MPs slam level of tax credits fraud

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The Commons public accounts committee said that since the current system was introduced by Chancellor Gordon Brown in 2003, an estimated £5.8bn had been wrongly paid out.

Of that £500m has already been written off by HM Revenue and Customs (HMRC) while a further £1.4bn was unlikely to be collected.

At the same time the collection of overpayments - usually because a claimants circumstances had changed during the course of a year and they no longer qualified - had caused hardship to many people.

Changes to the system which meant people did not have to return overpayments unless their income rose by more than £25,000 in the course of a year, had cost the taxpayer a further £500m, the committee said.

The MPs complained that when the system was originally designed, HMRC failed to build in proper protection against fraud and error.

In order to make the scheme accessible to claimants, it adopted a "pay now, check later" approach which relied too much on detecting false claims after payments had been made, leaving it vulnerable to fraud.

The internet system did not conform with the mandatory security requirements laid down by the Government's own e-envoy and had to be closed down in December 2005 after "sustained fraudulent attacks" by organised criminals.

The committee said that HMRC had still not come up with an "adequate response" to the problems.

"Billions of pounds - far more than those who thought up the system ever envisaged - are still routinely overpaid to claimants," said committee chairman Edward Leigh.