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Government Spending Review measures include using commercial debt collection agencies to target tax credits error, fraud and debt. LITRG fears claimants will be pursued for debts caused by the system.

Introduction

As part of the measures announced in this week’s Spending Review, the Government will target £95 million of tax credits ‘error, fraud and debt’ by engaging debt collection agencies and paying them by results. But using commercial debt collection tactics to collect debt that is endemic in the system and often not of the debtor’s making could have harsh consequences, says LITRG.

Error, fraud and debt

LITRG Chairman, Anthony Thomas, said:

“Error, fraud and debt are three completely different things. Claimant error is usually innocent, and is caused by system complexity. ‘Error’ also includes mistakes by officials or Government computer systems – something not always acknowledged by the officials themselves or by Government statistics, but which in our experience is surprisingly prevalent.

“Tax credit overpayments are endemic, whether or not people or officials make mistakes; any system that determines what a person is entitled to only after a year of provisional payments is bound to carry a large proportion of over- and underpayments.

“Fraud, on the other hand, constitutes deliberate dishonesty, and accounts for only one-third of tax credit debt – a lesser proportion than is sometimes assumed."

Potentially harsh and unfair

“Is it fair or reasonable that innocent claimants should be hounded by debt collection agencies for the consequences of genuine mistakes, whether by them or by officials, to reduce a deficit that was not of their making?

“Will those debt collection agencies be scrupulous in refraining from pursuing debts which are not the claimant’s fault, or even of the claimant’s making, or which are spurious, if their payment hangs on the results they turn in? LITRG fears they won’t.”