Government urged to seek tax credit compensation from EDS

A committee of MPs has urged the government to demand compensation from its IT supplier EDS after hundreds of thousands of people...

A committee of MPs has urged the government to demand compensation from its IT supplier EDS after hundreds of thousands of people did not receive their tax credits on time.

The Labour-dominated House of Commons Treasury select committee also warned the IT services company to get its house in order as it is part of a consortium working for the Department of Work and Pensions developing the IT system for the new pension credits which start this autumn.

The all-party group also highlighted IT failures with the contributions agency - which was transferred from the DWP to the Inland Revenue - to inform people of deficiencies in their National Insurance Contributions that affected their state pensions.

In an effort to prevent similar problems happening in other government departments, the Treasury committee said the Office of Government Commerce should review how contracts and specifications for IT systems are drawn up and then monitored.


In its wide-ranging report on the Revenue, which is charged with making sure tax credits are distributed, the committee said departmental staff had experienced system failures of up to fours hours a day.

Inland Revenue chief Sir Nicholas Montague and paymaster general Dawn Primarolo told the MPs they would look at the possibility of making EDS pay the unknown extra costs to put the system right.

However, the Labour-dominated committee said the Inland Revenue and Treasury have a "clear duty to pursue vigorously a compensation claim from EDS".

"We do not expect the additional costs that have been incurred as a result of failure by EDS to be borne by the British taxpayer," the committee said.

The report demands that the 400,000 applicants for tax credit who received late payments - and in 220,000 cases have received no payment - be compensated "swiftly and in full".

The hard-hitting report placed a clear question mark over the future Revenue chief Sir Nicholas, saying that the committee enquiry, which discovered "a catalogue of significant administrative failures'' had "raised questions about how the department has been led''.

It also raised questions about Chancellor Gordon Brown's role and, in particular, that of Primarolo, who failed to speak to Sir Nicholas for six months while the tax credit crisis mounted, criticising communications failures between ministers and Revenue officials for making the problems worse.


The problems over tax credits came like "a bolt from the blue'' to ministers who had no prior knowledge of the problems with the IT system designed and implemented by EDS, the report added.

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