Tax credits were introduced 'too quickly'

The bungled introduction of new tax credits, which delayed payments to hundreds of thousands of families, was condemned yesterday as "nothing short of disastrous" by Commons spending watchdogs.

The bungled introduction of new tax credits, which delayed payments to hundreds of thousands of families, was condemned yesterday as "nothing short of disastrous" by Commons spending watchdogs.

Edward Leigh, chairman of the Commons Public Accounts Committee, attacked the way the changes were brought in last year; a report said the Inland Revenue introduced the system too quickly and had inadequate contingency plans.

Payments many families were delayed last year because of the failure of computers to cope with millions of applications for the new credits.

The report found that testing of the huge new computer system needed to run the tax credits system had been cut, but neither the Inland Revenue nor the computer supplier, Eds, had foreseen potential problems

Yesterday's report said the Inland Revenue should have been "more cautious and optimistic" in setting the timescale for introducing the new system, warning: "Their failure to do so has had serious financial consequences for many thousands of citizens and caused disruption for other areas of work for the department."

The report attacked the "unacceptable" level of errors in the tax-credit system. Rates of error in the old system of tax credits, which was introduced in 1999, reached as high as 14 per cent of all payments, which cost taxpayers the equivalent of up to £710m a year.

MPs called on the Government to conduct an analysis of the failed public-sector computer projects to improve future schemes. They said the Inland Revenue had employed the consultants Deloitte and Touche to help prevent a repeat of problems when a new version of the system is put in place this year.

Ministers have predicted a halving of the error rate under the new system, but MPs said the Inland Revenue should have clear targets for cutting waste and report their performance.

Members of the committee also asked Inland Revenue staff to examine whether it should launch a publicity campaign to highlight the compensation scheme for claimants. Mr Leigh, Conservative MP for Gainsborough, said: "The problems that arose when the Revenue introduced the new tax credits scheme are well-known.

"It was nothing short of disastrous, with hundreds of thousands of claimants not paid on time, inevitable hardship for some, inconvenience to employers and disruption to other parts of the Revenue's business.

"The Revenue should have been more realistic in setting the timetable and have put in place better contingency arrangements. The Revenue must make sure that it is successful in dramatically reducing the level of overpayments."

Professor Steve Webb, the Liberal Democrat Work and Pensions spokesman, said: "The Public Accounts Committee is absolutely right to highlight last year's tax credits shambles, but for large numbers of families the nightmare is not yet over. Families getting tax credits are facing constant uncertainty about how much they should be getting. Many families are finding their finances on a roller coaster of delays, overpayments, recoveries and reassessments."