From the TUC

Benefit Fraud

29 Jul 2010, by in Society & Welfare

The National Audit Office has just published their annual report on Fraud And Error In Benefit Expenditure and the headline has been that overpayments from fraud and errors “hit £3.1 bn”.

As always, we’re going to see that figure used to create the impression that everyone on benefits is defrauding the system, that Shameless is some sort of documentary about how claimants actually behave. It’s time to remember:

  • Benefit fraud accounts for only a small part of the benefits bill – less than 1%;
  • The level of fraud is not ‘out of control’ – it came down significantly a few years ago and has run at much the same level for six years;
  • Benefit fraud is less common than insurance fraud or tax evasion.

Even nowadays, £3.1 billion sounds like an awful lot of money. And, of course, it is – getting it down is an important task. For those of us who want a generous benefit system that has an impact on poverty every pound saved on overpayments and fraud is a pound that can is freed up to make a difference.

But fraud statistics have a separate political impact – they are used to give the impression that fraud is rampant. The more people concentrate on fraud when they think about poverty, the less likely they are to think that claimants deserve any sympathy. So it’s worth getting beyond the headline in this statistic.

Firstly, £3.1 billion is a lot of money, but it’s not such a huge proportion of total benefit expenditure. In 2009/10 £148 billion was spent on benefits, and fraud and overpayment represented about 2.1% of that figure.

The NAO reported this “an increase in both the value and the proportion of benefits being overpaid.” It is true that the proportion is up from last year, but it’s the same as the year before and the year before that. The fact is that DWP succeeded in bringing down this figure six years ago and it has been steady since then.

Proportion of benefit spending going to overpayments due to fraud and error:

2009/10

2.1%

2008/9

2.0%

2007/8

2.1%

2006/7

2.1%

2005/6

2.2%

2004/5

2.2%

2003/4

2.8%

2002/3

2.7%

2001/2

2.8%

The second point I’d highlight is that this headline, “fraud and overpayment” regularly gets reported as if it were all fraud. In fact, less than one per cent of total benefits spending is lost to fraud:

Estimated fraud, 2009/10:

Benefits Fraud overpayments
Benefits administered directly by the Department

0.6%

Housing related benefits administered by Local Authorities

1.2%

Total

0.7%

Fraud is wrong, but it is also wrong to describe the benefit system as if fraud was the norm. To put the 0.7% figure in perspective, detected insurance claims fraud in 2008 was worth about 2% of the value of insurance premiums; the Association of British Insurers estimates that undetected fraud was worth about 6% of premiums. If you’re looking for fraud that is ‘out of control’ this might be a good place to start – ABI estimates that the level of undetected opportunistic retail fraud rose by 18% between 2006 and 2008 and the level of undetected opportunistic commercial fraud rose by 35% over the same period.

Or, compare benefit fraud with tax evasion. As Richard Murphy has pointed out, the ‘tax gap’ from tax evasion is about £70 billion – more than 27 times as much as is lost to benefit fraud. HMRC spent £633,284 on advertising to prevent tax evasion last year, compared with £5 million spent on advertising to stop benefit fraud. Richard calculates that this must mean that the government thinks that benefit fraud is 624 times more important than tax evasion. No wonder so many voters conclude that benefit fraud is vile and despicable but tax evasion is a bit of a laugh.

Or – compare the £1 billion lost to fraud with the £7 – £12 billion of unclaimed means-tested benefits in 2008-9. Of the means-tested benefits people are entitled to, somewhere between one pound in every four and one pound in every seven goes unclaimed.

Fraud is wrong, whether we are talking about benefit fraud, tax evasion or insurance fraud. But benefit claimants are less likely to defraud the system than people who evade tax or make fraudulent insurance claims. Claimants are far more likely to fail to claim what they are entitled to than to steal from the welfare state.

Fraud does not justify a miserly, heard-hearted attitude to benefits policy.

3 Responses to Benefit Fraud

  1. Tweets that mention Benefit Fraud | ToUChstone blog: A public policy blog from the TUC — Topsy.com
    Jul 29th 2010, 9:12 am

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  2. Benefit fraud crackdown – we’ve heard this all before « Community Links blog
    Aug 10th 2010, 12:56 pm

    […] as many people have pointed out, don’t forget about the £70bn in tax evaded each year. Cameron said today that, ‘at a time when we’re having to take such difficult […]

  3. Gabriel Santos
    Aug 13th 2010, 10:38 am

    Credit Reference Agency Involvement for Benefit Fraud

    I saw a few articles of credit reporting company’s involvement to detect public fraud, which is good, but at the same time it’s scary that they can be bounty hunters since they will be rewarded based on their detection.
    What makes me worry is surely excessive access to individual information, because some news said “involves checking people’s household spending” .

    I’m very concerned about this movement and please enlighten me if the credit reference agencies can actually do the following things without our agreement or if required (and if you ask or allow them to do) for my general knowledge:
    – Can they access to our bank account and see the detail in & out, namely detail bank statement? If so, can they access from the inception of the account or just limited period?
    – Can they randomly ask utility companies to check our past payment records & payment methods?
    – Can they ask the retailers who searched my credit report to provide them all the purchase & payment method details?

    Appreciate your insight / advice.

    Thank you.

    Gabriel S.