Tax credit fraud

The Public Accounts Committee (PAC) reports that tax credits continue to suffer from high rates of error and fraud.

HMRC estimate that in 2006–07 claimant error and fraud led to incorrect payments of between £1.31 billion and £1.54 billion (7.2% to 8.4% of the final value of awards). 1.3 million families were overpaid in 2006-7 ... that HMRC know of.

They plan to reduce claimant error and fraud to not more than 5% of the value of finalised awards by 2011. They say they are strengthening their measures for deterrence and prevention through better risk profiling, improving the deployment of compliance resources, and making better use of other data to allow them to corroborate information from claimants.

In 2007–08, the Department’s compliance teams identified or prevented £337 million of incorrect payments from their checks on 157,000 of the highest risk claims, less than 3% of the claimant population. The yield in these cases averaged some £235,000 for each member of the compliance team and over £2,000 for each case investigated.

In the light of the levels of error and fraud currently being detected by its compliance teams, the PCC say that HMRC should reassess the number of checks performed on high risk claims and consider whether they should be increased.

So how much of these huge figures is error, and how much is fraud?

The PAC say HMRC's current definition of fraud risks overstating the level of genuine error and understating those cases where claimants are setting out to exploit the scheme. The Department classifies cases as fraud only where it has evidence that the claimant deliberately set out to misrepresent their circumstances, and estimates that these amount to 10% of the losses due to error and fraud.

Even that would be £154m.

The PAC say the Department‘s response to fraud should take full account of those groups who set out to exploit the scheme even though it may not have clear evidence of an intention to defraud.

Of course it suits the government to keep the figures for fraud as low as possible. Surely HMRC has internal statistical estimates of the likely extent of undetected fraud. But it is politically convenient if HMRC does not make them public.