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DWP planning to target misuse of tax credit

Date: (2 January 2013)    |    

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UK’s tax credit system set up by the previous government for lower paid employees was draining money’ and was open to abuse because of less checks on tax credit welfare claimants than for other welfare applicants says, the Work and Pensions Secretary Iain Duncan Smith.
Writing in the Telegraph he said that the tax credit system had been systematically targeted by welfare cheats from around the world which cost the UK taxpayers at least £10 billion.
He said that even for those who were in genuine need of support, tax credits were not fit for purpose. The money was being drained and at the same time was trapping people in a system where those trying hard to increase the amount of working hours were not seeing any benefits than those who were not.
He continued that HMRC was conducting around 34,000 checks each year on tax credit claims that were classified as high risk, which was less than ten per cent of the number of investigations into benefit fraud.
Mr Duncan Smith says that as a result of this type of fraud, in addition to benefit fraud, the UK public finances were running close to “breaking point”.
Blaming the Labour for softening rules on tax credits, before the last two elections when only 34,000 checks were carried out whereas the DWP currently was carrying out around 30,000 checks a month on what would be considered as high risk claimants.
He added that the present Government was returning fairness to the welfare system. Now 2.2 million people were taken out of tax and public spending was being brought under control, in a way that helps the poorest into work. He called it a dynamic reform, which would benefit hard-working people across the country.
Previously Mr Duncan Smith has focused on trying to tackle welfare fraud but his latest assault indicates that the government believes further savings can be made from a separate area of public finances, tax credits given to people who work part-time.
Controlled by the Treasury the tax credits were set up by Gordon Brown to top-up the incomes of lower-paid workers.
Part time workers or low paid workers are allowed to provide an estimated income for the next tax year which is either based on the previous year’s earnings or a projected a projected salary and at the end of the year HMRC checks actual figures to reclaim any overpayments.
Those who earned extra up to £2,500 more than they had estimated would not have the tax office chasing them to return any overpayments. This was increased by ten times in 2008 to £25,000 meaning that people could legally keep overpayments that could be worth thousands of pounds a year. Mr Duncan Smith proposes reducing this back down to £5,000 in 2013
Treasury has already written off more than 1 billion in unpaid debts from tax credit claimants of which one in 12 tax credit claims are either incorrect or fraudulent.
He believes £300 million can be saved over the next three years by reducing fraud and error and £400 million clawed back through unpaid debts.