UK Government May Write Off GBP5bn In Lost Tax Credits

by Robert Lee, Tax-News.com, London

23 May 2007

The extent of the government's losses as a result of the ongoing tax credits fiasco may be much more severe than first thought, according to new figures published on Tuesday.

The figures show that the government overpaid GBP1.7 billion in tax credits in 2005/6, bringing the grand total of overpayments since the scheme was introduced in 2004 to GBP5.7 billion.

The government is already writing off almost GBP2 billion as irrecoverable. However, according to new research by the Liberal Democrat Party, an additional GBP3.6 billion has been lost through the tax credit system due to fraud, the vast majority of which is never likely to be recovered. The Lib Dems say that this brings the true total of tax credit losses to GBP9 billion, of which GBP5 billion will have to be written off by the government.

"These figures are a disgrace," commented Liberal Democrat Shadow Work and Pensions Secretary, David Laws. "The Treasury is supposed to be the guardian of public money, but it has presided over waste on a monumental scale."

"One pound out of every GBP5 paid out by (Chancellor of the Exchequer) Gordon Brown in tax credits has been overpaid," added Laws. "Not only has the taxpayer lost out, but the government is now trying to claw back money from people on very low incomes - even when it was government mistakes which led to errors. The existing system is both wasteful and grossly unfair. For all his talk about ‘listening and learning’, Gordon Brown has so far failed to implement the majority of the Parliamentary Ombudsman’s recommendations on tax credits which were made two years ago."

The Commons government spending watchdog, the Committee on Public Accounts, heard earlier this month that the tax credits system suffers from the highest rates of fraud and error in the public sector. Much of the blame for the system's failings was initially placed at the door of EDS, the American IT systems firm contracted to build the tax credits computer system. However, according to Edward Leigh, Chairman of the Public Accounts Committee, government attempts to improve the system have been woefully ineffective in the intervening four years.

HM Revenue and Customs has paid GBP47 billion under the current tax credit system in the three years since it was introduced.

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