Hundreds of thousands of graduates may have paid too much tax because of the Government's failure to fix a faulty computer program.

The error has been revealed by accountant Tommy Docherty, who lectures at the Institute of Chartered Accountants of Scotland and Strathclyde University.

He discovered that his daughter had been given the wrong tax coding after she graduated from Glasgow University. He then found his own students were also affected.

"When someone leaves university in the summer, it's quite common to sign on for income support until they get a job, usually around now," Mr Docherty said.

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"The Employment Service behaves like an employer, and when you leave, it is supposed to give you a P45 with the normal code number 376L, taking account of unused personal allowances. But what it has been doing for the last three years is to issue an emergency code number, which only gives one 12th of the allowances."

Mr Docherty calculates that a graduate who this month lands an Pounds 8,500 job after claiming benefit will have overpaid Pounds 300 in tax by Christmas. A correct coding sets the taxation straight, but this depends on the individual discovering the error.

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"The Employment Service have known about this since February 1995, and have actually refused on three occasions to change it because they're too busy working on the Job Seekers Allowance," he claimed.

Tony Worthington, Labour MP for Clydebank and Milngavie, will next week ask the Government how many people have been affected, and how much money they have lost.

"I regard it as fraud that the Government has been taking away money from people which it knew it had no right to," he said.

"Having promised to put it right, they then for expedient reasons, because they wanted to introduce the cost-cutting Job Seekers Allowance, broke their promise and carried on confiscating money from students and others who were bound to be hard up at the beginning of their careers."

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A spokeswoman for the Employment Service said an investigation into the computer system in 1995 had revealed a program error, but planned changes had been delayed by the move to the new allowance system. Interim measures had been in place since June, and a new computer system had come on stream last week. "We do accept that there was a problem and now we have computer systems dealing with it," she said.