Tax Credit farce

The new tax credit system started in 2003, but it has been plagued by complexity, overpayments and fraud — not to mention sheer incompetency and maladministration on the part of the HM Revenue & Customs (HMRC).

The Public Accounts Committee (PAC) reports today that of the £47bn paid out in tax credits in the first three years of the current system, £5.8bn was overpaid to claimants; in 2005—06 there were 367,500 disputed overpayments, 44% of which led to the money being written off; and another £1.4bn in overpaid tax credits is likely to be written off, bringing losses from overpayments to £1.9bn. There have been widespread problems, with claimants, often on very low incomes, being asked to repay money they had spent in good faith; the attempts to recover overpayments from genuine claimants have caused significant suffering to many vulnerable families. And it’s not getting any better:

The department (HMRC) has still not developed an adequate response to the unacceptable levels of error and fraud in the scheme.

Personally, speaking as one in receipt of Child Tax Credits, I think the PAC is are underestimating both the scale of the problem, and the sheer amount of hassle, angst and grief it causes. I regard myself as being able to fight my corner, but I only finally resolved a disputed overpayment for 2003—04 at the end of last month, after over two years of HMRC failing: to respond to — or even answer — letters; to implement their own decisions; or to even be aware that they had already made a decision when I queried why they had not adjusted my payments. Even when Dawn Primarolo wrote to my MP in January and told her that a revised Award Notice had been ’sent’, HMRC did not actually manage to to produce the refund until late April and the Award Notice itself arrived at the end of the month. Oh yes, and the first I knew about HMRC believing there had been an overpayment was when my payments suddenly stopped arriving; it was only some five weeks later, after the second missed payment (and some seven weeks after the date on the Notice itself) that I received a Notice of Overpayment, giving me 30 days from the date of the Notice — which 30 days had, of course, already passed — to appeal.

The whole system is cack-handed and almost designed to ensure that anyone on an incremental salary scheme (eg teachers) gets ‘overpaid’ every year. Not to mention that if you work you are potentially eligible for three different benefits in respect of your children: Child Benefit; Child Tax Credit; and working Families Tax Credit. I think the only sensible solution is to scrap the Tax Credits and increase Child Benefit, while making it taxable, to achieve the same the same net spend.

And now the lunatic who designed this crazy scheme is about to become Prime Minister: it rather takes the edge off Tony Blair’s long-overdue departure.

update 22/05/2007: Good news from HMRC today: only 1.9 million families were overpaid during 2005/2006 and the total amount overpaid fell to only £1.7bn in 2005/2006. Stunningly, HMRC claim that ‘end year adjustments leading to an overpayment have halved since the introduction of new tax credits.’

Meanwhile the number of tax credit claimants taking their overpayment case to the Parliamentary Ombudsman has apparently increased tenfold.