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Tax Credits

Volume 703: debated on Monday 14 July 2008

My right honourable friend the Financial Secretary to the Treasury (Jane Kennedy) has today made the following Written Ministerial Statement.

Tax credits today provide support to 20 million people including around 6 million families and 10 million children. Take-up of tax credits is a significant success. Tax credits have played a key role in tackling child poverty: since 1998-99, 600,000 children have been lifted out of relative poverty, compared to a doubling of child poverty in the previous 20 years. Tax credits also play a major role in moving people into work and helping people move up the employment ladder, ensuring that work pays over welfare.

Over the past 12 months, HM Revenue and Customs (HMRC) has significantly accelerated its work programme for measuring error and fraud in the tax credits system and has today published its estimates for both 2005-06 and 2006-07. A copy of these statistics has been deposited in the Libraries of both Houses and is available on the HMRC website.

The figures show that HMRC has reduced the level of error favouring the customer from 9.2 per cent of all tax credit entitlement in 2003-04 to 7.6 per cent in 2006-07, and the levels of fraud from 0.6 per cent in 2003-04 to 0.2 per cent in 2006-07.

I have today set HMRC a target to further reduce levels of error and fraud to no more than 5 per cent of finalised entitlement by the end of March 2011. HMRC is committed to achieving this challenging target.

HMRC has strengthened its strategy for reducing error and fraud, building on the tax credits transformation programme. This programme has improved HMRC's understanding of tax credit customers, enabling the department to better support customers to get their claim right.

HMRC will deliver targeted assistance to customers making a new claim, to help them claim more easily. This could range from straightforward advice when a customer requests a claim form to intensive help over the phone or face-to-face.

Existing customers will receive support in areas in which they have difficulty to ensure that they are providing the correct information on which to base their awards, and help with the renewals process. For example, during this year’s renewal window HMRC is proactively contacting vulnerable customers to offer them additional assistance to renew their claims. From September, HMRC is also rolling out new services to proactively seek information from customers and make better use of information already held, to help mitigate against errors relating to an individual’s award.

HMRC is also embedding this deeper understanding of customer behaviour into its compliance programme, deploying resources to areas of greatest risk with the aim of identifying incorrect claims and supporting customers to prevent errors in the future.

HMRC also remains vigilant to fraud. Previously published information on organised fraud shows that HMRC is successfully stopping the majority of claims identified as being submitted by organised fraudsters. The department has implemented a range of measures designed to restrict the opportunity for fraudsters to abuse the system, including tighter control on the issue of claim forms, fraud awareness training for staff, and deploying compliance officers in tax credit call centres.

These measures, combined with the closure of the e-portal, have significantly reduced the level of identified losses due to organised fraud from the levels in 2005-06. In 2006-07, HMRC identified attempts to defraud the tax credit system of around £252 million. Of this, the vast majority—some £212 million—was detected by HMRC before any money was paid out.