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HMRC and DWP still failing to cut multi-billion pound benefits fraud and error

HM Revenue & Customs (HMRC) has no meaningful framework to tackle tax credit fraud and error during the transition to universal credit, a Public Accounts Committee (PAC) inquiry has found today (28 October).

And following a report from the National Audit Office in July, which identified that the Department for Work and Pensions (DWP) was not on track for delivering its Spending Review target for reducing fraud and error, the inquiry concluded that it must be far clearer in setting these targets.

It has now failed to meet its 2014-15 target for reducing fraud and error and relies on welfare reforms to make future improvements.

The investigation into HMRC and DWP was launched after a payment debacle in 2013-14, when HMRC overpaid some claimants by £4.6bn and underpaid others by £1.6bn due to errors, fraud and mistakes.

HRMC manages tax credits, paying out £29bn to almost 5 million claimants in 2013-14. The DWP manages most of the remaining benefits and the state pension and paid out £164bn in the same year to 18 million people.

While the departments can recover some of overpaid cash, this could seriously harm people who must struggle to pay back money paid to them mistakenly.

Although both departments have made good progress in reducing headline rates of fraud and error, particular for tax credits, the PAC found that HMRC does not fully understand how it has achieved this – or how much further it can go.

But PAC’s chair, Meg Hillier MP, said that changing the benefits structure is not a ‘magic bullet’ and will not solve all problems. The DWP still expects fraud and error to drain almost £6bn from the public purse by the end of the decade, once universal credit has been fully rolled out.

And universal credit is only expected to save £0.5bn each year in fraud and error overpayments by 2020.

Hillier said: “The high levels of fraud and error scrutinised by the PAC are a matter of great concern. Put simply, far too much taxpayers’ money has gone where it shouldn’t – and too little where it should.

“Legitimate claimants have missed out on vital support running into thousands of millions of pounds. At the same time, overpayments cost every UK household about £200 a year.

“Departments must take active responsibility for identifying potential problems, and implement effective plans for dealing with them. It is alarming that despite issuing tens of thousands of fines in recent years, along with many other penalties, the DWP is unable to produce any evidence of the effect this approach has had – for good or ill – on people’s behaviour.”

She also underlined certain steps the HMRC took to tackle fraud and error – including employing a private contractor to check claims, whose approach has been “excessively threatening” – and warned this had resulted in a “blunt instrument approach” to enforcement that doesn’t take into account the human impact of its response.

The committee therefore called on the departments to improve their understanding of what reductions are possible over the next few years, as well as focus on preventing both underpayments and overpayments due to fraud.

An example of this could be by setting regular targets at the HMRC for reducing fraud and error in tax credits during the transition to universal credit – which already covers 60% of England – based on an assessment of how recent reductions were achieved for each major risk area.

And the DWP, unable to meet its fraud reduction targets, should build on its recent development strategies for individual benefits by publishing targets for reducing fraud and error in each major benefit. It should also assess how many reductions can be achieved and set out operational plans detailing how this can be delivered.

High levels of fraud that will persist even after universal credit is fully implemented must also be tackled and progress reported back to the PAC every year.