West Midland families on low incomes could be let off millions of pounds they owe to the Treasury because of benefit overpayments.
An official inquiry into the chaotic tax credit scheme has called on the Government to consider writing off the debts.
More than 181,000 West Midland residents are being pursued by Revenue & Customs after receiving a total of £189 million more in tax credits than they were entitled to.
In Birmingham alone, 33,000 residents were paid £38 million more than they should have been.
Faulty computer systems and errors processing claims meant more than one third of people entitled to receive tax credits were paid too much.
They owe more than £1,000 each, on average. But MPs have reported a flood of letters from worried constituents who say they cannot afford to pay the money back.
A highly critical report published today by the Parliamentary Ombudsman warned: "Many have then had to borrow money or run up credit card debts in order to pay their day to day living expenses."
The Ombudsman, Ann Abraham, said: "The cases I have investigated are striking in the sheer range and extent of the processing errors affecting tax credit claims during the first two years, leading to overpayments for which customers were not responsible, but which they had to repay.
"I recommend that consideration be given to writing off all overpayments caused by official error which occurred during 2003-4 and 2004-5."
She added: "This would be a sensible and proportionate response to the situation, and would give much-needed relief to people who, in many cases, have been caused considerable distress and hardship."
The ombudsman also accused Revenue & Customs - the body which has replaced the Inland Revenue - of failing to communicate with tax credit recipients.
Letters were not answered, and a telephone helpline was often engaged, the report said.
Some members of the public who believed they had been overpaid resorted to just sending back their Giros by return of post.
The recommendations were welcomed by Birmingham MP Lynne Jones (Lab Selly Oak).
She said: "People who were overpaid are hit by a double whammy, because their payments are reduced and they have to start repaying what they received in the past, at the same time.
"I have been dealing with a number of cases and last week convinced Revenue & Customs to write off two of them."
But MP Gisela Stuart (Lab Edgbaston) said: "We need to be responsible with taxpayers' money and I wouldn't support a blanket writing-off, but people's individual circumstances should be taken into account.
"I hope this report will lead to improvements in the way tax credits are administered."
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.