Fraud costing the economy £16bn a year, says report

The annual level of fraud in the UK has risen by more than 15 per cent over the past five years to almost £16bn, equivalent to some 1.4 per cent of the UK's annual GDP, according to a report from Norwich Union.

The study, which brings together more than a dozen statistical sources, reveals that the bulk of fraud is accounted for within the public sector, with benefit, customs and tax fraud accounting for by far the biggest proportion of UK fraud. Benefit fraud totalled almost £5bn last year, while customs and tax fraud accounted for some £2.8bn and £2.1bn respectively.

Chris Hill, the head of fraud at NU and the author of the report, said almost £10bn of direct fraud has the public sector as its victim, with only about £4bn attributable to the private sector. The remainder of the £16bn is accounted for by the indirect costs of dealing with fraud.

Within the private sector, Mr Hill said insurance fraud is by far the biggest offender, totalling more than £1.5bn a year. In the personal lines market, he said insurance fraud was becoming ever more sophisticated, with many insurers finding they are up against gangs of serial claimants.

As an example, he cited the increased number of staged car crashes, where drivers deliberately drive into another vehicle to create the premise for a claim. He said one customer had made more than 103 claims in a year.

Credit card fraud has also been rising in recent years and now totals more than £500m.

Mr Hill said the main problem with increasing levels of fraud was that it had now become a main source of income for organised crime in the UK, possibly overtaking drug dealing as the main route of financing crime.

"The first major impact of fraud is on the economy," he said. "Although some of the proceeds from fraud come back into the general economy, much of it does not. There is also a major inflationary pressure here. The costs of goods and services inevitably are priced to factor in whatever losses companies are sustaining on fraud. This is not a victimless crime. The cost of fraud is borne by the public."

Mr Hill said there needed to be a greater effort from the Government to tackle fraud, as well as comprehensive government research to assess the full extent of the problem. The Government last commissioned a major piece of research into fraud in 1999 - which NU has now updated. However, Mr Hill said even this did not tell the whole story.

"As long as fraud is perceived as an 'easy crime', we will consistently see organised gangs of criminal fraudsters escaping prosecution and coming back for a second or third go," he added. "We need a moral change in national perception. Fraud must become as unacceptable as any other form of serious crime."