1%: the real extent of benefit fraud


by Dave Osler    
2:26 pm - August 10th 2010

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The trouble with working out with the radio on is that you cannot fully concentrate on what is being said. But as I was on my fourth set of bicep curls this morning, I heard something that nearly made me drop my dumbbells on my toes.

Work and pensions minister Chris Grayling was debating some policy wonk from Demos on the Today Programme over the announcement that credit checking agency Experian will be put on payment-by-results incentives to tackle benefit fraud.

And either the wonk or the minister – I forget which – proclaimed that only 1% of benefit is fraudulently claimed. That’s right, just 1%. One sodding measly barely perceptible little per cent.


Look, I’m from a working class background and had two longish spells on the dole as a younger man. I know damn well that people will play the system if they think they can get away with it. Full disclosure: I’ve even signed on while doing cash in hand jobs myself. You do what you’ve got to do to make ends meet.

But 1%? Surely that can’t be right. I mean, googling up the words ‘benefit fraud’ will instantly obtain a crop of headlines like:  ‘Benefit cheat netted £60,000’, ‘Woman fraudulently claimed £20,000 in benefits by claiming to be single’, ‘Disability benefit cheat filmed jazz dancing’, ‘Scarborough benefit c heat ordered to repay over £18,000’, ‘Golf-playing benefit cheat is sent down for conning state out of £36,000’ and, best of all, ‘Glamour model exposed as benefits cheat after claiming £10,000 while working as a pole dancer’.

To read those stories, you would come away with the impression that the entire doleite population of the UK is made up of clandestine salsa merchants and Tiger Woods wannabes.

Yet that 1% stat turns out to be entirely kosher, based as it is on government figures. That graphic is from here. The reality is that benefit fraud – while not morally commendable – is far, far less prevalent than anybody would reasonably expect, especially given the blanket media coverage of those who are caught out.

The £1bn a year it costs the taxpayer is little more than small change in comparison with the £850bn spent on the bank bailout. That  figure is one that everybody on the left should commit to memory ahead of the debates with the right that inevitably lie ahead.

Sunny adds: More importantly, Tax evasion costs Treasury 15 times more than benefit fraud

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About the author
Dave Osler is a regular contributor. He is a British journalist and author, ex-punk and ex-Trot. Also at: Dave's Part
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Reader comments


Not only is the amount of benefit fraudulently claimed very small, it’s also small in comparison with the amount of benefit that goes unclaimed either because people don’t know they’re entitled, or because they don’t want to claim for some reason. £10.5 bn in 2007-08:

http://news.bbc.co.uk/1/hi/business/8118478.stm

I think people should chant this figure outside parliament until it appears on the news because NO ONE in the mainstream media appears to be pointing this out very effectively

Oh well then, let’s ignore it.

The £1bn a year it costs the taxpayer is little more than small change in comparison with the £850bn spent on the bank bailout.

Except, of course, that far, far less than this figure was ever spent. About £750bn is made up of guarantees and indemnities that have not been called in, and are unlikely ever to be called in now. A further £75bn odd was spent in buying up shares in RBS and Lloyds – it is this, plus the loans to B&B that actually make up the ‘bailout’. And since the bailout ‘worked’ (in that RBS and LBG are not bankrupt, and are now at least partly profitable again) it is reasonable to anticipate that these shares can be sold, gradually, at a profit.

It’s a junk figure.

So £1 billion of fraud is not a problem? OK. I can’t think of a better use for that £1000000000 after all.

I don’t think anyone other than perhaps the wonderful idiots at the Mail and Express ever thought benefit fraud was more than a minor part of the total welfare budget. Personally I’m worried its at 1% – that means that something like (assuming equal distribution of welfare) 1 in 100 people on benefits is engaged in fraudulent activity! (I seriously hope that someone can show that fraudsters are more likely to claim more than genuine claimants to make that figure inaccurate).

So I’m not sure about ‘one sodding measely little percent’ myself. It is still a worryingly vast problem on those figures.

Still, I now have a new image of Dave; didn’t realise he worked out.

5. Luis Enrique

Watchman,

OK, but on that basis you should be 15x more concerned about tax evasion.

A crazy thought but maybe if there were more jobs and a living wage even that 1% could be diminished. A bit radical, I know.

And I do wish the govt would spend as much time on tax avoiding arseholes as it does on so-called benefit fraudsters.

Perhaps you could let Channel 4 know this as their website leads with this:

‘As David Cameron announces that credit ratings agencies could be used in the coalitions fight against benefit cheats, Channel 4 News looks at how the agencies may be used to save £5.2bn.’
http://www.channel4.com/news/articles/business_money/credit+firms+may+be+used+to+catch+benefit+cheats/3739937

I’m pretty sure that credit ratings agencies won’t be able to stop errors, but hey, maybe Dave can let us know about that at a later date…

8. John Meredith

“A crazy thought but maybe if there were more jobs and a living wage even that 1% could be diminished. A bit radical, I know.”

Well we have recently had a ten year boom with jobs galore and it didn’t seem to, did it?

I wonder if the government is going to get Experian to check whether MPs are fiddling their expences? What’s that, they’re not? What a surprise.

Luis,

Watchman,

OK, but on that basis you should be 15x more concerned about tax evasion.

Not really. I am also aware of the difference between evasion and fraud. I am equally (or whatever) concerned about tax fraud as benefit fraud, but I don’t think the problems are either/or. We should perhaps deal with both – and perhaps sort out tax law so that a few loopholes are closed as well (loopholes tend to imply complex laws, which are generally bad things as they block access to markets, encumber business, oppress individuals etc).

Basically it is a rather pointless occupation to try and say ignore benefit fraud because tax fraud is going on. We should hit both. But benefit fraud is a lot easier to deal with, since there is a record of what has been paid to who in existence, whereas tax fraud requires establishing what money tax would have been paid on in the first place. So we should go after all fraud, but benefit fraud is the easier target.

great blog, until you did the typical “look how much it cost to bail out the banks”. To be taken seriously, the left have to accept this was necessary and stop making sweeping comments regarding the bailout. The public aren’t going to respond positively, if every we continue with those sort of statement.s

S. Pill,

A crazy thought but maybe if there were more jobs and a living wage even that 1% could be diminished. A bit radical, I know.

And I do wish the govt would spend as much time on tax avoiding arseholes as it does on so-called benefit fraudsters.

Ignoring the fact that benefit fraudsters (those who claim benefits they are not entitled to) are not ‘so-called’, the problem in the main is that they actually have jobs, but are still claiming benefits (I know there are various scams around housing etc also). So I don’t think more jobs is the problem.

Incidentally, why are some people so prepared to defend benefit fraudsters (criminals, if they do it deliberately) and condemn tax evaders (dubious morally perhaps, but generally legal)? Is this really a sensible message to send out? The left-wing claims to represent the working man – do you really want the association to be instead with the benefit-defrauding man? Most working people I’ve met would be contemptous of any attempt to defend benefit fraudsters (not errors- that’s a separate category above). In your haste to attack the government, be careful not to adopt a position where you are defending criminal activity by mistake.

“Incidentally, why are some people so prepared to defend benefit fraudsters (criminals, if they do it deliberately) and condemn tax evaders (dubious morally perhaps, but generally legal)? ”

No, tax evasion is illegal, its tax avoidance that’s legal. The problem is that so many, particularly on the left, conflate the two.

The tories obviously do not think the £1bn figure is enough, or they wouldn;t have to resort to the old trick of saying “£5bn is lost to fraud or error”.

Human memory being what it is, people remember the number, and the part of the explanation that seems more serious.

@John Meredith and Watchman

I am not defending benefit fraudsters, if that’s what you’re implying. But both of you missed my point that if wages were better I reckon there would be less people inclined to commit fraud. Yes there will always be bad apples obviously and no I’m not defending benefit fraud (again). But it’s hilarious how much of an issue the Government and the Press (and by proxy the public) make of benefit fraud when tax evasion is the real theft from the state. If you don’t believe me ask yourself which is worse: stealing an apple from a fruit stall, or holding up a jewellers with a shotgun. Both are theft, right? But one is obviously worse.
Clear?

@13

No Falco the problem is that the line is deliberately blurred by the Government (of whatever colour) to sate the appetites of the business class so businesses can “legitimately” get away with not paying their fair share if they can afford the right offshore accounts and tricksters.

Benefit fraud seems to have become an urban myth, on Radio 2, Jeremy Vine’s phone-in today discussed this subject and the majority of callers (if not all) related stories of neighbours, friends of neighbours, the man in the pub and uncle tom cobley and all who were all living a better life on benefits than those who are working. Example “my neighbour doesn’t work but he can afford satelite tv” When questioned about particular details of the benefit fraud no caller could give particular information about the benefit, the amount of money received and why the so-called fraudster was, indeed, defrauding the system.
It’s my view that this is just another way of dividing the working-classes between the deserving and undeserving and scapegoating a particular social group, some things never change under a right-wing government.

Well we have recently had a ten year boom with jobs galore and it didn’t seem to, did it?

Eh? Even during that ‘boom’ unemployment never fell below one million – with the 2.5 million on incapacity benefits, that’s a massive level of non-participation in work. The jobs simply aren’t there for everyone. Thirty years ago the idea of one million unemployed was seen as a national disaster.

But both of you missed my point that if wages were better I reckon there would be less people inclined to commit fraud.

And if taxes were lower there would be fewer people inclined to commit tax evasion.

@19

Do you have any stats for tax evasion in countries with a higher tax threshold than our own? Sweden etc.

The legacy trap inherited from New Labour for benefit recipients moving into paid employment is well illustrated in this FT graphic:
http://www.ft.com/cms/633e6146-9c43-11df-a7a4-00144feab49a.jpg

“1,710,000 people gain less than 30p or less for every extra £1 they earn by moving from benefits into work”

The graphic appears with this news feature:
http://www.ft.com/cms/s/0/cce241ee-9bb7-11df-9ebd-00144feab49a,dwp_uuid=ec12e25a-624a-11de-b1c9-00144feabdc0.html

@ Mr S.

I don’t think the motivation is as clear as that. I think its more that infernal urge that governments have to do something all the time that ends up making the tax code insanely complicated. The more complex the tax code, the more you can use both legitimate loopholes and hide more dubious methods under a blanket of complexity. Simplify the tax and benefit systems and you would avoid many of the problems both ends.

@22

I daresay, but I’m betting there are vested interests in keeping the whole system nice and complicated so only the uber-rich and/or criminally minded can be bothered to figure it out.

Be interesting to see what the coalition’s “office of tax simplification” comes up with.

24. sevillista

@watchman

“I am also aware of the difference between evasion and fraud”

What’s the difference? The former costs the state far, far more money? The poorest in society only do the latter? The upper middle-class do the former so thieving from the state is just fine? Each episode of benefit fraud costs far, far less – over-claiming £250 worth of benefit due to finding work (counted as fraud) is morally more dubious than stealing £20,000 from the state via under-paying taxes?

Perhaps you can enlighten me.

“But benefit fraud is a lot easier to deal with, since there is a record of what has been paid to who in existence, whereas tax fraud requires establishing what money tax would have been paid on in the first place”

Politically speaking yes – benefit cheats are politically weak and come from “other” backgrounds to decision-makers, and tax evaders are politically strong, come from similar backgrounds to decision-makers, and invest wisely in political donations in keeping the status quo.

But I don’t see the technocratic barriers – and resources could be well used chasing this – for example, doesn’t every tax inspector bring in several million pound for the state? I wonder why Cameron is cutting back on tax inspectors – it sure ain’t to save money to fill the deficit…

25. WhatNext?!

A small correction:

Benefit Fraud is estimated at £5.2 billion a year not £1 billion.
It is hoped that this fraud can be reduced by £1 billion through the use of agencies.

@25

errrm no. that’s what the spin doctors and cheerleaders in the rightwing press might tell you, but as the OP points out it’s plain wrong. see the graph again: http://news.bbcimg.co.uk/media/images/48674000/gif/_48674403_benefits304x460.gif

Remember it’s like counting crime or the black economy, either a) it only counts proven fraud or b) it’s an estimate. Either way it’s not the real figure.

28. Get Over It

Yet that 1% stat turns out to be entirely kosher, based as it is on government figures.

I’m sure it’s just as “kosher” as the government figures for unemployment.

errrm no. that’s what the spin doctors and cheerleaders in the rightwing press might tell you,

Ah, the more familiar leftist cynicism towards government figures.

@28

for once there is nothing cynical about it. the Govt official figures show that fraud costs £1billion and the rest of the cost of “fraud and error” is, um, error. When it’s all added up it comes to £5billion and that is the figure that is bandied about by the press etc and sticks in the public’s mind (as @25′s comment shows).

Well if it’s only 1%, forget about it. That’s only one thousand million pounds and it’s still in the economy, somewhere…

@30

If it weren’t for the likes of paying off bastards like Fred Goodwin it might be….

I’m sorry but its not the 1% benefit fraudsters that get to me – at least they are showing some kind of initiative in being able to play the system. Some show great artistic ability in falsifying documents etc

What bothers me is the hundred thousand households quoted recently that receive more in benefits legally then the average wage.

You don’t need to break the law to take the piss!

Try as I might, I can’t think of 1% as a small amount. 1% of a very large sum is still a large sum. It’s like if 1% of the population dropped dead tomorrow – it might not sound like many, but that measly 1% would be 600,000 people.

But you’re absolutely right to draw attention to the bigger and more serious problems of error and of tax fraud – especially since the tax fraud is committed by people who don’t need the money, whereas some of those wrongly claiming benefits might really need them.

@32

How much of that is made up of massive housing benefit needing to be paid because of a grossly inflated rental market? cos I can tell you from personal experience that where I live if you’re on benefits you are nowhere near the average wage. the solution is to build more houses but no-one likes the idea of that (even though we did it in 1945 when we were more in debt as a country and had just finished being bombed by Hitlers boys).

Comparing benefit fraud with tax evasion is disingenuous.

Tax is levied by the state from the citizen at the point of a gun. Evasion of tax is dodging that particular bullet.

Benefits are distributed by the state to deal with the need of those unable to support themselves.

Fraudulently claiming benefits is stealing from your neighbour.

There is no moral equivalence.

@35

Tax is spent by Govt on schools and hospitals etc so evading it is also stealing from your neighbour – and indeed your community – , but on a much much wider scale.

To read those stories, you would come away with the impression that the entire doleite population of the UK is made up of clandestine salsa merchants and Tiger Woods wannabes

I’m sure you’re being ironic, but creating that impression is the entire point of the exercise (that, and farming out more contracts to the private sector). This rhetoric has been going on since the 3m-plus unemployment under Thatcher, the repeat figure under Major and New Labour’s belief that feeding the Daily Mail stories about ‘benefit crackdowns’ on the ‘undeserving poor’ was a good way of building support. Rather than treat benefit fraud as something to be monitored because the system distributes public money, it’s repeatedly invoked for cheap politics and a supposed source of funds. This would explain James Purnell’s idea of using ‘lie detectors’ on suspected claimants and the Tories’ election gimmick of ‘three strikes and you’re out’ on benefit fraud, and the LibDems idea of waterboarding suspects until the confess (okay, I made that last one up). The Telegraph’s headline of ‘bounty hunters’ makes me think of tooled-up buddy-buddy duos in big cars like a bad US cop show. It would be easier (and cheaper) if the Coalition chose to employ more fraud investigators (and a lot more tax inspectors) – but that would mean employing people in the public sector, and that would never do.

The benefits fraud story is trotted out regularly as a cheap and easy way to get the frothing at the mouth, well, frothing at the mouth. There is no direct cost to the taxpayer. The money circulates and tends to be spent on highly taxed goods and services so finds its way back to the Treasury. How much goes back to the Treasury? Well if it circulates long enough it will all go back to the Treasury. It is safe to assume when the benefits fraud story is being pushed it is to cover up something else the government do not want discussed.

@38

A good day to bury bad news eh? Well there is the little matter of £2 billion (15,000 jobs) being cut from the Ministry of Justice… http://www.bbc.co.uk/news/uk-politics-10925989

40. Get Over It

There is no direct cost to the taxpayer. The money circulates and tends to be spent on highly taxed goods and services so finds its way back to the Treasury.

The taxpayer and the Treasury are, like, um, two separate entities. The former is compelled to fund the ever-growing appetite of the latter. Curious that you don’t seem to have grasped that rather elementary fact.

41. Get Over It

There is no moral equivalence.

I think you’ll find that most here imagine that all monies in truth belong to the State which is being “generous” when it levies taxation at a rate less than 100%. It’s a rather common liberal delusion.

@41

LOLWUT

You been reading Rush Limbaughs’ How To Spot A Lefty or something?

40. Get Over It

There is no direct cost to the taxpayer. The money circulates and tends to be spent on highly taxed goods and services so finds its way back to the Treasury.

‘ The taxpayer and the Treasury are, like, um, two separate entities. The former is compelled to fund the ever-growing appetite of the latter. Curious that you don’t seem to have grasped that rather elementary fact. ‘

The Treasury tax to drain liquidity from the system. In no meaningful way does the taxpayer fund the Treasury, that is a rather naive view of how the monetary system works. When tax is collected by the Treasury the money both electronic and physical is destroyed not spent.

10:24 pm, August 10, 2010
41. Get Over It

‘ I think you’ll find that most here imagine that all monies in truth belong to the State which is being “generous” when it levies taxation at a rate less than 100%. It’s a rather common liberal delusion. ‘

Well all money originally comes into being as government spending either here or abroad. So yes you could say that.

This, amazingly, is from a news report dated 2 February 2008:

“TWO out of three incapacity benefit recipients are not entitled to the payment, a government adviser has claimed.

“David Freud, a City banker and welfare adviser to James Purnell, the new work and pensions secretary, said up to 1.9m people may be claiming money to which they are not entitled, at a cost to the taxpayer of billions of pounds.”
http://www.timesonline.co.uk/tol/news/politics/article3294491.ece

45. Get Over It

There is no direct cost to the taxpayer. The money circulates and tends to be spent on highly taxed goods and services so finds its way back to the Treasury.

Remarkable. If that was really the case, we could all stop paying taxes next year and every year thereafter, and the government would be able to continue spending as it does today without ever running out of money. This is an idea so cunning and audacious that I wouldn’t be surprised if you net a Nobel for it.

LOLWUT. You been reading Rush Limbaughs’ How To Spot A Lefty or something?

Haven’t got round to that one yet, still plodding through “Ideas So Stupid Only An Intellectual Blowhard Could Believe Them”.

45. Get Over It

‘ Remarkable. If that was really the case, we could all stop paying taxes next year and every year thereafter, and the government would be able to continue spending as it does today without ever running out of money. ‘

Yes we could stop taxing labour and start taxing the unearned economic rent on land, Get Over It. That way we would be addressing the real parasites not the trifling sums defrauded from the benefit system.

http://www.landvaluetax.org/

http://en.wikipedia.org/wiki/Land_value_tax

@34 Mr S Pill: the solution is to build more houses but no-one likes the idea

I do, quote “everyone in Edinburgh should have access to affordable housing to rent or buy as is their preference”

Who cares if 1% fraud, or £1bn, is just the tip of a very big welfare iceberg? Should we just ignore it because it’s not big enough for you to worry about? Forget saving, just carry on spending – like the Labour policies that led us into the current mess?

I’m surprised you didn’t ‘translate’ the £1bn into 33000 policemen or 50 schools like the left normally do. Or does that only apply to Tory cuts rather than Tory savings in the left’s lexicon?

As for the “You do what you’ve got to do to make ends meet” confession, I don’t buy it – it’s still stealing from others just like a shoplifter, using the same excuse.

How much money has to be spent to combat the £1bn benefit fraud.

Is it > or < £1bn?

Moreover, if it is < £1bn then is the return on that money economical or could it be invested or spent somewhere else with a better return?

Given that we already look into benefit fraud. I'd suggest the low hanging fruit has already been plucked and that last £1bn will become increasinly expensive to claw back.

If you spend more money on eliminating waste or fraud than you gain in waste or fraud eliminated, you are not being fiscally responsible.

Every time I think the bastard son of Lord Snooty and Iggle Piggle can’t do anything more spiteful and nasty he manages it. We all know theft is wrong and we all know that tax evasion and avoidance are the real places the treasury is haemorraghing money but still the Tories’ hatred of the poor is limitless. Let’s talk about morality, you know, what MPs spout about while usually while they’re porking somebody else’s spouse or stealing somebody else’s money. Is it right that a private company motivated by profit should assume the role formerly filled by an impartial investigator employed by the state? If it is, then lets privatise the entire justice system and pay bounty hunters by results for every crime. Is it right to spy on 99 innocent people to catch one person who is guilty? If so lets see everyone on benefits regularly waterboarded (I’m sure Cameron already has this planned). But why stop at benefits fraud, lets create a modern inquisition able to torture anyone for anything until they confess. Is it right to employ firms to do this who’ve had so many ministers on their boards? Some cursory research will show how bloody useless Experian is, how often it gets sued for ruining people’s lives with faulty reports and how utterly unaccountable it is. When people make an application for credit the clause allowing data to be passed to rating agencies is buried in minuscule incomprehensible small print. The purpose is to establish identity and assess credit worthiness, it is NOT given for the agency to use in policing the benefits system. Experian is already in defiance of the Information Commissioner on the retention of data. The Information Commissioner is seeking a meeting with the DWP over this mad and distasteful plan

Nearly forgot. If £1.5 billion (the Tories’ attempt at spinning the amount failed for once) is so important, why did George Osborne personally intervene to let Vodafone off £4 billion in taxes it owed (see Private Eye)

@47

Fair play to you sir, I meant people in high office really though – I’ve not even heard much from Labour on house-building (presumably because their own record was awful).

@49

I reckon it’s like the whole anti-smoking shindig. Smoking-related diseases cost the NHS around £7billion p/a but taxes on tobacco products bring in £13billion p/a (even with all the smuggling going on) – both figures what I remember not necessarily spot on but it’s something like that. I assume there are some other benefits involved ie: stop benefit fraud & you have a more – aheh – “moral” nation; stop people smoking and errrrrrm they live longer… so cost more… umm… (I’m a smoker, I don’t really think of the anti- arguments).

53. Not a scrounger

I’m a benefit claimant, and have been for several years. I get Incapacity Benefit (will soon be moved onto ESA) and DLA because of my disabilities. This news scares the **** out of me, mainly because of the disingenuous reporting giving the impression that benefit fraud is much more widespread than it really is – and the effect that this is going to have on claimants’ lives. That ‘two in three’ figure from David Freud regarding IB (quoted by someone above) is just ridiculous. The level of IB fraud is about 1% (and DLA fraud even lower at 0.1%). Not really surprising, as it’s very difficult to get these benefits even when you’re entitled to them.

What worries me most is the continuous reporting of benefit fraud as a widespread, serious problem (everyone’s at it and what’s more they’re getting *thousands* off you tax-paying mugs!), stoking the flames of hatred and bitterness among communities. There is already a lot of misplaced, misinformed jealousy and anger. I have read recent comments on the Guardian website of all places, from people saying that you can become wealthy on benefits (and of course they all ‘know someone’ who is ‘faking’ their illness and rolling in money as a result). What a joke.

Giving people the wrong impression about benefits claimants can do great harm. Disabled people already suffer abuse in their communities – the Tories and the media constantly repeating the message that they are likely to be ‘scroungers’ (who probably run marathons in their spare time, amirite?) can only make this worse.

It would be great if there were some balance in the reporting which made the points that most people on any kind of benefit would dearly love to work, that the vast majority of people on benefits are on them *legitimately* and because they’ve fallen on hard times, that there are very few employment opportunities for chronically ill or disabled people, that there are actually billions of pounds’ worth of benefits going unclaimed because people either don’t know that they’re eligible, have been put off claiming (for example by the 80-odd page long DLA application form), or have been awarded an amount lower than they’re entitled to… not to mention the fact that other things (like the tax evasion mentioned above) cost the taxpayer far more than benefit fraud. But then, why tell the truth when you can spread misinformation and hate?

The problem is Councils have people in them who want to brown-nose their way up the greasy pole by meeting targets for discovering “fraud” but don’t actually want to say what it is that claimants are supposed to do to avoid being caught in that net.

Where Council Tax is concerned it was well known that Lincoln spent far more on pursuing vendettas against alleged fraudsters than was ever actually recovered.

Here are 30 different explanations from Lincoln City Council about what you’re supposed to do. The authority looked pretty stupid in court, too.

As a hardworking puppet of the Daily Mail you probably disagree with my right to a simple answer. If there was one, then it is true that not anyone could be a victim of these awful, awful people.

http://www.nfl.si/lincoln_city_council_benefit_fraud.htm

Maybe I’ll come back to Britain then.

55. Get Over It

Yes we could stop taxing labour and start taxing the unearned economic rent on land, Get Over It. That way we would be addressing the real parasites not the trifling sums defrauded from the benefit system.

It’s a pity you’ve chosen to rant about your cranky Georgism instead of addressing the logical absurdity of your claim about taxation being “free” money. On the other hand, it’s kind of refreshing to be confronted by a different kind of crackpot theorizing than the usual Marxoid cobblers, so thank you for that.

56. Get Over It

The issue with the welfare system is primarily the way that a scheme originally intended to offer temporary relief in the case of occasional hardship has become something of a permanent way of life for millions. Not only does this impose financial stress on taxpayers, but much worse, it tends to debase the recipients, who become an underclass, and sow widespread cynicism amongst productive members of society.

It’s in this context that the cliched “welfare scroungers” stories run by the press have a resonance. Reaction to them is less a result of their readers’ lack of compassionate, and more to do with disgust at a system gone awry.

It’s a straw man typically deployed by the Left in this debate to imply that the Right wants to abolish welfare and unfairly penalize recipients. Perhaps some extremists do, but it’s worth remembering that the introduction of the welfare system in the UK and elsewhere had broad and sustained cross-party support. Around the same time that Beveridge was writing his historic report, Hayek was arguing in The Road to Serfdom for a minimum income for all. Both the liberal Beveridge and the conservative Hayek warned of the dangers of welfare provision becoming a way of life and the consequent reduction of adults to the status of almost childlike wards of the State.

On a final note, I am sure that welfare fraud is less prevalent than some tabloid stories might imply. On the other hand, the OP himself admits that he has indulged in it, and we probably all know someone else like him who has done the same. Furthermore, a not uncommon response when someone who works is challenged over claiming the dole is: “well, everyone’s doing it!” And it’s certainly true that in certain trades where cash-in-hand payment is common, such as construction, employers will collude with employees in ripping off the system.

@ 55. Get Over It

I did not say taxation was ‘ free money ‘. I implied it had no operational effect on government spending. You may choose to be outraged at the thought that the government can effectively do what it wants but often prefers to impose hardship on the population but it does not change reality. Here is a passage from a Warren Mosler paper:

‘ The idea of a tax-driven currency was once common knowledge. It can be found in
the writings of economists and others going back to Adam Smith and beyond. Smith well understood that taxation is the key to understanding the value of state money (in fact, he used the American colonies’ issue of paper money as an example—see Smith [1776] 1937, 311–312). So did a diverse array of economists that came after him, including John Stuart Mill, William Stanley Jevons, Phillip H.Wicksteed, and John Maynard Keynes, among many others (see Forstater forthcoming).
A key distinction is that between the government as issuer of a currency and the
nongovernment agents and sectors as users of a currency. Households, firms, state and local governments, and member nations of a monetary union are all currency users. A State with its own national currency is a currency issuer. The issuer of a national currency operates from a different perspective than a currency user. Operationally, government spending consists of crediting a member’s bank account at the government’s central bank or paying with actual cash. Therefore, unlike currency users, and counter to popular conception, the issuer of a currency is not revenue constrained when it spends. The only constraints are self-imposed (these include no-overdraft provisions, debt ceiling limitations, etc.). Note that if one pays taxes or buys government securities with actual
cash, the government shreds it, clearly indicating operationally government has no use for revenue per se.

When the U.S. government makes payment by check in exchange for goods and
services (including labor), or for any other purpose, the check is deposited in a bank account.When the check “clears,” the Fed (i.e., government) credits the bank’s account for the amount of the check. Operationally, “revenue” from taxing or borrowing is not involved in this process, nor does the government “lose” any ability to make future payments per se by this process. Conversely, when the U.S. government receives a check in payment for taxes, for example, it debits the taxpayer’s account to the amount of the check. While this reduces the taxpayer’s ability to make additional payments, it does not enhance the government’s ability to make payments, which is in any case operationally infinite. In the case of direct deposit or payment by electronic funds transfer, the government simply credits or debits the bank account directly and, again, without operational constraint. The government of issue in such circumstances may be thought of as a “scorekeeper.” As in most games, there is no reason for concern that the scorekeeper will run out of points. On the other hand, nongovernment agents can only spend when in possession of sufficient funds from current or past income, or from borrowing. They are indeed revenue constrained—their checks will “bounce” if there are not sufficient funds available.

Given that a government of issue is not revenue constrained, taxation and bond
sales obviously must have other purposes (see Bell 2000). As we have already seen, taxation
(and the declaration of what suffices to settle the tax obligation) serves to create a
notional demand for the government’s (otherwise worthless) currency. ‘
http://moslereconomics.com/wp-content/graphs/2009/07/natural-rate-is-zero.PDF

As one can see tax revenue does not finance government spending.

56. Get Over It

‘ Both the liberal Beveridge and the conservative Hayek warned of the dangers of welfare provision becoming a way of life and the consequent reduction of adults to the status of almost childlike wards of the State. ‘

I guess you must have missed the Hayek essay “Why I Am Not a Conservative”.

59. Not a scrounger

“On the other hand, the OP himself admits that he has indulged in it, and we probably all know someone else like him who has done the same.”

See this is exactly what I am talking about. “We probably all know…” This is not evidence, this is just conjecture.

60. Get Over It

As one can see tax revenue does not finance government spending.

Sure, everyone knows it’s really the Lizards. Your economic understanding, like Mosler’s, seems to be bogged down in the misunderstanding that as the government issues money, any shortfall in state funds can be made up by simply printing more money, with no further consequences. It’s a brilliant idea — all taxation could be abolished tomorrow and the government can just print currency and distribute it on street corners to any passing government contractor. Why stop there? The government could print a really big pile of currency and make everyone millionaires on their next birthday? Can’t find a problem with that? Then vote Mosler!

I guess you must have missed the Hayek essay “Why I Am Not a Conservative”.

Try reading it sometime. You’ll find it’s written in the spirit of Marx’s comment that he wasn’t a Marxist.

61. Get Over It

This is not evidence, this is just conjecture.

Conjecture becomes evidence after being tested against experience, not a priori. How’s your testing coming along?

@ 60. Get Over It

Since I spent 23 years buying and selling sovereign debt I would suggest my economic understanding how things actually work is significantly above your understanding. I take it from your rant you do not have a coherent argument against Mosler.

Let’s see what Wiki has to say on Hayek and conservatism.

‘ Hayek wrote an essay titled “Why I Am Not a Conservative”[61] (included as an appendix to The Constitution of Liberty), in which he disparaged conservatism for its inability to adapt to changing human realities or to offer a positive political program. Although he noted that modern day conservatism shares many opinions on economics with classic liberals, particularly a belief in the free market, he believed it’s because conservatism wants to “stand still,” whereas liberalism embraces the free market because it “wants to go somewhere.”

@56

Tradesmen who get paid cash in hand are normally diddling the system by not paying taxes rather than claiming benefits. (If they are diddling the system, I mean. Not all folk who get paid in cash are crooks – my old man is a painter and decorator and has to sort out his own tax etc)

64. sevillista

Really don’t understand why all the anti-working class right-wingers on here see that it is possible to both be concerned about £1 billion benefit fraud and £130 billion tax evasion at the same time, and suggest resources may be better used to deal with the £130 billion tax evasion rather than benefits.

There are strict laws and very tight enforcement of benefit laws (many bureaucrats charged with monitoring and investigating claims, a Government operated “spy on your neighbours” service complete with adverts to ‘grass up a neighbour if you suspect benefit fraud’, a mass media campaign that demonises benefit fraud and encourages people to comply with the “spy on your neighbours” service and a media keen to expose benefit fraud. The low-hanging fruit has long been eaten.

Compare with the lax tax laws for the rich, the weak and weakening enforcement of tax laws on the rich and the deliberate creation of tax loopholes that allow the rich to get away with paying their fair share. There is a lot of potential for the state to gain from stricter enforcement here, not least as tax fraud is 130 times as great as benefit fraud.

But maybe right-wingers love subsidising millionaires to the tune of >£100,000 /year eah which some illegally avoid paying in tax (moral individual doing what is right), but draw the line at supporting a single mother who earns £15/week cash-in-hand in addition to her sub-poverty level benefits (evil scum-sucking fraudster)

65. Get Over It

Since I spent 23 years buying and selling sovereign debt I would suggest my economic understanding how things actually work is significantly above your understanding.

Were you asked to leave for being a pompous ass?

“He also has the repulsive presumption and arrogance which is displayed by all panacea-mongers without exception.” (Marx on Henry George)

66. Get Over It

Let’s see what Wiki has to say on Hayek and conservatism.

As frank an admission as we can expect from yourself that you haven’t actually read it. Go away, dimwit.

65. Get Over It

‘Since I spent 23 years buying and selling sovereign debt I would suggest my economic understanding how things actually work is significantly above your understanding.

‘ Were you asked to leave for being a pompous ass? ‘

No I left of my own accord to semi-retire in my forties but thanks for your concern. A bit unfortunate timing as it is highly lucrative at the moment.

“He also has the repulsive presumption and arrogance which is displayed by all panacea-mongers without exception.” (Marx on Henry George)

More evidence that Marx got very little right.

Here is Martin Wolf of the FT discussing that crank theory LVT. Incidentally, Marin Wolf and his daughter are advisers to David Cameron. However, maybe DC is not far enough right for your taste.

http://blogs.ft.com/martin-wolf-exchange/2010/07/12/why-were-resources-expunged-from-neo-classical-economics/

Martin Wolf gives his conclusions on the debate:

This ended up as a heated debate. Nobody will be surprised if I conclude that the result of the debate (often surprisingly ill-tempered) was pro-LVT 10, anti-LVT zero. I am surprised by some of what the anti-LVT proponents have said. I would have thought they would wish to open their minds a bit. I did and was persuaded of the case, as a result.

68. Cheesy Monkey

Tax evasion is illegal, but not well enforced. Tax avoidance is legal, but only achievable for the rich anyway. Essentially, tax avoidance and tax evasion are the same thing, but amount to different totals: £25bn for tax evasion, up to £160bn in tax avoidance. Yet this Government ignores these fucking huge figures and instead wants to crack down on benefit fraud that costs £1.1bn according to their own figures, but estimated elsewhere as being closer to £850m. Plus ça change, plus c’est la même chose. Over the last 10 years, benefit fraud has declined from just over 2% of the welfare budget to 0.8% – in other words, during that time the treasury lost less and less money per year for 10 years, possibly totalling around £4-6bn.

Make tax avoidance illegal and combine with punitiative measures against companies that refuse to pay or drag their feet and this deficit is gone in a couple of years, no undue pain endured.

Not gonna happen though, innit? Not while the unemployed are resented for claiming their £65 a week while tax avoidance is seen as an ambition rather than morally repugnant.

So, let’s in our own little way start to redress the balance. When anyone whinges about benefit fraud, point out that tax evasion costs the country 25 times as much, tax avoidance much more than that and that the Government aren’t doing a fucking thing about it. Get into the habbit of describing tax evasion ‘theft’, tax avoidance ‘fraud’ and those people that advocate tax avoidance/tax cuts for the wealthy/flat taxes* as ‘spongers’. Maybe we could have a list of these spongers in public life (hint, Sunny, hint), an easily accessible guide of fuckwits and blowhards we won’t have to waste time listening to. It’ll be a start, at least.

*Hello ‘libertarians’! Do you know what that term actually means? ‘Cos you ain’t fucking libertarians, you fundamentalist free-market bellends. Go home an watch your Penn & Teller videos whilst emptying your ramsays over Atlas Shrugged and leave real political discussion whose ideological viewpoint doesn’t begin and end with “boo hoo, mummy, I don’t wanna pay tax”.

69. Cheesy Monkey

That should of course finish: …and leave real political discussion to those whose ideological viewpoint doesn’t begin and end with “boo hoo, mummy, I don’t wanna pay tax”. And I missed out an ‘as’ between tax evasion and ‘theft’ above too.

I demand an edit button. And a chocolate Cornetto. And a picture of Liza Tarbuck playing darts with Angela Rippon. Ta.

@Cheesy Monkey

Do you have a source for the £160billion lost to tax avoidance?

(PS the right-wing argument is that if Britian didn’t have a favourable tax regime then we wouldn’t attract all these brainy money makers who work for Lehman Brothers… ermm… yeh.)

“Essentially, tax avoidance and tax evasion are the same thing”

Aghhhhhh! How many times? Tax avoidance includes things like R&D tax breaks and Double Taxation Relief that have been deliberately put in place by the government for companies to use.

THEY ARE NOT THE SAME THING!

That said I hope you get your Cornetto, (not sure about the photo, sounds dodgy).

72. Douglas Hayward

Good article in today’s FT about this, pointing out that the UK has a relatively low level of fraud, that fraud clampdowns come and go (for populist reasons, not policy reasons) but rarely have much effect, and that simplification of benefits could actually increase uptake, putting taxes up.

Even a 2% fraud rate (FT’s quoted figure) is still a lot of money, and it would be great to redude that cost-effectively and humanely, but if it’s not economic to recover it, what’s the betting that the Tories quietly back away from all this?

http://www.ft.com/cms/s/0/658be9a4-a464-11df-abf7-00144feabdc0.html?ftcamp=Late_headline3/NL/UKAugust2010/Creative_1_ukecon/0

73. Get Over It

Not while the unemployed are resented for claiming their £65 a week …

An unemployed person claiming 65 pounds a week is not an example of benefit fraud. An employed person claiming 65 pounds a week is.

I really don’t see what the sums involved have to do with it. Considerably less than a billion pounds a year is lost through armed robbery, but that doesn’t make armed robbery any less of a crime or a legitimate concern.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  2. yorkierosie

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  3. Richard A Brooks

    RT @libcon 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  4. Rosanna

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  5. Laura

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  6. Nick Garfoot

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  7. earwicga

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  8. Carl Baker

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  9. Tania Glyde

    RT @earwicga: RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  10. -

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  11. ambir

    RT @libcon 1%: the real extent of benefit fraud http://bit.ly/9VYhMl

  12. Avid Reader

    So we're destroying the system for 1%. pathetic. RT @libcon 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  13. Adrian Smith

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  14. kevinrye

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  15. fljf

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  16. redtupac

    UK benefit fraud, the actual cost http://is.gd/ebODa

  17. Pamela Heywood

    1%: the real extent of benefit fraud http://twurl.nl/l6jjex

  18. Elly M

    The real cost of benefit fraud, Actually quite low. http://liberalconspiracy.org/2010/08/10/1-the-real-extent-of-benefit-fraud/

  19. Arkady Rose

    RT @mirabehnhobbit: The real cost of benefit fraud, Actually quite low. http://liberalconspiracy.org/2010/08/10/1-the-real-extent-of-benefit-fraud/

  20. Dave Rolph

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  21. Tackling Benefit Fraud: Cameron’s doomed Crusade « Left Outside

    [...] Benefit Fraud: Cameron’s doomed Crusade It costs us £1bn a year. Or as Dave Osler puts it 1% of total outlays for benefit claims are on the basis of fraudulent [...]

  22. Steve Akehurst

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  23. On Benefit Fraud | Robert Sharp

    [...] entitled to, but never actually claim (approximately £10.5 billion, points out woodscolt in the comments).  Double crucially, it is a fraction of the money lost to tax evasion (£30 billion).  Yet in [...]

  24. Fringe Thoughts - According to Government Figures 1% of benefits are fraudulently claimed

    [...] Dave Osler at Liberal Conspiracy:  The trouble with working out with the radio on is that you cannot fully concentrate on what is [...]

  25. David.R.Gilson

    1%: the real extent of benefit fraud | Liberal Conspiracy http://bit.ly/9RRQ1F

  26. spencercross

    http://liberalconspiracy.org/2010/08/10/1-the-real-extent-of-benefit-fraud/

  27. World of Seeds

    Ortega Indica – Dutch Passion…

    I found your entry interesting thus I’ve added a Trackback to it on my weblog :)…

  28. martin lawton

    chancellor George Osborne more worried about benefit cheats but http://liberalconspiracy.org/2010/08/10/1-the-real-extent-of-benefit-fraud/

  29. Broken OfBritain

    From Aug 2010: 1%: the real extent of benefit fraud http://fb.me/NyoXTr6Q

  30. CJ Dorman

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  31. Msk8

    RT @CJDorman: RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  32. Enabled by Design

    RT @BrokenOfBritain: From Aug 2010: 1%: the real extent of benefit fraud http://bit.ly/g4QMDd <= Most def a case of don't believe the hype!

  33. Kerry Dodd

    RT @libcon: 1%: the real extent of benefit fraud http://bit.ly/9WwGd4

  34. Denny

    @hotelalpha9 http://s.coop/hdy http://s.coop/he0 http://s.coop/hdz – I would hope you could find better things to do with your time.

  35. How Does Capitalism Survive? « The Right Is Always Wrong

    [...] you believe we’re all going to hell because of the long-term sick, the disabled or ‘benefits scroungers‘, that total is a drop in the ocean compared to the amount lost through tax avoidance. Even [...]

  36. neilrfoster

    @stewartwood Links: Benefit fraud http://t.co/gnjFjeim unclaimed benefits http://t.co/A6YMAZ3F & tax avoidance http://t.co/WL6TL756

  37. Notes from the Trenches–Journal of a Dole Scrounger | Simon's incoherent blog

    [...] insane levels of benefit fraud that are so crippling the Treasury – estimated to be a staggering less than 1% of the benefit budget. But just in case tackling this massive army of scroungers doesn’t do the [...]

  38. sascha humphrey

    http://t.co/kE7ANI1G





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