Esther Shaw: Shelter, but no solution, in a tax credit storm

Families struggling to pay money back to the taxman are to be given a reprieve. But the problems won't end there

Not only is the scheme incredibly complex, but it has been plagued by administrative errors, computer glitches and under- and overpayments - causing distress, frustration and misery for thousands of parents who are not being paid the right amount.

But those who suffered from this bureaucratic nightmare were offered a long-overdue glimmer of hope last week, when an influential Commons committee announced it was to investigate the scheme. The Treasury sub-committee said its inquiry into the way HM Revenue & Customs (HMRC) administered the credits would focus on "identifying solutions to the problems which have plagued the scheme", rather than "raking over past administrative decisions and practices".

This is welcome news for the 1.9 million families who fell victim to the overpayment shambles in the 2003-04 tax year. They received overpayments totalling a huge £1.9bn. In the bulk of these cases, overpayments were the result of recipients failing to report changes in their financial circumstances - but many others arose from errors by Revenue officials. The problem is, with little or no information available on how awards have been calculated, claimants are often unaware that their payments are wrong.

Under the current system, these overpayments are automatically recovered by the HMRC. Clawing back this money has, however, had a devastating impact on many families whose finances have been thrown into chaos by a sudden and often unexpected drop in income.

The chairman of the sub-committee acknowledged this last week, when he said the recovery of overpayments had caused "significant hardship in a number of individual cases". Over the past few months, the Citizens Advice Bureau and the parliamentary ombudsman, Ann Abraham - among other campaigners - have called on the Government to write off the overpayments mistakenly paid to families. In the past, such calls have largely fallen on deaf ears.

Until, that is, last week, when Dawn Primarolo, the Paymaster General, told the Treasury sub-committee that, from the middle of November, each case would be dealt with on an individual basis - with no money being taken back until the disagreement has been resolved. She said she had asked HMRC to aim to settle each case within four weeks. This concession, say campaigners, is a step in the right direction.

In response to the announcement, the charity One Parent Families said postponing the recovery of disputed overpayments was the "right way forward". But it added that further reform was needed if the scheme was to strike the right balance between providing families with a stable income and remaining responsive to changes in their circumstances.

Campaigners must now wait for the findings of the sub-committee's inquiry. It plans to start evidence sessions early next year. If the scheme is to succeed in its aim of eliminating family poverty, then the Government needs to get it operating fairly and effectively.

But this, I fear, might require a rather radical overhaul of the system - and an overhaul that could take some time. I only hope that I'm proved wrong.

e.shaw@independent.co.uk