Brown urged to alter tax credits

Gordon Brown was under pressure last night to switch the management of his tax credit system away from the Inland Revenue and back to the Benefits Agency after the Treasury admitted that payments to thousands of low-income families have been slashed in the run-up to Christmas.

The Inland Revenue is ill-equipped to fine-tune the weekly income of families because its task until this year was to calculate what individuals owed in tax over a whole year, opposition MPs protested.

After complaints from voluntary agencies, as well as the Liberal Democrats and Conservatives, that the Inland Revenue was now clawing back hundreds of pounds it over-paid to families last spring, the paymaster general, Dawn Primarolo, promised emergency help to those in dire need.

The Child Poverty Action Group (CPAG) called for an amnesty on over-payments which, it argued, would "restore confidence in tax credits and is the only way to ensure that families do not suffer hardship and debt". Other charities agreed.

But the Treasury's promise that those affected can negotiate deferments and protracted repayment schedules - and even get "top-up" payments - was greeted with incredulity by critics, who say that in reality there is no negotiation.

Steve Webb, the Lib Dem spokesman, said that one single mother with four children in his Northavon constituency had lost £200 a month from a total income of £600 a month.

Ms Primarolo's insistence that only a "small number" of families are affected translates into approximately 0.1% - around 6,000 - of the 6 million working families on the tax credit system fully introduced on April 1, though critics say it is certain to be more.

Many were affected when Mr Brown's scheme to integrate taxes and benefits was finally implemented then. Having lost payments through miscalculations, they then got extra payments, some of which proved to be excessive.

Since late autumn the Inland Revenue has been trying to get the money back, though changing family circumstances - such as fewer working hours or a child leav ing home - are also a factor that affects calculations.

"We have designed the system so it reflects these changes with minimum disruption, so no one has a big change in their family income," the Treasury said last night.

But Mr Webb and the Tory work and pensions spokesman, David Willetts, argue that the Brown scheme is over-complex and should be managed by the Benefits Agency, not the Inland Revenue, because it is better qualified to hand out cash to needy families.

"Sadly I don't think they are just teething problems. The fundamental question is whether the Inland Revenue, with its culture and its way of collecting tax on an annual basis from more affluent people, is really capable of delivering social security benefits on a reliable weekly basis to people with very low incomes," Mr Willetts told Radio 4's Today.

Tory policy is still in flux under the new leadership of Michael Howard, but Mr Willetts does not envisage abolishing the tax credit system, which allows poor working families to get benefits paid as a form of negative income tax in their pay packets. Fresh teething troubles are expected when child tax credit is extended to unemployed families next April.