Tens of thousands of council and housing association homes are being occupied by people with no entitlement to them, the Audit Commission said yesterday, and hundreds of millions of pounds are being lost to council tax and housing benefit fraud.

But the recession means that both the risk and cost of fraud are likely to rise unless councils remain deeply committed to combating it, the public spending watchdog said.

Resources for tackling fraud could be constrained, with local authorities already 'squeezed on all sides' by falling income and rising demand, even ahead of likely cuts in central government support after the next general election.

'The distress caused by the economic downturn may increase the incentive for some people to attempt to commit fraud,' the commission said in a report on protecting the public purse.

Financial Times