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Ball writes: "Joanne Gibbons was sentenced to community service for claiming income support while holding down two paid jobs."

(photo: file)
(photo: file)

Welfare Fraud Is a Drop in the Ocean Compared to Tax Avoidance

By James Ball, Guardian UK

04 September 14


As Joanne Gibbons' case shows, benefit underpayments save us more than 'cheats' cost us. We need to target the real villains

oanne Gibbons was sentenced to community service for claiming income support while holding down two paid jobs. Through accumulated payments of £66-a-week, the court heard, she collected £3,140 to which she wasn't entitled.

Predictably, the Daily Mail is outraged. But here's the strange twist: had Gibbons claimed the benefits to which she was actually entitled, she could have collected £130 a week through family tax credits and child benefit. In total, Gibbons' fraudulent claims cost the taxpayer around £3,100 less than claiming what she was actually entitled to.

It's the reaction to Gibbons' claims which are particularly noteworthy. Matthew Sinclair, chief executive of the Taxpayers' Alliance – an organisation rarely troubled by wealthy people's tax avoidance – tells the Mail:

"It beggars belief that somebody going to the lengths of making fraudulent claims would have actually received more in benefits had they been honest.

"It just goes to show that the current system is broken and doesn't provide the right incentives for claimants to go back to work."

This quote suggests Sinclair is perhaps even less numerate than the "benefits cheat" he's deriding. Gibbons was entitled to £130 a week in legitimate benefits, while working on two low-income jobs. This total was higher than the £66 a week out-of-work benefit she was improperly claiming (though some of the £130 a week could be claimed in or out of work).

In what sense is a system which tops up low wages a disincentive to work? Sinclair appears lost in lazy rhetoric – an all-too-common failing when it comes to chastising the millions of families, most of whom with at least one adult in work, who rely on the benefit system.

The British public believe benefit fraud is a big problem. A recent poll by the TUC showed people believe 27% of the welfare budget is fraudulently claimed.

The reality is very different. Last year, 0.7% of total benefit expenditure was overpaid due to fraud, according to the DWP's official estimates. This totalled £1.2bn over the year. Nor is fraud getting worse – even against a background of benefit cuts and long-term unemployment fraud made up a smaller share of the welfare bill last year than it did in 2010/11 or 2009/10.

Indeed, welfare fraud is smaller than accidental overpayments due to error, which totalled £2.2bn (£1.4bn of which due to official error). It's also smaller than the amount of money underpaid to those entitled to it: £1.3bn.

In other words, if we wiped out benefit fraud tomorrow – but also eliminated the errors that deprive people of money to which they are entitled – the welfare bill would grow, not shrink.

In the context of the UK's £700bn public spending, and £150bn+ welfare bill (of which pensions and in-work benefits make up the substantial majority), benefit fraud is a relatively small revenue loss. But how does it compare to another textbook villain: tax avoidance?

Put simply, it is comparatively tiny. HMRC consistently estimates the UK's tax gap – the gap between what HMRC thinks it should receive versus what it actually gets – at more than £30bn per year. Others estimate this is far, far higher.

Of this, even conservative estimates suggest around a sixth – £5bn a year – is lost through tax avoidance, tricks to reduce tax bills which fall within the letter (if not spirit) of the law, but often fall outside what's regarded as acceptable by the public. A further sixth, at least, is estimated to be due to wholesale tax evasion: simply illegally not paying the tax that's owed.

These conservative estimates alone outweigh benefit fraud by a factor of eight, but this time not done in tens (or at most hundreds) of pounds per week by people struggling to get by; but rather by people who could afford to pay more, but prefer not to.

Benefit underpayments save us more money than benefit fraud costs us. By the most conservative estimates, tax avoidance and tax evasion outweighs benefit fraud eightfold. But the constant target of argument – "scroungers", "benefit cheats", and more, isn't the well-heeled middle classes who knock a little off their tax return, or the high-rollers with elaborate offshore schemes.

Instead, it's those at the bottom of society – for the government, perhaps, it makes it easier to sell the public swingeing cuts to the safety net that millions of families, both in and out of work, rely on to get by. For the Mail, it's easier to sell papers by buying into the easy preconceptions of their readers than bothering to challenge them.

Unfortunately, all too often, that's a view the Labour party – and others on the left – seem all too happy to go along with. If we must have national villains, surely we can do better than these? your social media marketing partner


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+12 # RMDC 2014-09-04 14:51
I would guess that very many more people in the US believe that welfare fraud accounts for a large part of the federal deficit. We've had more than 30 years of the idiot Ronald Reagan crowing about welfare fraud and welfare queens driving cadillacs. Right wing AM hate radio plays this old song over and over

Thanks for pointing out the fallacy.

Almost no one talks about tax avoidance because it is only the wealthy who can afford accountants and lawyers who practice tax avoidance.

I have some sympathy for tax refusers. Why pay tax to the federal government. What do we get for our money. There are some good government programs but mostly the money pays for war and corruption (i.e., subsidies and gifts to businesses and banks.). If no one paid taxes, the federal government would disappear. that would be a very good thing for the people of the world.
+31 # Billy Bob 2014-09-05 06:10
You had me until that last sentence. If no one paid taxes you'd see an awful lot about this country calling itself "1st world" disappear, and quickly.

The trouble isn't that the federal government does no good. It's that it doesn't do enough good, because most of its income is squandered on the bullshit you mentioned (war, the military, etc.)

But, I don't want to eat un-inspected food. I don't want to deal with wholly and completely unregulated health care, and big business. I don't want to drive on roads no one has paid to fix, etc. The list goes on and on, but the point is that if you point to any country with a reasonably good standard of living (especially the ones whose standard of living has risen well above our own), you're looking at a country with an actively involved federal government and a tax structure that's actually paying for those necessities to be provided.

The problem isn't that we have taxes, or that we have a federal government. The problem is that we live in an absolutely corrupt country where both have been grossly abused, and distorted from their actual purpose.
+12 # Capn Canard 2014-09-05 08:27
100% correct Billy Bob. I get frustrated when anyone makes wild accusations that the government stole their property. And yet without Government they would have no rights to property in the first place. They seem to put the cart before the horse.
+1 # Billy Bob 2014-09-06 07:28
Thank you, and you're completely right. As the Woody Guthrie song says (to paraphrase), "This is OUR land".
+11 # fredboy 2014-09-05 06:39
Yes, but tax avoidance, like illegal drugs and fake wars, is an industry.

Lawyers depend on it for income. Officials rely on it for kickbacks. And vultures rely on it to screw localities, states, and the federal govt.

As those who defend all practices of horror that prompt income: IT CREATES JOBS!

And in the thinking of most minions, "jobs" are holy.
+7 # Capn Canard 2014-09-05 08:20
I believe that we don't get as upset by tax cheats because
1)we rarely hear about them.
2)most are far wealthier than any of us
3)and we aspire to be wealthy tax cheats ourselves!

Those on welfare are stigmatized for being on welfare simply because it is very easy to kick a sleeping dog.
+5 # modernjacobin 2014-09-05 11:15
Let me add #4--RACE (or at least in America)

The fact is that "Welfare cheats" in this country are largely perceived as minority, especially black--thanks to Ronald Reagan.

That's why tax avoidance and credits for the upper middles and uppers (still predominantly white) is considered acceptable, while welfare is not.

That's why it's acceptable for a white, prep and Harvard-educate d CEO in a $6000 custom-made suit and $2000 John Lobb shoes to write off company expenses, including a $1000 dinner, while it is unacceptable for a black man paying for a porterhouse steak on his SNAP card (to use Reagan's example).

That's why legacy admissions to elite universities are considered acceptable even for C/D students like GWB, while affirmative action is not.

That's why no one minds a white, blond-haired, blue-eyed socialite/socia l parasite shopping away, going to pilates, and attending "charity balls," but they do mind the unemployed black mother. (Especially if she helps out on Dem campaigns)Yeah, really, why can't they get a job?!

That's why no one minds a white upper middle class family seeking the best pre-schools for their little darlings, while they look askance at a black families moving into nice neighborhoods, trying to find the best public schools for their children.

Yes, it is indeed different strokes for different folks. One standard for the 1% and another for the 99%--particular ly if minority.
+1 # Billy Bob 2014-09-06 07:25
Good comment. All true.
+4 # Vardoz 2014-09-05 12:06
This is the worst robbery of our economy in our history and the majority's health, safety and welfare is being put at serious risk!

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