Tax credits overpaid for second year running

The number of families facing tax credit repayments has risen despite a fall in the total sum being claimed back by the Government, new figures showed today.

More than 1.9 million claims were overpaid in 2004/5, up 120,000 from the system's first year when charities warned some families were being forced into poverty by the debt.

Between them, they had to find some £1.8 billion - almost a fifth down on the £2.2 billion overpaid in the previous year.

Overpayments are a part of the system which is designed to be flexible to take into account changes in income of families during the course of a year.

But the scale has been much higher than expected, forcing the Treasury to make changes in the wake of a series of harsh criticisms from watchdogs.

Those reforms were introduced too late to affect today's figures.

A spokeswoman for HM Revenue and Customs conceded that the number of overpayments had risen, but pointed out they had fallen as a proportion of total claims from 33% to 30%.

Chief Secretary to the Treasury Stephen Timms said: "The Government has already taken action to improve the tax credit system in response to the lessons learnt in the first year of the system (2003-4).

"These changes give greater certainty to families while maintaining flexibility to respond to changing circumstances.

"As today's figures confirm overpayments have now fallen by a fifth. The 2005 Pre-Budget Report set out a substantial package of further measures.

"Once fully implemented, we expect them to reduce overpayments in future years by around one-third."

He added: "The tax credit system has delivered three vital improvements: it has increased incentives to work; reduced the tax burden on low to middle income families; and helped to sharply reduce child poverty.

"Tax credits are benefiting six million families and around 10 million children and reaching far more low and moderate-income families than any previous system of income-related family support.

"Take-up of tax credits is at unprecedented levels with first year take up of around 80 per cent and 93 per cent among the poorest. They have played a vital role in reducing child poverty, with 700,000 children lifted out of relative poverty since 1997."