Birmingham families on low incomes owe the Treasury more than £38 million because of mistakes in their tax credit payments.
More than 33,000 Birmingham residents are being pursued by Revenue & Customs after receiving more money than they were entitled to.
Faulty computer systems and errors processing claims meant one third of Birmingham residents entitled to receive tax credits were paid too much. They owe an average of £1,159 each.
Another 14,000 have received less than they should have claimed, official figures show.
Speaking in the House of Commons, Treasury Minister Dawn Primarolo unveiled a six-point plan to improve the way tax credits were administered.
But Conservatives said the chaos showed the complicated system, developed by Gordon Brown, the Chancellor, was unworkable.
Tax credits are meanstested allowances designed to encourage people into work.
Unlike traditional benefits, they are paid into wage packets.
The policy is at the heart of Mr Brown's efforts to help low- income families and reduce child poverty. Almost
5.7 million people now receive tax credits.
But the Revenue & Customs, the body which replaced the Inland Revenue, has admitted faulty IT systems and errors processing claims have led to overpayments totalling £1.9 billion.
The money will have to be paid back, although many recipients are on very low incomes. New figures released yesterday revealed that a total of 181,000 people had been overpaid in the West Midlands, owing a total of £189 million.
Another 69,000 people had been underpaid, and received £44 million less than they were entitled to.
Out of 538,000 recipients in the region, 250,000 received the wrong amount - almost half.
MP Andrew Mitchell (Con Sutton Coldfield) said: "This is going to cause enormous hardship and worry to people who are told they have to pay back more than £1,000.
"Although they have been overpaid in the past, these are people on low incomes who were sent the wrong amount through no fault of their own and are unlikely to have it sitting in the bank.
"We always said that Gordon Brown's obsession with complicated schemes would bring half the country into the means-tested net.
"This shows that tax credits as they are now are prone to error and unworkable."