HM Revenue and Customs needs to properly learn the lessons from last year’s flawed crackdown on Child Benefit fraud, which led to thousands of recipients wrongly having payments stopped, the National Audit Office has said.
Civil Service World has previously reported on HMRC’s efforts to use Home Office flight data to identify Child Benefit recipients who may no longer be entitled to payments because they have left the UK.
The method, enabled by cross-departmental data-sharing powers under the Digital Economy Act 2017, was originally the subject of a successful pilot in 2024. That allowed millions of pounds worth of incorrect payments to be stopped and allowed HMRC to calculate that rolling out the crackdown more widely could lead to gross savings of around £366m by 2030.
Child Benefit is the largest individual benefit that HMRC pays out. In 2024-25 the department’s Child Benefit spend was £13.3bn, which was paid to around seven million families in support of around 11.7 million children.
However, when HMRC undertook the first rollout of the fraud and error project in August last year changes were made to the model used in the pilot. In particular, upfront checks of Pay As You Earn data intended to ascertain whether parents in receipt of Child Benefit are still earning wages in the UK were moved to a different part of the process.
The NAO said this change was made for the rollout because HMRC was unable to use experienced compliance staff as had been planned and had to rely on temporary staff instead.
“HMRC assessed that it was too complicated for inexperienced staff to conduct the PAYE check upfront,” the NAO said. “It moved it to the end of the enquiry process without considering the potential wider implications of its decision.”
According to the report, tax credits staff were originally intended to be deployed on the programme. It said the PAYE systems check requires “a degree of judgement to establish legitimate UK employment from the available records” and is unsuitable for temp staff to carry out upfront.
While the first rollout of the fraud-and-error initiative led to savings of £60m, more than 8,000 genuine, eligible claimants had their benefit payments suspended without warning.
A further issue that emerged following last year’s rollout was the problem of Child Benefit claimants who had left Northern Ireland by air but returned via the Republic of Ireland – in which case only their outward journey would be captured by the Home Office data.
The NAO said that HMRC now accepts there were “weaknesses” in the transition between the Child Benefit fraud programme’s pilot and first rollout.
The watchdog said HMRC’s internal audit review found that the department had not appointed a single senior responsible owner for the programme or established governance arrangements with clear accountability for approving major changes to the process.
“Key decisions were made without sufficient scrutiny, and there was no formal risk assessment of the implications of decisions,” the report says. “HMRC also did not sufficiently consider the impact of the initiative on those claimants whose claims were incorrectly stopped.”
The programme was relaunched in March this year with a changed process that includes giving claimants a month to prove eligibility before suspending payments and enabling claimants to submit evidence of eligibility online. The upfront check of PAYE data was also reinstated.
The NAO said HMRC has already learned some lessons from the programme. Its report recommends that the department should “clearly identify” what staffing an intervention requires and “mitigates risks that reflect actual staffing”.
The watchdog added: “If it cannot implement an intervention as planned due to a lack of suitable resources, HMRC should reassess the risks, costs and benefits to inform any decision about whether and how it proceeds.”
Other report recommendations include measures to ensure HMRC “articulates the level of risk it is willing to accept in compliance interventions so that this is well understood by staff and can be consistently applied in practice”.
The NAO said HMRC should also analyse how fraud and error risks vary for different groups of claimants in an intervention to improve risking and targeting of future Child Benefit compliance interventions.
NAO head Gareth Davies said it was completely appropriate for HMRC to seek to innovate in its efforts to reduce fraud and error in Child Benefit payments and that the department should keep innovating.
“It’s right that HMRC seeks new ways to tackle fraud and error. HMRC’s initial work on using travel data to investigate potential Child Benefit overpayments suggested it could secure significant savings for the taxpayer,” he said.
“However, missteps in implementing the first rollout meant HMRC did not strike the right balance between detecting fraud and error and managing the impacts on Child Benefit claimants. While HMRC should not be discouraged from pursuing innovative ways to reduce fraud and error, it must learn and apply the lessons for future initiatives.”
Sir Geoffrey Clifton-Brown, chair of parliament’s Public Accounts Committee, said HMRC should be commended for piloting “an innovative, data-led intervention”.
But he cautioned that the first rollout of the programme had been “poorly managed” and “deeply distressing for families whose Child Benefit was wrongly suspended.
“Innovation must not come at the expense of families who rely on this vital support,” he said. “This is a promising way of reducing fraud and error, but HMRC should not lose sight of its responsibility to protect genuine claimants from disruption and hardship as it continues to the full rollout.”
According to the NAO report, HMRC had paid out a total of £3,200 in compensation to 51 Child Benefit claimants affected by last year’s problems as of the end of April.
An HMRC spokesperson said the department welcomed the NAO report and its recognition that cross-government data-sharing can be used to help tackle fraud and error in Child Benefit.
“We’ve acknowledged that some mistakes were made initially, but we took swift action to put things right and strengthened our approach with extra safeguards,” the spokesperson said.
“Our work so far has prevented thousands of customers claiming incorrectly, protecting tens of millions of pounds of taxpayers’ money.”
The department said that aound £270m in Child Benefit payments were incorrectly claimed in 2024-25.
HMRC is due to provide an update on its projection for fraud and error savings related to Child Benefit in time for the Autumn Budget.