A "fragile" tax credits computer system atHMRCis contributing to billions of
pounds of losses each year, according to MPs on theCommittee of Public Accounts
(PAC).
The report said of the software, implemented in 2003, "Serious
problems with the introduction of the computer systems used to
support tax credits delayed the processing of claims and led to
incorrect payments being made."
The report added that, although the department considers many of
the original problems with the system resolved, "Software errors
continue to result in incorrect payments, and some claims are still
processed manually. [The department] also considers the system to
be fragile, which makes it difficult to develop further."
The problems led to
HMRC demanding £71.25m compensation from supplier EDS. But the
department is having problems collecting this money, because £26.5m
of the full sum is contingent on EDS winning new business with the
government. The company has been less successful in winning
government contracts than the department expected, meaning the flow
of payments has been slow.
Edward Leigh,
PAC chair, said, "It was always a very bad idea for the
government to have to commission new work from the contractor EDS
in order to recover compensation for the poorly performing tax
credits computer system. If the full amount of the settlement,
£71.25m, is not paid over by the end of 2008, then HMRC must be
prepared to return to the courts."
HMRC has paid £65bn to tax credits claimants since the scheme
was introduced in 2003. The department is losing £1bn a year in
fraud and error, and overpaid tax credits by £6bn in three years.
£2.3bn of this has been written off or is unlikely to be
collected.
Tax credits suffer from the highest rates of error and fraud in
central government, but HMRC has no targets for reducing it.