THE obsession with cracking down on those responsible for social security or benefit fraud hides a recently exposed fact of far greater significance, which is one of the greatest scandals of our age.

Social security fraud accounts for a loss to the taxpayer of around £2bn a year. That is roughly £80 per household. About 60 per cent of this is in illegal housing benefit, which accounts for £600m, income support and job seekers' allowance. Those responsible are perceived as the scourge of society and heavily penalised when caught. Yet the super-rich in Britain carefully stash their cash away in clever tax avoidance schemes. These cost the Treasury between £25bn and £85bn per year. In comparison, the cost of benefit fraud is small beer.

Tax avoidance is legal and increasingly popular with the rich. Some can even make sure they don't pay a penny in tax, although they are happy to benefit from our public services.

Some examples illustrate how easy it can be, with the right accountant, to cut one's tax bill. Last March, Rupert Murdoch floated his family's £3.8bn personal investment company in the tax haven of Bermuda - saving himself £522m in taxes. Bermuda was chosen because the media tycoon, who chairs News Corporation, wanted to avoid the tax collector after his family changed domicile from Australia to the United States. Just prior to the Bermuda float, Murdoch bought a 20-room, three-floor residence opposite Central Park in Manhattan for £22m. Days later he bought a house in Beijing. News Corporation, with profits of over £300m, has never paid net corporation tax to HM Treasury.

Lakshmi Mittal, the Indian-born industrial magnate, is the world's third richest man. Worth £13bn, he spent £57m on a 12-bedroom London home next to Kensington Palace and could afford to spend £31m on his daughter's wedding in Paris, which included a personal appearance from Kylie Minogue. Under UK tax laws, he remains exempt from paying a heavy tax bill by stating his primary residence as overseas. Capital gains tax on UK assets can also be also avoided by holding them in a foreign company or trust.

The business empire of retail billionaire Philip Green, owner of BhS, is mostly held in the name of his wife, Tina, who is resident in Monaco. Taveta Investments, the company used to acquire Arcadia by Green in 2002, paid out a nice £460m to its owner last year. Green, who spends much of his time in Britain, would have been landed with a £150m tax bill if he owned Taveta; as it is held by his wife, a minuscule amount of tax is due. And of course there is Mohammed Fayed who, unlike the average taxpayer, has been able to "negotiate" his tax bill with the Inland Revenue.

These examples illustrate the nature of this travesty - the rich can afford to minimise their tax bills, while the average British taxpayer finances our nation. Latest estimates are that the rich hide away $11.5 trillion worth of assets in offshore tax havens which generate $860bn annually in earnings for the owners. Such inaccessible wealth is costing governments around the world up to $255bn annually in lost tax revenue.

If collected globally, $255bn in tax revenues could fund Chancellor Gordon Brown's request for an additional $50bn a year in aid to the developing world over the next decade, in just two years. At $30-40 per head, it would cover what the World Health Organisation classifies as minimum financing needs for health services for every single person on the planet. If $255bn had been given in aid every year from 2002, by the end of 2015 global poverty would be permanently eradicated, way beyond the goals of the international targets on halving global poverty by 2015.

The UK Treasury is ideally placed to act on offshore tax avoidance since so many of the banks and tax havens that are involved in these processes have British links.

For decades governments have failed to act against the system of offshore trusts and banking secrecy, which encourages tax avoidance.

Today, the Government can take a lead in pushing for an end to all aspects of offshore secrecy that make the eradication of world poverty possible. The Tax Justice Network is calling for action to eliminate cross-border tax evasion and limit the scope for tax avoidance, so that large corporations and wealthy individuals pay tax in line with their ability to do so; and to remove the tax and secrecy incentives that encourage the outward flow of investment capital from countries most in need of economic development.

The issues of tax havens and tax competition are arguably symptomatic of a problem at the root of the international financial system, that of free market globalisation and cross border finance which the European Union is addressing in July. But this is a critical time for development, and particularly for the achievement of the Millennium Development Goals. If we are serious about reducing poverty, one of the first things we need to tackle is an international financial system run by the rich, for the rich, at the expense of the poor. It is time to rethink what the system is for - and dealing with tax havens and tax competition could be an important first step.

Aid organisations have highlighted the dilemma over money that should be used for building the infrastructure of the poorest countries being hidden in havens by corrupt politicians and multinationals who exploit tax loopholes.

Yet offshore companies are being formed at the rate of about 150,000 a year. Whereas in the 1970s there were just 25 tax havens, now there are at least 63, about half of them British protectorates or former colonies.

If only a fraction of the taxes due on the trillions of dollars held in tax havens became available for international development, it would enable most rich countries to allocate 0.7 per cent of their national income to development assistance, double what Britain, for example, currently spends, and put the Millennium Development Goals on alleviating poverty within reach of the poorest countries. But it appears the Inland Revenue doesn't even know how many people have tax haven accounts.

Meanwhile, multinational companies are increasingly looking at using offshore havens to avoid or minimise tax payments to try and maintain their profits and please their shareholders. Multinationals now see tax havens as profit centres and, given the risk of detection, the gains to be made through sophisticated techniques are irresistible.

While Western banks have been posting record profit levels in the first quarter of 2005, governments around the world are coming under increasing pressure to either increase taxes on middle and lower income earners or cut back on public services. The time for cracking down on the rich and not the poor has never been so urgent.