Wednesday, January 23, 2008

Whacking Benefit Fraud

Every year taxpayers lose at least £5bn to benefit fraud and error- £200 for every single British household.

£3bn is down to benefits administered by the Department of Work and Pensions, especially Housing Benefit, Income Support, and Jobseekers Allowance (see eg this blog and the NAO summary above). The rest is largely down to HMRC via its administration of Bottler's convoluted tax credits (eg see this blog).

Why do we lose so much? And why does it continue year after dismal year?

Part of the explanation is the usual bureaucratic bungling. Both DWP and HMRC are notorious quagmires of complexity, malfunctioning IT systems, and low grade demotivated staff. Leadership? DWP is currently headed by an arrogant orange clown described by his own boss as incompetent, while HMRC reports to way-out-of-his-depth Captain Darling.

Unsurprisingly, and too borrow a phrase from our banana republic electoral arrangements, fiddling the benefits system is now childishly simple . What's more, getting caught is extremely unlikely.

So what should we do?

As we've blogged before, the Major has a very simple proposal: increase the penalties. Specifically, his suggestion is to impose a prison sentence equal to the total amount defrauded divided by a minimum wage level annual income. Thus if you defraud £100,000, you serve ten years (equals £100K divided by £10K pa). It's simple, easily understood by all, and fair- sentences are entirely proportionate to the crime.

Unfortunately, our hopeless criminal justice system doesn't see things the same way.
Take yesterday's news of Mr Kato Solomon (right). Mr Soloman obtained £100,000 in benefits by pretending he was too disabled to work and needed a wheelchair. Even though at the time he was actually working as a healthcare assistant at a local NHS hospital.
Let's pass over the obvious question as to why the public sector's right hand apparently had no idea what the left hand was doing. Focus instead on the fact that most unusually he was caught and convicted.
In sentencing him, Judge Graham Arran noted his "repeated lies" and told him:
"The gravity of these offences, as you obviously appreciate, is you were stealing the honest taxpayer's money... You no doubt deprived another person of a facility that is genuinely needed. These must be marked by a prison sentence."
Damned straight. Ten years under the Major's tariff. Ten years to contemplate his own sinfulness, and more important, ten years to send a strong message to any other lying cheating conman who might be thinking of doing the same thing.
So what did he actually get?
A fifteen month suspended sentence.
Fifteen months.
The judge accepted Solomon's plea that prison would be "too onerous".
What is the point? What message is it sending out? And since when did we little people consent to letting criminals walk free on the grounds that prison might not agree with them?
Let's remind ourselves of a couple of other fraud cases we've covered on BOM. Regular readers may recall Mr John Kaduwanema (right), an illegal immigrant from Uganda. He somehow (duh?!?) got a job as a finance manager for Birmingham City Council's social care and health finance department, from where he proceded to defraud the Council of more than £1 million in public funds.
The Major's tariff would have given him 100 years in jail: he actually got seven and a half years, which with standard remission will be half that, the equivalent of £270 grand pa.
Or then again, the case of Mr Nawaz Sharif, an "unemployed" immigrant taxi driver (right), who built a seven bedroom mansion in Pakistan after making £2m in benefit fraud, credit card scams and fake passports. He should have got 200 years: he actually got five, halved under remission, netting him £800 grand pa. Nice.
And remember this: the c£5bn pa we lose in benefits/tax credit fraud is just the tip of a very large iceberg. We estimate that overall taxpayer losses to fraud- including old favourites like VAT carousel fraud and the broader black economy- probably amount to around £60-80bn pa.
That's around £3,000 pa for every British household, and for that kind of money we could abolish Stamp Duty, CGT, and IHT outright, and still have enough left over to cut the standard rate of income tax to 8p.
PS The Major points out that BOM's fraudsters all seem to have something else in common, other than fraud. Hmm.