Errors in the way tax credits are handled by HMRC will cost the country £5bn more than originally thought, according to a damning report by MPs.
The taxman had expected to save £8bn by 2015 from reducing errors and fraud in the administration of tax credits, but is expected to miss its target by £5bn.
The revelation comes in a report by the Public Accounts Committee (PAC) on Wednesday, which said the continuing high levels of fraud and error were “hugely disappointing and extremely poor”.
Margaret Hodge, chairman of the Committee, said the failings had “cost the taxpayer dear” and showed HMRC did “not properly understand which actions are effective in dealing with these issues”.
“They now say they will only save £3bn and in 2011-12 wrote off £1.7bn of tax credit debt as uncollectible. In these strained times, the Government cannot afford these failures,” said Mrs Hodge.
The Committee’s report found that one in five tax credit payments contained some form of error or fraud that resulted in individuals receiving more money than they were otherwise entitled to.
HMRC had aimed to cut its failure rate to just 5pc by 2015, but now admits it will not meet this target. In 2010 -11 £2.3bn was through error and fraud, £850m higher than the department had expected.
The failure to cut its failure rate comes despite a tenfold increase in checks on individuals. However, this has only led to a doubling in the amount of money saved by the taxpayer.
The increase in checks has led to a rise in the number of appeals against HMRC decisions and the PAC said the department had not taken adequate steps to prepare for this.
“The advice and guidance it provides for claimants need to improve. HMRC thinks that it is responsible for only 2.5pc of tax error credit. This looks far-fetched in the light of evidence from Citizens Advice on the accuracy of HMRC advice to claimants over the phone. And appeals by claimants are growing, with a high rate of success for claimants,” said Mrs Hodge.
The PAC said HMRC should improve its “analysis of data”, in particular checking its administration of tax credits against child benefit data.