25/03/2013 08:02 GMT | Updated 24/05/2013 06:12 BST

Welfare Myth Two - Benefit Fraud is a Big Problem

In the next in my series of welfare myths I explore benefit fraud.

Fraud is always a problem. Lying and cheating is wrong and society should certainly discourage it. But benefit fraud - people lying and cheating in order to increase the size of their benefits - is not a big problem. There are many problems which are much bigger, in particular fraud by government.

First of all it is worth examining the facts. Sometimes government reports fraud and error together as costing £5.2billion. But it is a major confusion to treat errors by claimants and administrators as fraud. The real level of benefit fraud is estimated by government as £1billion.

In terms of the gross cost of benefits this represents 0.56% of the total cost of benefits and pensions. This is a very low figure for any complex financial system.

It is also very interesting to compare this figure with figures that seem to get much less attention from our political leaders:

The National Fraud Authority estimated that in 2012 tax fraud (including Council tax and tax credits) was £14.5billion. This is not tax evasion (which is a much bigger figure) this is straightforward lying and cheating in order to reduce the tax you pay.

Each year many benefits and tax credits go unclaimed. The Citizen Advice Bureau estimated the figure at £17.7billion. This is a particularly striking figure and there are at least three explanations for this. First, as a rule, claimants tend to underestimate their own needs or problems. Second, the system is so incredibly complex that many people do not know what they are entitled to. Third, the benefit system is designed to stigmatise claimants - to treat benefits not as entitlements, but as handouts - so many people simply prefer not to go through the painful indignity of claiming benefits.

The current government intends to cut benefits by £22billion per year by 2015. In order to do this it has introduced a series of cuts which it calls 'welfare reforms' although it is hard to see any of these changes as improvements. The word reform seems to have changed its meaning.

These figures are compared in the graph below.


It is worth reflecting on the character of most benefit frauds. I remember when studying the work of WomenCentre in Halifax one woman who was on the verge of prison because she had not told the DWP that she was now living with her partner.

Fraud is wrong; but people will also tend to abuse systems that seem particularly unfair or which do them harm. When a couple in work choose to live together they lose no income; but when a couple on income support live together they lose 22% of their income.

Some of the wealthy justify their own fraud because they think they pay excessive taxes. But the taxes imposed on the poorest by badly designed benefit regulations are even more excessive. But I will explore this issue in more detail another time.

The grossest form of fraud, with no justification, is the fraud committed by government. Government blames the poor poverty, designs systems that rob them of their entitlements and then plans further cuts. If we combine unclaimed entitlements with benefit cuts it could be argued that government is defrauding the poor by £39billion.