Almost £14bn - twice the cost of Britain's contribution to the Iraq war - has been lost through overpayments, fraud and error in tax credits since their introduction, it was claimed last night after the National Audit Office again refused to sign off the accounts for Treasury spending on the controversial benefit system.

For the sixth year in a row the National Audit Office said it could only issue a "qualified opinion" on the tax credit accounts because of the failure to stem the losses.

The National Audit Office (NAO), Whitehall's spending watchdog, said Tax Credits were still open to "significant" fraud and error despite government efforts to combat the problem and up to £1.54bn was wrongly paid out by HM Revenue and Customs in 2006-07.

"Levels of tax credits error and fraud are significant when compared with the expenditure on the scheme," said Tim Burr, head of the NAO. "I have therefore qualified my opinion on the regularity of these payments."

The Liberal Democrats said that fraud and error statistics showed more than £4bn was lost in the past two years, taking the total lost through overpayments, fraud and error to £14bn since the system was introduced.

John Barrett, LibDem MP for Edinburgh West, said: "The amount lost through overpayments, fraud and error is now approaching £14bn.

"The tax credits system is so complex that it is abused by fraudsters, misunder- stood by claimants and mismanaged by officials.

"We need to return to fixed awards which are easy to administer and ensure families aren't burdened with overpayments."

Treasury officials said the claims by the LibDems were not an accurate reflection. "Changes of a claimant's circumstances within a financial year are what affect overpayments and in some cases underpayments," said an official. "It is not to be compared with the level of error which has fallen from 9.2% in 2004 to 7.6% in 2007."

Treasury Financial Secretary Jane Kennedy said HMRC had "significantly accelerated" its programme for measuring fraud and error and had set a target to cut it to 5% of total entitlements by 2011. Progress in that direction was welcomed by Edward Leigh, the Tory MP who chairs the Commons public accounts committee. "Our committee has been pushing for such a target for some time, this is long overdue," he said.

Shadow Chief Secretary to the Treasury Philip Hammond said the figures meant one thing - "that thousands of hard-pressed families now face further hardship as these payments are clawed back".

He added: "This is more evidence of the administrative chaos at HM Revenue and Customs. Tax credit overpayments are still at stratospheric levels. It's time the government sorted this mess out."

In his annual report on HM revenue and Customs, Mr Burr highlighted a failure to collect £135m a year from 420,000 pensioners and a backlog of 16.2 million taxpayer records to be cleared.