Westminster blog

Strange as it seems, if David Cameron succeeds in eliminating benefit fraud, it will probably end up costing the Treasury money. It is one more potential pitfall with the Iain Duncan Smith benefit reforms.

A proper crackdown on benefit cheats is only possible by dramatically simplifying the welfare system — and that will probably lead to an increase in the take-up of benefits.

Here’s the rub. Error and fraud in the welfare system costs about £5bn. It’s a big number. But it is nothing compared to the £16bn worth of benefits and tax credits that are unclaimed each year.

The sad truth is that the complexity of the benefits system actually saves the Treasury money, at least in the short term. Government studies show that convoluted rules and impenetrable forms put people off claiming a benefit, even though they are entitled to it. Up to a quarter of people eligible for housing benefit, for instance, don’t submit an application.

The IDS mission to radically simplify the system will reduce waste on fraud and incorrect payments. It’s a saving the IDS team incessantly highlight to the Treasury. But the reform will also make it easier for people to claim the benefits they are entitled to. Unless there are new restrictions on eligibility, that will cost money and cancel out the direct savings. Yet, as far as I can tell, this issue is never addressed in the 372 page CSJ report on “dynamic benefits”.

When sweeping reforms like this have been proposed in the past, the Treasury have had kittens over the knock on consequences. In public, of course, ministers will say they want everyone to receive what they are entitled to from benefits. But, in these straightened times, everyone must recognise the sums involved are huge. Since 1997, I reckon about £100bn of benefits have gone unclaimed, after adjusting for inflation.

Now the IDS reformers will argue that the real cost to the exchequer is the welfare dependency cause by a absurdly complex system that offers poor incentives to work. Making work pay will, they believe, make dramatic long term savings. But it is a leap of faith that the Treasury are understandably sceptical about, particularly at a time when budgets are so tight.