Government lacks ambition to tackle benefits and tax credit fraud and error, says PAC

28 Oct 15
Failures in tackling fraud and error in the benefits and tax credit systems remain prevalent, with combined underpayments and overpayments in excess of £47bn in 2013/14, the Public Accounts Committee has found.

In a fraud and error stocktake, MPs found that both Revenue and Customs and the Department for Work and Pensions had “a paucity of ambition” in tackling the problem. The combined overpaid claimants by £46bn and underpaid claimants by £1.6bn in 2013/14, according to today’s report.

Committee chair Meg Hillier said these high levels were a matter of great concern. “Put simply, far too much of taxpayers’ money has gone where it shouldn’t, and too little has gone where it should,” she stated.

“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 per 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.”

The DWP said that it had made significant strides in reducing fraud and error, and along with local authorities recovers around £900m every year in overpaid benefits, while HMRC collects £800m in tax credits and continues to claw back more.

Fraud and error in the tax credit system has almost halved from 8.1% to 4.4% ‒ the lowest level in a decade, despite benefit expenditure rising by £15bn since 2010, the DWP said.

Although the PAC did acknowledge that improvements had been made, especially by HMRC, it said the levels of fraud and error remain unacceptable and waste money that could have been spent elsewhere.

The committee concluded that HMRC did not fully understand why or how it has made progress and was unable to estimate whether further reductions were possible.

The DWP said that £3.2bn of savings by HMRC were realised through improvements to the tax credit system, while an updated fraud, error and debt programme had brought £2.6bn in savings to the DWP.

But the PAC said the DWP had failed to meet its overall targets for reducing the levels of fraud and error. Despite claims that the government's welfare reform programme would lead to improvements, the department still expects to lose £5.8bn in 2020/21 once changes such as Universal Credit and the new state pension will have been rolled out.

Hillier said the reliance on both agencies on coming welfare reforms was problematic, as these would not represent a “magic bullet”.

“Departments must take active responsibility for identifying problems and implement effective plans for dealing with them,” she said.

The committee urged both departments to put into place clear strategies to continue to minimise the risks of fraud and error both before and after these reforms have been implemented, and to update the PAC so their progress can be monitored.

The DWP said that measures such as the introduction of access to real time earnings data to detect undeclared earnings or income and adjust a person’s benefits accordingly are expected to reduce fraud and error in the tax system by £630m.

A government spokesperson said: “The reforms we have made to the benefits system will better guard against fraudsters. Universal credit and real time information alone are expected to save the public purse £3.2bn a year and we will continue to tirelessly pursue and recover payments from the minority who do try to abuse the system.”

The PAC argued that while both departments had made improvements in detecting and correcting fraud and error, there had been little progress in preventing these problems from occurring in the first place.  A focus on preventative measures was needed to avoid putting a burden on claimants, some of whom face huge difficulties as they struggle to pay back money that was paid to them in error.

MPs were particularly concerned that HMRC was failing to support claimants adequately when errors were discovered, and was quick to blame them. The approach of a contractor employed by HMRC to check tax credit claims could be deemed “excessively threatening”, according to the report.

Hillier said this has become a “blunt instrument approach” that fails to take into account the “human impact” of its response, especially on vulnerable claimants.


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