Welfare fraud costs Britain $17 billion as Burnham vows crackdown

LONDON – Fraud and error in the British welfare system is costing the taxpayer £10 billion (S$17 billion) a year, according to analysis by the government’s budget watchdog.

The figures arrive just as former Manchester mayor Andy Burnham’s bid to replace the Prime Minister took a giant leap forward with Keir Starmer’s resignation on June 22.

“I am not squeamish about saying that the plan would be to reduce the welfare bill,” Burnham had said to The Times newspaper of his putative agenda earlier in June. “Not at all.”

Slashing welfare is something Starmer tried and failed early in his tenure, after a rebellion of his backbench Members of Parliament. Burnham told The Times that his aim was to bear down on the welfare bill by getting claimants into jobs, describing the approach as “moving towards a more preventative state that makes the right investments to support people into work”.

The bill from administrative mistakes and false claims rocketed during the pandemic but has returned to pre-Covid-19 levels after the government beefed up staffing to combat fraud, the Office for Budget Responsibility (OBR) said in its Welfare Trends Report. Still, it now amounts to almost half of government spending on transport.

Britain spent about £350 billion in 2025 on welfare as a whole, a number which includes the state pension as well as unemployment and disability benefits. About 3.2 per cent of claims were deemed to have been fraudulent or paid in error in 2025-2026, having jumped by a record amount during the pandemic to 4.3 per cent.

Wrongful inactivity claims in universal credit, which includes some of the escalating health benefits bill, amounted to £3.9 billion alone in 2025, the OBR said in response to a query. That was a £2.3 billion increase since 2019-2020.

The OBR said part of the surge in wrongful claims during Covid-19 owed to “a greater willingness to commit fraud”. The watchdog defined “fraud and error” as a claimant receiving more than they are entitled, and said four-fifths of the total was fraud.

The OBR’s estimate came as the government revealed it failed to collect £59.2 billion in tax in 2024-2025. The tax gap was up from £52.8 billion the previous year. Wealthy individuals accounted for the biggest increase in uncollected taxes, of £1.1 billion.

The OBR said the switch to the system of so-called universal credit in 2019-2020, which replaced legacy benefits such as jobless and incapacity claims, accounted for the majority of the surge in welfare fraud and error over the pandemic. That was mostly down to a “Covid-19 cohort”, the OBR said.

The watchdog said an easing of the rules for claiming during the pandemic might have contributed to the sudden increase. “Prior to the pandemic, there was some evidence that societal views towards fraud were softening, and that fraud and error across society were on the rise. The onset of the pandemic may have accelerated these trends,” it wrote.

To tackle the problem, the Department for Work and Pensions is set to increase spending to £940 million by 2029 from £150 million in 2020, and more than treble its staff to 16,600 from 4,700.

Within universal credit, fraudulent unemployment and health-related inactivity claims remain elevated compared with the equivalent benefits before 2019. The OBR said wrongful inactivity claims totalled £3.9 billion in 2025-2026 and wrongful unemployment claims £1.6 billion.

In a rare bit of good news for the government, the watchdog said its analysis revealed that it had previously overestimated the extent of fraud and error and that its revised methodology would “reduce universal credit spending” over the rest of the Parliament. The OBR did not provide an estimate of the potential savings. BLOOMBERG