Primarolo Applauds Tax Credit 'Success'

by Jason Gorringe, Tax-News.com, London

03 February 2006

Speaking on Wednesday before a Treasury Sub-Committee, the UK's Paymaster General Dawn Primarolo on Wednesday dubbed the country's beleaguered tax credit system a "success" and suggested that with it, the Government is responding to the challenge of the global economy: matching flexibility with fairness to achieve the goals of full employment and tackling child poverty.

At her appearance before the Treasury Sub-Committee, Dawn Primarolo set out the context for the operation of the tax credit system in the UK, with an open, highly mobile and dynamic labour market, in which the flexibility of tax credits plays a vital part, sharpening the incentives to move into and stay in work.

She also drew attention to the much greater take-up and greater value of the current tax credits system relative to its predecessors, the working families’ tax credit and family credit, with around 20 million individuals currently benefiting from tax credits, compared to fewer than 3 million on family credit, and with families on half average earnings receiving almost 5 times as much per year compared to family credit.

According to a Treasury statement, Ms Primarolo also "acknowledged the huge undertaking involved in introducing and administering the tax credits system, and reported on the significant improvements being made to its operation, designed to give families greater certainty".

However, the tax credit system faced criticism from the National Audit Office last October regarding the fiasco which surrounded the system's introduction, and the then unresolved dispute with computer firm EDS over said problems.

Flaws in HMRC's systems led to billions of pounds worth of over-payments, some of which cannot be reclaimed because misunderstanding of the system led to the destruction of more than a million tax records.

Public Accounts Committee chairman Edward Leigh last year described the introduction of the tax credit system as ‘a nightmare’.

He said there was still no reliable evidence from HMRC ‘that the flood of public money being wasted under the previous tax credits scheme through fraud and error has been stemmed to any degree'. Leigh added that HMRC chiefs should have warned ministers of the risks before rushing ahead with the tax credit system.

Recommended