6 September 2010

One of the biggest benefits stories over the summer was Cameron’s announcement of a big new idea: to allow ‘bounty hunting’ of fraudulent incapacity and housing benefit claimants by private sector companies.  Since mid-August the press has been full of threats that claimants buying flat screen TVs or spending too much money on gardening or DIY will be investigated.  But how much of this story is genuine and how much is just hype in the coalition’s ongoing campaign against sick and disabled claimants

Benefits and Work can reveal that:

  • using the private sector to hunt down fraudulent claims was introduced last year by New Labour – it’s not new at all;
  • the idea of targeting incapacity benefit claimants specifically came not from the coalition but from the private sector and was simply latched onto by Cameron;
  • there is only one very specific type of fraud that ‘bounty hunters’ are even moderately successful at uncovering  – it’s got nothing to do with TVs, gardening or DIY and even then the success rate is only 1 out of every 25 investigations launched;
  • there are several other indicators of fraud that can be detected by ‘bounty hunters’, but most are irrelevant when it comes to non means-tested benefits such as incapacity benefit and DLA.

Housing fraud
The use of credit reference agencies in general and Experian in particular to target fraud was actually begun by New Labour in 2009.  Credit reference agencies were used to identify fraud in relation to housing benefit and council tax benefit in a joint pilot scheme with local authorities.  This was deemed sufficiently successful that it  began to be rolled out nationally in Spring 2010, before the coalition even took power. 

In total, 2021 cases were investigated in the pilot, resulting in just 80 sanctions and prosecutions.  It isn’t clear whether the cases to be investigated were chosen at random or were ones that were selected because they met certain criteria.  But in any case, just  4% of all cases investigated resulted in any formal action against claimants

What is more, 77 of the 80 sanctions and prosecutions involved living together fraud, (LTF) where a claimant doesn’t declare they have someone else living in their home – whether as a partner or simply a lodger.  In other words, virtually all the fraud uncovered using credit reference agencies related to people not declaring that they had someone else living with them. 

It’s a type of fraud that credit reference agencies are particularly good at identifying because undeclared lodgers will often still need to use the claimants address for bank accounts, credit cards and mobile phone bills whilst undeclared partners may well make joint loan applications or have their names on utility bills.

And it’s precisely this kind of fraud that is most likely to be detected in the future by so-called ‘bounty hunters’.

Because credit reference agencies know your name, current address, previous addresses and date of birth.

They also know what bank accounts, loans and credit cards you have and whether you have missed any repayments on loans and credit cards. They may know your balances and limits. They may also know what mobile phone deal you have. 

But they don’t have access to your bank or credit card statements and they don’t know what you spend your money on – flat screen TVs, begonias, power tools or anything else.

Other frauds

Other types of fraud that credit reference agencies are good at detecting include multiple claims for the same benefit using different names, because fraudsters may use false names but other details they give may be the same.  But fraud of that type is very rare in relation to incapacity benefit, it is much more commonly associated with tax credits and housing benefit in particular.

Where claimants have undeclared capital this may also be detected by credit reference agencies.  But capital is irrelevant for incapacity benefit.

If a claimant has a number of credit cards with large repayments which they are managing to meet or has a large loan which they are managing to pay that may also be an indicator of fraud.  But again, this is less likely to be relevant to incapacity benefit where only some occupational pension income is taken into account.

So where did the idea that credit reference agencies could track down incapacity benefit fraud come from?

Incapacity benefit
In fact, the idea of using credit reference agencies to investigate incapacity benefit fraud came not from Cameron, not from New labour but from . . . Experian, the UK’s largest credit reference agency.  The idea was floated in a report released in June 2010 in which Experian claimed it could save the taxpayer over £1 billion by tackling benefit fraud.

This figure was made up of:

“Up to £600m from social housing tenancy fraud”
“Up to £300m from incapacity benefit fraud”
“£100m a year on single person discount fraud”
“£17m on housing and council tax fraud”

Astute readers will note the use of the term ‘Up to’ in relation to incapacity benefit – not even between, for example, £150 and £300 million.  So even a very small amount saved would fall within Experian’s prediction.

It’s also notable that with the exception of the incapacity benefit fraud, all the savings come from detecting people who are living together without declaring they are doing so or who are subletting a home for which they are claiming benefits.

Curiously, Experian’s press release gives not a single detail about how the incapacity benefit fraud is to be detected or how they arrived at the figure of £300m.  It also doesn’t explain why incapacity benefit rather than employment and support allowance is to be targeted.

Disability living allowance

Not even Experian claim that credit reference agencies can help in uncovering fraud in relation to disability living allowance.  Given that DLA isn’t means-tested in any way and that you can be in full-time work and still receive DLA, it’s very difficult to see how credit checks will reveal fraudulent DLA claims.

What will really happen
Ian Duncan Smith is due to report to the prime minister in the Autumn about how the level of fraud and error in the benefits system can be reduced.  Credit checks on new claimants, to establish how much capital they have and who they live with, may well be one of his recommendations.  This would be a welcome boost for credit reference agencies as they struggle with an economic downturn in which fewer and fewer people are borrowing money and thus having credit checks carried out on them.

Smith may also suggest that a system should be put in place to pay credit reference agencies for identifying people fraudulently claiming benefits.  But the vast majority of ‘bounty hunting’ will be in relation to looking for people with undeclared lodgers and partners living with them.  None of it is likely to be about how people have spent their cash at Homebase.

One final thought 
Experian is a FTSE 100 company employing 15,000 people in 40 countries with a turnover of £3.9 billion.  It’s operational headquarters are in Nottingham, but in 2008 it moved it’s ‘corporate’ headquarters to Dublin.  The reason – to avoid paying corporation tax in the UK, where it is now apparently so keen to help the taxpayer catch frauds and fiddlers.


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