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The cost of tax fraud in the UK: £15bn

28th Jan 2011
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The National Fraud Authority (NFA) has published a report that reveals tax fraud is the highest individual public sector fraud loss area with an estimated £15bn lost each year.

While fraud losses are difficult to estimate, the latest NFA figures - which are up by almost a third compared to last year’s data - make for interesting reading.

The £15bn public sector tax fraud figure breaks down as follows:

  • evasion - £7bn
  • criminal attacks - £5bn
  • hidden economy - £3bn

Tax evasion is by far the largest problem area at £7bn a year - a figure that overshadows the £1.5bn of benefit and tax credits fraud, which together are estimated at £1.5bn a year.

According to the data more than half of all UK fraud is from the public sector at £21bn, although the report does claim this is partly due to public officials being more diligent in reporting fraud.

In total fraud costs the UK more than £38bn, which represents fraud costing each adult member of the population an average of £765 per year.

The overall fraud loss estimates are:

  • public sector - £21bn
  • private sector - £12bn
  • individuals - £4bn
  • charity - £1.3bn

Private sector economic crime makes up 31% of the total annual figure, with the financial services industry recording the highest loss at £3.6bn.

The NFA and the Federation of Small Businesses worked together for the first time to produce a figure for fraud losses to SMEs at £780m.

Online banking fraud has increased by 14% to £60 million, largely due to criminals using more sophisticated methods to target online banking customers through malware, which targets vulnerabilities in customers’ PCs, rather than the banks’ own systems.

There was also more than 51,000 phishing incidents recorded during 2009 – a 16% increase on the amount seen in the previous year.

Other types of fraud that remain high are mortgage fraud at £1bn and insurance fraud at £2.1bn.

Bernard Herdan, the NFA’s chief executive, said the report shows urgent action is needed from the government, the private sector and the public to “stem the rising tide of fraud”.

Jim Gee, director of Counter Fraud Services at PKF, added: "Assessing the financial cost of fraud to UK PLC is a difficult job. The NFA has done a good job collating this information but, through no fault of its own, its figures are probably an underestimate."

The National Fraud Authority's full Annual Fraud Indicator 2011 report.

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