PAC takes a dig at HMRC and DWP regarding overpayments

If you’re depending on tax credits to help you get by right now, there are people working on all sides of the political spectrum trying to make things even tougher for you. That’s whether you’re doing the right thing or not. But it’s especially the case if you’re not.

Published at the end of October, the latest report and recommendations from the Committee of Public Accounts was highly critical of the government’s efforts to recover overpayments of tax credits and benefits.

The Committee pointed out that HMRC pays out approximately £29 billion in tax credits, which sounds like a lot, but when you take into account there are 4.7 million claimants, it works out to just over £6,000 each. That’s really not much per capita. Meanwhile, the DWP pays out approximately £164 billion to 18 million claimants (£9111 per capita).

Without going into detail on the exact breakdown, the Committee revealed that HMRC and DWP made combined overpayments of £4.6 billion and underpaid £1.6 billion, leaving a deficit of £3 billion between the two departments. This effectively means that less than 1.6% of claimants are responsible for what the press likes to describe as an out-of-control epidemic of benefit and tax credit fraud. Even worse, the majority of times when people are overpaid, it is due to error, not fraud. Plus, many times the error is on the government side, and not on that of the claimant.

The Cost of Overpayments on UK households

Meg Hillier, Chair of PAC, trotted out a well-worn line about how these overpayments cost every UK household £200 per year, which if you think about it is not much money (about £4 per week). It could actually be a good deal if we all just rather happily paid our £4 per household per week instead of the government spending millions upon millions of pounds attempting to recover it. Or, indeed, paying committees to talk about it.

Ms Hillier’s own words confirm the uselessness of the crackdowns. She said: “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.” In other words, penalties have not really done anything to fix the problem.

Nor would such actions be likely to fix the problem, because most of those who do actually intentionally commit benefit fraud are not professional fraudsters and they don’t put a lot of thought and planning into their fraud.

This means the frauds are typically opportunistic and arise due to special circumstances unique to a particular individual at a particular moment in time. At such times, fear of the consequences of fraud are not likely to be at the forefront of the claimant’s mind. Fear of the consequences of not committing fraud is more likely to be a factor in a person’s thinking.

“Fraud” – Is it Greed and a disregard for the Law? Or simply an act of Desperation?

What I’m trying to say here is that the vast majority of those committing benefit fraud and tax credit fraud are driven by desperation, not greed. Quite simply, punishments do not work as deterrents. If you have any doubts, just look at the US and China.

Despite having huge numbers of people locked up, some awaiting execution, others doing forced labour, and all of them being much more harshly treated by their fellow prisoners than those guarding them, crime rates in those countries continue to rise.

People are not afraid of the consequences before they commit crimes, only after. And the majority of people are typically not kept from doing wrong because they fear the law, but because their own personal morality prevents them from doing harm to others.

Meanwhile, in countries that have a more lenient stance towards offenders and focus on rehabilitation rather than punishment, there is typically much less serious crime, certainly far less violent crime, and lower levels of recidivism as well.

Ms Hillier concluded her commentary with: “I am also concerned that steps taken by HMRC to tackle tax credit fraud and error – including employing a private contractor to check claims – has resulted in a blunt instrument approach to enforcement that does not properly take into account the human impact of its response, particularly on vulnerable claimants.”

This echoes our own sentiments on this highly controversial issue. Having a one-size-fits-all approach to dealing with this problem is very unfair. Obviously officials are terribly fond of their rules and regulations, but this is a human problem, and the only fitting response is a humane one.

Where the government and its agencies must focus is on what is causing the desperation that is driving these people to do the wrong thing. They could then do something about it that really works, instead of hitting people when they are already down.

The obvious problem with the current measures already in place is that when people are already struggling, if the government deals with this through sanctions and fines, those people are going to struggle more. It is inevitable that when people are thrust into this kind of situation, at least some of them will take a turn for the worse.

This could be that they actually do become career criminals, or perhaps become alcoholics, drug addicts, or some other anti-social outcome which wouldn’t happen if the focus was on helping instead of punishing. Financial counselling, for example, could help people to better manage their budget and avoid crippling debts.

Nobody seems to want to acknowledge it, but sometimes debts literally are crippling. People on benefits can have a very difficult time obtaining legitimate credit, which in turn drives them to loan sharks, and loan sharks have a tendency to hit your knee cap with a hammer first and ask questions later if you don’t pay them on time. This is the kind of desperation that is driving the fraud problem, and unless something is done to eliminate the source of that desperation, people will continue to be pushed in the direction of fraud.

When push comes to shove, most people will view a fine and possible prison time as infinitely preferable to being viscously assaulted by a large man with a hammer. And when innocent children or parents are threatened, it becomes a non-question. Most people will do whatever it takes to avoid that kind of trouble, and you have to admit it is a much stronger deterrent than anything the government has come up with.

If you have gotten yourself into trouble with a tax credit claim, Hylton-Potts can help. Our highly trained legal experts have a depth of knowledge and experience they can put to work for you. For information, call us on 020 7381 8111 or send an email to [email protected].

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