Taxpayers are being failed by the government’s move to write off billions of pounds in old debt – mostly owed to HM Revenue & Customs – because it says collecting it would be too difficult.
Issuing this damning verdict, MPs on the Public Accounts Committee said that more than £3billion has been written off by HMRC and the Department for Work & Pensions in uncollected taxes and other payments.
The MPs calculated that last year the government was owed £22billion, of which more than £15bn was outstanding to HMRC, with the remainder split between the DWP and Ministry of Justice.
The PAC blamed the “enormous sums” of debt on the government having no central strategy for managing money owed to it, although the Treasury and Cabinet Office is “belatedly developing” one.
But “that’s just not good enough” according to committee chair Margaret Hodge. She said: “Debt owed to the government has reduced by around £5.5billion in the last four years.
“However, this is a result of reductions in HMRC’s balance – a chunk of which was from writing off or deciding not to pursue £3.5billion of tax credits debts and other debts it considers ‘uncollectable’.”
Part of the problem, she explained, is that large volumes of old debts have been allowed to build up in departments, notably HMRC where, as of March 31st 2013, most of its debt was more than 180 days old.
“The older the debt the more difficult it becomes to collect”, said Ms Hodge. “Government is owed a massive amount of money…[but] its treatment of debt has been characterised by neglect and periodic large write-offs.”
Her committee tabled five recommendations as part of the “urgent action” they want ministers to take in response to their failure to minimise debt, which impacts directly on government borrowing.
“Last year the government was owed a staggering £22 billion, it is estimated,” said the PAC chair. “That’s equivalent to a fifth of the total public funding that goes into healthcare in the UK. You could buy 1,500 new schools with that money.”