The government should consider writing off all tax credit overpayments caused by official error during the system’s first two years of operation, the parliamentary ombudsman has recommended.
In a report published this week, Ann Abraham concludes that “teething problems” identified early in the life of tax credits have yet to be completely overcome.
Drawing on complaints to her office, Abraham highlights the “heavy price” families affected can pay when their payments are drastically reduced or stopped altogether to recover overpayments.
“While it has benefited many millions of people, the tax credits system is currently operated in a way that can have unintended harsh and unfair consequences for vulnerable groups of people who will often have particular needs,” she said.
Her recommendation follows the revelation by HM Revenue and Customs earlier this month that a third of all tax credit awards – affecting almost 2 million people – were overpaid in the first year.
At the end of May, paymaster general Dawn Primarolo said the Treasury would ensure that “in cases of genuine hardship where the recovery of an over-payment is disputed, recovery can be suspended while the dispute is resolved”. In addition, she pledged to consider options to identify earlier and support those families most at risk of over-payment.
The tax credit system has also come under fire this week from Citizens Advice. In a separate report, published this week, the charity claims that “poor administration and system failure have plunged many below the breadline and into mounting debt”.
It claims that some families have been told they must take out high-cost loans to repay overpayments, with others even being threatened with repossession or eviction.
