Less than one per cent of the benefit bill is lost to fraud and that proportion is significantly lower than it was ten years ago. I’m willing to bet a small sum that that’s a headline you won’t see in any of the right-leaning newspapers. Its certainly the case that there’s been no publicity so far for the Department of Work and Pensions’ Fraud and Error in the Benefit System, new out today.
You may remember that in his Spending Review speech last year, the Chancellor said:
Nor will fraud in the welfare system be tolerated anymore.
We estimate that £5 billion is being lost this way each year.
George Osborne isn’t alone in claiming this. In his forword to the DWP’s anti-fraud strategy, Lord Freud said:
This document sets out a radical new approach for addressing welfare fraud and error, which now costs the taxpayer £5.2 billion pounds every year, or £165 every second.
So I suppose we can’t really blame journalists for using this £5 billion figure afround repeatedly. As I’ve said before, this is the combined figure for fraud and error and it is (on a generous reading) a terrible mistake to quote it as the cost of fraud.
Today’s figures confirm this. They show the total figure for benefit overpayments is £3.3 billion. (Last year’s estimate for the equivalent figure for tax credits was £2.1 billion, which would bring the “welfare” total to £5.4 billion.) Since last year’s Fraud and Error report the cash value has risen from £2.9 billion; this is entirely due to the increase in total benefit spending, the proportion of total spending accounted for by overpayments remains the same, at 2.2 per cent. There is no excuse for reporting the cash increase without mentioning this, it is a prominent point in the Executive Summary.
Just 0.8 per cent of benefit expenditure is lost to fraud,totalling £1.1 billion. 1.4 per cent (£2.2 billion) is lost to customer and official error.
Customers are underpaid £1.3 billion due to customer and official error.
There is no evidence that the level of fraud is rising. The 0.8 per cent estimate in this year’s report is the same as the estimate for 12 months previously. There was a significantly higher level of raud at the start of the noughties – one of the Department’s successes has been to bring this down:
(The Department’s methodology for estimating overpayments changed after 2004/5, but the net impact will have reduced the level of estimated fraud by less than £100 million. In any case, the Department’s progress on managing fraud clearly began before this change.)
Fraud is an important issue; 0.8 per cent of total spending may be quite a small proportion, but £1.1 bn is a lot of cash. Every pound lost to fraud is a pound that cannot be spent on the purposes benefits were designed for and it is important that the system should be policed.
But it is still important to keep this in perspective. Some newspapers suggest that most or many claims are fraudulent, that because of this our taxes are wasted when they are spent on benefits and claimants don’t deserve any sympathy. Ministers of both parties have repeatedly used tough talk about fraud to appeal to the populist constituency these reports have created.
That is why today’s report deserves a much wider audience.