The Nature, Extent and Economic Impact of ... - Cardiff University

The Nature, Extent and Economic Impact of Fraud in the UK
yield investment schemes or other scams. Although the demographics of individual victims add
something to data available from APACS and CIFAS, the most recent review of crime statistics asserts
(Walker et al., 2006: 161) that “fraud is mainly a crime against commercial organisations and therefore
not thoroughly investigated by the BCS.” 42 (Though the Office of Fair Trading, 2006, subsequently
estimated that 6.5% of people fall victim to scams annually, suggesting that this view may require
revision. A study of EU countries in the 2004 International Crime Victimisation Survey indicated that the
percentage of people experiencing consumer fraud was 7.7 per cent in England and Wales, 7.8 per cent
in Northern Ireland and 6.4 per cent in Scotland -van Dijk et al., 2007; see also van Kesteren et al.,
2001).
Indeed, neither the BCS nor the OCJS review anything approaching a broad spectrum of fraud
experiences, and the Bank of England data do not distinguish between losses of counterfeit money to
private individuals and those to banks and retail businesses. 43 Other uncosted areas of socially significant
fraud against private individuals include charity frauds: the latter also has collateral damage or externalities,
insofar as if such frauds are exposed and/or believed to be likely, people may stop future donations. 44
Whether the consequences fall within the UK depends on how this is constructed: poverty reduction in
the developing world is an objective of the Department for International Development (DFID), so this
might be an argument for relevance.
Annex 4 lists the sources that provide information about fraud against individuals, and provides a
summary of the methodological approaches they adopted.
Headline findings
1. OFT Scams Survey (OFT, 2006): Some 6.5% of the population fell victim to scams in the previous
year. In repeat victimisation terms, victims had a 30 per cent chance of falling for another scam in the
following year. The average loss was £850 per scam (per person losses are affected by repeat
victimisation), though this average was distorted by some very expensive losses, and half the losses
were £14 or less. Average losses varied from £5,660 for high risk investment, £5,000 for African
advance fee and £3,030 for holiday club scams to less than a hundred pounds per scam for premium
rate telephone and miracle health scams. On the basis used by the OFT of multiplying victimisation
levels by average cost, the total cost of scams was £3.5 billion in 2005 (with a 95% confidence
interval, range from £2.75 to 4.26 billion): this report has taken the low end figure of £2.75 billion.
42
The BCS is not particularly helpful to this research exercise on fraud costs and will not be reviewed in detail here. One
might count worry about crime as a cost of crime, but though the 49 per cent of cardholders who in 2003-04 worried
about fraud may be of concern to government as well as to the private sector, they are not a cost to economic welfare
unless they need psychiatric or medical care. (Though if economic welfare were measured by the sense of well-being, this
would constitute economic harm – see Layard, 2006.) Recent surveys (e.g. for GetSafeOnline, 2006) have shown
increased concern about identity fraud, but the questions do not differentiate whether this leads some to total or just
occasional avoidance of e-commerce. Three per cent of the BCS respondents had actually been victims of card fraud during
2003-4, and though the combined victimisation/ offending report (Wilson et al., 2006) does not state whether their losses
were gross or net, they were almost certainly gross: however there would have been (uncounted) telephone, letter and
opportunity costs in addition. Unavailable data on the future behaviour of cardholders might throw some light on the
externalities with respect to financial services industry, suppliers of goods and services, and cardholders themselves.
(Expenditure on shredders and on anti-virus software would be part of the costs of responding to future fraud: but these
costs are not available in the literature.)
43
Informal judgment suggests that around three quarters of counterfeit notes recovered (and not destroyed by recipients in
the knowledge that they are worthless) are losses to banks and their cash-handling intermediaries. The remainder will be to
private individuals and retailers, most likely the latter.
44
Though there are no hard data, interviewees from charities in related areas have noted falls in donations following
revelations about fraudulent operators (e.g. BBC radio 4 programme ‘You and Yours’ 28 September 2006 on alleged fraud
involving a Scottish breast cancer charity operator).
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