Tony Blair apologised today for the "hardship or distress" caused to families by the Government's tax credits system.
But the Prime Minister insisted that, overall, tax credits were effective in helping millions of families.
The system came under fire today from two reports, by the Citizens Advice Bureau and the Parliamentary Ombudsman.
Citizens Advice said poor administration of the system and the recovery of overpaid tax credits had led to some families living off just £56 a week plus child benefit.
And the Whitehall watchdog suggested that benefits mistakenly paid to families under the system should not be clawed back.
Low income families, those the system aims to help, have been hardest hit, Parliamentary Ombudsman Ann Abraham found.
Tory leader Michael Howard said Mr Blair was in danger of sounding "extremely complacent".
The two leaders clashed on the issue at Prime Minister's Questions in the Commons.
Mr Howard also highlighted a parliamentary answer given by Paymaster General Dawn Primarolo in February, when she said the system was "performing very well".
He asked: "Has the Prime Minister asked the Paymaster General for an explanation of the answer she gave to this House in February?"
Ms Primarolo was due to make a Commons statement on the issue directly after Prime Minister's Questions.
Mr Blair told MPs: "We accept entirely for those families that have been caused hardship or distress we apologise for that."
Citizens Advice said that in the most extreme cases, families had been threatened with repossession or eviction, and bureau staff had to arrange Salvation Army food parcels for others because they did not have enough money left to buy food.
Mr Blair told MPs: "These are criticisms we are trying to address but let me point out while we acknowledge the force of the criticism, there are six million families and 10 million children that benefit from the tax credits system, so
it's important to get a sense of balance."
He went on: "I accept there are serious issues to be addressed and we are addressing them.
"What would be wrong, however, is to suggest that, overall, tax credits have not helped millions of people – because they have."
Earlier, shadow chancellor George Osborne said there were now "serious questions" over Ms Primarolo's future because of her parliamentary answer.
He said: "Gordon Brown owes an apology to millions of families in Britain.
"These reports reveal a catalogue of Government incompetence on a truly breathtaking scale.
"It is scandalous that a system meant to help people is causing so much hardship and distress, to the point where people are having to borrow money from loan sharks to repay money sent to them in error."
He told BBC Radio 4's Today programme: "There are serious questions about the future of the tax credits minister Dawn Primarolo, who – as the Parliamentary Ombudsman in her report makes clear – told Parliament in February this year that the system was working well, when it patently wasn't.
"She should have known that and I think she needs to come to Parliament as soon as possible and clear up what she said."
But Ms Primarolo insisted her written response to a parliamentary question from the then Liberal Democrat Treasury spokesman David Laws on February 7 was not misleading.
Mr Laws asked for a statement on the computer problems experienced by the Inland Revenue's tax credit department over the previous 18 months, and she responded: "The IT support for New Tax Credits is a major new system.
"The system has been stable and performing very well in terms of availability and speed for well over a year."
She told Today: "What George Osborne says is simply not true. Look at the question that I was specifically asked about the system. I gave the answer to that question.
"Before that question, over a long period of time, and since, I have made it clear... that there are issues from the IT system from the early days, there are administrative issues, that still have to be ironed out."
She added: "I am absolutely prepared to acknowledge where the problems are and they have got to be dealt with. But it is not a system in complete collapse. It is working for the majority."
Ms Primarolo said she was ready to "consider" Ms Abraham's call for overpayments made during the first two years of tax credits to be written off.
But she said amounts were currently only being written off where official errors were clearly to blame.
"I will consider that point from the ombudsman and I will put it forward, but the Department is already writing off, and has written off, money where the error is due to the Department's administrative error and/or a failure in the IT," she said.
Mr Laws – now Liberal Democrat work and pensions spokesman – said: "The tax credit system is a shambles but ministers are still in denial about the scale of the problem.
"Dawn Primarolo's job is now on the line. She has been complacent about this problem and has taken too long to act. She must now take decisive action and accept the responsibility that comes with high office.
"It is a scandal that hundreds of thousands of people who have made no mistakes are having to pay back money to the Inland Revenue because of the department's own incompetence.
Tory MP Roger Gale has tabled a Commons question to the Chancellor calling for the resignation of David Varney, chairman of HM Revenue and Customs.
Mr Gale spoke of the "literally dozens" of taxpayers in his constituency and beyond who had found themselves faced with demands for colossal repayments of "overpaid" tax credits.
Ms Primarolo told MPs she had asked HM Revenue and Customs to consider suspending recovery of over–payments where they were disputed and to ensure hardship payments were made.
She said she had taken action to deal with each of the major issues raised by the Parliamentary Ombudsman and Citizens Advice Bureau in their reports but would meet them to discuss other concerns if they wished.
She defended her parliamentary answer, saying the ombudsman had criticised "one small part of one sentence of one written answer" when she had repeatedly answered questions and told MPs about problems in the system.
Mr Osborne told MPs that today's reports painted "a devastating picture" of the system.
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