actual fact 44%, over 2.8 million people, received incorrect tax credit payments.

"The minister has known of the systematic failures in the tax credit system for years and today's figures are yet more evidence that too little has been done to rectify them. 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."

The Conservatives also criticised the tax credit system, calling it "clearly unfair" and "overcomplicated".

Shadow Paymaster General Mark Francois said: "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.

"Gordon Brown needs to acknowledge whether the ongoing problems are a result of his obsession with fiddling and complexity, or the gross failure of his ministers and department to administer the payments effectively," he said.

(KMcA/SP)