Ten years of tax credit fraud and error costs £17 billion

Sarah Coles
General Election 2015 campaign - May 1st
General Election 2015 campaign - May 1st

A new report has claimed that over the past ten years, the government has squandered £17 billion of the money paid out in tax credits. The cash has been lost either to mistakes, or to deliberate fraud.

The claims were made by the Daily Mail, which says it analysed official figures in order to come up with the total, after the most recent set of figures on mistakes and fraud were released earlier this month.

It will come as no comfort to learn that despite high profile claims that the government is clamping down on this kind of waste - £1.2 billion was handed out incorrectly in the past 12 months. To put that in perspective - that's almost one pound in every £25 paid out in working and child tax credits.
The good news

There is some good news in this announcement. The experts highlight that this represents a massive fall since the peak in 2011 - when £2 billion was lost in this way. The big fall has been attributed to initiatives such as monitoring changes to income in real time, and improving the detection of fraud. It was described by David Gauke as 'another step in the right direction.'

The figures also aren't quite as bad as they look on initial inspection, because HMRC will recover much of the money over time. However, this will cause upheaval for the families concerned, many of whom made honest mistakes and will face real hardship as the extra cash is clawed back. In some cases they will be unable to repay, and the money will be lost for good.

Not enough

And while the government is happy to applaud steps in the right direction, most taxpayers would like to see some giant leaps - £1.2 billion lost in mistakes and fraud shouldn't really be a cause for celebration at all.

Tax credits are expected to be targeted for more cuts in George Osborne's emergency budget in two weeks' time - as the Chancellor casts about for how to cut £12 billion from the welfare and tax credits bill.

Reports two weeks ago claimed that he was considering a study by the Institute of Fiscal Studies that suggested that tax credits return to 2003 levels (plus inflation). It would save £5 billion, but would mean the poorest families lose £845 per child per year.

There will be those who argue that instead of cutting the benefit for hard-working, honest people, on unacceptably low wages, the fairer solution would be to stamp out mistakes and fraud.

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