STRUGGLING York and North Yorkshire families who owe hundreds of pounds because of a Government tax blunder should not have to repay the money, says the Parliamentary watchdog.

Ombudsman Ann Abraham said Ministers should write off working and child tax credit overpayments made in error.

She made her ruling today in a stinging report into the fiasco.

Earlier this month, the Evening Press revealed how up to 25,000 families

faced being forced to repay £25 million after they wrongly received benefits,

designed to help poorer families. They were told to pay back an average of £966 each.

In York alone, almost 6,000 families have been told they must pay back £5.7 million, with York barmaid and mother-of-three Adele Headley being ordered to pay back £4,933 in overpaid credits.

At Malton, Karen and Craig Holmes have been told they must repay £2,368.

The problems have been blamed on computer errors and families' changing circumstances by the Inland Revenue, which nationally overpaid £2 billion.

Ms Abraham launched a scathing attack on the tax system, claiming it

potentially had "harsh and unfair consequences" for the vulnerable.

Overpayments stemmed from the IT systems which did not take into account customers' needs.

Claimants must predict their income for the coming year then tell the Inland Revenue if it changes.

But Ms Abraham said this uncertainty made it impossible for families on tax credits to budget for a whole year.

Information on award notices was poor while customers seeking help with claims had their letters ignored or encountered engaged telephone lines, she said.

Ms Abraham said: "While it has benefited many millions of people, the tax credits system is currently operated in a way that can have unintended harsh and unfair consequences for vulnerable groups of people who will often have particular needs."

The system needed overhauling "urgently" because an extra 800,000 people on low incomes would soon make claims, she added.

An HM Revenue and Customs spokesman said: "Over six million families and ten million children are benefiting from tax credits and the vast majority have not experienced any problems with their claims or payments."

ONE of North Yorkshire's tax credit victims today welcomed the Ombudsman's comments - and revealed that her own nightmare has taken a new and farcical twist.

Working mum Julie Acaster said she agreed with Ann Abraham's criticism, and claimed: "The whole system needs a overhaul, because it just isn't working."

Julie, of Shipton-by-Beningbrough, told earlier this year how she had been sent more than 40 different notices in 15 months, all telling her she was entitled to different amounts in tax credits.

She revealed today that after struggling to repay £2,000 in alleged overpayments over 18 months, she had recently received £1,000 out of the blue. It had taken a week to discover why it had been sent to her, as officials could find no trace of the payment. It eventually emerged that it had been calculated that she had actually repaid £1,000 too much.

But she said she had now received a letter telling her that she owed £380, because of an overpayment over the past year.

"It's farcical," she said. "The money is deducted from payments, so you can't do anything about it. Every time it happens, it causes problems with my housing benefit."

Updated: 10:13 Wednesday, June 22, 2005