FactCheck: is Britain a tax credit haven?
Iain Duncan Smith has had a long hard go at Labour for their welfare spending.
Not for the first time, he says hard working taxpayers are paying for the big-spending ways of the last government.
This time, he’s got the tax credits system in his sights.
The current – though not for much longer – system was introduced by Labour as a way of bringing down child poverty.
Instead, the work and pensions secretary wrote in the Daily Telegraph today: “It tells a sorry story of dependency, wasted taxpayers’ money and fraud.”
“Tax credit payments rose by some 58 per cent ahead of the 2005 general election, and in the two years prior to the 2010 election, spending increased by about 20 per cent.”
We asked the Revenue and Customs (HMRC), which administers work and child tax credits, how much has been paid out since the current system started under Labour in 2003 (before that it was the Working Families Tax Credit).
It said that in 2003-04, £16.4bn was paid, and the following year – the one that included the general election to which Mr Duncan Smith refers – £17.7bn.
That’s an increase of 8 per cent, not 58.
And in 2008-9, HMRC said, some £25.1bn was paid in tax credits. In the following year, it was £27.3bn. Which means that in the two years prior to the 2010 general election, spending on tax credits increased by 8.8 per cent, not 20.
We put that to the department for work and pensions. “It’s calculated on the basis of tax credits deflated by earnings. I can assure you it’s correct,” a spokeswoman said.
We’ve asked for the source of that information, and a detailed breakdown, but haven’t received it yet.
Whatever it is, must be a pretty fat adjustment, from eight to 58 per cent.
Out of fairness, we’ll leave it in the middle of the FactCheckometer just now.
“Between 2003 and 2010, Labour spent a staggering £171 billion on tax credits, contributing to a 60 per cent rise in the welfare bill. Far too much of that money was wasted, with fraud and error under Labour costing over £10 billion.”
Mr Duncan Smith’s got his sums wrong on this one.
The total amount spent on tax credits, from 2003-04 to 2010-11, was £175.636bn, according to HMRC.
But because that includes the first year of the coalition government, we took the last year – 2010-11 – off, during which £28.542bn was spent.
That meant that under Labour, from when the scheme started to their last year in government, £147bn was spent, not £171bn.
We also asked HMRC how much had been lost through fraud and error in the tax credits system under Labour. It was actually £11.16bn, not £10bn, so Mr Duncan Smith’s only £1.16bn out there – which is better than his previous effort.
It’s also worth pointing out that of the £11.16bn lost to fraud and error under Labour, just £1.27bn of that was actually down to fraud. Or 0.7 per cent of the total amount spent on tax credits.
“It will come as no surprise therefore that fraudsters from around the world targeted this benefit for personal gain. “
Actually this did come as a surprise. Fraudsters from around the world coming to the UK exploit the tax credit system? Sounds serious.
But when we asked HMRC how many non-UK nationals were responsible for tax credit fraud, it said: “The tax credit system doesn’t record nationalities of claimants, so we don’t have those figures.”
By Fariha Karim