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The National Audit Office (NAO) published its report Tackling Tax Credits Error and Fraud in February this year; the Public Accounts Committee (PAC) heard evidence from the Citizens’ Advice Bureau and HMRC in March and their report Tax Credits Error and Fraud was issued last week.

From a cost management viewpoint, HMRC appears to have done rather badly. It didn’t help its case by initially claiming to have slashed £1.4 billion from losses due to error and fraud in 2010/11, only then to revise that claim to just £480 million. Further, the NAO report warns that HMRC “recognises that its estimates for individual interventions are overstated and that these overstatements may be significant”.

In fact, the report states that HMRC estimates it lost £2.3 billion to error and fraud in 2010/11 and that one in every 5 claims included a loss due to error or fraud. In the PAC hearing, HMRC estimated that error accounted for about 70% of the total loss, and fraud the balance – but note that the figure for losses, etc., of £2.3 billion excludes any losses attributable to organised crime! The fact that HMRC so readily lumps simple misunderstanding together with intentional dishonesty is cause for concern.

HMRC deployed 400 more staff to deal with checking claims, (from 1,100 to 1,500 in the ‘front line’) and increased its ‘interventions’ or checks from 120,000 to nearly 2 million in 2010/11 (although the number has reduced since) but this more than tenfold increase in checks only doubled the estimated savings made.  

HMRC has started to use credit-referencing agents (and the omnipresent, if not omniscient “Connect” database) in order to check if claimants are in fact single parents, or are living as a couple and are therefore potentially entitled to less credit. While the PAC was dismissive of the short term benefit of RTI, one of the key fields for the new monthly RTI submissions is the employee’s current address – presumably HMRC will soon be able to cross-check live PAYE records to flag up multiple adult occupants at an address.