The Treasury has been accused of not pursuing its threat to take EDS to court over failings with the tax credit system.

Liberal Democrat shadow work and pensions secretary David Laws made the allegation on Tuesday, ahead of a Commons debate about difficulties with the IT system, caused by testing being cut short.

'It is very surprising that, to date, there has been no compensation from EDS for the IT problems. Any settlement seems a long way off,' said Laws.

'One is left wondering whether the Revenue has been reticent to pursue its claim aggressively because it may fear it was the shortened timescale for testing that caused many of these problems.'

Laws was commenting on a written exchange with paymaster general Dawn Primarolo over what advice was received prior to April 2003 about the timescale for the introduction of the tax credit system.

Primarolo avoided stating whether the Revenue had warned ministers, or if EDS had warned the Revenue or Treasury that more time was needed before the system could be implemented.