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Morning Line: tackle benefit fraud – but what about tax cheats?

Tax cheats undoubtedly get away with ten times the amount the government will save by investigating benefit fraud and a serious clamp down on tax evasion is long overdue.

Morning Line: tackle benefit fraud – but what about tax cheats?

Tax cheats undoubtedly get away with ten times the amount the government will save by investigating benefit fraud and a serious clamp down on tax evasion is long overdue.

There is something very scary about the proposals to use ‘bounty hunters’ to denounce fraudulent benefit claimants. It has the feel of yet another step towards a police state. None of us are happy that dishonest claimants are milking taxpayers of an estimated £1 billion a year in benefits to which they are not entitled. 

Paying credit reference agencies to uncover fraud might be acceptable because these agencies already have a mass of financial information on file about most of us and they are likely to be more efficient than Department of Work and Pensions investigators who have to start from scratch and request this information. 

But to offer payments to individuals who denounce a neighbour opens up the possibility of innocent people being the victim of neighbours’ grudges. If you think it won’t happen consider Italy where denouncing your neighbour is almost a national sport. Individuals are reported to the local authority for painting their shutters the ‘wrong’ colour and can be fined large amounts for trivial breaches.  Denouncers are not named so it could even be a friend who has reported you.

Admin error

The government believes welfare and tax credit fraud and error cost the Exchequer £5.2 billion a year. But much of this is administrative error as the government’s own website Directgov puts the figure for benefit fraud at £900 million in 2008-09. The hugely complicated tax credits system accounts for much of the loss.

Writing in the Manchester Evening News yesterday prime minister David Cameron said, ‘we are looking urgently at different options for reform. Tougher penalties for fraud, more prosecutions, encouraging those who know fraud is taking place to come forward and making greater efforts to reclaim money that's wrongly paid.’ 

There is no doubt that claiming benefits should be made tougher to prevent fraud – and also more efficient so that genuine claimants are not kept waiting on a decision for months. This requires a complete overhaul of the almost incomprehensible benefits system which the government is embarking upon. But as Gabrielle Preston, policy and research officer at Child Poverty Action Group points out, ‘whilst we recognise there is a need to minimise benefit fraud, it is currently at an all-time low at less than 1% of claims.’

Tax fraud a bigger problem

Preston makes the important point that the National Audit Office believes at least £40 billion of revenue is lost every year due to a failure to collect tax revenues effectively. Other estimates suggest the full loss may be over £100 billion per annum. ‘The decision to focus on benefit rather than tax fraud is unfair, unjust – and makes little economic sense,’ says Preston. And she has a point.

How many of us pay our cleaners and the man who cuts the grass or cleans the windows in cash? Are they all self-employed and declaring all their earnings? Almost certainly not. Most are totally unknown to the tax authorities. Some may even be benefit claimants.  If the government is tackling benefit fraud – and nobody is suggesting that it shouldn’t – what about the black economy which is almost certainly ten to 100 times larger?

Are you complicit?

The average middle class family probably pays out in cash at least £200 a month for people to cut the grass, clean the house, babysit or perform other services. This is £2,400 a year. Multiply this by, say, five million households and you produce a total of £12 billion a year minimum on which no tax or national insurance is paid – a loss to the Treasury of at least £1 billion a year. 

The real figure if you take into account one-off and lump-sum cash payments to builders, decorators, car mechanics and a whole host of individuals who accept cash to avoid both income tax and VAT is probably at least 10 times this amount.

Most important of all, it is morally dubious, to say the least, to pay individuals to snitch on their neighbours and will create an atmosphere of fear. Let people be public spirited and report fraud if they feel there is serious abuse of the system. But to pay people for information smacks of a police state and creates an incentive for greedy individuals or those with a grudge to create serious problems for others. It will also deter those in genuine need from making a claim.

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27 comments so far. Why not have your say?

Chris Marshall (Citywire)

Aug 11, 2010 at 11:56

The Independent's cartoon illustrates Lorna's article nicely...http://www.independent.co.uk/opinion/the-daily-cartoon-760940.html

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Anonymous Coward

Aug 11, 2010 at 12:30

Yeah, because gardners, house cleaners, mechanics and builders are so wealthy - let's go after them. Sort of like crabs in a pot - none of the crabs in the pot allow any other crabs to leave the pot, so they all boil to death.

How about an effort to take from those who hoard - you know the ones we are enslaved to? We toil, they hoard and revel.

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william morgan

Aug 11, 2010 at 12:48

the government's figures for last year show a benefit saving of around £400 per investigated case. These figures dont include costs.

Maybe we should be focussing on growth in economically productive jobs and reducing the dumbing down of the workforce with our open door laws on immigration.

Positive measures that would reap quicker and longer term benefits for the nation.

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Anonymous 1 needed this 'off the record'

Aug 11, 2010 at 12:52

Is this lady seriously suggesting that HMRC are not trying very hard to catch tax cheats already?

And as for her figures????????????

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Anonymous 2 needed this 'off the record'

Aug 11, 2010 at 13:00

The tax system int his countyr is fundamentally unfair and over complicated. The only people who pay their share of the tax burden are the poor souls on paye. Why should company owners be able tyo benefit from reduced rates of tax by paying themselves in dividends, why should the self employed (& so called 'contractors')be able to claim tax relief on nearly every penny they spend (food/parking/petrol) that employees could only dream of and why should anyone who is rich enough to afford a holiday home abroad and a clever accoutant be exempt from any UK tax whatsoever.

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Anonymous 3 needed this 'off the record'

Aug 11, 2010 at 13:01

'The average middle class family probably pays out in cash at least £200 a month for people to cut the grass, clean the house, babysit or perform other services. ' What!? - £200 sounds an excessive amount to not look after your children and home, why not just encourage people to do it themselves? Granted, chilcare is an issue that I do not wish to belittle, however, a babysitter isnt full time childcare and I wouldn't begrudge them not fillining out a tax return form for it, even if they do have other income taking them over £6,475pa. I do however begrudge some silly sausage loving the pub everyday with thier dole money and laughing at me for working and paying tax. Perhaps the principle of people getting money to do nothing is what makes benefit reforms a more compelling concept?

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fatcat

Aug 11, 2010 at 13:05

well anon 2 go self employed then! Try your hand at your own business or are you a lily livered civil servant sucking the state dry? It is the business owners who will get us out of the crap created by the labour nanny state -all poor victims bless. Bring it on !

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Constance Blackwell

Aug 11, 2010 at 13:24

it suits Cameron to dump on the poor and not hold the middle - upper middle class their legal obligations -

he is definitely reintroducing class politics - would this be the Tory definition of broad church?

depressing -

no wonder the English are more depressed about the economy than any other group in Europe with the nasty plans this government is thinking up

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BlueH20

Aug 11, 2010 at 13:28

I think that any steps that the Government can take to prevent Benefit fraud, no matter how small in the beginnning, has to be applauded. We are already being invited to call freephone numbers on TV and posters to report crime, fly-tippers and benefit cheats, so nothing new there.

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Simon Taylor

Aug 11, 2010 at 13:40

It could be argued that the man taking cash in hand to clean windows is depriving no-one of anything assuming (and this is a dangerous assumption) that he is not also claiming benefits. He is paying nothing into the state and taking nothing (directly) out.

Benefit cheats on the other hand are a net drain on the taxpayer, nothing goes in but cash flows out.

If all benefit cheats became self employed on a cash-in-hand basis tomorrow, the country would be hugely better off; less cash handed out in benefits, fewer state employees needed to administer said benefits (and for that matter to administer tax and tax credits) and fewer children brought up with the preception that a life without work is somehow normal.

Big government wouldnt like it becasue it would have less money to waste and fewer voters pathetically grateful for its largesse.

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Anonymous 3 needed this 'off the record'

Aug 11, 2010 at 13:41

Constance, what utter rubbish, Italy is apparently the most unhappy place in Europe for a start.

All this class business I see people spout is absolute dross, I came from a fairly poor and high crime rated north west town and the fact is that this does not stigmatise you as being poor, if you pay attention in school, work hard at your jobs and learn how to speak like a human being there is nothing to stop you from progressing into decent jobs on decent pay.

Why on Earth should somebody be punished for trying and then accumalating money? It is those that do nothing that drain from the middle class....my boss pays me, I am subordonate to them. I pay the tax paying the benefits, the Kappa-Slappers (Kappa sportswear wearing non-workers/drug dealers) are subordonate to me, it is a simple equation that can easily be changed through hard work. Class has nothing to do with it and is a merely a tool for people who seem themselves as the next mass murdering hypocritical communist leader to rally up a contingent of destruction bent idiots who ultimately get dumped on by the aforementioned leaders regime once established.

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Anonymous 3 needed this 'off the record'

Aug 11, 2010 at 13:46

Ah sorry constance, apologies given where they are due, you meant that British people are more depressed about the economy, whilst I still stand by what I say on your use of the concept of class discrimination, we probably are the most depressed about the economy but I dare say we have the most irresponsible media on the subject.

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fatcat

Aug 11, 2010 at 13:51

well said anon 3-and Spain/Ireland ?? Constance is talking out of her hat and the quicker we tackle these lazy slobs the better. I am fed up keeping them in fags booze drugs and nappies . Time for a wake up call!

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Anonymous 3 needed this 'off the record'

Aug 11, 2010 at 14:04

Thank you fatcat, I was expecting to be condemned for my comments but I am only saying things as I see them. I believe (at the risk of sounding facist) that the terminally unemployed (say 18 months of straight signing on) should not be allowed to vote in an election. Why should those who do not contribute, get a say in the control? How does not living in the real world, give you the right to shape it?

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Ben Tyler

Aug 11, 2010 at 14:56

Returning to Lorna's piece..................

One loophole that could be closed is the non-doms' use of their credit cards and debit cards drawn on overseas acccounts which they use to make UK payments: e.g. antiques and trips to the theatre.

They dont "consider" this money remitted so they evade tax on it.

From today these non-doms should register their overseas cards and they should all be bared from making payments over £50.00.

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Kevin Neil

Aug 11, 2010 at 15:04

So this Govt (and presumably the previous one) have been doing nothing to increase tax collection? So what about? -

1. The Non-Doms tax changes (that Con-Lib do not seem to be changing)

2. HMRC's actions against those hiding money in offshore bank accounts

3. HMRC's recent campain against dentists who might be underdeclaring their income

4. The restriction on pensions tax relief (that the new Govt will retain, albeit by a different method)

5. The removal of Personal Allowance for those earning over £100k (staying in place)

6. The new 50% tax rate (staying in place)

7. Taxing of banker bonuses

8. HMRC actions on VAT fraud

Perhaps I have been dreaming all these and they are not actually taking place!

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Anonymous 3 needed this 'off the record'

Aug 11, 2010 at 15:20

Which do we find most difficult to deal with?

A) a person getting up everyday and doing a job, but underpaying income tax.

B) Somebody who gets up at 12, is faking an illness (and that is not to say every person on IB is pretending to not be able to work I am sure they are not) and is being paid and made very confortable for lounging about.

Perhaps answer B is the reason people seem more focussed on benefit cheats, however, as Kevin has pointed out there have been a lot of changes, increases and clampdowns on tax, so perhaps this is being dealt with in equal measures anyway?

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Gristybeasty

Aug 11, 2010 at 15:36

All, who are caught cheating and abusing the Tax and Benefits systems should be put out to dry preferably, in high security prison! To steal in any form is immoral and must be punished. This country has gone rapidly downhill in the past 20 years or so and if action is not taken NOW, to put ba stop to it all this cheating it really will be bye bye Blighty, Hello third world! Sadly, we are practicall there already!

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Graham Barlow

Aug 11, 2010 at 15:46

Why should so called Farmers who sell their land for residential House Building pay no Capital Gains Tax, if they roll-over the Capital and profit into yet another Farm? Never mind the part time Gardner and the Babysitter, they wouldnt bother to leave the TV set if they had to pay Tax on their earnings. No, Britain is now exactly the same as Italy, to survive you have to join the Black Economy. Look no further than the House of Lords and the Commons for an example as to how to survive in Tax riddled Britain

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Anonymous 4 needed this 'off the record'

Aug 11, 2010 at 16:10

I agree entirely with Simon Taylor. I live in an area of high unemployment or should it be classed as under-employment. What ever words you choose to describe the predicament you would not arrive at a clear definition. I make my own observations and analysis, but try not to probe to deep. The facts of the matter are that the parish is supported by a grey economy.

If you make reasonable assumptions about sources of income you would arrive at the following conclusions.

Households dependant on benefits. 40%

Pensioners 15%

Casual workers (cash in hand) 15%

Full time employees 10%

Self Employed 10%

Disabled 3%

Disabled, without visable signs of 3%

Mystery Men 4%

The benefit claimants seem to be the most vociferous. (loud mouthed, and demanding) with plenty of free time to hone their skills.

The rest of us keep a low profile and let sleeping dogs lay.

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Anonymous 3 needed this 'off the record'

Aug 11, 2010 at 16:38

Haha I like your breakdown Anon 4, most amusing

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Anonymous 5 needed this 'off the record'

Aug 11, 2010 at 17:22

as seems to usually be the case - it comes down to character - easy to blame the kappa brigade - I blame them myself, but with much of the media gloryifying pride, individualism at the expnse of others and lowest-common denominator entertainment, those with poor/no education will of course take the easiest option when presented with it. Right or left wing 'solutions' don't work, evidence-based policy will if funded properly. Sterilisation on a huge scale for all those caught cheating or on long term handouts would certainly speed up this urgently-needed action. X-rays work - how about squadrons of chinook helicopeters with huge x-ray machines slung underneath hovering over the estates? This would be quick, painless and efficient! Go on Cameron I dare you!! ha

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Anonymous 6 needed this 'off the record'

Aug 11, 2010 at 21:27

Many contributions, yet most of them not addressing the subject matter of the article.

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Malcolm

Aug 12, 2010 at 22:57

After years of expenses 'fiddles' by MPs of all parties, who can blame those who are following their example?

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Clive Oram

Aug 13, 2010 at 10:19

No one has mentioned "Negative Income Tax" which has been floated as a means to encourage work.

If this was introduced so that only non working people were on direct benefit and then ALL benefits were rigorously monitored it would reduce the two-timers who work in the Black economy AND draw benefits and would provide worthwhile occupations for all those civil servants who currently administer benefits and all too frequently get it wrong because it is so complicated.

Only by making work worthwhile is any system going to discourage many tax and benefit cheats from using the over complicated current system to their personal benefit at the expense of the country as a whole.

Declare your earnings, get your tax rebate (or whatever they would call it), hold your head up and be part of a responsible society.

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Jon Gallagher

Aug 14, 2010 at 20:45

There is one main difference between tax evasion and benefit fraud. Tax evaders earn their money and benefit fraudsters do not. Those of us who wish to drive ourselves forward in our careers and increase our earning power seem to be forever punished by high taxes for doing so Lets face it, being honest and upfront is a mugs game in todays society - everyone is at it, even the MP's who run the country.

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Sungei Patani

Aug 15, 2010 at 18:10

Jon Gallagher: I quite agree, there seems to me to be a fundamental difference in someone trying to keep the money they have legitimately earned and those who illicitly try to obtain money earned by someone else.

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