COMMONS

Housing benefit fraud and error report published

13 January 2015

The Department has failed to tackle problems with Housing Benefit fraud and error quickly or convincingly according to the Public Accounts Committee's report published on Tuesday 13 January 2015.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"Billions of pounds have been lost to the taxpayer as a result of the Department for Work and Pensions’ failure to tackle Housing Benefit fraud and error effectively. Around £12.6 billion has been spent on Housing Benefit overpayments since 2000/01—money that could have been used to improve the system.

The size of overpayments is going up not down. In the last financial year £1.4bn of overpayments were made – 5.8% of Housing Benefit spending – up from £980 million (4.6%) in 2010/11. £900m of the £1.4bn was claimant error, £340m was claimant fraud and £150m was official error. Even after recoveries by local authorities, this is a huge cost to taxpayers.

The increase shows that the Department has still not effectively targeted the major sources of fraud and error – 16 years after this Committee first sounded the alarm.

We are also concerned that the Department is not doing anything to target underpayments, despite the hardship caused to those who miss out on the support they are entitled to.

It is completely nonsensical that the Department spends just 8% of its fraud and error funding on Housing Benefit, even though Housing Benefit overpayments account for 42% of overpayments across all benefits. The Department has also reduced its funding to local authorities, which as a result have cut back on wider work to identify undetected fraud, claimant error and underpayment.

The incentives provided by the Department for local authorities to tackle fraud and claimant error are not good enough. These weak incentives are exacerbated by pressures on local authority funding, including a 17% reduction since 2010–11 in the funding available for administering Housing Benefit.

The Department is expecting significant benefits from HMRC’s real-time information, but is doing little else to tackle Housing Benefit fraud and error in the still unclear and very long transition before Universal Credit.

The Department should review how it allocates money and resources to tackling Housing Benefit fraud and error. It must report back to us within 6 months on what measures it has introduced specifically to target underpayments and encourage legitimate take-up. The Department should also produce a proposal for how to strengthen incentives so that local authorities tackle Housing Benefit fraud and error more effectively.

Given the lack of evidence that the Department is getting to grips with fraud and error we view with scepticism the Department’s confidence that it will meet its target to reduce total fraud and error overpayments to 1.7% of benefit expenditure by March 2015."

Margaret Hodge was speaking as the Committee published its 27th Report of this Session which – on the basis of evidence from Ian Adams, Director of Financial Operations and Customer Services, Islington Council, Andrew Stevens, Assistant Director (Customer Delivery) East Kent Services, Robert Devereux, Permanent Secretary, Department of Work and Pensions, Steve Buckingham, Senior Responsible Owner for Housing Benefit, including Fraud and Error, Department for Work and Pensions and Mike Driver, Director General (Finance), Department for Work and Pensions – examined housing benefit fraud and error.

£1.4 billion in overpayments

The Department must do more to get to grips with tackling Housing Benefit fraud and error. In 2013–14 overpayments were £1.4 billion and underpayments were £0.4 billion. In 2013–14 overpayments increased to 5.8% of Housing Benefit spending, the highest rate of the Department’s benefits, and represented 42% of total overpayments across all benefits. Even after recoveries by local authorities, this is a huge cost to taxpayers. Underpayments also create difficulties for claimants who miss out on payments.

The Department has made little progress in reducing fraud and error despite repeated calls by this Committee over the last 16 years for the Department to improve its management of the problem. It has now begun to use HM Revenue & Customs’ real time information on earnings which should help it address the largest area of overpayments when the Department eventually rolls out Universal Credit but the timeframe for that remains uncertain. The Department needs to take action now to strengthen incentives for local authorities to tackle claimant error and fraud, develop a clearer understanding of fraud and error at the local level and target major areas of loss.

£23.9 billion spent on Housing Benefit

Housing Benefit is a means-tested benefit to help people on low incomes pay rent. The Department and local authorities are responsible for managing Housing Benefit. The Department sets policy, entitlement rules and shares data and guidance with local authorities. Local authorities have a statutory duty to undertake the day to day administration of Housing Benefit and pay claimants. The Department ultimately bears the financial cost as it reimburses local authorities for payments and provides funding towards the cost of administering claims. In 2013–14 £23.9 billion was spent on Housing Benefit, 15% of the Department’s total benefit spending.

The Department estimates that £1.4 billion was overpaid in 2013–14. Claimant error (£900 million) was the cause of two-thirds of overpayments, due mainly to unreported fluctuations in claimants’ earnings. £340 million of overpayments were due to fraud and £150 million of overpayments were due to delay, inaction or mistaken assessment by local authority officials.

Conclusions and recommendations

The Department has failed to tackle problems with Housing Benefit fraud and error quickly or convincingly. As long ago as 1998, our predecessor Committee concluded that “the value of benefits wrongly paid is enormous”. Despite our predecessors’ concerns about the lack of information on trends in Housing Benefit fraud and on the types of fraud committed, by 2003 the Department was still unable to assure the Committee that the number of people committing fraud, its overall value or the level of fraud were reducing. The Department estimates it has spent £12.6 billion on Housing Benefit overpayments since 2000/01—billions of pounds that could instead have been used to improve the system.

Overpayments increased from £980 million (4.6%) to £1.4 billion (5.8%) of Housing Benefit expenditure between 2010–11 and 2013–14; the highest rate of overpayments for any of the Department’s benefits. The Department claims it spotted that Housing Benefit overpayments were increasing in May 2013 but 18 months later was still unable to explain to us how it would be improving incentives for local authorities to tackle the problem. This was despite being asked by the Cabinet Office’s Fraud Error and Debt Taskforce in April 2014 to develop plans for reducing Housing Benefit losses. Housing Benefit overpayments accounted for 42% of overpayments across all welfare benefits, but the Department spent only 8% of its fraud and error funding on Housing Benefit. It argues that its initiatives to tackle fraud and error in other benefits would also reduce overpayments on related Housing Benefit claims. These initiatives are not, however, targeted at the biggest source of Housing Benefit overpayments which come from claimants who do not receive other benefits and who account for two-thirds of fraud and error. The rise in Housing Benefit overpayments shows that the Department has not effectively targeted the major sources of fraud and error.

Recommendation: The Department should review how it allocates money and resources to tackling Housing Benefit fraud and error. For each of the main sources of fraud and error, it should set out how—and by how much—its fraud and error initiatives aim to reduce Housing Benefit overpayments.

The Department is not doing anything to specifically target underpayments or the take-up of Housing Benefit, despite their importance to those most in need. The Department has reduced its funding to local authorities, who have in turn cut back on wider work to identify undetected fraud, claimant error and underpayment. Local authorities now focus on processing claims. Communicating directly with claimants is an effective way of finding fraud and error, but local authority interactions with claimants through interventions and reviews have declined. The Department argued that it is encouraging take-up through media campaigns. But its campaigns are targeted largely at overpayments and the need for claimants to report changes to their circumstances. The Department also argued that Universal Credit would make underpayments less likely but the timetable for implementation remains very uncertain. The Department did not highlight any other work to specifically tackle underpayments and improve the take-up of benefits.

Recommendation: The Department must report back to us within 6 months of this report on what measures it has introduced specifically to target underpayments and encourage legitimate take-up.

The Department has provided weak incentives for local authorities to tackle fraud and claimant error. The Department now relies mainly on incentives in the subsidy regime to encourage local authorities to reduce fraud and error. The subsidy regime is used to reimburse local authorities for paying the correct amount of money to claimants and seeks to encourage the effective administration of Housing Benefit. Local authorities told us that it creates disincentives for finding overpayments in their caseloads, including claimant errors and fraud which account for 90% of Housing Benefit overpayments. If a local authority identifies a case of fraud or claimant error it loses 60% of the money paid out in housing benefit to the claimant. The weak incentives for local authorities to detect claimant error and fraud are exacerbated by constraints on local authority funding, including a 17% fall since 2010–11 in the funding available for administering Housing Benefit. This has resulted in local authorities reducing the amount of work they undertake to detect overpayments after the initial assessment has been made. The Department has previously provided additional incentives and funding to tackle fraud and error, for example through the Security Against Fraud and Error (‘SAFE’) framework. The Department accepts that it needs to review the subsidy regime to strengthen the incentives for local authorities in the period before Universal Credit is implemented fully.

Recommendation: The Department should produce a proposal for how to strengthen incentives so that local authorities tackle Housing Benefit fraud and error more effectively. It should work with local authorities and gain approval from the Cabinet Office’s Fraud Error and Debt Taskforce before sharing the proposal with us within 6 months.

Without a good understanding of local levels of fraud and error, the Department is not able to target efforts effectively. The Department cannot tell which local authorities are doing well or badly in controlling fraud and error. It uses measures on the speed of processing claims as a proxy to assess local authorities’ performance, but these do not give any indication of the strength of fraud and error controls. With poor information on local authority working practices, it is unsurprising that there has not been much sharing of good practice in recent years. Despite the Committee’s repeated calls since 1998 for better information about local fraud and error, and repeated assurances from the Department that this would improve, the Department still works with national estimates which are inadequate to give local level insight into fraud and error. Given the scale of Housing Benefit overpayments—£12.6 billion since 2000/01—better information would be essential in strengthening the Department’s oversight role and targeting fraud and error initiatives. The Department told us that it is not considering expanding its measurement methodology to provide local estimates of fraud and error on the basis that it is too expensive. We are concerned that the Department has not properly assessed different ways in which it could improve information about local fraud and error, and has provided inflated cost estimates to justify continued inaction.

Recommendation: Within the next 6 months, the Department must provide us with a full analysis of options to identify whether there is a more cost-effective way of producing local estimates of the level of fraud and error, and how it plans to assess the relative performance of local authorities in reducing Housing Benefit overpayments.

The Department is expecting significant benefits from HMRC’s real-time information, but is doing little else to tackle Housing Benefit fraud and error in the still unclear and very long transition before Universal Credit. The Department has begun to use data on claimants’ earnings from HM Revenue and Customs real-time information system to strengthen its response to income-related overpayments, which accounted for £637 million of overpayments in 2013–14. This offers a promising longer term solution for automating the use of earnings-related data under Universal Credit; but the timetable for implementing Universal Credit remains unclear and uncertain. The Department has not yet worked out how it will reduce Housing Benefit fraud and error in the transition period to Universal Credit. Neither has it produced a plan to tackle overpayments arising from sources other than income. Housing Benefit accounts for 42% of overpayments across all benefits and yet there are few initiatives to tackle other types of Housing Benefit overpayments. Given the lack of evidence that the Department is getting to grips with fraud and error we view with scepticism the Department’s confidence that it will meet its target to reduce total fraud and error overpayments to 1.7% of benefit expenditure by March 2015.

Recommendation: The Department must demonstrate it has a convincing response to tackle Housing Benefit fraud and error before Universal Credit is implemented and the use of real-time information is automated. It should report to us within 6 months with a clear plan to tackle the major sources of loss on Housing Benefit. It should also set out what savings it has achieved across benefits against its 1.7% target, and which initiatives have realised these savings.

The Department’s introduction of the single fraud investigation service creates risks to other local services through reducing local knowledge. The single fraud investigation service (SFIS) brings together fraud investigators from the Department, local authorities and HMRC to investigate fraud across the whole welfare system. Initially the Department delayed the introduction of SFIS from 2011 to 2015 to be more in line with the introduction of Universal Credit. Now it tells us “I do not see what the connection is” between the two programmes and is not planning to delay SFIS to match Universal Credit’s new roll-out plans. The Work & Pensions Committee has recommended the Department aligns introduction of SFIS with the national implementation of Universal Credit. Now that Universal Credit has been delayed, local authorities have at least two more years and possibly many more when they will be expected to administer Housing Benefit. However local authorities have already lost much of their investigative capability and they are therefore losing their local knowledge and their ability to be effective in tackling fraud.

Recommendation: The Department should provide a more complete assessment of the wider costs to local authorities of the SFIS programme, and consider how the benefits of local knowledge and data sharing can be maintained in the longer term.

Further information

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