Tax system under fire as families 'lose £40 a week'

The Government's flagship policy on tax credits was criticised yesterday after the Conservatives claimed that some families were having their state handouts cut.

The Tory party, which claimed that some families were losing up to £40 a week, called for the Government to reconsider its policy of recouping overpayments in child and working tax credits by the end of the year. Welfare rights groups urged Gordon Brown, the Chancellor, to think again.

The National Association of Citizens Advice Bureaux said some families have had their child tax credit cut by up to one-third. In one case, a mother and child received £38 a week. The group wants the Government to stop collecting overpayments in full in cases wherethe Inland Revenue has made a mistake. A spokesman said: "The Inland Revenue gave people money based on an estimate of their case and they are now saying they want the extra money back. People are not being advised this is happening, they just see that their payment has dropped."

The Child Poverty Action Group called for an amnesty for overpayments. Martin Barnes, the director, said: "We continue to support the new tax credits but there is a risk that confidence in the scheme will be undermined by poor decision making by the Inland Revenue. The recovery of overpayments, with no regard to circumstances, is causing hardship for many families already struggling on low incomes."

David Willetts, the Conservative work and pensions spokesman, said: "The question is whether the Inland Revenue, with its culture of collecting tax annually from more affluent people, is capable of delivering social security benefits on a weekly basis to people with very low incomes."

Steve Webb, the Liberal Democrat welfare spokesman, said: "First they made the benefits a nightmare to claim, then they bungled the payments by giving the wrong amount to thousands of people. Now, they are trying to recover the money in a ham-fisted and aggressive way. Recovering overpayments should be done gradually."

An Inland Revenue spokesman said: "Almost six million families are benefiting from the new tax credits. Some of these families' circumstances are bound to change through, for example, a pay rise or their children leaving home. That is why the tax credits system was designed to be as flexible and responsive as possible."

Dawn Primarolo, the Paymaster General, said the system was only causing "a small number" of families problems. She said: "The Revenue will be staffed each day throughout the Christmas and New Year period. The Revenue can top up in those small circumstances."

A Labour spokesman added: "David Willetts is wrong. His comments are further proof that the Tories want to scrap the tax credits and deprive all of these families of the extra money they are receiving."

The Tories protested to the Electoral Commission yesterday over the Government's plans to give about £900m in child trust funds to almost two million families in May 2005.