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Tax credits system was ‘wide open to abuse’ under Labour, Duncan Smith claims

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Labour’s spending on tax credits was a calculated attempt to win votes and the system was ‘wide open to abuse’, Iain Duncan Smith has claimed in an article for the Daily Telegraph.

The work and pensions secretary said fraud and error under Labour cost over £10bn: ‘Little attempt was made to clamp down on potential fraudsters. In the year before the last general election, only 34,000 checks were carried out on what were deemed high-risk awards. In the [Department for Work and Pensions] today, we carry out around 30,000 checks a month on what we consider ''high-risk claimants”.’

The government was ‘returning fairness to the welfare system’, he argued. The Telegraph reported that ‘senior Conservative sources’ said they had been ‘shocked’ by the level of fraud and illicit tax credits claims that had been ‘either permitted or ignored’.

The National Audit Office said in June that the overall level of error and fraud in 2010/11 indicated that payments of between £2.08bn and £2.46bn were made to tax credits claimants incorrectly.

HMRC’s estimate of the overall level of error and fraud in ‘finalised awards’ increased from between 7% and 8.6% in 2009/10 to between 7.5% and 8.8% in 2010/11.

‘The levels of error and fraud are material within the context of the £30bn spent on personal tax credits in 2011/12,’ the NAO said.

HMRC’s analysis of error and fraud in 2011/12 awards will not be available until summer 2013. The NAO said error and fraud levels in 2010/11 ‘fell in respect of childcare costs, income and disability, but increased substantially in respect of undeclared partners and improper payments relating to children’.

Universal credit will replace many of the current working-age benefits, including tax credits, with a single means-tested payment, the NAO noted. ‘Universal credit is designed to simplify the benefits system, creating a single streamlined working-age benefit. This should be easier for people to understand, and easier and cheaper for staff to administer, thereby reducing the opportunities for error and fraud and improve work incentives.’