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Watchdog slams tax credit system

'Flood of money' still being wasted

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Software upgrades and a redesigned e-portal have failed to convince the Public Accounts Committee that problems with tax credits can be solved.

Parliament's Committee of Public Accounts said HM Revenue and Customs has failed to design the tax credits system to give proper protection against error and fraud.

In a report (pdf) published on Wednesday the committee also said the department has no system to request information from the Home Office on migrant workers who claim tax credits.

Tax credits have the highest rates of error and fraud in government, with losses from overpayments totalling £1.9bn. Software errors have contributed to overpayment. In October 2005 there were 199 software errors in the tax credit computer system.

The system, introduced in 2003 to encourage low income families off benefits and into work, has been targeted by fraudsters who are estimated to have got away with £131m in 2005-06. As a result of these losses, the department closed its tax credit e-portal in December 2005 and claims to be making "significant improvements" to IT systems.

Dawn Primarolo, the Paymaster General, said the e-portal has been secured and that it will reopen next year.

According to the department, major software releases have been successfully implemented over the last two years, delivering improvements in back office processes and services to claimants. But this has not impressed the PAC.

Committee chair Edward Leigh said: "Billions of pounds, far more than those who thought up the system ever envisaged, are still routinely overpaid to claimants. Very large amounts have to be written off.

"Changes have been made to the system, but who will be confident that they will make any difference? HMRC seems incapable of mounting a credible and effective response to the flood of money being wasted in this way."

Initially, the tax credit IT system was supplied by EDS. It was launched despite warnings that it had not been properly tested and was at risk of failure. A series of software problems followed and EDS lost the contract to Capgemini.

EDS received penalties of more than £71m, but has only paid £26.5m because payment depends upon it winning future business from government. A National Audit Office report last year said there was no guarantee that EDS will win sufficient business to trigger full payment.

This article was originally published at Kablenet.

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