The tax credit system is reportedly still inefficient and full of error. This is despite HMRC launching a plan of action in 2010 to tackle such disorganisation.
HMRC has been criticised by watchdogs who claim that the department has failed to stop losses of more than £850 million during its alleged crackdown on tax credit fraud and error. The tax credit system itself was criticised further when it was revealed that the majority of the £2.27billion loss in 2010/11 was due to error rather than fraud.
In 2010/11 the tax office deployed 400 members of staff to engage in solving the problems that seem to be integrated into the tax credit system. This move aimed to reduce total losses by £1.4billion and also cut error and fraud rates from 9 per cent to 5 per cent. However this aim was not fulfilled, only £500 million was saved and the error and fraud rates fell by less than 1 per cent.
One of HMRC’s goals in its 2010 shake up was to decrease the number of claimants who fail to declare their partner’s income. The national audit office remark that little progress has been made in this area and also that HMRC are failing to improve on verifying claimants stated work and hours. These two areas are thought to be responsible for £1billion of the fraud and error losses in 2010/11. A further loss of £640 million was down to children being wrongly included in claims.
Critics of the tax credit system argue that it is because payments are based on estimated income, rather than actual amounts, that the system is abused so regularly.
HMRC have admitted that up to £4billion of tax credit debt is unlikely to ever be recovered.