[More fun with Roger] Citizen's Income vs Welfare Fraud

Roger Thornhill trotted out one of the usual arguments against replacing the current welfare system with a Citizen's Income-style (CI) system here with this:

"You are creating a system to attract more fraud and you do not recognise it even when it is pointed out to you."

Now, preventing fraud is something I care a lot about, so let's imagine we had a dead simple CI system as follows:
* All welfare payments and poverty-alleviating measures embedded in the tax system (tax-free personal allowance and tax breaks for pensions) to be replaced with a flat-rate Child Benefit of £30 per week (for the first three children per mother); a flat rate cash payment to working age adults of £60 (or whatever current Income Support rate is) and a Citizen's Pension of £130 for everybody aged 65 or over;
* Of course, to minimise 'churn', people in steady jobs would be able to commute their CI to a tax-free personal allowance of about £11,500, that's just details.
* Entitlement is conditional on being resident in this country and having been resident for at least ten years and having British citizenship;
* Housing Benefit and Council Tax benefit to be scrapped, and social tenants with low or fluctuating incomes to be given a K-code for PAYE (which means they overpay rent when they are working and underpay when they aren't).

Let's look at some real life examples of "benefit fraud" from John Page's excellent scrapbook 'blog, taking the last ten at random:

Examples One and Two. Ms Gill overclaimed Housing & Council Tax Benefit (HB & CTB), despite having £20,000 in savings. Mr Abdow claimed HB but did not declare the Tax Credits he was getting; if he had declared them, he would not have been entitled to HB.

The CI would not be means tested, and certainly not asset-based means-tested, so Ms Gill simply would not have committed an offence. Mr Abdow, assuming he passed the ten-year residence test, would not have been getting Tax Credits, he would have been getting the CI (plus CI for his wife and first three children, if appropriate) and nothing else.

In either case, if they were living in social housing and had income subject to PAYE, they would have been paying an extra 19% towards their notional rent/Council Tax anyway. And if they were living in privately rented accommodation, they would have been getting nothing.

Example Three, The Daily Mail points out that for some young women, it makes good economic sense to have lots of babies, claim to be single and go on benefits.

Under CI, young women would be entitled to CI whether they have babies or not. The £30 extra for each of the first three children per mother does not cover the full 'cost' of having a child and is not intended to do so, ergo, there would be no financial incentive to having children. Similarly, CI would be paid out at the same rate whether they are single, co-habiting or married. There would be no incentive to lie about marital status because the question would simply never be asked.

Example Four: Ms Lorton was claiming benefits while working cash-in-hand and pretended to be living alone when she was actually living with her husband.

With a CI, you get it whether you are working or not - in fact CI is supposed to encourage people to work while claiming. Sure, it would still be possible to evade PAYE or income tax by working cash in hand, but the incentive to do so would be reduced - you'd lose the income tax but not the weekly benefit payment. Don't forget that for an employer, the incentive to pay cash-in-hand is that he doesn't have to bother with PAYE, but the flipside is, he gets no corporate tax deduction. With a flat rate of income tax/corporation tax, that incentive wouldn't exist.

As to 'pretended to be living alone' see Example Three. It's not up to The State to use taxpayer's money to encourage people to get married, but it sure as heck isn't up to The State to use taxpayer's money to discourage it.

Example Five. The Daily Mail reports on people who move abroad and continue to claim benefits.

As I said, the CI would only be payable to people who actually live here. It can't be too difficult to keep tabs on those most likely to sign on and then move abroad again (to the extent that they'd been here long enough to qualify in the first place). Sure, even under CI there will be overpayments, but they will be a lot less (and the total amounts that The Mail mentions don't seem horrendously big anyway).

Example Six: The Daily Express writes that Yvette Cooper announced plans to cap rents paid to private landlords of up to £1,800 a week to prevent claimants living in palatial homes on benefits.

Like I said, just scrap HB for tenants of private landlords (or introduce a much lower cap and then keep reducing that cap until it is £nil), as a result of which rents in the private sector will drop. There will still be some people who won't be able to afford to rent privately, so councils can just build more social housing. Those that earn enough to pay the full rent just pay it in cash, and those with low or fluctuating incomes get given a K-code for PAYE (so they end up paying the lower of (a) an extra 19% of their earned income or (b) the full rent).

Example Seven: Ms Stone legitimately claimed money as a jobless single mother but failed to declare changes in her life such as her marriage to security guard David and her occasional work.

See Example Three above.

Example Eight: An asylum seeker who funded a lavish lifestyle after claiming more than £30,000 in Government cash has been jailed for fraud.

Did he have British citizenship and had he been here for at least ten years? Nope. Next.

Example Nine: Ms Mogford had been legitimately claiming benefits but the circumstances changed when her partner Robert Brierley moved in with her. She still claimed she was living alone when she was interviewed after an allegation was made against her.

Why did she lie? Because she would have lost her single-person benefits and would have lost her HB and CTB if she had told the council her boyfriend had moved in. Presumably he was working, so HB and CTB for the couple would have been means-tested down to nothing.

You'd get the same CI whether you are single, cohabiting, married, sharing a flat or living in a commune (see above ad nauseam).

If she was renting privately, she wouldn't have been getting HB or CTB anyway; and if she was in a council flat for one person, is it so terrible for her boyfriend to move in on the quiet? Isn't that just efficient use of housing? If that was a bit cramped and if they had put themselves on the queue for a two-person flat, then of course both of them would have been given K-codes, so at least the couple between them would have been paying something towards the cost of housing them.

Example Ten: this one is really murky. Apart from sitting driving tests on behalf of other people, Mr Akhtar lived in his Bolton Street address - which he claimed to be renting from a family member while unemployed - when in fact no rent was paid and he was employed as a company owner and director.

I don't have a clever solution to the driving licence thing - but if photo licences were issued on the spot, this would make them harder to sell, as you can only sell them to people who look like you. Again, he wouldn't have been entitled to HB for rent he wasn't paying privately (because he wouldn't have been entitled, full stop, whether he was paying it or not). And, as I have said above, the whole point of CI is that you are supposed to work while claiming, it doesn't make any difference. This chap was probably involved in massive tax-evasion as well, but that is a different topic.

To sum up, when somebody bleats about CI being an new opportunity for fraud, can we perhaps first look at all the real-life frauds that wouldn't be possible and minus those off from the amount of fraud that would happen under Ci (and yes there would be some, I'm not totally naive or anything).

Interestingly, there are very few examples where people claim for an entirely fictitious identity, which would be just about the only way of defrauding a CI system. This is something that is relatively easy to police - everybody has to live somewhere, and if more than two or three adults are claiming to be living at the same address, that ought to set alarm bells ringing. Further, the CI would be paid into bank accounts, and the banks have their own rules to prevent identity fraud, thus making CI-fraud all the more difficult.