Families fear tax credits clawback

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The House of Commons Public Accounts Committee report said the fear of being forced into debt by unknowingly receiving an overpayment and having to pay it back after the money is spent is adding to the worries of families struggling with the recession.

HM Revenue and Customs has reduced overpayments from £1.9 billion to £1 billion annually as a result of changes announced by Gordon Brown in the 2005 Pre-Budget Report.

But this still left 1.3 million families - including some of the most vulnerable people in the country - with overpayments in 2006/07, said the committee in a report.

Since their introduction by Mr Brown in 2003, some £85 billion has been paid out in tax credits. But in the first four years of the scheme, HMRC overpaid £7.3 billion to some claimants and underpaid others by a total of more than £2 billion.

By March last year, it had collected £2.7 billion of the debt and written off a further £1 billion. The report said the department was unlikely ever to recover £1.8 billion of the outstanding £3.6 billion in overpayments.

The report said that HMRC did not give claimants the support they need to make claims and report changes in circumstances, and expected too much of their understanding of the system.

"Overpayments continue to affect many people, including some of the most vulnerable in society," said the report. "Many hundreds of thousands of people are constantly worried about incurring overpayments."

Committee chairman Edward Leigh said: "The tax credit scheme was designed in such a way that there was always going to be a degree of overpayment. It is the scale of that overpayment that has continually caused dismay.

"It is distressing that many of the families that have to make repayments to the Department, on average £770 for a single year, are highly vulnerable and struggling in the economic downturn. HMRC should be more sensitive in how it deals with the recovery of overpayments. The department is only now starting to introduce measures to support claimants, including helping them navigate the complex tax credit procedures."