The multi-billion pound question: how to reduce fraud and error in the benefits system

7 July 2016

£4.6 billion. That was the cost of fraud and error across the Department for Work and Pensions (DWP) and HM Revenue and Customs in 2014-15. To put that in perspective, it is more than we spend on prisons and probation services combined.

There is, however, positive news. At a Reform roundtable on the subject held today, Lord Freud, Minister for Welfare Reform, highlighted that progress is being made. In 2010-11 fraud and error accounted for 2.1 per cent of the DWP welfare budget, preliminary figures for 2015-16 place it at 1.8 per cent.

The United Kingdom is also doing rather well in comparison to the private sector and other countries. While fraud and error in Jobseeker’s Allowance, for example, runs at around 5 per cent, overpayment in the American equivalent is much higher. A study by Portsmouth University looked at data from around the world, finding that losses due to fraud and error usually range between 3 and 10 per cent, “probably around the average of 5.6% and possibly much higher”.

Nonetheless, taxpayers’ money is still being wasted in large quantities. Those attending today’s discussion – drawn from across central and local government and the private sector – were clear that more could, and should, be done. They were also clear that better use of data is key.

Firstly, in identifying cases of fraud or error in order to recover overpayments. A pilot, run by a consortium of central and local government in partnership with Liberata used multiple data sources – from the Land Registry through credit rating agencies to the electoral roll – to identify overpayments in Council Tax Reduction (CTR) and Housing Benefit (HB) claims. Looking at high risk claims, 39 per cent of the CTR sample had an overpayment, with an average value of £601. For HB the figures were 44 per cent and £831 respectively.

The second opportunity is applying these risk rules upstream to deliver better quality decision making in the first place. The more data sources can be brought together and accessed by those making decisions about individual claimant awards, the greater the chance of the right decision being made. For example, knowing that a second earner lives in the household, or that the individual has significant savings or an income. This is the real prize, prevention.

If data will help tackle the ‘supply’, behavioural economics could help address the ‘demand’. This means understanding what works in terms of deterrence – and the evidence is limited. Does mass advertising of successful fraud prosecutions inadvertently encourage others by implying everyone is at it? Or does it deter by showing people don’t get away with it? Are advertising campaigns good value for money, and is the Data Protection Act itself – which allows sharing of information for the prevention of fraud – a potentially underutilised communication tool?

With suggestions that further budget cuts will be needed in the coming months, making further inroads into tackling fraud and error is essential. Today’s discussion showed the appetite is there, the key is finding the highest value approaches.

Charlotte Pickles, Deputy Director and Head of Research, Reform

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