Has benefit fraud been halved under Labour?

11 August 2010
The Prime Minister's announcement yesterday that private credit agencies could be brought in by the Government to tackle benefits cheats ensured that welfare reform grabbed the headlines in this morning's papers.   However the size of the task facing Iain Duncan Smith and his ministerial colleagues has been under some scrutiny.   As has been pointed out elsewhere, the amount lost to fraud is actually much lower than the sum which is lost to errors in the system, and clocks in at around £1 billion rather than the £5.2 billion that was quoted in some media outlets.   So how much fraud and error has there been in this particular policy debate?   The claim   Defending the previous Government's record on the benefits bill, Shadow Minister for Welfare Reform Lord Jim Knight argued that significant progress has already been made in tackling fraud.   He claimed that "the Labour Government halved welfare fraud over the past decade."   Do the figures back this up?   Analysis   The Department for Work and Pensions (DWP) publishes annual estimates of fraud and error in the welfare system as part of their Resource Accounts, which are independently audited by the National Audit Office (NAO). Full Fact attempted to contact Lord Knight to verify that this was the source for his claim, but at the time of publication we were yet to hear back from his office.   However a glance at the figures would seem to support Lord Knight's proposition. The most recent figures available (2008/09) show that benefit fraud cost the taxpayer £1 billion, or 0.7 per cent of the Department's £148 billion welfare bill.   When the DWP was formed in 2001, this figure was indeed much higher. It was estimated then that £2 billion per year was lost through fraud, which accounted for 1.9 per cent of the then £102.7 billion benefits bill.   Whether fraud is calculated either in pounds and pence or as a percentage of the overall welfare bill therefore, Lord Knight's claim would seem to check out.   However Full Fact discovered that the true picture is much more complicated than this might suggest.   In 2004, the Department changed the methodology by which benefit fraud and error was calculated, with a view to improving the accuracy from a £0.5 billion margin of error to £0.1 billion.   As part of this review, it was decided that fraud in the Disability Living Allowance (DLA) would no longer be included in the Department's measures due to complexities in assessing individual circumstances.   Given that DLA fraud and error accounted for £0.7 billion of the total benefit overpayments in 2003/04, this represents a significant part of the reduction in the welfare fraud and error seen in 2005.   As a spokesperson for the NAO told us, "there has been a reduction over the past decade, but comparisons shouldn't be made between the two data sets; it's not comparing like with like."   Looking specifically at the years covered by the new methodology, NAO data reveals that there has actually been a slight rise in benefit fraud since 2005, moving from 0.6 per cent of the welfare bill in that year to 0.8 per cent in 2009 and a projected 0.7 per cent in 2010.     Conclusion   There has been a well-documented decline in the amount lost by the Treasury to benefit error and fraud since 1997, due partly to the computerisation of the administration of a number of welfare payments.   Whilst superficially the figures might suggest that the reduction has been as great as 50 per cent, a closer inspection reveals that this is not a claim that can be sustained by the official data.   The National Audit Office specifically advises against trends being drawn from two very different data sets, and the available information for the most up-to-date methodology actually points to a slight rise in fraud since 2005.   Full Fact will update with Lord Knight's response when we receive one.

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