Fraud and error overpayments in the benefits system rose again in 2020-21 to the highest rate ever recorded. The COVID-19 pandemic was the main cause of the increase with the need to relax checks to ensure a record number of new Universal Credit claims could be processed and paid.
The Comptroller and Auditor General of the National Audit Office, Gareth Davies, has qualified his opinion on the regularity of the Department for Work and Pensions’ (DWP) 2020-21 financial statements due to a record level of fraud and error in benefit expenditure. This is the 33rd successive year in which the DWP’s accounts have been qualified due to material fraud and error.
Excluding State Pension, DWP estimates1 it overpaid £8.3 billion of the £111.4 billion that it spent on benefits in 2020-21, an increase of £3.8 billion on the previous year. The rate of overpayments increased from 4.4% in 2019-20 to 7.5% in 2020-21. Nearly all of the increase in fraud and error was on Universal Credit. DWP estimates it overpaid £5.5 billion of Universal Credit (14.5%) and underpaid £540 million (1.4%).
The increase in Universal Credit overpayments can be partly explained by the surge in new claims at the start of the COVID-19 pandemic, when the number of people claiming Universal Credit increased from 3 million to 6 million. Many of these new claimants had more complex claims, such as self-employed income, which are more vulnerable to fraud. In responding quickly to the impact of the pandemic, DWP relaxed certain controls and checks on those claiming Universal Credit to process the surge in claimants on time. The Department estimates that these factors accounted for £3.8 billion of the Universal Credit overpayments.
DWP has identified four key fraud and error risks within Universal Credit that it needs to tackle, as they are the largest causes of fraud and error. It is looking to improve controls over incorrectly reported self-employment earnings, savings, living arrangements and housing costs. It has also identified several organised criminal attacks during the pandemic, with fraudsters targeting Universal Credit in particular and making claims in other people’s names.
The Department is owed £5 billion of overpayments, placing additional strain on its resources and potentially causing uncertainty and hardship to claimants. It is not sure how much of its estimated loss of £8.4 billion in 2020-21 it will recover, as it has attempted to recover only 10% of the estimated loss in the last 5 years.
DWP estimates that 132,000 pensioners have been receiving less State Pension than they are entitled to due to ongoing control failings. The Department has now set aside £1 billion to reimburse people who have been underpaid their State Pension over the past 30 years. It aims to review all cases and pay pensioners their correct entitlements by the end of 2023. The estimated annual level of fraud and error in State Pension remains lower than all other benefits at 0.1% for overpayments and 0.3% for underpayments, and is therefore excluded from the qualified opinion. The NAO will report further on the underpayment of State Pension later in 2021.
The Department does not yet believe it is in a position to set itself a target for fraud and error. It expects the level of overpayments, excluding State Pension, to remain at 7.5% in 2021-22, and to remain significantly higher than normal for some time. The Department says it will set a target this autumn for fraud and error in 2022-23, when the baseline level post COVID-19 will be clearer. It aims to reduce Universal Credit overpayments to 6.5% by 2027-28, although its forecasts indicate that this is not achievable within its current plans or resources.
DWP’s response to the impact of the pandemic has ensured that those in need received prompt support, but the easing of controls led to a significant increase in fraud and error. The NAO recommends that DWP should identify and review all cases where fraud could have occurred where controls were relaxed, ensuring that there is clear and prompt communication with claimants about any debt they owe as a result of overpayments. Action should also be taken against those who sought to fraudulently claim taxpayer money, and the Department should conduct a lessons learned exercise on its approach to fraud and error during the COVID-19 pandemic.