Government must do more to combat benefits fraud and error

28 Oct 2015 02:38 PM

The Committee of Public Accounts publishes report calling for a new focus on failures in the benefits and tax credit systems, finding the Government to have demonstrated "a paucity of ambition".

The Committee’s Fourth Report of this Session, published October 28 2015, examines fraud and error in the payment of benefits and tax credits – a significant and long-standing problem.

HM Revenue & Customs (HMRC) manages tax credits and paid out £29 billion to 4.7 million claimants in 2013-14. The Department for Work & Pensions (DWP) manages most remaining benefits and the state pension, paying out £164 billion in 2013-14 to 18 million people.

Since 2010 both departments have made progress in reducing headline rates of fraud and error, particularly HMRC in tax credits. Yet in 2013-14, DWP and HMRC still overpaid claimants by £4.6 billion because of fraud and error, and underpaid claimants by £1.6 billion.

Overpayments increase costs to taxpayers and reduce public resources available for other purposes. Underpayments mean households do not get the support they are entitled to.

Chair's comments

Meg Hillier MP, Chair of the PAC, said yesterday:

"The high levels of fraud and error scrutinised by the Public Accounts Committee are a matter of great concern. Put simply, far too much taxpayers’ money has gone where it shouldn’t – and too little where it should.

Legitimate claimants have missed out on vital support running into thousands of millions of pounds. At the same time, overpayments cost every UK household about £200 a year.

Against this backdrop, the PAC would expect to see Government departments setting firm targets for reducing fraud and error, with a clear focus on making best use of the public pound.

Yet while HMRC has made progress in tackling tax credit fraud and error, it has no meaningful framework for making further progress during the transition to Universal Credit. This is not good enough. Similarly, the DWP must be far clearer in setting targets for reducing fraud and error for individual benefits.

The PAC has been told welfare reform will help HMRC and the DWP tackle some of the issues raised by this inquiry. That may be so - but changing the benefits structure is not a ‘magic bullet’.

Departments must take active responsibility for identifying potential problems, and implement effective plans for dealing with them.

It is alarming that despite issuing tens of thousands of fines in recent years, along with many other penalties, the DWP is unable to produce any evidence of the effect this approach has had – for good or ill - on people’s behaviour.

I am also concerned that steps taken by HMRC to tackle tax credit fraud and error – including employing a private contractor to check claims – has resulted in a blunt instrument approach to enforcement that does not properly take into account the human impact of its response, particularly on vulnerable claimants."

Report summary

High levels of benefits and tax credits fraud and error remain unacceptable. Overpayments cost every household in the UK around £200 a year and waste money that government could spend on other things. HM Revenue & Customs (HMRC) and the Department for Work & Pensions (DWP) have made some progress in tackling fraud and error, but both departments have shown a paucity of ambition.

HMRC has reduced fraud and error, but does not fully understand how it has achieved this, or how much further it can go. DWP did not meet its 2014-15 target for reducing fraud and error, and is relying on welfare reforms to make future improvements. These reforms will not solve all the problems, and DWP expects fraud and error to still be £5.8 billion in 2020-21, once Universal Credit has been fully rolled-out.

While the departments can recover some of the money overpaid, this can create huge difficulties for people as they struggle to pay back money paid to them in error. During the next few years both departments must improve their understanding of what reductions are possible, and increase their focus on preventing both underpayments and overpayments due to fraud and error. We intend to return to the issue often during this Parliament.

Summary of conclusions and recommendations

Further information