Tackling Benefit Fraud: Cameron’s doomed Crusade

It costs us £1bn a year. Or as Dave Osler puts it 1% of total outlays for benefit claims are on the basis of fraudulent claims.

This is bad. Even I think this is bad. But before we ask ourselves “what are we going to do about it?” we need to ask some other questions first.

1) No system is perfect, so what level of fraud is permissible?

2) Is the situation improving or deteriorating?

3) How much money must be spent to recover £1 of fraudulently claimed benefits?

I’ll go backwards through this list.

If we must spend more than £1 to recover £1 of fraudulently claimed benefit, then the policy is a non-starter. If we must spend only slightly less than £1 per £1 recovered then there are still better ways to spend the money that provide a better return. Only if it is comfortably below £1 then we have a workable policy. I don’t think the first outcome is likely at the moment, an extra £10m spent on harassing benefits claimants will probably, negative side effects aside, generate more than £10m in retained revenues. But as we catch more people and take the low hanging fruit, it will get more and more expensive to recover each extra pound and we will move towards that situation.

Next if we are to tackle this £1bn of benefit fraud we must consider in what context it is occurring. Contrary to what you may assume, benefit fraud is down from 2000. By some measures, fraud has been cut in half from £2.2bn to £1.1bn in the last 10 years. Cameron has proposed a radical change in policy, using credit rating agencies to spy on people, without explaining why it is necessary. Benefit fraud has been trending down for the last decade and apart from a recent uptick no clear reason for changing tactics is evident.

Finally, we must decide what level of fraud is acceptable. From 2005-2008 benefit fraud ticked along at 0.6% of benefit outlays. This is a little under where we are now, except we now spend more on benefits and those benefits are more complicated. Benefit fraud appears to be a problem, but it does not appear to be easy to reduce it below a 0.6% lower limit (although I would be curious to see cross country comparisons of this). Ask yourself what level of benefit fraud seems reasonable to you, it cannot be 0%, perfection is a mirage, and I would be surprised if you came up with a figure much below that which we suffer with now.

What is the best use for that £1bn maximum outlay?

I doubt it is getting tough on fraud. Some of that money might be cost effective, but I think the Government will soon reach a point where each extra pound reclaimed become rapidly more expensive to police. Even if you find benefit fraud morally odious then it is still self-evident that it will never be eradicated and you must ask, what price will you pay?