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Universal Credit was hailed as the solution to Britain’s crumbling welfare state when it launched in 2013 – but in the past two years, it has cost taxpayers £11bn in fraud and the department behind it is struggling to keep up.
When Covid struck, civil servants were inundated with 10 times the number of claims for the benefit than they would normally receive.
Fearing households would be unable to survive lockdown without the cash, ministers took the unprecedented decision to lift dozens of checks on applications – all at once.
The move was intended to “get money as quickly as possible to those who needed it”, according to the Department for Work and Pensions’ (DWP) statement of accounts for 2021 to 2022.
In reality it led to taxpayers losing billions of pounds in overpayments, which are predominantly classed as due to fraud and error. Losses last year were still above pre-pandemic levels at £5.5bn, according to the National Audit Office (NAO).
Between 2021 and 2022 the DWP made overpayments worth £5.9bn, NAO found, causing the total bill to taxpayers to spiral above £11bn in the two years after 2020.
Sir Iain Duncan Smith, who was the architect of Universal Credit and responsible for its introduction as work and pensions secretary in David Cameron’s government, said that people had been allowed to “play the system” during the pandemic.
“The one thing that has affected Universal Credit is Covid. The Government loosened everything in Covid. They didn’t check anyone. People were able to play the system within that.
“Most of the sanctions [were] eased and the debt collection was eased dramatically.
“You’ve now got a great backlog of people who should have been checked when they entered and now need to be followed up.”
He said that the scheme had nonetheless been a “huge success” overall but that it was “only as good as those who run it” and that “the benefits in it mean there’s a one stop place to go”.
He added: “You can see the numbers that have shifted on to the sickness elements of the benefit because it is much easier to do so right now.”
Rules relaxed for good
There is growing pressure on the DWP to tackle high rates of fraud and error in the benefits system, which has existed for many years but worsened by pandemic-era measures.
Ministers signed off around 100 “easements” in the process of gaining Universal Credit in 2020. These effectively scrapped dozens of rules designed to vet applicants and assess the quality of their claim for the benefit.
The department’s annual report, published in 2022, stated that 31 easements had been made permanent. One of the rules said to have been dropped for good was the requirement for those claiming Universal Credit as an out-of-work sickness benefit to supply evidence of their health condition in person or by post.
Applicants are now asked simply to “declare” evidence.
The DWP’s report said: “Claimants are required to declare evidence to the Universal Credit service and are directed to keep the evidence.
“The Department accepts [declaration of evidence] this without directly inspecting the evidence, and will advise the claimant if they need to see it at a later date.”
The rule change has coincided with a record leap in people claiming Universal Credit for sickness. Two million people are receiving Universal Credit as a health benefit, up 400,000 in a year and almost 70pc of them are considered unfit for work.
In 2021, the DWP began reviewing two million cases where Universal Credit was paid out under the eased vetting process and said it had made around £500 million savings within the first year of the retrospective checks.
The DWP said it accepts that “certain people exploited” the relaxed system during the pandemic.
Its most recent statement of accounts said: “When Covid-19 first broke in March 2020, DWP suspended certain control measures in order to prioritise paying people who needed support and keep them safe. However, certain people exploited this and we worked hard to reinstate our normal checks and balances at the earliest opportunity.”
‘The losses run to billions of pounds a year’
Universal Credit was designed to bring a medley of welfare state payments under one umbrella. It is replacing the Child Tax Credit, Housing Benefit and Jobseeker’s Allowance, as well as several other schemes.
It gives payments to households based on their financial circumstances from month to month, which are assessed on a rolling basis. Having savings of over £16,000 makes a claimant ineligible for the benefit.
However, civil servants must make a request to individually check each benefit claimant’s bank account they suspect of fraud. Given that around one in 10 universal payments are generally regarded by the DWP to be fraudulent, this leaves them with a huge workload.
Under a new system, which has been criticised for covering all social security payments that sit outside of Universal Credit, including the state pension, banks will be required to run monthly or even weekly data checks to spot red flags that suggest “risk” of fraud and hand the information over to officials.
DWP estimates suggest that £900 million a year is being wrongly claimed by people who should not get Universal Credit because they have savings of more than £16,000.
The department has been handed an extra £443m to bring down fraud. It expects to achieve the targeted reduction of £6.4bn between 2027 and 2028. The funding is being used to conduct “targeted case reviews” of Universal Credit claimants and hire almost 6,000 more officials to investigate potential fraud.
Gareth Davies, head of the National Audit Office, urged the department to get to grips with the issue and save taxpayers money.
He said: “The losses to the public finances from fraud, error and tax evasion run to billions of pounds a year. I’d point to Universal Credit, where fraud and error currently costs taxpayers £5.5bn a year.”
A DWP spokesman said: “We are committed to protecting taxpayers’ money and stopping people illegally taking advantage of our benefit system – and are tackling this with our £900 million counter-fraud plan, which includes nearly 6,000 trained specialists to review millions of Universal Credit claims.”