Tax credits for the scrapheap?

As Brown's authority drains away, the tone of discussion about tax credits is changing. Previous years' coverage has focused on the amounts of overpayment and underpayment, with assurances that things were targeted to improve. A junior treasury minister with nominal responsibility for the mess would be wheeled out to explain how things really were going to get better, while Chancellor Brown - the architect of the scheme - would be in his McAvity mode.

However, the large scale bungling continues. The Sunday Times reports that "Tax credits time bomb threatens to explode" and "the nation will face a bill for £2.8 billion". The pressure group Tax Credit Casualties is achieving more prominence, and The Sunday Times describes how Freedom of Information requests on disputed tax credit demands produce detailed records which "provide a snapshot of a system on the brink of chaos".

And that's a big problem for the government. The paper reports that HMRC now faces a backlash over its pursuit of 1.5m families to whom it overpaid tax credits (some of whom will of course have been hit by Mr Brown's cavalier abolition of the 10p tax rate).

Many of the documents show that errors previously blamed on the public were in fact the mistakes of tax credit officials and faulty computer software. The evidence means that significantly more of the billions of pounds in outstanding debt will have to be written off than previously thought.

And indeed The Sun claimed the next day that "Alistair Darling is set to write off nearly £3BILLION in a huge tax credits fiasco".

In this context, error rates become irrelevant if large numbers of poor families through no fault of their own are plunged into debt which they will have great difficulty repaying. The system has staggered on since 2003 with promises of improvement around the corner. But can it ever be cured?

While the great helmsman was feared, the tale that things would be all right eventually was not seriously questioned. But, as the invaluable Sue Cameron asks

With Labour all at sea and rumours of mutiny clouding round Captain Gordon Brown, is his old flagship, HMS Tax Credits, heading for the breaker's yard?

She says many in Whitehall now believe that this once-vaunted policy is unseaworthy - "so much so that insiders expect it to be scuttled by the next government". Insiders are now suggesting that tax credits were doomed to disaster from their launch five years ago.

Chancellor Brown "wanted to end the stigma associated with benefits and bring everyone into the tax system under his ever more powerful Treasury". So HMRC had to absorb work from the DWP. "I am told that senior people at DWP offered to advise but were turned down."

With no experience of dealing with the poor, at the end of the year HMRC started demanding money back from vulnerable families who had been overpaid in tax credits. Often people had no way of paying and found it next to impossible to appeal. Unlike DWP, which does not try to reclaim money when it has been at fault, the HMRC is reluctant to admit to official mistakes. By March this year HMRC was looking to claw back £2.8bn from claimants but £1.8bn of that is "in doubt", meaning it will probably have to be written off.

At the same time, Mr Brown had decided to merge Customs and Excise with the Inland Revenue. Sir Richard Mottram, former head of the DWP, described this as a "massive task of organisation and culture . . . and it was being done in parallel with implementing, in the case of tax credits, something that was of, well, doubtful implementability". The head of HMRC then agreed a deal with the Treasury involving rigid plans for cutting 24,000 HMRC jobs - more than a quarter.

Anyone with any background of managing anything at all could see that this was a recipe for failure.

You can see why Sir Richard would have doubts whether the system could ever work. Even if the software had been perfect - and clearly it still has major problems five years later - huge numbers of people now had to complete complex forms every year. Poorer people might find this especially difficult. When they claimed benefits, they could deal across the desk with someone locally. Not so with tax credits. Some poorer people are in and out of work, and their personal circumstances may change more often - requiring frequent changes to their tax credits. And how many people has the state education system produced over the past few decades lacking functional numeracy and literacy? How were they expected to cope?

Sue Cameron concludes that

Plans to transfer yet more benefit claimants from DWP on to HMRC's tax credits have been shelved (for good, according to insiders). The real victims of this gargantuan Whitehall mess are millions of hard-up families.

And taxpayers, who are continuing to pay for Mr Brown's rigidity and incompetence. Government is about delivery. Brown failed. Tax credits should be replaced by higher income tax allowances.