Single-agency tax credit system advocated by thinktank

Date: 3rd August 2009

A UK thinktank has called for a radical overhaul of the tax credits system.

The Centre for Policy Studies (CPS) said that the current provision of the tax breaks was too complex, with many separate government departments handling different credits.

Vulnerable groups including low earners, pensioners and parents of young children currently receive some form of government help to save tax.

If the CPS proposals were adopted, these payments would be handled by a single agency - a move which the thinktank claimed would improve the efficiency of the payments.

Report author David Martin said that, on current trends, tax credits and state benefits would do great damage to the public balance sheet if changes were not made.

Specifically, overpayment, clerical error and taxation fraud rates would drop under a single-agency system, he claimed.

Mr Martin added: "It is time to take the hard practical decisions so that a new unified and simplified benefits system can emerge. And we need this soon."

The government is on track to run up £175 billion of debt, equivalent to over 11 per cent of GDP, this year.

In all, the net debt faced by the UK public sector is likely to rise from 40 to 80 per cent of GDP over the years to come, as the effects of the credit crunch and economic downturn filter through.