An introduction to fraud in the UK

Fraud levels in the UK have soared in recent years to become a major challenge for most businesses. Whilst the pandemic has certainly acted as catalyst to rising levels of fraud, and crime in general, the country has long had a problem with fraud.

Welcome to the first article in our series on fraud in the UK. Today we will give you an overview of the country’s fraud problem and how it got to be this way.

The scale of our fraud problem can not be understated, it is a silent epidemic and has quietly permeated almost all parts of our economy. Billions are lost each year yet very little is done to pursue these criminals or try to limit the continuing growth of this dark industry.

The economic and judicial landscape in the UK is extremely accommodating to fraud and financial crime, which has allowed it to flourish. However, it has grown to such an extent that it is now an unavoidable problem which business and political leaders will have no choice but to make a priority.

How much fraud is there in the UK?

So just how bad is it?

This question is easier asked than answered. One of the primary issues being that there is no true central body that oversees the UK’s fraud problem and maintains a standardized approach to recording its extent. Instead different organisations and sectors monitor and report on themselves.

This, in and of itself, gives an idea of the staggering scale of the issue. Whilst the full amount is difficult to give, it can conservatively be estimated at easily in the tens of billion across the consumer, private, and public sectors.

To give you a better idea here are some key stats and figures:

• The Department of Work & Pensions estimate a loss to fraud of £6.3 billion in 2023
• Banks lost £1.17 billion to fraud bank fraud in 2023, with over £1.2 billion in scams blocked before further money was lost
• In their 2021-22 report the Public Sector Fraud Authority estimated that over £33 billion in tax payer money is lost to fraud each year
• The Chartered Institute of Public Finance and Accountancy puts this figure at £49 billion
• Between £1 – 4.3 billion lost each year to benefit claimants fraudulently claiming to not live with a partner
• University of Portsmouth Centre for Cybercrime and Economic Crime estimate that £8.3 billion was lost by the public to fraud in 2023
• They also estimate that the private sector lost £152 billion
• The Chancellor has announced the creation of a department to investigate fraud in the governmental contracts awarded in response to COVID

These figures serve to illustrate both that we have no idea of the true overall figure lost to fraud each year but also that whatever it is, it is huge.

In 2023, 40% of all crimes reported to the police were about fraud. It is estimated that only 13% of frauds are even reported to the police, which puts the total amount of fraud as significantly higher than the total amount of crime reported to the police in 2023.

Added to this is the fact that only 1% of reported frauds result in a criminal justice outcome. From which we can extrapolate an estimate of 0.001% of the true total of frauds resulting in some sort of criminal justice outcome. If the experts who estimate much less than 13% of frauds are reported are correct, then this percentage is actual far lower.

Who commits fraud

Fraud can be committed by anyone and is practiced across all levels of criminality. From petty criminals to major international organized crime gangs, and it is not always committed by those traditionally considered to be criminals; publicly lauded business people, celebrities, and charity workers have all been found to be engaged in fraud.

Its popularity and pervasiveness means that it is incredibly hard to catergorise a fraudster, adding to this is that to be successful at this type of crime you need to come across as trustworthy and legitimate.

Common types of fraud in the UK

Like all financial crime, fraud evolves rapidly with criminals constantly inventing new scams, employing new technologies, and finding ways to stay ahead of authorities. But here are some of the most common types of fraud:

• Benefit fraud
• Investment fraud
• Invoice fraud
• Telecoms fraud
• Blue badge fraud
• Identity fraud
• Romance fraud

Why is it so bad?

Our fraud problem has not come out of nowhere, it has long been prevalent in our economy; in fact, Companies House was initially set up in 1844 to protect the public from rampant levels of fraud. Whilst it has flourished since the start of the global pandemic, levels were already extremely high beforehand. It is an unfortunate fact that the UK is, and has historically been so, extremely accommodating to fraud.

Like all complex problems, there is no one single factor responsible but there are some major contributing factors alongside many other minor ones.

Firstly, it is still a silent issue. Victims and businesses are generally unwilling to talk about having suffered a fraud. This means that the problem has been allowed to grow without there being any real notice being paid to or appetite shown by governments or police forces to truly tackle the problem.

Secondly, the police resources set aside to tackle the problem are woefully inadequate. Police data shows that fewer than 25% of reported frauds are actively investigated, with forces being largely unable to dedicate the time and resources needed to successfully pursue complex cases.

For those cases that do result in an arrest and successful prosecution, the UK’s soft stance on sentencing and shortage of prison space means that punishments are often light. This has lead to a situation where criminals feel emboldened to carry out crime as statistically they won’t be pursued, let alone end up in court, and even then the likely sentence will be light. To put it bluntly, the chances of being punished for committing fraud are so low that it is barely a risk and certainly not a deterrent.

The relative strength of the Pound and fact that we are an advanced economy means that we also attract a high number fraudsters from overseas. These leverage telecommunications and the internet to target both individuals and businesses. In some cases, foreign criminals have also been able to run benefit schemes worth millions.

It is also relatively easy, businesses tend not to have adequate anti-fraud tools and processes in place to identify when customers are fraudulent; criminals who target individuals use mass outreach techniques to find victims who are believing of their scams.

Studies have also shown that the British public is now much more accepting of fraud and increasingly do not view is as a serious crime, especially when it targets business or public entities.

If you are worried about your business losing money to the UK’s fraud epidemic, Red Flag Alert offers an anti-fraud solution that will allow you to quickly and accurately screen your customers and do safe and smarter business.