Tax credits: Private debt collectors to fetch back payments made in error

Exclusive: Households that received money they did not claim may get a knock on the door

Those living in areas of deprivation could face further financial worries (Getty)

Thousands of struggling families who have been overpaid tax credits in error could face demands for repayment from private debt collectors.

Louise Haigh, the Labour MP for Sheffield Heeley, has discovered figures in the House of Commons Library showing that 600,000 people received £700m additional tax credits in error in 2013-14. Although this is less than in previous years, HM Revenue and Customs (HMRC) appointed a private sector contractor last November to chase debts that the tax authority has previously struggled to recoup through its own inspectors.

David Gauke, the Financial Secretary to the Treasury, told Ms Haigh this summer that HMRC seeks to “recover all overpayments of tax credits no matter how they have arisen, as they do with all debts”. This means that debt collectors can ultimately go after claimants who have been overpaid through no fault of their own.

Concentrix, a US firm, was asked last November to carry out fraud and detection work for HMRC. Earlier this year, thousands of people were sent letters by the company accusing them of cheating on their tax credits, but the group has defended its record and HMRC says the contract has saved the tax authority around £100m already.

Those who have ongoing tax credit arrangements will find their welfare payments reduced to make up for the mistake. However, those whose tax credits have stopped will be liable for repaying HMRC directly, which might be a struggle due to their financial situation and the unexpectedness of the demand, given they might not have realised they had been given too much.

Ms Haigh said: “Apparently the only small businesses celebrating this Government’s policies will be the debt collectors. Not only has George Osborne added an extra £48bn to household debt and cut tax credits for the low paid, but now he’s going to set the bailiffs on families who are only in debt because the Government overpaid them in the first place.

“It’s bad enough he’s selling off public assets, but now he’s privatising our debt as well. And I have to ask if that would even be necessary if HMRC was just resourced to do its job properly in the first place.”

A spokesman for HMRC challenged the word “bailiff”, as the debt collectors will not seize assets. He added: “We always work hard to ensure claimants receive the correct amount of tax credit payments.

“When a claimant receives more than they are entitled to, but hasn’t paid this back, we aim to come to a payment arrangement with the individual so that they can reduce their debts in a manageable way – that’s only fair to taxpayers.

“Where we don’t receive a response to our letters, phone calls and texts, we may arrange a visit from a private provider so we can discuss possible payment arrangements with them. These visits do not involve the seizure of assets or county court proceedings.”

Louise Haigh has discovered figures in the House of Commons Library showing that 600,000 people received £700m additional tax credits in error in 2013-14 (PA)

The news emerges after Labour defeated the Government on its plans for welfare spending cuts in the House of Lords last week. The Chancellor wanted to impose £4.4bn of tax credit cuts from April, but the successful Labour amendment has forced the Government to evaluate the impact on low-income families.

Conservative MPs believe Labour peers, backed by the Liberal Democrats, broke Parliamentary convention by defeating what they consider to be a financial measure, which they say should be decided by the elected majority of the Commons. Last week, Labour leader Jeremy Corbyn pressed David Cameron six times about cuts without receiving a definitive answer.

Labour is also attacking the Government on its mental health record. Mr Corbyn has put mental health towards the top of Labour’s political agenda, putting the shadow minister for mental health, Liverpool Wavertree MP Luciana Berger, into the Shadow Cabinet.

Ms Berger unearthed figures showing the number of mother and baby units specialising in psychiatric care during the perinatal period fell from 17 to 15 in 2010-15. The number of beds was reduced from 118 to 115 in that time.

Ms Berger said: “When half of UK women don’t have access to specialist inpatient services, it is deeply concerning that the number of mother and baby units have been reduced. Demand for specialist care for women suffering from mental illnesses including depression, schizophrenia and psychosis is rising. It not acceptable that more vulnerable women and their babies are having to travel hundreds of miles for help or may be left without the help they need.”

A Department of Health spokesman said: “New and expectant mothers must get the mental health support they need. We have trained more than 600 health visitors to specialise in perinatal mental health since 2010, and 15 mother and baby units are now providing specialist psychiatric care. To carry on this important work, we are investing £75m over the next five years.”

In March, the Government also announced it would invest an extra £75m over the next five years to support women suffering from mental ill-health in the perinatal period.