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Parents overpaid £2bn tax credit

Steve Doughty|Daily Mail
13 April 2012

GORDON Brown's tax credit system paid out almost £2bn too much in benefits to single parents and families last year, the Government admitted yesterday.

The losses, and other wrong tax credit payments, mean that more than £1 in every six spent on the Chancellor's flagship state benefit is going astray.

Many single parents and lower income families may be cheating the system by understating their real income, a report suggested. In other cases, they were paid too much because of bureaucratic bungling by those running the system.

Labour MP and former social security minister Frank Field said: 'It's difficult to defend the system as a targeted benefit when one in every £6 is wrongly allocated.'

According to HM Revenue and Customs, which runs the system, £13.5bn was paid in the financial year ending April 2004. But more than £1.9bn was overpaid to just under 1.9m people - meaning on average each overpaid claimant received £1,000 too much.

Almost £750m in overpayments went to families who already had incomes of £20,000 a year and above.

Tax credits, first introduced by Mr Brown in 1998, were aimed at reducing child poverty, in particular by subsidising single mothers who work. They currently fall into two classes, Child Tax Credit and Working Tax Credit. The first is paid to everyone on a low income with children.

The second is a subsidy for those in work, goes predominantly to people with children, and tops up wages. It can be paid to those earning as much as £58,000 a year, and can include up to £140 a week to pay for childcare.

Yesterday's figures show that 2m single mothers are among claimants and that the average claim is £2,639, more than £50 a week. Among people who claim both sorts of tax credit, the average claim is £5,795 - over £100 a week.

HMRC said that the vast majority of overpayments were due to rising family incomes and the legacy of computer problems when the system was introduced two years ago.

'Clearly, a key challenge now is to encourage the reporting of such rises to the Revenue more quickly in order to minimise people's overpayments in the future,' a statement said.

How one mum was left paying for the taxman's mistakes

AT THE end of last year, Money Mail and This is Money revealed how one reader, Nikki Box, of Spalding, Lincolnshire, had received a demand for more than £10,000 in back payments and penalties for overpaid tax credits.

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This stemmed from a mistake made with her claim years ago. Nikki, 32, who has a daughter, Emily, nine, has had a desperately difficult few years.

Five years ago, her marriage collapsed and she and Emily were left homeless. Rather than demand a home from the council, the pair moved in with Nikki's mother, Liz Coulls.

Nikki got a job at a food company and now works as an export co-ordinator, earning £14,250 a year. When she started work in August 1999, Nikki discovered she could claim the childcare element of the now-defunct Working Families Tax Credit. She declared on her application form that Emily was cared for by her grandmother, Liz.

Nikki says that an officer from the tax credits office rang her saying that her mother would need to be registered as a childminder before Nikki could qualify. The officer told Nikki how Liz could get registered, and she duly did so.

In August last year, the Inland Revenue wrote telling Nikki that it believed that since April 2003 she had been incorrectly claiming childcare costs and was going to have to repay more than £8,000 of tax credits, plus a penalty of up to £3,000.

Nikki and her mother insist they kept the Inland Revenue informed, that the taxman knew they all lived at the same address, that Liz was Emily's grandmother and that Liz was a registered childminder.

Liz and Nikki's MP, John Hayes, has taken up their case. Money Mail put Nikki's complaint to the Inland Revenue, but it refused to comment.