Tax Credits causing ‘anxiety and confusion’

The Tax Credits system is continuing to cause worry and hardship among the very people it was designed to help, a report has concluded today.

The Parliamentary Ombudsman has looked again at failings in the Tax Credit system and warned Her Majesty Revenue and Customs (HMRC) is still in danger of getting the system wrong.

Ann Abraham singled out for criticism the way in which HMRC reclaims overpayments from claimants, which account for nine in ten of Tax Credit complaints.

The ombudsman acknowledged over payments will be inherent in an annualised system. But, she said it was “very clear” many people could not understand the basic principles of the system and were complaining about it working in the way it was supposed to do.

However, she found the way in which the HMRC decides to waive payments was unfair and inconsistent.

This is causing “extreme worry and anxiety” for many of the poorest families and Ms Abraham said the outcomes of decisions often “fly in the face” of the aims of the Tax Credit system, which is to help the lowest earning families.

Ms Abraham said: “In such instances, the impact on those concerned, typically those on the very lowest incomes who are the most vulnerable in society, is huge and highly distressing.

“As one complainant put it: ‘Tax credits are supposed to help families, not cause them money worries.’ It is essential, therefore, that these matters are addressed as quickly as possible.”

The HMRC said it would respond “positively” the report’s criticisms, but maintain the Tax Credit system is beneficial to most recipients.

A spokesperson said: “HMRC is already consulting on changes to the code of practice on recovery of overpayments to improve outcomes for their customers,” she said.

“The ombudsman welcomes this development and her recommendations will help make this change successful.”

Nevertheless, opposition politicians greeted the report of an “indictment” of Gordon Brown’s over-complicated Tax Credit system.

Philip Hammond, shadow chief secretary to the Treasury, said the report was “yet another indictment of Gordon Brown’s botched handling of the tax credits system”.

Lib Dem work and pensions spokesman Danny Alexander said the report was proof Tax Credits were causing confusion and hardship.

Mr Alexander said: “Gordon Brown is incapable of admitting mistakes. His callous disregard for the Ombudsman’s first report, as the title suggests, has led to continued incompetence in the administration of the system.

“Well intentioned policies for low income families are entirely undermined by mass means-testing, chaotic administration and rampant overpayments placing millions of families in hardship.”

The Liberal Democrats argue the system needs fundamental reform or the government “will continue to fail” low-income families.