The UK government has been very successful at promoting the idea that our system of welfare benefits is at the mercy of legions of scroungers who are cheating the taxpayer out of vast sums of money and thereby contributing significantly to the annual deficit.

The resulting “benefits rage” provides a very effective smokescreen, helping to disguise the government’s utter cluelessness about what’s wrong with our financial/economic system or what could be done to fix it.

So just how bad is benefits fraud and how does it compare with, for example, tax fraud?

The government spent £176,029 million on welfare benefits in 2011/12. (HM Treasury PESA)

The Department for Work & Pensions estimates that over-payments of welfare benefits due to fraud in 2011/12 amounted to £1,200 million, or less than 0.7% of the total spend. (DWP)

In 2011/12 the ONS calculated that the annual budget deficit was £126,000 million. So even if we eliminated all of the fraud in the benefits system we would only have reduced the deficit by less than 1%.

Interestingly, the DWP also reports £1,300 million of under-payments due to errors by claimants and officials. If we eliminated these errors and paid everyone what they’re due, the gains from getting rid of the fraud would be more than wiped out. There would be no deficit reduction whatsoever.

Benefits fraud is infuriating and we should do whatever we can to weed the fraudsters out of the system without hurting those whose need is genuine, but to suggest that chasing benefits cheats is going to fix our public finances is nonsense.

To put all of this in perspective the government’s estimate of revenue lost through tax evasion, avoidance, and non-payment in 2010/11 was £23,000 million, which is equivalent to 13% of the total welfare bill for 2011/12, about 19 times greater than the money we lose to benefits fraud.

Another way of looking at it is that the benefits cheats cost each of us around 5p/day while the tax cheats cost us £1/day. If you’re serious about reducing the deficit which cheats would you chase?

By all means have a rant about benefits scroungers if your inner Alf Garnett is needing some exercise, but don’t pretend that they’re responsible for bankrupting the nation. They’re not. In the grand scheme of things they’re insignificant.

Save your rage for the tax cheats. They’re the ones who are doing the real damage.