Tough welfare reforms 'prevent fraud'

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Meanwhile HMRC collected £815 million in tax credit debt with a further £1.1 billion ready to be paid back through 'Time to Pay' arrangements.

But lacking training and under pressure to meet targets, private sector debt-collection agencies contracted by the HMRC are wrongly accusing people of fraud.

And the system used for benefit sanctions isn't always used fairly according to a report from the Work and Pensions Committee.

They say the system may not do enough to prevent severe financial hardship or protect vulnerable people.

Tougher on fraud

Since 2010 the Government introduced the "biggest reforms to the welfare system in over 70 years", according to Mark Harper, DWP Minister of State.

HMRC and the DWP are looking to: simplify benefit and tax credits systems; reduce overpayments due to fraud or error; and improve the accuracy of their information through real time reporting of incomes.

They also say they're getting better at detecting fraud and error with improved information sharing - they're even cross-checking with third parties including credit reference agencies and landlords.

And the DWP insist it's now easier for people to tell them about changes in circumstance that could affect claim amounts.

Harper says, "while the overwhelming majority of people are honest and pay or claim what is due, a small minority are dishonest and try to cheat the system".

With levels of fraud, error and debt remaining "unacceptably high", the DWP and HMRC's solution is to recover more overpayments and get even tougher on fraud.

Real time information

HMRC 'real time information system' tracks income details of the 2.3 million people on PAYE receiving tax credits.

This allows them to pay tax credits based on actual rather than self-reported earnings and saved £10 million in 2013/2014 by reducing overpayments, fraud and error.

HMRC estimate it'll lead to savings of £220 million during 2014/2015 as it's now almost universally used.

To identify people under-reporting their income they've also cross-referenced benefit claims with earnings to try and catch fraud and error costing around £1 billion each year.

After identifying 350,000 cases for investigation they expect to claw back £114 million; savings partly reduced by the large investment in IT and business processes required for the project.

Concentrix

Since November 2014, HMRC outsources tax credit checks to a company called Concentrix.

The company ask claimants for personal information, including bank statements, to prove their eligibility for tax credits.

Some people's reaction to Concentrix's request for information is to suspect they're running a scam - but ignoring their correspondence then results in a benefit sanction.

Concentrix are paid on a commission based on how much money they save the public by correcting tax claims. So it's profitable to accuse more people of receiving too much in tax credits.

Unfortunately, this bold approach can lead to accusations against people who aren't cheating the system, resulting in unnecessary worry.

And when it's an honest mistake, invariably vulnerable people are hit the hardest having to pay back tax credit overpayments on an already tight budget.

Single parent sanctions

There's also concern that too many Jobcentre Plus claimants are wrongly sanctioned.

According to a 2014 review by Michael Oakley 70% of sanctions referred to the HMRC are later overturned despite correct evidence given at the time.

And the Work and Pensions Committee believe Job Centre Plus work coaches aren't aware of the flexibility that should be applied to single parent.

Single parent charity, Gingerbread say single parents are more likely to be inappropriately referred for a sanction than any other group.

41% of single parents referred for a sanction are overturned, compared to 31% of other groups.

In the case of intermediate sanctions, 46% of these decisions aren't made until after the person has already had their benefit frozen.

"Doubt" raised when someone is threatened with a sanction is distressing enough; even worse is losing a benefit for days or weeks while waiting for a decision to be made.

The Committee suggest more training could prevent this happening so often.

Universal credit

Universal Credit's yet to prove much more helpful to claimants than Jobseeker's Allowance and it'll be at least 2017 before it's available UK-wide.

But it promises to simplify the system, which could in turn prevent some of the error, fraud and overpayments seen currently.

While this could mean less people wrongly accused of benefit fraud, the Government also hope it will bring savings of around £2.6 billion each year.

In the meantime, the Work and Pensions Committee are urging the next Government to carry out a full independent review.

They want an investigation of the benefit sanctions policy and whether it's being applied "appropriately, fairly and proportionately".