With the Autumn Budget fast approaching, civil servants have been pulling together spending proposals and are now discussing them with Treasury officials and ministers.
If you are interested in how government tackles losses to the taxpayer from fraud and error, then what should you look out for?
Making the big decisions
On 30 October, chancellor Rachel Reeves will deliver her first Budget. Officials at HM Treasury will be busy scrutinising proposals and deciding what makes it into the list of approved plans for the next Spending Review period. The chancellor has been clear this will involve “difficult decisions” on tax, spending, and benefits.
At the National Audit Office, our role is to audit whether chosen policy objectives are delivered in a way that represents value for money. It’s not our role to help determine what the policies should be. But the Budget will likely touch on our recommendations for tackling fraud and error and set out initiatives that we will end up auditing.
I outline below some of the things I’ll be paying close attention to.
Tackling the longstanding issues
Our work has highlighted the opportunity to save taxpayers' money by tackling the biggest fraud and error challenges government faces – the tax gap and benefit fraud.
These involve numbers so significant that the Office for Budget Responsibility factors them into its Budget forecast of the nation’s finances. £39.8bn of tax revenue was lost in 2022-23 and £9.7bn of benefit spend was overpaid due to fraud or error.
The OBR will also have to assess the likely impact of any proposals to close the tax gap or reduce benefit fraud, and officials will be trying to persuade it that their plans have a credible chance of working. The numbers they agree with the OBR tend to be buried within the Budget’s technical documents, but at the NAO we pay particular attention to them because we can use them when we audit whether the plans have worked as intended.
So far, the new government has said that it will expand HM Revenue and Customs’ compliance workforce, invest in resources and technology infrastructure, and make legislative changes to tackle tax non-compliance and raise revenue. This pretty much aligns with the key themes our work has highlighted over recent years. It will be interesting to see what assumptions the Budget makes about the details for these plans, including how many new tax inspectors and other compliance staff HMRC will appoint, how quickly it can train them up, and the expected level of return.
With fraud and error in the benefit system still at near historic highs, the government will need a convincing plan if it is to convince the OBR that it can reverse this worrying long-term trend. The government has already committed to carrying out an urgent programme of work to ensure welfare spending is sustainable, including supporting people into work. It has also said it will assess levels of fraud and error in the welfare system and consider how to bring that down ahead of the Budget.
"With fraud and error in the benefit system still at near historic highs, the government will need a convincing plan if it is to convince the OBR that it can reverse this worrying long-term trend"
I’m curious to see how the Budget will affect the Department for Work and Pension’s big initiatives to bring down fraud and error. These include its "targeted case review" – a plan to review millions of Universal Credit claims – and the continued development of data analytics to flag risky claims and prevent incorrect payments being made in the first place. Our reports on this over the past few years have emphasised how resource-hungry these initiatives can be, but also the huge potential for saving taxpayer’s money. I’ll also be interested to see how the OBR has scored the government’s proposals for the new fraud, error and debt bill.
Acting now to avoid pain later
Looking forward, our work has highlighted the need for a preventative approach to fraud and error by seeking to design it out of new initiatives. This beats attempting to recover losses after the fact, which is difficult, time-consuming, and rarely very successful. We’ve therefore recommended that government budgets and plans for counter fraud and error work as part of the business case for new initiatives. So how will government factor this into the Spending Review?
Designing out fraud and error also means taking steps to understand which new schemes are likely to have the biggest risks. Since 2022, the Treasury has required an initial fraud impact assessment (IFIA) as part of the spending-decision process for major new projects. IFIAs are designed to give an early indication of potential fraud and error impact that can be used to prioritise prevention activity, and, ultimately, save significant sums for the taxpayer. Where the IFIA indicates a significant risk, they can be followed through with a full risk assessment, a plan for tackling the risk, and fraud and error loss measurement.
I’m keen to understand how well government departments and HM Treasury are making use of these assessments as part of the Spending Review to inform spending decisions and ensure that the proper resources are put in place now to prevent losses later.
With 30 October soon upon us, I know I won’t be alone in eagerly anticipating what the Budget does or doesn’t include.
Joshua Reddaway is director of fraud and propriety at the NAO. Find out more about the NAO’s work on fraud and error