Gordon Brown has been accused of wasting £9bn of public money on his flagship tax credit policy, after official figures showed the Revenue made huge overpayments in the first three years of the scheme.
The latest data, produced by the Office for National Statistics, revealed that tax administrators wrongly handed out £1.7bn to families in 2005-06, bringing to £5.7bn the total amount overpaid since 2003. Much of it will be irrecoverable.
The Liberal Democrats said that their own research showed the true scale of the money wasted was much greater, and equivalent to one pound in every five paid out by the Revenue.
Why is it that this sort of thing, when it was discovered as recently ago as May, attracted such little opprobium?
The Tax Credit idea is that the payments mechanisms of PAYE can be used to pay benefits. Entitlements to benefits are roughly related to income. It also depends on a complicated slew of other life circumstances. A straightforward mechanism for helping people on low incomes would be to simply use their taxable income, which they have to declare to the Inland Revenue. This could be used to compute a cash sum to be paid. This system would be essentially foolproof, assuming that the system of collecting income tax works. It doesn't even require the PAYE system to work, which provides for collecting tax over the course of the year by withholding a proportion of income. But because of a few shortcomings - the need to vary the level of benefit over the course of the year, Gordon Brown chose the current system, with a complexity so great it is impossible in practice to operate it. Of course if one is on a low income, having to wait until the end of the tax year for benefit could be rather painful. Wealthier individuals don't worry about this because they can borrow. This is one of the many areas where the inability to access credit is a problem for low income people. I wish I knew the best solution, but it is hard to imagine that it could be more expensive, or unsatisfactory, than the Tax Benefit system.
From the FT, possibly only with a subscription, here.
