NAO's Tax credits error and fraud report: Committee comments

15 February 2013

Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, comments on report by the National Audit Office (NAO).

Rt Hon Margaret Hodge MP said:

"HMRC has yet to get a grip on error and fraud in the tax credits system. It set itself a target to reduce the level of error and fraud from 9% to 5% by March 2011 which it missed by a mile. In 2010-11 error and fraud was still at 8.1%, with £2.27 billion lost to the taxpayer - £850 million higher than expected and money that could have been spent on our schools and hospitals.

"According to HMRC’s own figures, the majority of this £2.27 billion - £1.6 billion – was due to error rather than fraud by claimants. I also find it deeply worrying that even after HMRC has taken action, 1 in 5 claims still contain error or fraud.

"There are some signs of improvement. Since 2009, HMRC has tried to be smarter and sharper in the way it tackles error and fraud, and has taken steps to improve its understanding of the problem in order to target resources more effectively. It has made welcome inroads into tackling some categories, such as childcare and disability.

"But, HMRC has made little progress in other areas, such as claims that do not include a partner or provide an accurate number of hours worked. These two risk categories alone account for over £1 billion worth of the total value of error and fraud in 2010-11.

"HMRC needs to develop a rigorous plan for routing out error and fraud in each and every category if it is to achieve a sustainable reduction in losses. It needs to inject much more rigour into its collection and analysis of data, particularly around changes in claimants’ circumstances, where mistakes are most likely to be made.

"Reducing tax credit error and fraud must remain a priority for HMRC despite the planned introduction of universal credit which will see tax credits replaced by the end of 2017. Over £100 billion of public money will be paid out before tax credits end and the Revenue cannot afford to take its eye off the ball."

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