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MPs have expressed concern over the billions of pounds being lost to fraud and overpayments through the tax credits system.
A report from the Commons Public Accounts Committee on Tuesday highlighted "breathtaking" overpayments of £7.3bn in the first four years of the scheme.
HM Revenue and Customs has paid £85bn in tax credits since the scheme was introduced in 2003.
But some £7.3bn was overpaid in the first four years of the scheme, while more than £2bn was underpaid to those who were entitled to it.
By the end of March 2008, some £2.7bn of the debt had been collected and £1bn had been written off.
Of the £3.6bn of overpayments which are still outstanding, HMRC is unlikely to recover around £1.8bn, the report states.
And in the 2006/07 financial year, claimant error and fraud led to incorrect payments of between £1.31bn and £1.54bn.
Committee chairman Edward Leigh said: "The tax credit scheme was designed in such a way that there was always going to be a degree of overpayment.
"It is the scale of that overpayment that has continually caused dismay."
He added that HMRC "should be more sensitive in how it deals with the recovery of overpayments".
"A different, but just as worrying, aspect of the tax credits scheme is the amount lost to fraud and error an estimated £1.31bn to £1.54bn in 2006/07," Leigh said.
"I welcome steps being taken by HMRC to strengthen deterrence and prevention but it should place more emphasis on checking high risk claims.
"It should also adopt a more realistic understanding of fraud which takes full account, even where there is no clear evidence of an intention to defraud, of groups that set out to exploit the system."
MPs have expressed concern over the billions of pounds being lost to fraud and overpayments through the tax credits system.
A report from the Commons Public Accounts Committee on Tuesday highlighted "breathtaking" overpayments of £7.3bn in the first four years of the scheme.
HM Revenue and Customs has paid £85bn in tax credits since the scheme was introduced in 2003.
But some £7.3bn was overpaid in the first four years of the scheme, while more than £2bn was underpaid to those who were entitled to it.
By the end of March 2008, some £2.7bn of the debt had been collected and £1bn had been written off.
Of the £3.6bn of overpayments which are still outstanding, HMRC is unlikely to recover around £1.8bn, the report states.
And in the 2006/07 financial year, claimant error and fraud led to incorrect payments of between £1.31bn and £1.54bn.
Committee chairman Edward Leigh said: "The tax credit scheme was designed in such a way that there was always going to be a degree of overpayment.
"It is the scale of that overpayment that has continually caused dismay."
He added that HMRC "should be more sensitive in how it deals with the recovery of overpayments".
"A different, but just as worrying, aspect of the tax credits scheme is the amount lost to fraud and error an estimated £1.31bn to £1.54bn in 2006/07," Leigh said.
"I welcome steps being taken by HMRC to strengthen deterrence and prevention but it should place more emphasis on checking high risk claims.
"It should also adopt a more realistic understanding of fraud which takes full account, even where there is no clear evidence of an intention to defraud, of groups that set out to exploit the system."
