Ombudsman forces Blair to apologise for distress caused by tax credit failures

Tony Blair has been forced to apologise for the "hardship or distress" suffered by families because of mistakes and failings within the Government's controversial tax credits system.

Ministers were thrown on to the defensive by stinging criticisms of Gordon Brown's policy in separate reports by Ann Abraham, the Parliamentary Ombudsman, and the Citizens Advice Bureaux. They complained that the system was fundamentally flawed, was bedevilled by computer problems and had left some families on the breadline because they faced demands to repay large sums.

In stormy scenes in the Commons, Mr Blair insisted tax credits "as a whole" were benefiting millions of households. Although he rejected an accusation from Michael Howard, the Tory leader, of "extreme complacency" on the issue, he conceded errors had been made. The Prime Minister added: "For those families caused hardship or distress we apologise for that."

Minutes later, Dawn Primarolo, the Paymaster General, who has been accused of misleading MPs over the efficiency of the tax credits system, was summoned to make an emergency statement. Mr Brown led the show of support by Treasury ministers as she faced angry attacks over the failures of the tax credit system. She held out the prospect of the Treasury writing off up to £1bn of the £1.9bn overpaid to poorer families. It will not claw back demands caused by a computer mistake and will suspend the pursuit of disputed claims.

Ms Primarolo brushed off calls for her resignation following the Ombudsman's comment that she had not given a "complete picture of what has been happening" in remarks to MPs in February about tax credits.

She said the Ombudsman had criticised "one small part of one sentence of one written answer". She added: "Over six million families - in total around 20 million people, including 10 million children - benefit from tax credits. Four in 10 families pay no net tax as a result of the tax credits."

The shadow Chancellor, George Osborne, complained that much of the action to rectify faults was 18 months away. He told her the reports painted a "devastating picture of the administrative chaos, computer errors and political misjudgements at the heart of the tax credit system".

David Laws, the Liberal Democrats' work and pensions spokesman, said ministers were "in denial" over the "chaos". "I feel almost sorry for the Paymaster because this system was introduced by the Chancellor and he has been very successful in taking the credit out of the system of tax credits and he's left the Paymaster to mop up all of the difficult issues we've been discussing," he said.

In the first year since its introduction in April 2003, one-third of all awards - 1,879,000 - were overpaid, by a total of £1.93bn.

Kelly Montgomery, mother of two: 'I thought this must be the reward you get for going to work'

Kelly Montgomery could not believe her luck when she first received tax credits.

After a lengthy delay, cheques for hundreds of pounds started arriving in the post, but with no apparent regularity. When payments went into her bank account they were equally erratic. "I was telling everybody to go back to work," said Mrs Montgomery, 24, who has two children.

Two years later she was forced to give up her job after her tax credits were slashed at one point to £1.20 a week, as the system tried to recover overpayments.

"I heard of people receiving food parcels. If my mum was not there for me or my boyfriend [now husband] that is how it would have been for me," she added.

Mrs Montgomery first applied for tax credit in April 2003. She took a job at an insurance call centre and the credit paid for a childminder. After a seven-week delay, the payments came in.

"I remember thinking this is so much money but, because I didn't have anything to go by, I thought this must be the reward you get for going to work," she explained.

But eight months later - when the tax office cut her money by a third to claw back overpayments - she was unable to make ends meet and was forced to give up work. Again they overpaid her despite repeated letters to say she was now on benefits. "I was in rent arrears, council tax arrears. I started using it to pay that. You can't give money to somebody who is poor and say don't spend it on any arrears."

Finally after months of worry, the office informed her this week that the remaining debt estimated at almost £3,000 had been wiped clean.

Terri Judd