Brown to write off £5 billion in tax credits fiasco

The staggering sum was said to have piled up over just four years - either overpaid to millions of hard-pressed families or simply stolen by fraudsters.

Now the Treasury is expected to waive it all.

The amount was calculated by the Liberal Democrats from official figures.

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They accused Ministers of covering-up the real scale of the fiasco that overtook Chancellor Gordon Brown's flagship scheme.

Sources at the National Audit Office, Britain's official spending watchdog, are said to consider the LibDem calculations to be "sensible and reasonable".

The figures emerged as it was revealed that the Treasury took 38,000 families to court in a bid to claw back overpayments.

Damning Government figures, to be published today, are expected to show that some two million of the country's worst- off families were plunged into hardship after bureaucrats mistakenly paid out nearly £6 billion in tax credits between 2003 and 2006 - then demanded the cash back.

The report will confirm that fraud and error cost at least another £1.3billion in

2003-04, the first year of the tax credit scheme.

Ministers are expected to admit that about £2 billion - enough to pay for 80,000 nurses - will never be recovered.

But the LibDems claim the write-off

will eventually be significantly higher than that.

Using official Treasury figures, they said HM Revenue and Customs overpaid £5.8 billion in child and working tax credits.

Another £3.6billion was paid out through fraud or error - making a total of £9.4 billion lost.

Revenue estimates of how much money would be lost in the first year of the scheme were so inaccurate that a total of £4.7 billion would now never be recovered, said the Lib-Dems.

Last year the National Audit Office refused to sign off the Revenue's accounts because the errors were so huge.

David Laws, the Liberal Democrat work and pensions spokesman, said last night: "This is shameful. The tax credits system has turned out to be an administrative shambles.

"There have been few government programmes of this scale which have led to more personal distress or more wasted taxpayers money."

Tax credits were launched in 2003 in an attempt to encourage people into work.

The cash is paid directly to families and those with jobs and can top up their earnings by as much as £5,500 a year.

Claimants must predict their income on the basis of last year's wages, but payments are clawed back if they start to earn more.

Now it has been revealed that 38,000 families have been threatened with prosecution as the Treasury tries to recover as much of the overpayment as it can. Most have been told to repay about £1,000, but some have faced sudden demands for several thousand pounds.

The average demand has been for £2,260.

Many tax credit recipients have been taken to court or been made subject to court orders which allowed bailiffs to visit their home and confiscate televisions, stereos and other goods in lieu of payment.

Earlier this month MPs on the Public Accounts Committee blasted ministers for failing to tackle the "unacceptable flood" of tax credits overpaid or lost through mistakes and fraud.

Shadow Chancellor George Osborne said: "The raw truth is that his chaotic administration of the tax credit system has drained billions from the public purse."

A Revenue spokesman said last night: "We don't recognise the various figures being put around today. They are speculative and nothing more than scaremongering."