THE private company involved in Labour's bungled tax credits system has been rewarded with a £3.5billion boost to its contract.

Capgemini will pocket £8billion for providing computer support to HM Revenue and Customs instead of the £4.5billion it had been expected to earn.

MPs last night claimed the huge increase in IT spending is evidence that the Government has 'lost control' of its computer costs.

The House of Commons spending watchdog, the Public Accounts Committee, is due to publish a report in May that will expose the department's decision to pay the firm an extra £3.5billion over ten years, according to a report in the magazine Computer Weekly.

Capgemini was hired to supply Gordon Brown's means-tested tax credits and manage the Pay As You Earn scheme, selfassessment tax forms, child benefit and child trust funds.

But computer errors resulted in billions of pounds of overpayments to claimants.

The firm has very close links with Labour and the firm has benefited from the Government's increasing reliance on private sector consultants. Lord Birt, Tony Blair's former 'blue-skies thinker', joined Capgemini last year.

A report last year by the Commons Treasury Committee said it was 'appalling' that families had been wrongly paid and warned that the system was no longer 'fit for purpose'.

It blamed flaws in the Government's computer system for the overpayments, which have led millions to suffer undue financial misery and hardship as they struggle to pay back the money.

In 2003/2004 and 2004/05, a third of all tax credit awards were overpaid at a total cost of £4billion.

Some £3billion of has been written off and the Government has conceded that losses are likely to carry on running at £1.2billion a year.

With seven years left to go on the company's-contract, experts warned that the IT bill could rise still further.

Tory Welfare Reform spokesman David Ruffley said: 'Gordon Brown has created a complex tax credits system that bamboozles claimants every day of the week.

'The IT is a shambles, which is why billions of pounds have been overpaid and underpaid. This extra money is just sticking plaster to try to cover up Gordon Brown's massive tax credits fiasco.'

Richard Bacon, a Tory MP and member of the Public Accounts Committee, said the increases show that the department had 'lost control of its costs'.

He told the Daily Mail: 'It is an extraordinarily large rise. It looks like it has run completely out of control. It's rare to see increases this large even in public sector IT projects. There's very little evidence that the rise represents value for money for the taxpayer.'

A Government spokesman said the rising costs of the IT system was due to the need for major new projects and the rising number of people submitting their tax returns on-line.