Errors cost people £1.1 billion a year
A billion pounds doesn’t sound very much in the context of the £5000 billion one estimate suggests it has cost to bail out the world’s banks. But when it has been denied to some of Britain’s poorest people then it is a billion pounds they can ill afford.
This billion pounds – in fact it was £1.1 billion in 2007/08 – is lost to people who make a successful claim for state pensions or benefits but are paid too little. Just over half the money – £600,000,000 – was lost due to mistakes by the people who applied. The rest – £400,000,000 – was underpaid by officials who are clearly almost as baffled by the complex rules as the people who claim. And in key benefits for older people civil servants got things wrong more often than their customers. Official error was responsible for £150 million of underpaid retirement pensions. Customers made no mistakes – largely because all they need to know is their age and most of us get that right! Confused officials underpaid £90 million of pension credit which was three times the amount lost by mistakes made by applicants.
In other cases the rules baffle customers the most. People claiming disability living allowance – paid to severely disabled people under pension age – for example lost £240 million by making errors in their claims compared with just £10 million underpaid by those who do the sums. And council tax benefit baffles three times as many customers as it does benefit staff - £30 million lost due to their errors compared with £10 million lost due to the mistakes of those working it all out.
All these figures are underestimates as they do not include people who apply for a benefit but are wrongly told they do not qualify at all.
The report these figures are taken from does not look at the causes of underpayment. It is much more concerned with overpayment of benefits – which costs the taxpayer far more than the underpayment saves. A total of £2.6 billion was overpaid, divided equally between fraud, mistakes by customers, and errors by officials.
There is of course a simple solution to both problems. Get rid of the complexity. A good start would be to scrap pension credit and replace it with a non-meanstested state pension of the same amount paid to everyone over pension age. That would take a lot of money. But it would also the other big problem of low take up which denies far more money to pensioners than errors do. And compared to bailing out the banks the cost would be – literally – invisible.
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