The Post Office is failing to intercept about 50% of housing benefit payments redirected to another address - even where local authorities were making every effort to crack down on fraud by using 'return to sender' envelopes, social security minister Baroness Hollis told peers.
She said 272 local authorities had joined the voluntary scheme and most of the rest should do so soon, as part of the government's strategies to combat fraud. It was estimated housing benefit fraud was£840m a year, although that could be 30% out in either direction.
Baroness Hollis said one of the reasons many local authorities had been slow to take up the 'do not redirect' scheme was because it meant they had to separate their housing benefit mail from the rest of its correspondence.
'However, even where local authorities are using their best efforts to ensure that housing benefit giros are returned to them, all the evidence suggests that it is likely that the Post Office fails to intercept perhaps 50% of such correspondence,' she added.
Baroness Hollis said councils printed their own envelopes and there was no standard envelope in use across the system. Local authorities took responsibility because they had different forms and they might wish to include different information, such as council tax benefit.
The minister told Lord Rotherwick she would ask her colleagues to raise his suggestion that the government should print a standard envelope at the next meeting with the local authority associations.
'However, once all local authorities are in the scheme, we have no reason to believe that this should not effectively help us reduce fraud by some£5 million a year,' she added.