More than #150 million has been wrongly paid out to families in the West Midlands because of failings in the tax credit system.

Birmingham residents alone were overpaid by #30 million, according to official figures released yesterday.

The scale of the problem is a major embarrassment for Gordon Brown, the Chancellor, who created tax credits as a way of lifting children from the poorest families out of poverty.

The mistakes emerged as the Chancellor came under attack from Birmingham Labour MP Gisela Stuart (Lab Edgbaston) over his handling of the economy.

In an article for a leading economic journal, Ms Stuart (pictured) wrote: "In Britain, there is complacency owing to recent relative economic success, but it is possible that the seeds of future stagnation have been shown.

"We have excessive public spending, rising taxes and excessive micro-management."

Critics have claimed the tax credit system is too complicated and open to fraud.

Overpayments came to #1.8 billion across the country as a whole, yesterday's figures showed.

The causes range from oversights by bureaucrats to errors on application forms and deliberate fraud.

The figures refer to the financial year 2004-5, the second year that tax credits have been in operation.

Last night Ministers insisted the system was improving, because overpayments were down from #2.2 billion in the previous year. But opposition MPs called for the Treasury Minister in charge, Dawn Primarolo, to be sacked.

Work and Pensions spokesman David Laws said: "It is surely now time to replace the Paymaster General, who through oversight, incompetence, or complacency has presided over a broken system rife with incorrect payments and fraud."

A total of #30.7 million was overpaid to 33,100 Birmingham residents.

In Dudley, overpayments came to #8 million while in Sandwell the figure was #9.7 million. In Walsall, over-payments were #8.2 million and in Solihull they came to #4.8 million.

In some cases, recipients will be allowed to keep the money they received in error.

But other families, some on very low incomes, will be asked to return large sums.

The Child Poverty Action Group warned thousands of families were being left "struggling to survive" and called for further reforms.

Chief executive Kate Green said: "Tax credits have helped millions of low-income families, but they have not always worked as successfully as they should have done.

"Behind the #1.8 billion figure are the stories of thousands of families who have struggled to survive when overpayments have been clawed back by the Revenue."

The continued failings of the tax credits system are a blow to Gordon Brown, who is expected to take over as Labour leader once Tony Blair stands down.

But the divisions within the Labour Party were exposed by Ms Stuart. Her comments, in an article for the journal of the Institute of Economic Affairs, echoed remarks she made last month in a speech at the German Embassy.

Conservatives seized on the remarks. George Osborne, the shadow Chancellor, said: "Now even Labour stalwarts are finally coming clean about Gordon Brown's management of the economy.

"We are witnessing a Government which is falling apart at the seams and Mr Brown is at the heart of the problem."