The Low Incomes Tax Reform Group (LITRG) has hit out at government plans to hire private agencies to collect tax credits debts, saying that problems with incorrect payments are more often the fault of the system rather than down to the individual.

In this week's Spending Review, the government said it planned to target £95m of tax credits 'error, fraud and debt' by engaging debt collection agencies and introducing a payment by results scheme.

However, LITRG warns this could have 'harsh consequences'. It points out that claimant error is usually innocent and caused by system complexity, as well as mistakes by officials or government computer systems, which it describes as 'surprisingly prevalent'.

LITRG chairman, Anthony Thomas, said: 'Tax credit overpayments are endemic, whether or not people or officials make mistakes; any system that determines what a person is entitled to only after a year of provisional payments is bound to carry a large proportion of over - and under - payments. Fraud, on the other hand, constitutes deliberate dishonesty, and accounts for only one-third of tax credit debt - a lesser proportion than is sometimes assumed.'

Thomas said it was neither fair nor reasonable that claimants who had made genuine mistakes should be 'hounded by debt collection agencies'.

'Will those debt collection agencies be scrupulous in refraining from pursuing debts which are not the claimant's fault, or even of the claimant's making, or which are spurious, if their payment hangs on the results they turn in? We fear not,' he said.