Stephen Barclay is the Member of Parliament for North East Cambridgeshire and a member of the Public Accounts Committee. Follow Stephen on Twitter.

Screen shot 2013-08-12 at 10.40.14Budgets have taken a pummelling. Our local
councils are trying hard to be innovative and do more with less resource. So you’d have thought that now, more than ever,
they’d be looking to stem their losses from the fraudsters and thieves who try
and make away with their resources. ‘Their’ resources – as if you needed
reminding – being the money they’ve collected from us in tax.

The latest estimate by the National Fraud Authority
is that over £2bn is lost each year to fraud at local authority level. The true
figure is likely much higher but still, that’s a staggering sum, equal to over
£120 per household. Local government needs to stop the bleeding.
Quite simply, it’s criminal for money to be wasted at a time of cuts.

Many councils are looking into just this area
and doing great work – checking to make sure that the person claiming a service
are who they say they are and that any payments made are done so in a proper
manner. Some of the early headlines have been
astounding: Dudley Council has launched more than 170 housing fraud
investigations in the last 12 months; Westminster Council found that in a raid
on Edgware Road some 61 per cent of the properties they visited were illegally sublet,
and the Chief Executive and his Deputy at Caerphilly Council have just been
arrested, suspected of endemic fraud.

So far, so bad, but
there’s a dirty secret that government doesn’t want you to know about – that
its rules are so skewed that they, in effect, provide a shield for fraudsters
while limiting the amount of social housing available to genuine applicants and
taking huge chunks out of council budgets.

Here’s a simple – and quite realistic – example. Let’s imagine that someone (we’ll call him John)
is awarded social housing by his local council. He’s a good tenant for a number
of years but when his circumstances improve (maybe he’s found part-time work or
a partner and has an opportunity to move in with her) he neglects to notify
his council as he should, and instead decides to sublet the flat, peeling off a
cool £1,000 a month. That’s fraud, plain and simple, but what happens next is

Imagine that John gets away with his scam for ten
months – that means that the scale of his fraud against the state sits at
£10,000. Any right-thinking council would want to reclaim those funds as soon
as possible, inform the police and get a new tenant into their scarce social
housing stock. But the rules imposed on local councils by the
DWP mean that, often, fraudsters such as John are quietly pushed out of the back
door of their council funded properties, free from interference from the police
and not asked to pay back even a penny of the money that they’ve stolen.

Surely some mistake? Housing benefit funding comes from the
Department for Work and Pensions and is given to local authorities, who have a
better grasp of local need, to hand out on the DWP’s behalf. That all seems
sound and proper. But when a fraudster like John is identified, the DWP
automatically claim back 60 per cent of the value of the fraud regardless  –
£6000, using our example. DWP call this an incentive for local authorities to
pursue the fraudster in the courts and attempt to recover the missing funds. An
economist would call that incentive perverse.

Faced with finding £6,000 out of a stretched
budget and launching an investigation (which, by the way, is estimated to cost
about £1,000 each time) or simply pushing the fraudster out of the door, what
do you think most councils would do? It’s hardly Sophie’s choice. So, in order to break even once they’ve
identified a fraudster, a council has to recover 60 per cent of the full cost of the
fraud and cover the cost of the investigation. The DWP seem to believe
that fraudsters live in a strange fairy-tale world where they bung all their
misappropriated funds into an easily accessible bank account for a rainy day,
or for when their local council comes knocking.

Those of us who operate in the real world know
that they don’t – so do the bits of local government which deal with finance,
which is why the clawback rate for housing benefit fraudsters is under £20 a
week. The whole policy is positively Kafkaesque.
Tackle a fraud of high value and you saddle your council with a massive debt.
Find a small fraud and it will cost you more to investigate than you’ll ever
recover. All the while, fraudsters are getting away with
it and government is haemorrhaging money. It’s time for it to stop.

Government needs to take the lessons of behavioural
economics on board and listen to the ‘nudge unit’ which it created: you don’t
incentivise people to tackle fraud if they get penalised for doing so.
Government also need to start acting on the information they have – sharing
data on confirmed fraudsters so that they can’t strike again elsewhere, be it
in the benefits system or in the private sector.

This is a single, simple, issue where the way
that the rules are written means that government is losing money and fraudsters
are getting away with it. Last year, housing benefit fraud cost the taxpayer an
estimated £850m. It’s time for that to stop, and re-writing the rules is a good
place to start.