Revolt on Bill that 'helps' benefit fraud

THE Government faces a parliamentary revolt this week amid fears that its flagship welfare reform programme is riddled with fraud.

Tory MPs are to put down key amendments on Tuesday to the Tax Credit Bill that will expand the £5 billion-a-year system of tax credits for the less well-off.

Chief among the amendments is a call for an increase in the maximum penalty for fraudulently claiming tax credits from seven to 10 years in jail. Tax credits are, in effect, welfare payments made through the tax system.

Under the Bill, the present working families tax credit would be replaced by a child tax credit and a working tax credit. This means the benefit would by expanded to include childless low-paid workers and non-working people with children. It is a key Labour policy designed to 'make work pay' and end dependence on traditional welfare benefits.

But backing the Tories is Labour's former Social Security Minister Frank Field, who has described the tax credits policy as 'an open door to fraud'.

If the Conservative amendments are voted down at a committee hearing into the Bill, Field will effectively reintroduce them in the House.

'Tax credits are an open invitation to fraud,' he said. 'In effect, the Government hands over its own chequebook to individual employers and invites them to fill in the cheques on behalf of any workers who claim they are eligible. It would be difficult to operate this system honestly in the Garden of Eden, let alone in the real world.'

Field estimates the level of fraud against tax credits is at least as high as that against conventional welfare payments such as housing benefit - about seven%.

That means about £350 million is being swindled out of the tax-credit system, with more to come as it is expanded to cover other low-paid workers.

Field said dishonest employers and workers were finding it even easier to swindle the tax credits system than conventional benefits.

'At least the benefits system is centralised in Government hands,' he said. 'Tax credits involve the distribution of public money by employers. One fraud is for an employer to claim the credits on behalf of nonexistent workers, using dummy National Insurance numbers. Another involves colluding with the employees to depress their wages, thus triggering the credits while saving the employer money, and then paying them a little extra in cash.

'Even honest employers will be tempted to hold wages down and let the taxpayer make up the difference.'

Field added: 'The Treasury's response to these amendments will be an important test of its attitude to fraud.'

The Revenue intends to investigate 1.5% of all applications for tax credit. In the last tax year it found something wrong with nearly 30% of these claims, clawing back £15.4 million for the Treasury.

As well as beefing up the penalties for defrauding tax credits, the amendments would provide for much closer co-ordination between the Inland Revenue, which operates the credits, and the Benefits Agency, which handles conventional welfare payments.

A Government spokesman said: 'We have no plans to accept any Opposition amendments.'