The technology used by HM Revenue and Customs (HMRC) to administer tax credits was ‘the root cause’ of the chaos surrounding payments, say MPs.

Problems with the tax credits IT system when it was launched in 2003 affected 455,000 households and led to overpayments of £1.9bn. Last November HMRC accepted compensation of £71m from supplier EDS.

A House of Commons Public Administration Committee report published last weekend concluded that the system, which was supposed to enable efficient delivery of the scheme, was responsible ‘first for creating some of the problems which have led to the criticism and complaints about the scheme, and then of acting as a barrier to resolving them quickly’.

‘Careful consideration needs to be given to the design of future government IT-enabled schemes so that it is the needs of the customer rather than the limitations of the technology which are paramount,’ says the report.

The committee says that problems with the scheme’s operation were made worse because the technology could not be taken offline to fix it, and were ‘compounded by the fact that some of the solutions – which would overcome some of the difficulties – are hard to introduce quickly without risking the stability of the IT system’.

MPs were told that changes would not be introduced without a guarantee that they did not create more problems than they solved, and that adding information to annual renewal cycles to summarise client history could not be carried out until 2007.

The MPs backed Ombudsman Ann Abraham’s finding of systemic maladministration.

But HMRC executive chairman David Varney said: ‘I cannot accept that it is maladministration to operate a system in the only practical way that will provide an efficient service to protect the public purse.’

The committee also expressed concern that the compensation settlement reached between HMRC and EDS includes a confidentiality clause that restricts Varney from answering questions on the subject.

‘It would be intolerable if accountability could be evaded by entering into a contract with a private provider,’ said the report.