Select Committee on Social Security Second Report


The Social Security Committee has agreed to the following Report:—


1. Under the Government's proposals in the Tax Credits Bill, Family Credit will be replaced by the Working Families Tax Credit from October 1999, with payment through the wage packet coming in from April 2000. The Tax Credits Bill was given a Second Reading on Tuesday 26 January 1999. On that very day the Secretary of State for Social Security sent to the Social Security Select Committee the BA Security Research Group's report, dated January 1998, of a pilot study for a Benefits Review of Family Credit.[1] In his covering letter, the Secretary of State wrote:

    "When we met at the end of October I said that I would let you have a copy of the report on the pilot study of Family Credit. I am sorry that it has taken some time to produce.

    The report has not been, and was never intended to be, released into the public domain. It is passed on with the caveat that the figures it contains are not statistically valid and that we do not treat them as review findings."

2. The pilot study's existence had been disclosed in a written answer of June 1998,[2] and we had originally asked informally to see a copy when we visited the Family Credit help-line at Blackpool on 20 October 1998.[3] In our First Report, we recorded that although the Secretary of State had agreed on 29 October to give us a copy of the pilot study report, it had not been received by the time we came to consider our Report on 25 November.[4] We record with disappointment that it took officials another two months to get the pilot study to the Secretary of State for him to send to the Chairman of the Committee.

3. We have taken the view that the report of the pilot study should now be placed in the public domain and it is accordingly appended to this Report. Our concern is that Parliament should be provided with the available data that form the background to its decisions. It is an important objective of this and other select committees to ensure better informed debate through greater public accountability, openness and transparency.

4. As the Secretary of State pointed out, and as is mentioned at least half a dozen times in the report of the pilot study,[5] the sample selected was insufficient to draw statistically valid conclusions. The DSS Analytical Services Division had advised that a sample of 300 cases would be sufficient to test the methodology for a main study.[6] The sample was made up of 20 cases selected at random in 1997 from each of 15 centres from Dunfermline to Penzance, which were closely examined by trained investigators. Several of the cases had more than one 'outcome', resulting in 326 'outcomes' from the 298 cases actually examined. The raw sample results showed that there were only 141 'outcomes' in which no frauds or errors were found as a result of the visits, interviews and adjudication reviews.[7]

5. Confirmed fraud was found in 32 'outcomes' and low or high suspicion of fraud in another 91 'outcomes'.[8] It can be seen therefore that in a careful pilot study conducted of this very small sample, 123 out of 326 'outcomes' involved possible or actual fraud. The results from the pilot study are based on too small a sample to be extrapolated, and so they could equally be an under-estimate as an over-estimate of the amount of fraud in the full Family Credit caseload (more than 750,000 cases amounting to expenditure of more than ,2.5 billion in the current year).[9] The kinds of problems raised by the examination of cases in the sample were:

    failing to declare capital above limits allowed

    child having left full time education

    incorrect declaration of own earnings

    incorrect declaration of partner's earnings

    living together as husband and wife (LTAHAW) but claiming as a lone parent

    receiving other income.[10]

We remain concerned that these indicative findings did not lead on to a full Review, which could have analysed the probable extent of each of these types of fraud.[11]

6. In our First Report of 1998B99,[12] we noted that serious concerns had been raised about the increased potential for fraud in the Working Families Tax Credit as compared to Family Credit,[13] and we commented:

    "It is therefore surprising that, in the words of the Chief Executive of the Benefits Agency, "work on the main Benefit Review of FC has been suspended for the present following the decision to move to a Working Families Tax Credit next year". We regret that work on the main Benefit Review of Family Credit was dropped by the Benefits Agency following the decision to transfer the benefit to the Inland Revenue, when the lessons to be learned from such a review would have been of particular importance in assisting the Inland Revenue to minimise the scope for fraud in the design of the new tax credit tax system. We recommend that the Inland Revenue should take over and complete the investigation started by the Benefits Agency."[14]

7. We also recommended that the Government should "give consideration to extending payment of Income Support or Jobseeker's Allowance to people who have claimed Working Families Tax Credit or Disabled Person's Tax Credit for up to 14 days after commencement of employment in order that claims for in-work financial support can be properly verified before payment is made."[15]

8. In his response to our Report the Chancellor of the Exchequer assured us that "these approaches will be borne in mind as the Revenue develops its strategy for improving compliance. This is already being informed — and very helpfully so — by the experience of the Family Credit Unit and the Benefit Fraud Inspectorate."[16]

9. In January 1998, the Benefits Agency initiated a Securing Family Credit project to address some of what the Benefits Agency Chief Executive deemed "weaknesses highlighted by the pilot review."[17] We understand that strands of the Securing Family Credit project include closer working with the Inland Revenue, extra verification procedures and sifting claims against known risk profiles. We trust that the Benefits Agency's Family Credit Unit, the Benefit Fraud Inspectorate and Inland Revenue are co-operating closely on how to "prevent error and fraud through benefit design"[18] in relation to the new Tax Credits.

10. We accept the Secretary of State's judgement that the figures contained in the pilot study are not statistically valid. However, it is a matter for regret that the Benefits Agency did not proceed from the pilot study to a full review of Family Credit based on a sample large enough to give robust results. That would have provided a helpful baseline by which Parliament and the public would be able to judge the results of the Securing Family Credit project and the design changes to be brought about by the Tax Credits Bill.

11. The questions that remain for the House, and perhaps more particularly the Standing Committee on the Tax Credits Bill, are:

  • what is the true extent of fraud in Family Credit?

  • how effective is the Securing Family Credit strategy in detecting and deterring benefit cheats?

  • what improvements will be incorporated in the design and administration of the Working Families Tax Credit to minimise the risk of losses to fraud in the future?

1  The Family Credit pilot study was approved in principle by Ministers in the previous government in January 1997. Back
2  HC Deb 25 June 1998 vol 314 col. 623-4w. Back
3  HC 29, Appendix 15. Back
4  HC 29, para 70. Back
5  Pilot study paras 1.7, 1.9, 2.1, 16.1, notes to 16.15, 16.16, 16.17. Back
6  Pilot study, para 9.1 According to para 9.2 of the pilot study, the reason for having the self-employed over-represented in the sample was to obtain reliable indications of difficulties dealing with their claims. Back
7  Pilot study, para 16.6 and Table 1A. Back
8  ibid. Back
9  Family Credit Quarterly Statistics and DSS Expenditure Plans 1998-99, Cm 3913, April 1998. Back
10  Pilot study, Table 3. Back
11  A list of Benefit Reviews appears at page 56 of Beating Fraud is Everyone's Business securing the future, Cm 4012. Reports have been published of the pilot study on Retirement Pension and full studies of Unemployment Benefit, Income Support, income-based Jobseeker's Allowance, Housing Benefit, Invalid Care Allowance, Child Benefit and Disability Living Allowance. Back
12  First Report from the Social Security Committee, Session 1998-99, Tax and Benefits: Implementation of Tax Credits, HC 29. Back
13  See for example, Rt Hon Frank Field MP, The Great Divide: the Future of Welfare Reform, lecture given to Social Market Foundation on 6 August 1998, published in Reflections on Welfare Reform, Social Market Foundation, 1998. Back
14  HC 29 para 71. Back
15  HC29 para 74. Back
16  Second Special Report from the Social Security Committee, Session 1998-99, Tax and Benefits: Implementation of Tax Credits—Government Response to the First Report from the Social Security Committee of Session 1998-99, HC 176, page v. Back
17  HC Deb 25 June 1998 vol 314 col. 623-4w. Back
18  Beating Fraud is Everyone's Business securing the future, Cm 4012, July 1998, Chapter 5. Back

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Prepared 4 February 1999