Tax credits may have been paid in error

More than £2 billion of taxpayers' money may have been paid out in error to tax credit claimants, a Whitehall watchdog warned today.

The mistakes occurred because the Inland Revenue failed to check forms filled in by people claiming the credits for working families and the disabled.

On many forms applicants failed to declare their full incomes or savings. Up to 14 per cent of money paid out went to people not entitled to it. Revenue chiefs are responsible for ensuring that the forms are filled in correctly.

The extent of the waste will embarrass Chancellor Gordon Brown, who has made tax credits the centrepiece of his attempts to combat child poverty.

Critics have long claimed that the regime is too complex and cannot be properly understood by experts, let alone ordinary people attempting to claim the credits.

The National Audit Office put an official question mark over the Inland Revenue's annual accounts for the first time.

It said that the errors cost between £510 million and £710 million in the financial year 2000-01. And it warned that annual losses were likely to have continued at a similar rate since then.

The watchdog's findings also come as a blow to Sir Nicholas Montagu, the Inland Revenue chairman, who is already under pressure over this year's chaotic launch of the child tax credit.

Sir John Bourn, Comptroller and Auditor General, called the overpayments a "cause for serious concern". Edward Leigh, chairman of the Commons Public Accounts Committee, said they were a "terrible waste of money".