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Responding to Tony Blair’s email: The £1.7 billion worth of identity fraud claim

Posted by James Hammerton @ 10:04 pm on 24 February, 2007.
Categories privacy and surveillance, British politics, the database state.
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Tony Blair’s email to anti-ID card petitioners included a claim that identity fraud costs Britain £1.7 billion per year:

Secure identities will also help us counter the fast-growing problem of identity fraud. This already costs £1.7 billion annually.

This figure has been used repeatedly by the government in its literature and statements on identity fraud and its justifications for the identity card scheme, and comes from this document produced in February 2006. From 2002 until Feb 2006, the government was claiming the amount was £1.3 billion pounds per annum.

I contend that these two figures are bogus. They include figures that are not related to identity fraud per se and figures that are outright guesses. Also, no detail is given on how the government arrived at any of the figures, and it’s not clear that any effort has been made to avoid some obvious risks of double counting. I’ve illustrated these points in the following breakdown of the figures which add up to a total £1.72 billion attributed to “identity fraud”:

  • The Association of British Insurers(ABI) estimated £7.9million lost due to identity fraud, and the government increases this to £22million on the basis that the ABI represents 36% of the industry. Thus £14.1million is based on the assumption that non ABI insurers lose money to identity fraud at the same rate as the ABI insurers.
  • APACS, the UK payments association claim they lose £504.8million when plastic cards are used by criminals pretending to by the rightful owner or using a fictitious identity, broken down as follows (the figures actually add up to £504.7million):
    • Counterfeit cards: £129.7m
    • Cards lost or stolen: £114.4
    • Card not present fraud: £150.8m (NB: By definition an identity card won’t help with “card not present” fraud, so that’s £150.8m that won’t be touched by any ID card scheme).
    • Mail non-receipt: £72.9m
    • Fraudulent applications: £13.1m
    • Account takeover: £23.8m

    Note that for the government’s identity card scheme to make any difference to these figures, then identity checks against the database will need to be performed each time someone uses or applies for a plastic card. If the checks are not against the database then the counterfeiters will simply counterfeit the identity card as well as the credit card. The NIR stores the details of each check against the database, thus if such checks are done, then the government effectively gets its own record of who you’ve paid money to via your plastic card. Currently, they’d have to ask your card provider for this info and would thus need to know that you’ve got the card concerned.

    Also, consider this quotation from silicon.com’s analysis of the £1.7billion figure:

    The first misleading calculation is the inclusion of figures from card payments body APACS totalling £504.8m. The number equates to the simple theft of a credit or debit card as well as genuine ID fraud.

    APACS spokesman Mark Bowerman told silicon.com that ID fraud actually cost the payments industry just £36.9m in 2004 and that for the first six months of 2005 it has actually dropped by 16 per cent, mainly due to the introduction of chip and PIN.

    He said APACS classes ID fraud as when someone’s account is actually taken over by a criminal or a new account is opened up using someone else’s name.

    “The Home Office’s definition of ID fraud doesn’t match our definition. We class it as a more serious crime that involves a great deal more hassle than just having your card stolen and having to phone up the bank to cancel it,” he said.

  • Audit Commission estimate of £15m of loss to pensions schemes due to identity fraud.
  • The Building Societies’ Association estimate £3.1m worth of losses due to identity fraud. Couldn’t there be some double counting here if some of this is due to plastic card related fraud, regarding cards issued by building societies?
  • CIFAS, the UK’s fraud prevention service, estimates £2.3m worth of losses to the retail sector for identity fraud. Again, isn’t there a risk of double counting due to plastic card related fraud in the retail sector being counted both here and with the APACs figures above?
  • The Dept of Constitutional Affairs estimates £29.9m in unpaid fines due to “tracking” problems, including false info provided to the police and £5.9m due to people not turning up to courts for fines and the courts being unable to be certain that they are issuing the fine to the right person.
  • The Dept of Work and Pensions estimates £20m to £50m of benefit fraud is due to false identities being given, the lower figure contributes to the £1.72billion.
  • The Driving Standards Agency estimates it costs £1.12m to ensure a person taking a driving test is actually the candidate who’s supposed to do so. Surely at best this is a cost that would be transferred to the cost of the identity card scheme itself?
  • Finance and Leasing Association estimates that £14m is lost due identity fraud related to the provision of motor finance by FLA members.
  • HM Revenue and Customs estimate £215m lost to VAT fraud, this is a figure carried over from the earlier 2002 figure. That figure was arrived at by taking the total VAT fraud of £2.15billion and assuming 10% of it was identity fraud! Also, silicon.com’s article states:

    Missing trader VAT fraud totalling £215m a year at HM Revenue and Customs (HMRC) has also been included in the grand total by the Home Office. But a HMRC spokeswoman told silicon.com that the figure was only “illustrative” as it is difficult to put a value on the actual ID theft element of the offence.

    They also estimate £2.7m lost via fraudulent tax credit claims, including 6,800 claims based on stolen Dept of Work and Pensions staff identities. Thus the government says that by putting all our identity info into a big database, they can prevent this sort of thing, when they can’t manage it for their own staff!

  • The Immigration and Nationality Directorate estimate £56.2m is spent in enforcement activity against individuals engaged in some form of identity theft. Again, it seems to me there’s a risk of double counting here, if some of these individuals’ activities contributed to other figures.
  • Local authorities apparently traced £28,564 to identity fraud.
  • Money laundering estimated to cost £395m by carrying this figure from the 2002 document — they have a 2002 estimate for money laundering and admit they don’t know how much money laundering goes on now and the document even states that they don’t know how much money laundering is related to identity fraud, yet the whole figure is used to contribute to the £1.72billion total!
  • £1.73m is attributed to the cost to the police of dealing with “bogus callers”, e.g. conmen trying to get into people’s homes. But for the identity card scheme to affect this, surely we’d have to demand an identity check against the database for any caller we’re unsure about?
  • £372m is attributed to losses in the telecommunications industry due to identity fraud. Again, could this not risk double counting? E.g. where a loss is incurred due to the fraudulent use of a plastic card to order telecoms services?
  • £62.8m is attributed to the cost of measures for preventing identity fraud (i.e. not identity fraud itself!) during the processing of passport applications for UK passports issued in the UK. Surely, at best this cost will simply be transferred into the cost of preventing identity fraud in processing applications for identity cards?

Other critiques of this £1.7billion figure and the earlier £1.3billion figure include:

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