You do not go to jail for tax credit overpayments, BBC

Today is my birthday. I should be tucked up in my bed having a long lie being fed Earl Grey and chocolate and having my every whim attended to by my loving family.

I should not be in a state of high dudggeon writing an irate blog post about tax credit overpayments because the BBC can't get it right. They get it so wrong that they appear to have turned into the scaremongering Daily Fail.

The biggest mistake, which they don't correct, is that they report one struggling single parent's fears about being unable to pay her tax credit overpayment of £2000.

"She claims both working and child tax credit, but because she has changed jobs frequently over the last year, and her childcare has altered, she has been overpaid.

She has now been told she now owes Revenue and Customs just over £2,000.b. 

She accepts she has to pay it back, but finding £40 out of her weekly budget is hard-going."Obviously I don't have that kind of money," says Sarah, who has put her house up for sale and is seeking cheaper accommodation.

As a result, she says, she has been having sleepless nights, and suffering from severe stress.

"The worst case scenario is: I've not got the money - I'm going to end up in jail," she says."

This is a huge thing to leave uncorrected. You do not go to jail for tax credit overpayments. Tax credit overpayments are stressful and cause real hardship, but I'm concerned that people in that situation could read that report and think there was a possibility that they could lose their liberty and have all the accompanying worry of what would happen to their children and job.

I know a fair bit about the Tax Credit system and I agree that it is fundamentally flawed. Gingerbread is absolutely right on this - people shouldn't have to predict their income a year in advance because circumstances do change. I don't think a person should be saddled with an overpayment because of an unexpected job change or promotion. I think, and it's Liberal Democrat policy, that we should go back to the old system of having fixed payments for 6 months.

The BBC make it sound like the nasty, nasty government is being cruel by reducing the amount that the Government allows your actual income to vary from the estimate you give them. At the moment, it's £25,000 but it will be reduced in subsequent years to £10,000 and then £5,000.

Actually, 4 years ago, that amount brought in by Labour was £2,500. That wasn't enough, and the limit the new Government is reducing  it to is still double what Labour had.

I think that £25,000 of variance is probably too much, but £5000 may be too low. Let me explain why.

In April, a family earning £13,000 a year tells the Tax Credit Office that that's what they expect their income to be for the coming tax year. A family on that income would get several thousand pounds a year in tax credits and help with childcare costs, and rightly so.

In October, Mum gets offered a job in an office earning £12,000 a year.. Obviously that means that the amount of tax credit they will qualify for will be reduced significantly In fact, it may well be reduced to a much lower amount than they have already been paid. It's half way through the year so that means that the household income will be the original £13,000 plus £6,000 Mum is now earning, a total of £19,000. This is not a huge income by any stretch of the imagination. It's only around £1200 per month which, after housing costs are taken off, is quite difficult to live on for a family in normal circumstances. I suggest that that household budget does not have the flexibility to cope with paying back what will be a significant sum in tax credit overpayments.

Compare and contrast with a richer family, just getting the minimum award which everyone on slightly higher incomes up to in some circumstances £75.000 gets. We aren't rich, but we've always qualified for the minimum award. When I started work in 2006, my additional income didn't bring us anywhere near the upper limit, so our payments stayed exactly the same. I'm not saying that should have been different, but I think it's unfair that a system is so inherently flawed that the poorest are susceptible to big overpayments.

In practice what happens is that if the family still qualifies for tax credits, the overpayment is taken out of their next year's entitlement - which obviously has an effect on their household budget.  The problems start if your children grow up or you somehow lose your entitlement to tax credits. Then you will get a demand which will no doubt scare the life out of you, often asking for thousands of pounds by the end of next month, threatening all sorts of dire consequences, like legal action, if you don't pay.

If you ring them up when you get this letter they will usually negotiate a payment plan by instalments - and if they refuse, get your MP on the case.

I do have serious worries about the structural flaws in the tax credits system which can leave people with debt in this way, but I do think that people are now more aware that they need to report any changes of circumstances promptly than they were 5 years ago. 

Many of the overpayments I've helped people with in my time are in fact not due to straightforward changes in circumstances - the incompetence in the system can be incredible. The Tax Credit Office computer seems to have a bizarre mind of its own. It can wipe people's children off their claim and then pursue them for huge overpayments. This would be fine if they simply acknowledged their mistake, fixed it and moved on rather than going through an extended complaints procedure, putting people through hell, stress and worry in the meantime.

I've also seen situations where people have provided the Tax Credit Office with all their information but this hasn't been recorded correctly and they haven't spotted an error on a complex official form. The automated system can drown you with paperwork. Even in our relatively simple affairs, a simple notification of a change of circumstance resulted in an avalanche of 4 forms each from the Tax Credit Office, each one saying something slightly different.

I've also seen situations where people were incorrectly advised by TCO officials were still judged to be liable for the overpayments and it took some doing (and some fairly forensic investigation) to get it all sorted out, taking loads of time.

It's clear that Iain Duncan Smith recognises the inherent flaws in the system and as the BBC reports, he says he thinks the estimation of income in advance issue should be changed. The issue is the time it'll take to bring in that change. In the interests of fairness, people on low incomes should not have to pay back overpayments if they have done everything they are obliged to do correctly and the Government should amend the procedures to make sure that this doesn't happen. I will be the first person on their backs if they fail in this regard.