New bungle hits 'disastrous' tax credits

Ministers faced a fresh row over tax credits today as it emerged that thousands of families have had payments cut without warning.

The cuts have been introduced because of overpayments made during the past nine months, with "computer errors" being blamed.

To claw the money back, the Inland Revenue is reducing pay-outs by up to a third in many cases - while some families have had all their credits removed.

In many cases, the Revenue is seeking to reclaim between £800 and £1,000 from families, according to advice centres.

The confusion has hit payments of new-style child or work tax credits which benefit-about six million households and were introduced in a move to "simplify" the system.

Ministers have claimed the new method has been working well. But families are now receiving letters from the Inland Revenue stating they have been "reassessed" - and are only entitled to lower payments, or none at all in some cases.

The National Association of Citizens' Advice Bureaux has written to the Government to protest, and to demand swift action to protect poor families. The affair threatens to develop into a major new headache for Gordon Brown and Paymaster General Dawn Primarolo, who is responsible for the Revenue.

Poorer families will be entitled to special "hardship" payments to help them cope - but the NACAB says many of them have not been told they need to apply for these payments.

The Child Tax Credit and Working Tax Credit were introduced in April, replacing the old-style Working Families' Tax Credit and the Disabled Person's Tax Credit.

But their launch was marred by a series of delays and computer glitches which forced Ms Primarolo to make a public apology. Last month the chairman of the House of Commons public accounts committee, Tory Edward Leigh, hit out at the " disastrous" launch.

He said it had caused "unnecessary suffering to a large number of genuine claimants, many of them vulnerable people in extremely difficult circumstances".

The new tax credits were introduced in an attempt to reduce overpayments.

The last three years of the previous system may have seen £2bn - between 10 per cent and 14 per cent - of the old-style credits given out in overpayments.

These were either in error or as a result of fraudulent claims, such as failing to declare a partner's income, according to a National Audit Office report.

Last month an Inland Revenue spokeswoman said: "The improved controls we have put in place for new tax credits should help to reduce overpayments."

Shadow work and pensions secretary David Willetts said the chaos gripping the system was "not just teething problems" and claimed some families were now suffering cuts of around £40 a week.

He said they were paying the price of a failed " experiment" by Mr Brown and added: "So far the evidence is that it is not working and that it is causing a lot of distress."