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Powered by Guardian.co.ukThis article titled “MPs damn US firm over ‘cut first, think later’ approach to tax credit claimants” was written by Patrick Butler Social policy editor, for theguardian.com on Thursday 1st December 2016 00.01 UTC

MPs have questioned whether private companies should be barred from providing core welfare services after an aggressive attempt to reduce tax credit fraud by US firm Concentrix saw thousands of low-income families wrongly stripped of benefits.

The cross-party House of Commons work and pensions committee castigated both Concentrix and HM Revenue and Customs for a series of disastrous errors that amounted to “a gross failure of customer service”.

The committee’s report describes how HMRC and Concentrix adopted a “guilty until proven innocent” approach to claimants, targeting them on the flimsiest of pretexts and stopping tax credit payments on what MPs called a “cut first, think later” basis.

Nine out of 10 appeals against decisions to remove tax credits were later upheld, but not before many claimants were left without benefits for months, in some cases forcing them to borrow from payday lenders and rely on food banks.

“The human consequences of the Concentrix scandal are all too real. Vulnerable people have been put through traumatic experiences as a consequence of avoidable failures,” the report said.

The committee said that while it was right that HMRC sought to ensure that benefits were paid only to those who were entitled, officials had made it their “overriding priority” to maximise tax credit expenditure savings at the expense of ensuring the system was fair and appropriate.

MPs were particularly appalled by the way in which Concentrix and HMRC described cuts to a single parent’s tax credits as a “strike”, commenting that “we struggle to marry that with a public service ethos”.

The committee concluded: “This was a sorry episode for the welfare state. It is imperative that it is not allowed to happen again.”

An HMRC spokesperson said it would pay compensation to claimants where appropriate. “We apologise to all those who were let down by our contractor. We took swift and decisive action to end the contract early and took back all outstanding cases which are all now resolved.”

MPs said that HMRC should not escape blame. It was still negotiating a new contract with Concentrix despite being aware for weeks of the contractor’s failings. “They [HMRC] only pulled the plug under public, parliamentary and media pressure,” the report said.

The report described how Concentrix’s handling of the contract was chaotic and lacking in compassion and common sense. Staff were often badly trained, rude and lacked basic knowledge, MPs heard.

In one farcical case, a claimant was accused by Concentrix of living with the philanthropist Joseph Rowntree, whose largesse had funded the housing association property in which she lived. Rowntree died in 1925.

The decision-making system was stacked against claimants, MPs said. People were sent letters telling them their tax credits would be stopped in 30 days unless they could prove they were entitled to them. Many never received the letters and only found out they had been targeted when they checked their bank accounts.

The firm’s call centre was “grossly understaffed”, leading to its effective collapse in August under pressure of queries from claimants.

But MPs criticised HMRC for failing to respond quickly to the crisis, pointing out that it had repeatedly praised its contractor even at the height of the call-centre crisis. The committee noted that in purely contractual terms HMRC were “satisfied their contractor was doing a good job”.

The committee said it had “grave concerns” about outsourcing benefit decisions to private firms, especially when they were financially incentivised to remove benefits. They called on ministers to carry out a root and branch review of tax credit compliance work.

HMRC hired Concentrix in 2014 to check 1.5m tax credit claims to see if claimants had fraudulently misled officials about cohabiting partners, work status or childcare costs. The firm, which was given the power to cut or suspend tax credit payments, wrote to 324,000 people.

The three-year contract, which was the first time the government had delegated benefit decisions to a private company, was expected to save taxpayers £1bn, for which Concentrix would be paid up to £75m. The contract stated that only the private sector could help government deliver reductions in tax credit fraud.

However, by the time the contract was terminated by HMRC in November, total savings were just £193m, for which Concentrix had been paid £32.5m. The work has now been taken back in-house and over 250 Concentrix staff have transferred to HMRC and become civil servants.

Committee chairman Frank Field MP said: “The committee was horrified to learn of the ‘cut first, think later’ approach that was deployed by Concentrix. Our horror was compounded by the company’s – and HMRC’s – apparent celebration of its ‘strike rate’ in cutting families’ tax credits.

“The damage caused to families’ living standards by this ‘strike rate’ is still being felt by my constituents needing to rely on food banks while their claims are reinstated.

“Although the committee welcomes HMRC’s decision to bring in-house its tax credit compliance functions, we are clear that this will not automatically deliver a better service. Nor are those families driven into debt going to be rescued from the plight into which this sorry episode plunged them.”

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