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Government statistics show the amount Britain loses to tax avoidance and evasion dwarves the cost of benefit fraud.

The amount annually lost to people who defraud the benefit system (£2 billion) is much smaller than the cost the taxpayer from individuals and companies who evade paying tax (£5.9 billion).

Benefit Fraud

In 2016/17, the Department for Work and Pensions estimates that £174.1 billion was spent on welfare.

According to their annual report into benefit fraud and payment errors by the department, 22 million people were administered welfare this year.

Of the total spent on welfare, £3.5 billion (two per cent) was given out in overpayments.

Of the total overpayments, £2 billion worth of claims were considered fraudulent.

The official definition of fraud used by the department is when the following three conditions apply to a claimant who has been 'overpaid'.

  • The basic conditions for receipt of benefit, or the rate of benefit in payment, are not being met
  • The claimant can reasonably be expected to be aware of the effect on entitlement
  • Benefit stops or reduces as a result of the review.

The 'tax gap'

In 2015/16, HM Revenue and Customs reported that they failed to collect £34 billion of the tax that they were due.

Among the break down of reasons for the 'gap', £5.2 billion was attributed to tax evasion (illegal), and £1.7 billion was attributed to tax avoidance (legal).

  • Tax evasion: is the illegal evasion of taxes by individuals, corporations, and trusts.
  • Tax avoidance: Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended.

Benefit fraud vs tax evasion and tax avoidance

In October 2017, HMRC announced that the 6 per cent tax gap was significantly lower than the 7.9 per cent lost a decade earlier.

The department attributed this to 75 measures since 2010 to reduce tax evasion, avoidance, and non-compliance, which they also claim has secured £160 billion in addition tax revenue.

In their report, the DWP notes that fraud is at its highest recorded rate, of 1.2 per cent of overpayments.

However, it also noted that the way overpayments were categorised had been altered since 2014/15.

Figures: HMRC and DWP

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