Further evidence of tax credit failures

In its annual audit of the department, the National Audit Office yesterday refused to sign off HMRC's annual accounts, "due to levels of claimant error and fraud in the tax credits system". The NAO report was full of damning evidence on the failure of tax credits:

1. Tax credits overpayment amounted to £6.6 billion.

2. Fraud and error in the tax credits system is widespread. Between £1 billion and £1.3 billion was paid in 2004-05 to claimants not entitled to it, with "no evidence to demonstrate a lower estimate" for last year.

The report also criticised the department in other areas:

1. The PAYE computer system is struggling to cope with the changing world of work. As a result, the department may not be pursuing some £800 million of tax due, while taxpayers are likely to have overpaid by £340 million and potentially 5 million people are paying the wrong amount of tax.

2. £135 million a year is being lost because tax due on pensions is not being collected.

3. HMRC missed its target for the proportion of online self-assessment tax returns filed on time.

4. There is also evidence that organised criminals are obtaining fraudulent repayments on self-assessment returns.

All in all, a catalogue of errors, and yet more evidence of how the politicians setting tax credit policy and the civil servants in charge of the department lack the management experience and subject knowledge to deliver effectively.

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