Recovery of overpaid tax credits leaves families in debt

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.