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Government slams "misleading" tax credit claims

03/09/2007

The government has accused the Conservatives of "misleading" the public by claiming that ministers may be forced to write-off £500 million of tax credit overpayments.

Shadow chancellor George Osborne is calling for an investigation onto the entire tax credit system after claiming that overpaid tax credits may have to be written off because officials failed to follow the correct legal procedures in attempting to claw the money back from claimants.

Mr Osborne made the claims after a whistleblower at HM Revenue and Customs (HMRC) told the Conservatives that the government might be forced to write off more than £500 million in overpayments after failing to tell some families who had received excessive amounts that their payments were being reviewed.

It is claimed that officials at the government agency failed to follow section 18 of the Tax Credit Act 2002, which requires them to notify households if it is suspected that they have been paid too high a level of tax credits.

The first indication that an error may have occurred apparently came in the form of a written ministerial statement to the House of Commons, shortly before the summer recess. In the brief statement Treasury minister Jane Kennedy revealed that officials had "identified an administrative problem with a number of older tax credit awards".

Commenting on claims that the government may now be forced to write off millions of pounds in overpayments, or to pay back money clawed back from tax credit claimants who received too much cash, the Conservatives accused ministers of "covering up the full truth" of the matter.

"We need full disclosure of the scale of this problem, how many claimants are involved, how much the Treasury will have to pay back and what the administrative cost of putting it right will be," said Mr Osborne.

However an HMRC spokesperson said that reports that the agency would be forced to write off £500 million of overpayments were "completely misleading".

"HMRC estimates that costs will be around £20 million. As ministers announced to parliament in July, HMRC is reviewing a number of older tax credit awards where information came to light after an award was finalised," added the spokesperson, who insisted that the problem was a "procedural matter".