Tax credits portal to reopen in 2008

The paymaster general has told MPs the online tax credits system, once a target for criminals, is to reopen next year.

The troubled online system for the delivery of tax credits is be brought back into service, a hearing of Parliament's treasury committee has heard.

Dawn Primarolo, paymaster general at HM Revenue and Customs (HMRC), the department which delivers tax credits, said: "By 2008 the necessary IT and ID will be available and it can be reopened."

The tax credits e-portal was shut in November 2005 after being targeted by organised criminals. After the closure, David Varney, former chair of HMRC, admitted that he knew the tax credit online service was a target for fraudsters from when it was first set up.

Committee member Mark Todd said he thought there were "higher priorities" than reintroducing the service. He said that an increase in the number of manual payments to claimants indicated that the main computer system for delivering tax credits was still not functioning properly.

Primarolo said the system was working better than its predecessors, following software improvements. Asked when this will be assessed, she said: "When all the IT is in place, we will do that."

Initially, the £150m 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 Cap Gemini.

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 in 2006 said there was no guarantee that EDS will win sufficient business to trigger full payment.

Tax credits were introduced in 2003 to encourage families on low income off benefits and into work. It replaced the working families and disabled person's tax credits schemes, which ran from 1999 to 2003 and distributed £17.8bn.

Asked about the success of tax credits, Primarolo told the committee that this could be measured by the high take up rate. "I see the success of tax credits by its phenomenal take up," she said. Some 97 per cent of people with an income of £10,000 or less are in receipt of tax credits.

Newcastle MP Jim Cousins criticised HMRC's failure to publish figures for fraud and error in the tax credits system. He said the situation was "shocking".

"The Department for Work and Pensions is able to publish for every category of benefit an estimate for fraud and error, broken down into fraud, customer error and official error. When are you going to be able to do the same for tax credits?" Cousins asked.

Sarah Walker, the director of benefits and tax credits at HMRC, said that figures for fraud and customer error will be published this summer and that a pilot programme to measure official error and IT error was under way. But Walker said she did not know when she would be able to give a breakdown similar to that of work and pensions.

HMRC has admitted to losing a massive £2bn in overpayments of tax credits in the first years of operation. Software glitches and slow running of systems caused overpayments of £37m, which have been written off by the Treasury.

This article was originally published at Kablenet.

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