Iain Duncan Smith launches scathing attack on tax credit abuse

Cleaners desperate for a pay rise left a note making their case on the Whitehall desk occupied during the day by Iain Duncan Smith, the Work and Pensions Secretary (EPA)

More than £10 billion of public money has been lost in fraud and error under the tax credit system put in place by Labour, the Work and Pensions Secretary has claimed.

In a scathing attack on the welfare model developed by the last government, Iain Duncan Smith said tax credits were "not fit for purpose" but had been extended ahead of the 2005 and 2010 general elections in a pitch for votes.

The system was "wide open to abuse" and "haemorrhaging money", he wrote in an article for The Daily Telegraph.

"In the years between 2003 and 2010, Labour spent a staggering £171 billion on tax credits, contributing to a 60% rise in the welfare bill.

"Far too much of that money was wasted, with fraud and error under Labour costing over £10 billion."

Mr Duncan Smith said HM Revenue and Customs conducts checks on far fewer tax credit claims than suspected benefit fraudsters. That is despite about one in 12 tax credit claims being incorrect or fraudulent, compared with fewer than one in 25 benefit claims.

Payments are based on estimates of income for the coming year, and after 2008 HMRC did not attempt to reclaim overpayments of less than £25,000. That is set to be reduced to £5,000 under the coalition, alongside moves to require proof of payments from those claiming for childcare or that children aged between 16 and 19 are in full-time education.

The Government hopes to save more than £300 million in the next three years by reducing fraud and error, and also wants to recover more than £400 million in unpaid debts.

Mr Duncan Smith is overseeing a fundamental overhaul of welfare which will see tax credits rolled into a new Universal Credit which is meant to simplify the system and better incentivise work.

"Even for those in genuine need of support, tax credits were not fit for purpose," he said.

"The system was haemorrhaging money while at the same time trapping people in a system where those trying hard to increase the amount of hours they worked weren't necessarily better off."

Mr Duncan Smith said tax credit payments had risen by 58% in 2005 and by more than 20% in the two years before the 2010 election.

"At the most basic level, Labour used spending on tax credits as an attempt to gain short-term popularity. They knew what they were doing - it was a calculated attempt to win votes," he said.

PA