MPs have expressed concern at the Treasury's operation of the Inland Revenue.

In a critical report into the administration of tax credit payments, the Commons Treasury select committee put the problems down to poor leadership and severe IT failures.

"This inquiry has raised serious questions about how the department has been led," the Labour dominated committee conclude.

The Inland Revenue comes in for strong criticism in the report released on Wednesday.

The tax agency's computing and telephone systems failed to cope with the demand placed upon it when the Treasury's new system of tax credits were introduced this year.

Hundreds of thousands of families were left without funds from the Working Tax Credit and Child Tax Credit.

They were forced to wait for longer than one month for their money when the changes were implemented in April.

Committee members found that at the start of this month 220,000 applications had still not been processed and over 100,000 had been outstanding for more than 30 days.

"For over 90 per cent of applicants, the introduction of the new tax credits has worked smoothly," the MPs note.

"But for a significant number there have been problems which certainly added to anxieties."

With over two million calls per day to the revenue's helpline at its peak, the committee accepted the explanation that no call centre in the world could have coped with the demand.

However the MPs remain angry that not enough preparation was made in advance of the changeover and demand that lesson are learned.

"We expect the Revenue to review its communications function and to analyse in detail the volume of calls received on the helpline and the problems to which those calls related," the committee said.

"We note also there is a question as to whether it is appropriate for a helpline such as this not to be free of charge to the user."

The biggest criticism is reserved for IT contractors EDS which was charged with designing the applications system.

EDS is part of a consortium doing the same for the government's Pensions Credits which come into effect this Autumn.

Problems presently afflicting the systems must not be repeated and EDS should also be liable for compensation claims, the MPs say.

"These IT difficulties were not identified by the testing undertaken before the system went into operation and were a bolt out of the blue for the Revenue," the committee found.

"We are extremely concerned that problems of this scale could arise at the last moment.

"We expect the revenue to ensure that the Department for Work and Pensions are fully appraised of all the problems the revenue have experienced with the tax credits IT system.

"We believe that the revenue and paymaster general have a clear duty to pursue vigorously a compensation claim from EDS.

"We do not expect the additional costs that have been incurred as a result of failure by EDS to be borne by the British taxpayer."

Conservative spokesman David Willetts said that responsibility lay with chancellor Gordon Brown

"This shocking report shows the extent of the chronic mismanagement at the Treasury. The architect of this new empire is Gordon Brown. It is he who must take ultimate responsibility and is now on borrowed time," the shadow work and pensions secretary said.

"It is clear the Inland Revenue is in a complete shambles. Relations between the responsible minister and senior Revenue officials appear to have completely broken down."