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HM Revenue and Customs (HMRC) has said that improvements including new technology will help tackle continuing problems with the tax credit system.

The department was responding to a report on revised fraud and error estimates for child tax credit and working tax credit, published on 11 July 2006. The document shows that public funds are drained of some £1.7bn each year due to fraud, error and overpayment.

It also shows the huge scale of organised tax credit fraud, with fraudsters cheating the system out of more than £130m last year alone by making false claims.

To tackle the problem, HMRC said it is making "significant improvements" to IT systems. According to the department, major software releases were successfully implemented in November 2005 and April 2006, delivering improvements in back office processes and services to claimants.

It said the result has been a reduction in errors and that the indicative figures for accuracy in processing and calculating awards was 98.3 per cent in 2005-06, up from 78.6 per cent in 2003-04.

Work is underway to make the tax credits e-portal more secure and to reopen it. The portal was closed in November 2005 after it was suspected that organised identity fraud was taking place. A Department of Work and Pensions portal used by staff at Jobcentre Plus to send tax credit applications direct to HMRC on their claimants' behalf has been reinstated.

The remedies appear to be too little too late for opposition politicians. Conservative shadow paymaster general Mark Francois said the system was in "meltdown" and laid the blame at the door of chancellor Gordon Brown.

"It is embarrassing beyond belief that the Treasury has failed to control fraud and error in a system which Mr Brown introduced," said Francois.

David Laws, the Liberal Democrat shadow work and pensions secretary, accused the government of an attempted cover up. "The government is well aware that these new figures on tax credit fraud and error are not going to be favourable and is determined to draw attention away from them on a busy news day," he said.

Child tax credit and working tax credit were introduced in 2003 to tackle child poverty and encourage more people into work. They replaced earlier forms of tax credit.

Computer systems, originally supplied by EDS and now run by Capgemini, failed to perform well from the start. In January 2006, a report from Parliament's Public Administration Committee criticised the scheme for its lack of "customer support".

Yesterday, paymaster general Dawn Primarolo was keen to emphasise the benefits of tax credits by highlighting the fact that they now support nearly 20m people, including 6m families.

"Tax credits take-up is at unprecedented levels, with 93 per cent of families on incomes below £10,000 claiming their entitlement to child tax credit, compared to 57 per cent take-up in the first year of family credit," she said.

"Tax credits have improved work incentives, reduced the tax burden on low to middle income families and helped to dramatically reduce child poverty."

This article was originally published at Kablenet.

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