£1.54bn tax credits 'paid in error'

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The National Audit Office (NAO) said up to £1.54 billion was wrongly paid out by HM Revenue and Customs (HMRC) in 2006/7 despite Government efforts to combat the problem.

NAO head Tim Burr said he could only issue a "qualified opinion" on the tax credit accounts because of the failure to stem the losses.

His annual report on HMRC also highlighted a failure to collect £135 million a year from around 420,000 pensioners and a backlog of 16.2 million taxpayer records waiting to be cleared.

Mr Burr also pointed to a "significant" deterioration last year in processing VAT returns - although he noted that HMRC was now back on target in that area.

"Levels of tax credits error and fraud are significant when compared with the expenditure on the scheme," he said.

"I have therefore qualified my opinion on the regularity of these payments. HMRC now has a target and has developed a strategy for reducing error and fraud.

"It will need to monitor how the measures it adopts are contributing to the achievement of the target and to respond effectively."

Treasury Financial Secretary Jane Kennedy said HMRC had "significantly accelerated" its programme for measuring fraud and error and had set a target to cut it to 5% of total entitlements by 2011 from the present 7.2 - 8.4% level identified by the NAO.