Margaret Hodge tells HMRC to 'get a grip' on tax credit fraud

Money The rate of tax credit fraud and error was cut from 9% to 8.1%

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A senior MP has told HM Revenue and Customs to "get a grip", after missing a target to tackle tax credit fraud and error "by a mile".

Instead of cutting losses by £1.4bn as hoped, the National Audit Office (NAO) found HMRC's two-year push on fraud resulted in savings of just £500m.

Committee chair Margaret Hodge said it was a "deeply worrying" situation.

HMRC insisted its strategy for tackling fraud and error was "sound", but agreed it needed to make more progress.

In 2009, HMRC set itself a target of halving the rate of tax credit fraud and error from 9% to 5% by March 2011 and diverted around 400 extra staff to help with the effort.

The NAO found the additional resources had helped to prevent an extra £230m a year being paid out wrongly and welcomed the "innovative" measures taken that had begun to show results in tackling particular problems.

'Significant challenges'

But the watchdog noted that the rate had only been cut to 8.1% and a total of £2.27bn had been lost though fraud and error in 2010-11.

There had been little progress in dealing with people failing to declare partners' income or in checking claimants' stated work and hours, it said, and one in five claims were still being overpaid.

Head of the NAO Amyas Morse - who last year declined to sign off HMRC's accounts because of tax credit fraud and error - said HMRC faced "significant" challenges.

"The tax credit system is complicated, and HMRC will have to overcome significant challenges if it is going to achieve value for money," he said.

"HMRC deserves credit for demonstrating innovation, but it has further to go to achieve sustainable reductions in tax credits error and fraud.

"To tackle error and fraud effectively, there needs to be an improved understanding of risks and better use of information."

Labour MP Margaret Hodge, whose committee scrutinises public spending, said HMRC had "set itself a target... which it missed by a mile."

She hailed some signs of improvement, noting that HMRC "has tried to be smarter and sharper" and "made welcome inroads into tackling some categories".

"But, HMRC has made little progress in other areas," she added, saying the department needed to "get a grip".

"HMRC needs to develop a rigorous plan for rooting out error and fraud in each and every category if it is to achieve a sustainable reduction in losses."

'Innovative approaches'

She also warned HMRC not to "take its eye off the ball" despite the fact that tax credits will become one of a number of benefits to be rolled into the new universal credit payment.

More than £100bn is still due to be paid out in tax credits before they end, she said.

An HMRC spokesman said more staff were in place to tackle error and fraud than ever before and that HMRC had have "massively expanded" the number of checks it carries out.

"HMRC continues to look at ways to add to that capacity," she said. "Although HMRC missed the target, the principles of the strategy, including 'Check First, Then Pay', are sound, and acknowledged by the NAO as a positive way forward.

"The NAO recognise the progress HMRC have made in tackling tax credits error and fraud and we agree that we need to go further.

"We are determined to build on that progress and the wide range of innovative approaches we have developed since we introduced the strategy."

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