Complex benefit system leading to fraud and error

17 May 2012 – Complex benefit system leading to fraud and error

New fraud and error figures show why fundamental reform of the benefits system is so vital, Ministers said today.

The current benefits system is so complex that while fraud fell slightly to £1.1billion, the amount lost to claimant error remains at the highest it has ever been at £1.3 billion. Universal Credit, which is being introduced from next year, will simplify the benefits system and dramatically reduce fraud and error.

Welfare Reform Minister Lord Freud said:

"The current benefit system is far too complicated, which leaves it open to fraud and error. Universal Credit will revolutionise the way we pay people benefits by simplifying and automating the system to ensure taxpayers’ money is going to those who need it the most.

"Universal Credit will dramatically reduce the chances of fraud entering the system and will cut down on error as it will be much easier to understand and administer. It will also reduce the incentive for fraud by making sure people are better off in work than on benefits."

The latest fraud and error estimates published today for 2011/12 show that out of a total benefit expenditure of £159 billion, £3.2 billion was lost to fraud and error.

• £1.1 billion has been lost to fraud
• £1.3 billion has been lost to customer error
• £0.8 billion has been lost to official error

Current benefit claims are in the process of being ‘case cleansed’ in preparation for Universal Credit. This will ensure that claims are accurate and free from fraud before they enter the Universal Credit system in 2013. This process has already made savings of £548 million.

Ahead of Universal Credit, the Department has stepped up its efforts to target fraudsters which will reduce annual welfare fraud and error overpayments by one quarter by March 2015. The range of measures include the regional taskforce, using credit reference agencies, a new IT system which automatically informs local authorities of new claims or changes in benefits and tax credits, and joint investigations with HMRC and local authorities.

The Welfare Reform Act 2012 also has tougher penalties to deter fraudsters, which includes low level benefit fraudsters now facing a fine of up to £2000 without being taken to court. Cautions will no longer be an option, meaning no fraudster escapes without punishment.

Other penalties coming into effect in the future to cut down on fraud and error include:

• Extended loss of benefit for offences, which result in a conviction, of 13 weeks for a first offence, then 26 weeks for a second offence and three years for a third offence.
• An immediate three year loss of benefit for serious or organised benefit fraud or identity fraud.
• A new £50 civil penalty in cases where claimants negligently give incorrect information on their claim or fail to report a change in circumstances which results in an overpayment.