Eight ways to rip off the benefit system

Few ministers in this Government can be accused of having a strategy. Peter Lilley, the Secretary of State for Social Security is an exception. Tackling benefit fraud is just the latest element within it, and the ground has been laid with all the thoroughness and skill that has marked his every other move.

The extrapolations he has made of the extent of fraud will, no doubt, be challenged. The level of savings his fraud-busters claim can be achieved are open to challenge. And the left will claim he is stigmatising claimants and creating a yet more hostile climate towards those already on the edges of society.

But he has provided the most robust indication yet of the extent of fraud in the pounds 18bn spent on income support and the pounds 1.5bn spent on unemployment benefit. And studies of other benefits are in the pipeline.

Lilley's strategy has become increasingly clear during his three-year tenure. It is first to contain the escalating social security bill, and then, wherever possible, to encourage and force people to look after themselves.

There are essentially seven ways to curb social security.

The first is to cut the value of the benefits paid - which Lilley has set his face against. In general he has cut the numbers eligible rather than the amounts people receive. "Our benefits are not hugely generous," he told the Independent recently. "They don't enable people to live the life of Riley." It is an approach that has made it much less easy to sustain the charge that Lilley has set out to grind the faces of the poor.

Second, benefits can be cut by tougher means-testing. This Lilley has done - slashing the payment of the non-means tested unemployment benefit from 12 to six months as part of the "new" Jobseeker's Allowance. It is a move that will remove unemployment benefit from 100,000 people who have in fact contributed to it through the social security system. Lilley would call this targeting; his opponents would argue, more convincingly, that it is a cut.

Third, benefits can be targeted on those judged to be "in need" by restricting the numbers eligible. That Lilley has done by replacing Invalidity Benefit with Incapacity Benefit, with a tougher medical test. It is expected to remove 200,000 claimants from the register over the next year or so.

A fourth way to cut - arguably a further way to target - is to restrict future numbers claiming: the least painful way of curbing social security in the short term. That Lilley has done by raising the women's pension age from 60 to 65, the change to take effect next century, while further halving the final cost of the State Earnings Related Pension Scheme (Serps).

The fifth approach is to get more people back to work. A string of small measures from the childcare allowance in Family Credit, and the planned Back to Work bonus, to next year's launch of a pilot Family Credit for the childless, have helped. This line of attack is about more self-help and less state help.

An extension of self-help is the sixth arm - to encourage, or force, more self-provision. Ending the right to mortgage interest payments for the first nine months of unemployment is the most dramatic move to date, but continuing incentives for people to stay out of Serps is another.

Taken together, on Lilley's own figures, these measures will save pounds 4bn a year by the end of the century and pounds 14bn a year in the longer term - sums that still leave the social security budget growing under the pressure of demography, but growing more slowly than it otherwise would have done.

The seventh measure is to tackle benefit fraud, a subject once almost taboo but one that is emerging towards at least some cross-party agreement now that Frank Field's Commons Social Security Committee has launched a study on the issue.

Fraud is a subject John Major has taken an interest in - holding a private seminar on the subject last year. A new fraud department has been established, headed by a full-time official. Order books have been redesigned to make them harder to forge, new fraud teams have been set up, and a computer system that will check multiple housing benefit fraud has been piloted across 24 London boroughs. In addition, local authorities now receive incentives and penalties to encourage them to tackle housing benefit fraud.

Yesterday's measures include restoring some cuts, including reintroducing home visits for new claimants, a measure the Conservatives axed in the Eighties in what turned out to be a false economy. New computer-readable benefit payment cards will cut fraud, as will a central housing benefit database.

Lilley's aim is as much deterrence as detection, and his target is to reduce losses through fraud by pounds 2bn over the next three years and by pounds 1bn a year in five years' time. On past form, he is likely to achieve what he sets out to do. The sums are big and they make marvellous headlines. But they compare to a bill that has risen from pounds 65bn in the year Lilley took over to an anticipated pounds 97bn the year after next.

Child Benefit

Not easy to make a fraudulent claim, but once in payment can continue for 16 years. Frauds have been committed by noting a child's death in a newspaper, obtaining the birth certificate and then using it to claim. Cost of such abuse: unknown but not large. Child Support Agency 60,000 people stopped claiming income support this year as soon as the agency contacted them. The department assumes people were either living together but claiming separately or simply claiming fraudulently. "They just did not want us inquiring into their circumstances too closely," says Sir Michael Partridge, DSS Permanent Secretary. Saving: pounds 200m last year and pounds 140m this - the biggest single element in the agency's savings. Cost of abuse: not known, but 18 per cent of claims by single parents were found to be false in yesterday's study. Housing Benefit Biggest unquantified area of abuse and, being one of the easiest and most lucrative, probably the biggest single area of fraud. Income support pays pounds 40 a week to a fraudster for a single man, but a dishonestly let room can pull in twice as much or more. Three types of fraud - individual claimants, landlords and organised crime. They overlap. Organised crime often relies on false identities, frequently by creating fictitious refugees. It uses the claimant's right to have housing benefit paid direct to the landlord. James Gee, secretary of the London Boroughs' Fraud Investigators Group, says criminals create false identities for refugees "because it is understandable if they do not have the proper documentation. They can be said not to speak English, not to be able to write and not to understand the system. The landlord then fills in the documents, puts his own mark on the papers and has the benefit paid direct." In one raid two years ago, a landlord claiming for 21 bedsits was found to have just nine occupied, but a briefcase containing 52 false identities. Managing agents can control up to 160 homes across London and arrange for benefit to be paid direct. When tenants move, the landlord or managing agent carries on claiming but re-lets the room privately, or claims for a new tenant with a fictitious room number in the same building. Even if the old tenant claims legitimately in another borough, the fraud will not be picked up as London borough computers are not compatible. Landlords have been found falsely making pounds 5,000 a week. Last year, local authorities claimed savings of pounds 170m, but housing benefit fraud officers suspect that this represents only 10 to 15 per cent of the total, suggesting more than pounds 1.1bn fraud on the pounds 9bn housing benefit bill. DSS study under way to provide a sounder estimate.

Basic state pension Pays well but difficult to do as contribution record needed. Fraud thought to be small: 4 per cent of income support claims (which are easier to falsify) were from pensioners.

Social security and housing benefit staff ripping off the system. Social security: according to Parliamentary answers, while there are 46.6 million adults in Britain, there are 56 million "live" national insurance numbers. If you gain access to one of these, pensions, unemployment benefit and other national insurance benefits can be made payable to you. Increasing use of information technology is making such fraud harder in the Benefits Agency and the Department of Social Security. If someone logs on to examine records to which they should not have access, headquarters is automatically alerted and the case checked. Thirty-four Benefits Agency staff were sacked and prosecuted last year for defrauding the system. Savings from that pounds 2.2m; total cost of this fraud unknown. Housing benefit has also been the subject of extensive in-house fraud in some boroughs. In Hackney, 4,000 council properties were found to be inhabited by people who had no right to live in them. An elderly worker was found to be using the national insurance identity of a 54-year-old Liverpool woman and a senior authority officer that of a 16-year-old South London girl. Income support Fraudulent claims cost pounds 1.33bn last year, according to yesterday's study. Main loss, as with unemployment benefit, is through claiming while working - approaching pounds 500m. Other fraud includes claiming as single people while living as a couple - pounds 450m. Some pounds 180m is lost to people who cannot be traced at their alleged address, or as a result of false identities. A further pounds 200m goes in not declaring capital and claiming for non-existent children, or relatives who are not dependent. Order books can be stolen, counterfeited, or sold and claimed to be lost. Estimated cost of that: pounds 150m a year. Claimed savings by Benefits Agency from anti-fraud work last year: pounds 717m. The biggest single fraud so far detected involved false claims for income support from people claiming to be single parents. Stolen documents, including birth certificates, were found with 130 order books, 50 girocheques and building society passbooks. 2,700 false claims totalled pounds 2m. Fourteen prison sentences resulted.

Unemployment benefit Claiming while working. Classic part of black economy. Yesterday's study estimated pounds 90m lost that way last year. (see under income support).

Employer fraud Being white-collar crime, this is politely called "non-compliance" and "avoidance" by the Contributions Agency. Last year inspectors in its 250 offices identified pounds 155m in "arrears" of national insurance contributions which it has taken steps to collect. Recent legislation has closed loopholes which allowed employers to escape contributions by paying staff in fine wines, gold bullion and gemstones. But one inspector said yesterday: "As fast as we close them, people think up a new wheeze."

392,000 cheats ... 4,000 sleuths ... pounds 717m savings

The Benefits Agency claims to have saved pounds 717.6m last year from anti-fraud efforts. But the figures are contestable. By definition, no one can know by how much the system is being defrauded.

Savings are calculated by taking the amount claimed in the week the fraud was detected and multiplying by 32 - the average length of an income support claim. Last year more than 392,000 people were detected cheating the benefit system.

Of the pounds 700m in savings identified, pounds 600m came from individual benefit fraud and pounds 6.1m from using multiple identities. Organised fraud savings accounted for pounds 20m. Last year 9,456 individuals were prosecuted, while 1,335 were arrested for involvement in organised fraud. The Benefits Agency has 3,000 fraud investigation officers and a 270-strong Organised Fraud unit, who between them "save" around pounds 250,000 a year per officer. The Contributions Agency and local authorities have their own teams, making a total of more than 4,000.