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?

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16 thoughts on “Tackling Benefit Fraud: Cameron’s doomed Crusade

  1. The Agencies will be paid by results. I would rather spend my £1 on finding criminals than let them have the £1, wouldnt you?

    1. “The Agencies will be paid by results.”

      The point of this piece is that they will get few results. We have already greatly reduced benefit fraud.

      “I would rather spend my £1 on finding criminals than let them have the £1, wouldnt you?”

      Certainly, at the margin that is your prerogative, but would you want to spend £2 on reducing benefit fraud by 1 or would you rather it was spent on schools or on improving the administration of the DWP to eliminate the errors which cost around 3 times what benefit fraud does.

      Also, I think you’re being naive if you think it will be that easy to reduce benefit fraud significantly.

      Moreover, with Agencies being paid by results (which I doubt, they’ll have a nice comfortable contract on this one) you are going to increase the chances of false positives turning up.

      As the vast majority of benefit claimants are innocent even if the odds of wrongly accusing and charging someone is small, you are going to hurt a lot of innocent people are you begin to scrape the barrel.

  2. From what I understood from the Jeremy Vine show earlier, the agencies will be paid commission, so they amount spent on them will never be above the amount being saved, unless there are some sort of underhanded deals going on (but I cant see that happening under such a straight talking con-dem government).

    “As the vast majority of benefit claimants are innocent even if the odds of wrongly accusing and charging someone is small, you are going to hurt a lot of innocent people are you begin to scrape the barrel”

    Maybe we should stop investigating murders then too

    1. “Maybe we should stop investigating murders then too”

      http://en.wikipedia.org/wiki/Birmingham_Six

      No, we shouldn’t set perverse incentives as they may lead to false positives.

      http://en.wikipedia.org/wiki/False_positive_paradox

      Hyperbole isn’t that useful on this subject. We set the bar very high indeed for convicting someone of murder precisely for the reasons I have outlined. Are we going to put every one who fraudulently claims benefits on trial in front of 12 of their peers?

      “From what I understood from the Jeremy Vine show earlier, the agencies will be paid commission, so they amount spent on them will never be above the amount being saved, unless there are some sort of underhanded deals going on (but I cant see that happening under such a straight talking con-dem government).”

      I do think this is more bluster, and I doubt the Tories will get benefit fraud down much, for reasons outlined above. If the contacts have been set up as described then I imagine the take up will be small from the private sector.

  3. Benefit fraud is a lot more cut and dry, We need transparent bank accounts, if you have nothing to hide then what is the problem! besides if their benefits gets cut, they can always get a job!

  4. “Benefit fraud is a lot more cut and dry”

    Than murder?!

    The problem of false positives is only going to increase the closer we get to the minimum practical rate of benefit fraud. Which I suspect the last government achieved at ~0.6%, although I’d welcome a cross country analysis. Possible to achieve, and perhaps the Tories will find a cost effective way of doing it, but it will be fraught with dangers.

    “We need transparent bank accounts, if you have nothing to hide then what is the problem!”

    The state is not to be trusted more than is necessary. Remember Ian Tomlinson?

    Anyway, the Data Protection Act means your information is your information and I am not sure how much snooping would be legal.

    “besides if their benefits gets cut, they can always get a job!”

    Really, 2.5m people suddenly just decided they didn’t want jobs anymore?

    And in the US, where benefits are even more meagre than in this country, people just don’t fancy working?

    I know it is bad form to argue through rhetorical question, but it seems you haven’t thought through your point whatsoever.

    There are currently more people than jobs. There is a deficiency of demand which increasing the supply of labour which will to work for dirt cheap wages will not address.

    1. Again I must resort to semi-rhetorical questions.

      What world do you live in where there are 2.5 million vacancies in McDonalds?

      There isn’t currently enough demand to employ all those out of work. If unemployment benefits vanished another couple of million jobs wouldn’t pop into existence.

      I don’t even know through what mechanism that would work.

      2.5m people’s spending power reduced to zero > current demand is further depressed > fewer jobs > even more people’s spending power reduced to zero > fewer jobs > even more people’s spending power reduced to zero > fewer jobs > even more people’s spending power reduced to zero > fewer jobs > even more people’s spending power reduced to zero > debt deflation and a depression.

      What is your alternative that involves 2.5 million jobs popping into existence?

      We need to catch up to trend rate growth and increasing the supply of Labour who will work for less than before isn’t going to help address that.

  5. It’s “dog whistle” stuff for the Daily Mail and the Tory right who don’t like the ConDem coalition. What Tim Bale in ‘The Conservative Party: From Thatcher to Cameron’ called “the politics of the 19th tee”.

    It also gets the private sector further involved in the benefits sector. There’s gold in them claimants – ask ATOS or A4e. I wonder what the fraud officers in the DWP think about this stunt?

    1. “I wonder what the fraud officers in the DWP think about this stunt?”

      It sounds like something some ex-thinktank bod or Cameroonian thought of, rather than what those on the ground tackling fraudulent benefit claimants asked would ask for.

    1. I’ll have to look into that, thanks.

      We can agree that a big reduction has already been achieved. whether it is from 2bn to 1.1bn or 2.2bn to 1bn, it is a big drop which suggests the easy fruit has been plucked.

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