But government maintains that fraud and error remain rare

Credit: Got Credit/CC BY 2.0

The relaxing of fraud controls by the Department for Work and Pensions during the Covid-19 pandemic allowed criminals and opportunists to steal billions of pounds from taxpayers, according to Parliament’s Public Accounts Committee.

Overpayments of benefits in the 2020-21 financial year reached £8.3 billion, or 7.5% of total benefit expenditure excluding state pensions, compared with 4.8% in 2019-20. 

DWP relaxed its controls at the start of the pandemic to help it manage a flood of new claims and had expected an increase in fraud as a result, but the committee said the resulting losses are “simply unacceptable”.

“The department appears unequipped either to properly administer our labyrinthine benefits system or detect and correct years of mistakes across too many of our basic state welfare entitlements, far pre-dating its current woes,” said the committee’s chair Dame Meg Hillier. 

DWP also estimates it has underpaid £2.2bn in benefits.

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“There needs to be a step change in understanding the impact of benefit errors on people’s lives and restoring trust, because as we’ve seen recently with pension underpayments, once a mistake in the system materialises it can take years to resolve,” Hillier added.

DWP is recruiting 3,000 new staff to tackle fraud and error, but the committee said it is not clear what they will achieve. It called on the department to set clear targets for reductions in fraud and error by benefit type and risk area so its progress can be measured, as well as targets for recovering overpayments.

Universal Credit accounted for most of the increase in fraud and error, with DWP estimating it overpaid £5.5bn in 2020-21, equivalent to 14.5% of total expenditure on the benefit.

The report said Universal Credit was supposed to reduce overpayments by using data on people’s incomes from employers, with a target rate of 6.5% in 2027-28 in its original business case, but the department is unable to unable to explain how it will achieve this.

The committee said that much of the Universal Credit fraud is due to self-employment and capital declaration, which respectively account for £1.456bn and £943m of overpayments in 2020-21.

It said the department should set out specific plans within six months for tackling fraud in these two areas. Within nine months, it should review 433,000 cases it flagged as being more as risk of fraud and error, but has not since checked.

The report follows a National Audit Office report in July that recorded the watchdog’s concern over the levels of benefit fraud during the pandemic.

Responding to the PAC report, a government spokesperson said: “It is disappointing that the Public Accounts Committee has failed to acknowledge that in the midst of an unprecedented pandemic, we prioritised supporting record numbers of genuine claimants. Thanks to this decision, the Universal Credit system stood up to the challenge of the pandemic so people received vital financial support at their time of need. We are now taking extensive action to ensure all claims made were genuine. Fraud and error in the benefit system is rare, with 95% of benefits worth more than £200bn paid correctly, and just 0.4% of benefits being overpaid due to DWP error.”