Watchdog attacks "harsh" tax credit system

LONDON, Oct 9 (Reuters) Prime Minister Gordon Brown's flagship tax credit system is causing unnecessary distress and hardship to the poorest families it was designed to help, a critical report said on Tuesday.

Parliamentary Ombudsman Ann Abraham said the unsympathetic pursuit of overpayments from families was making many who were entitled to the welfare benefit avoid it altogether.

''It causes anxiety and distress and sometimes even family break-up,'' she told BBC Radio.

''If this benefit is going to be delivered to these families in this way it needs far better administration than this, and it needs a much more sympathetic system.'' She said more than a quarter of all complaints she received from the public were about the tax credit system, run by HM Revenue and Customs (HMRC).

It was introduced in 2003 as part of a drive by then-Chancellor Brown to reduce poverty, but has been dogged with problems, not least because of its built-in requirement to claim back many of its payments.

The amount awarded is provisionally based on recipients' circumstances in the previous year, leading to a demand for recovery of overpayment if their income improves.

In her report, her second on the system, Abraham said that despite improvements introduced by HMRC, decisions to recover such overpayments were still putting low income families and earners into debt, often for many years to come.

''What was very clear from the complaints referred to me was that the lack of proper regard to those circumstances and needs led to the system often having harsh and unintended consequences for HMRC's more vulnerable customers,'' she said.

''As one complainant put it: 'Tax credits are supposed to help families, not cause them money worries,''' she added.

Overpayments amounted to around 6 billion pounds in the first three years of the system.

More than 500 million pounds of overpayments have already been written off and a further 1.4 billion pounds of debt is unlikely to be recovered, a parliamentary committee report said earlier this year.

REUTERS SR KN1447