£1.5bn lost to tax fraud and error

Gordon Brown's flagship tax credit system is losing up to £1.5billion a year in fraud and error, watchdogs warned today.

Families are also being plunged into financial misery as they are forced to return overpayments in the scheme, which have so far totalled £7 billion, a senior MP warned.

The National Audit Office refused to give HM Revenue and Customs' accounts a clean bill of health as up to £1.54 billion of tax credits were being paid to people who were not entitled to the payments through fraud or error. This is the sixth year running that the spending watchdog has refused to sign off the accounts.

The NAO also highlighted that at the end of March, there were more than 16 million open cases where taxpayers' records for previous years still needed to be "reconciled and cleared".

Revenue officials had also failed to collect tax due from up to 420,000 pensioners, with a loss to the Treasury of £135million a year.