IT HAS become the ultimate tax black hole. The tax credit system, championed by Gordon Brown as a means of helping the poorest in society, has cost the taxpayer almost £46 billion.

But this centrepiece of new Labour has been beset by problems, including £2.2 billion in overpayment in 2003-04, some of which the Government has been attempting to claw back, plunging some pensioners into unexpected poverty.

Now it looks as if the tax credit system, which is expected to hand out £16 billion this year, could be responsible for one of the biggest frauds committed against the Government. Identity tricksters have been using fraudulent bank accounts to syphon off money. The size of this massive fraud is unclear, and the Government is at this stage unwilling to speculate, but weeks after the fraud was uncovered, the head of HM Revenue said that at this “early stage” they had lost £15 million. Some experts believe it could cost the taxpayer as much as £100 million.

Much of the fraud centres on a Government website that was designed to make the process of applying for tax credits — long considered complex and unwieldy — much easier.

However it now appears that this website became the target for at least 30,000 frauds. There are a number of prosecutions under way but the Government refuses to say how many of these have been completed.

In an appearance before the Public Accounts Committee, David Varney, the chair of HM Revenue and Customs, said that the prosecutions had thrown up £15 million in tax credits. However he was unwilling to speculate on the final losses to the taxpayer, which could mount to hundreds of millions of pounds.

He told the committee that organised gangs had been targeting computer systems and he knew of 13,000 indentities which had been hijacked “in a particularly virulent way”.

It is believed that fraudsters were making multiple applications for tax credits to be paid into false bank accounts as long as two years ago, according to the BBC. The false bank accounts were set up using the theft of payroll data from employees in Jobcentres, and, as The Times reveals today, Network Rail. This gave fraudsters access to home addresses, National Insurance numbers and other details useful in setting up false bank accounts.

Although money has never been taken directly from the people whose identities have been stolen, the creation of false bank accounts that are then used for fraud can affect the individuals’ credit ratings.

The Government claims that the Revenue took into account the chances of fraud when it first set up the website.

“There are lots of attempts and probably from the first day that tax credits started it was a target for organised criminals. Our working assumption was that we would be the target of attack,” Mr Varney said.

A Government source pointed out that it was the Revenue & Customs that had discovered the fraud, not the private sector.

“This also highlights the lack of safeguards in the private sector, and we had to tell the banking industry about the problems,” the source added.

George Osborne, the Shadow Chancellor, called on the Government to conduct an urgent review of a policy that has been plagued with problems.

“Last year the Treasury assured us that they had ‘robust measures’ in place to defend the integrity of the tax system. This new breach of the security systems will come as a huge embarrassment for Gordon Brown,” he said.

“Sadly, this is yet another example of a tax credit system in chaos and further proof that we need an urgent review of the Chancellor’s pet policy.”

Explore UK News

• Crime News

• Education News

• Health News

• Scotland News

Times Recommends

• Should Knox’s trial even have reached the courtroom?
• All that glitters is not sold in Wright’s world
• Believe it or not, Big Brother is your friend