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Tax credits fiasco due to maladministration

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21st Oct 2005
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Parliamentary ombudsman Ann Abraham gave a withering condemnation of the tax credits system and the government's response to the fiasco to MPs this week.

Giving evidence to the public administration select committee, Mrs Abraham was particularly scathing about the way HMRC seemed to 'pick and choose' which of her recommendations to follow.

When asked by chairman Tony Wright MP if the system was characterised by 'systemic maladministration, she replied: "Yes."

She revealed that the number of complaints coming into her office had increased and, when asked how long it would take to sort out the system, said: "This is going to take some time to put right and I think that is years rather than months."

Six million families receive payments from the scheme, which was launched in 2003. Latest figures reveal some 1.9 million families have experienced difficulty with the scheme.

In a report in June, Mrs Abraham was critical of the way the system automatically claws back benefits which have been overpaid. She recommended that there should be a gap between spotting the overpayment and beginning repayment.

She also recommended that all overpayments caused by "official error" should be written off ' something the government has refused to do.

Ms Abraham told the committee she had "no intention" of compromising on her recommendations.

She added: "Unless the Revenue really grasps this and puts itself in the position of people on the receiving end of automated notices and automated recovery, then I think there are fundamental problems."

David Varney, chairman of HMRC said he could not accept the ombudsman's verdict of maladministration. Overpayments were "an intrinsic part of the system that parliament approved".

He did reveal that steps are being taken to introduce a computer system to suspend recovery of disputed overpayments ' but this is likely to take more than a year. In the meantime, officials are considering bringing in a manual system.

Mr Varney also said that people were not forced to pay back overpayments if it was thought that it would have been "reasonable" for them to assume their payments were accurate.

But Lib Dem MP Jenny Willott said the complexity of the forms made it impossible for people to know what tax credits they should be getting and what constituted an overpayment.

MPs described the system as fundamentally flawed and complained that it was creating a "crisis" for many constituents.

Mr Wright said: "I don't think I have read a more devastating report from the ombudsman in recent times than the one on the tax credits system."

Labour MP Paul Flynn told officials from HM Revenue, who were also appearing before the committee: "You have managed to outdo the Child Support Agency, whose incompetence is on an Olympic scale."

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