Thousands of council tenants who make profits by illegally sub-letting their homes will face tough new measures to be announced by ministers this week.
John Healey, the Housing Minister, plans to introduce penalties for cheats and give councils greater powers to track them down, The Times has learnt.
Sub-letting fraud is a civil offence punishable by a modest fine and the loss of tenancy. But Mr Healey intends to make it a criminal offence so that the courts can recover the profits made. Those convicted could also face larger fines and prison sentences.
Some tenancy cheats are making up to £20,000 a year by moving out of their council home and renting it to friends, family or private tenants. In a minority of cases council tenants have been found sub-letting two or three properties after moving between different authorities.
Mr Healey estimates that up to 200,000 council tenants nationwide are illegally sub-letting their homes with many fraudulently claiming housing benefit at the same time, costing taxpayers tens of millions of pounds.
The cheats could be charging market rates up to three times council rents. In parts of Westminster, the rent for a three-bedroom council house would be £114 a week but the market rent for the same or similar property would be as much as £530 a week, netting the sub-letter as much as £21,600 a year.
In other cases tenants move to a new council home and keep their first to sub-let. Officials said that those in properties illegally rented often did not know about the fraud. The cases analysed showed that 80 per cent did not qualify for council accommodation.
In December Mr Healey announced a £500 reward for reporting a tenancy cheat. Since then councils and housing associations have recovered about 350 homes, which have been reallocated to those on housing waiting lists.
Mr Healey said that uncovering illegal sub-letting could free up at least 20,000 council homes if 10 per cent of unlawful tenants were removed.
This week the minister will also disclose that 27,000 leads to potential cheats have been uncovered by the Audit Commission, which matched tenancy records against other data sets, including housing benefit, UK Border Agency records and the electoral roll.
Tenancy fraud investigators will also be given extra powers to access utility and social services records to provide evidence where fraud is suspected.
"By unlawfully sub-letting these properties for a profit they deprive families of the homes they need," Mr Healey told The Times. "I am looking to make this a criminal offence, with tough penalties for the worst offenders to deter those who are thinking of making a fast buck from council housing."
Some councils working alongside housing associations have already set up anti-fraud initiatives. Tower Hamlets, in London, has recruited three specialist investigators and recovered 13 properties with dozens more under investigation. Greenwich Council has recovered ten properties since December and has 34 ongoing investigations into possible cheats.
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