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8.20 pm

Mr. Paul Goggins (Wythenshawe and Sale, East): If I fail to pay a compliment to my right hon. Friend the Minister of State at this point in the debate, he and other hon. Members may believe that I am snubbing him. His most outstanding characteristic, which he has displayed over many years in the House, most recently in government, is his ability to keep his head connected to his heart. That has been immensely valuable to his constituents and to the country.

I shall make only a short contribution, but I want to convey the view that my constituents have expressed to me over the past four years. They say that they are fed up with having approximately £6 million a year stolen from them. If we accept the reasonable assessment of £4 billion of fraud annually, £6 million would constitute the share that they were paying. That is enough to give every child in my constituency an annual grant of £200, with plenty left over to support a range of other activities. The amount is therefore substantial, and my constituents feel strongly about it. Most of them play fair most of the time, and they earn their cash the hard way. They are fed up with the few who cheat.

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My hon. Friend the Member for Colne Valley (Kali Mountford) referred to an old argument, which sought to justify working on the side. In the mid-1980s, unemployment pushed 4 million at times, it was impossible in many parts of the country to find a job, benefits were inadequate and many people were forced to live below the poverty line. It could be argued that it was okay then for people to work a fiddle to feed their families and keep their heads above water.

In all honesty, I am pleased that I never had to make that choice. I would not have been at ease in choosing to work a fiddle for two reasons. First, I am old fashioned enough to believe that it is wrong to take something that does not belong to me. Secondly, I am perhaps enough of a politician to believe that if the system is wrong, we should try to change it rather than cheat it.

I have never supported the old argument that I outlined, but even if it were justifiable sometimes, it does not apply today. Unemployment is less than 1 million, and there are more job vacancies than people who are registered unemployed and claiming benefit. We have a new deal for young people, older workers, lone parents and disabled people. There is new investment in training and a range of other actions that are intended to make work pay. They include the working families tax credit, the minimum wage and the 10p starting rate of tax. The Government have made it possible to work, and they have made it pay to work. It is therefore right to deal with those who cheat the system.

In his report entitled "The Informal Economy", Lord Grabiner estimates that at any one time approximately 120,000 people work and claim benefit. In every case, somebody--a neighbour, a relative or colleague--knows about it. We must therefore change the culture. Earlier, Conservative Members commented on the advertising campaign, but together we must try to find methods of encouraging people to feel sufficiently confident to articulate what they know to be true: it is not acceptable to turn a blind eye, pretend not to know and try to justify such actions. It is equally unjustifiable to pay people to do foreigners and avoid paying VAT. That also constitutes unacceptable fraud.

Like other hon. Members, I hear a steady stream of tales from people in my constituency about those who are apparently too ill to work but happen to be fit enough to climb a ladder and paint the house. Such people are blatantly working and claiming at the same time. Lord Grabiner estimates that 40 per cent. of income support and jobseeker's allowance fraud arises from undeclared earnings. The Bill is important because it serves notice that such practices must become a thing of the past.

The Bill has another important purpose: restoring confidence in and respect for the welfare system, which most people want to support. However, they want the proceeds to be used honestly. The measure introduces new powers and there has been some consensus about exchanging information with banks and agencies in other countries, sharing information with those who administer housing benefit and council tax benefit, allowing electronic access and, of course, tackling unscrupulous employers.

Another crucial aspect of the Bill is that it will penalise those who are caught fiddling twice in three years. Clause 9 is important because it protects the dependants of those who are caught out; there is no reason for them to suffer. However, those who flout the rules should suffer.

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There is much talk inside and outside the House about the cost of fraud to the taxpayer and the savings that can be made. The Government are taking action against fraud, and I take slight exception to the remarks of the hon. Member for Havant (Mr. Willetts), who referred to the number of sanctions against benefit fraud. He said that the current average was 10,000 a year. However, he failed to include the 10,000 more people who receive cautions and penalties as an alternative to prosecution. Their fraudulent behaviour is also tackled. The figure is therefore 20,000 a year, not 10,000.

Like all social security measures, some of the provisions are complicated. I am sure that the Standing Committee will have an interesting time debating the Bill's detail. However, all hon. Members should support the Bill because it is a standard bearer for honesty, which we should all try to protect.

8.27 pm

Mr. Peter Lilley (Hitchin and Harpenden): I join other speakers in paying tribute to the Minister of State. He is one of the rare Members who leave behind them an eponymous provision; in this case, the Rooker- Wise-Lawson amendment, for which the right hon. Gentleman was famous. He has made his mark through a combination of pugnacity and conviction. He has been willing to stand up to his party when he believed that it was wrong, and he was one of the few in the Labour party who had the wisdom to perceive the virtue of selling council houses. However, he was unable to persuade his party of it. That left us a clear run, and I am therefore grateful to him for failing to convince his party, much as I am impressed by his foresight.

The Minister of State is also unusual because the hon. Member for Northavon (Mr. Webb) used to say that he wanted to resemble him when he grew up. When he grows up, he may well resemble the right hon. Gentleman. I am not being rude to the hon. Member for Northavon, who has the great advantage of looking eternally young.

I also pay tribute to the right hon. Member for Birkenhead (Mr. Field), who is no longer in the Chamber. He always plays a distinguished part in debates on this subject, and had the courage to say things about the importance of tackling fraud and abuse that were unpopular with his party, and when it was not fashionable to do so.

The hon. Member for Wythenshawe and Sale, East (Mr. Goggins) brought to this debate, as he brings to all debates, a combination of compassion and conviction. He has sufficient integrity to recognise that it is important to distinguish between those who deserve benefits and should receive them and those who are fraudulently abusing the system. Although the hon. Gentleman and I approach the problem with different practical remedies, we both want the money to go to the people who need it and have a right to it. We are conscious that every penny taken in fraud means a penny less to help those in need.

I am afraid that I cannot extend my general paean of praise to the Secretary of State for Social Security, whose speech I found, frankly, disappointing. It might have passed muster as a contribution from a first-time Labour candidate in a hopeless seat, reading out a misleading brief from Walworth road, but it did not really rise much above that standard.

I want to put the Bill in context. It is a small contribution to the important subject of tackling fraud--a major aspect of welfare reform that is centre stage in most

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developed countries, and rightly so. Social security is the biggest thing that modern Governments provide. In this country, spending on social security has, over 50 years, grown twice as fast, year in, year out, as national income. It has been taking a rising share of our national income and has been the main factor in driving up the burden of taxes and charges on those in employment.

The previous Government introduced a series of reforms that, for the first time, put social security spending as a share of national income on a downward path over the medium and longer term, giving scope to reduce taxes and increase expenditure on other matters. I fear that much of the momentum of those reforms has been lost under this Government. They have maintained some semblance of a downward movement in the share of national income going to social security only by redefining a lot of things previously counted as social security as negative taxation, in the shape of credits, or by taking them off the budget, as in the back to work programmes.

If we are to tackle the problem of growth in the social security budget, we must understand the source of the growth. It is not primarily because of increased generosity in the level of benefits over the years. Instead, it is due, very largely, to the increasing number of people claiming benefit and staying on benefit for an increasingly long time.

There are a variety of reasons why more people are claiming benefits, and claiming them for longer. Many of them are legitimate; some are the direct and intended result of Government policy. We are proud, as a party, to have extended the eligibility to disability benefits to a category of people previously not entitled to them. That inevitably brings them into the welfare system. I have always thought that if there is one group of people whom we should be proud and pleased to help through the social security system it is those who are, through disability, unable to share in the general prosperity of the marketplace.

We must recognise that one reason for the growing number of claimants is a growing culture of fraud and abuse. It has happened gradually, over the decades, almost without perception. It certainly was not the deliberate intention of any Government.

It seemed to me, having reached that stage in the analysis, that the previous Government could tackle the problem of fraud and abuse only by measuring it effectively. The Secretary of State repeatedly said, in a tone of disdain, that we did not even start to measure the level of fraud until 1995. That is like saying that the inventor of the jet engine in 1945 did not use jets before he had invented them. No one else had invented them either. It is like saying that the inventor of the wheel had not used the wheel before he had invented it.

I imagine that, like me, all my predecessors asked their officials how much fraud there was in the system and were told, "How can we possibly tell you that?" Fraud is a victimless crime--at least, it is a crime without an individual victim, so it is not reported. It is a crime that, by its very nature, is concealed. How can anyone know how much fraud is in the system? No Government in this or any other country, I was told, have ever been able to measure the level of fraud.

Indirect estimates have been made of the level of fraud. Similar estimates of the size of the black economy, for example, take into account the number of bank notes in

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circulation. No direct measure of fraud had ever been made, which I found extremely unsatisfactory. It just so happened that in one of my previous careers--when, as my mother put it, I had a proper job--I was involved in market research, so I was familiar with the idea of surveys. It also happened--again by chance--that I found a reference in a Dutch journal on social affairs to a blanket attack that had been made on all benefit claimants in one part of a small Dutch town. Everyone had simply been hauled in to be assessed for their entitlement to benefit because it was thought that fraud was so rife in the area. I cannot remember the results, but I thought that if we could take a statistically representative sample of claimants and investigate their conditions in great detail, we could establish the level of fraud.

Initially, there was great resistance to the idea, including from the then Labour Opposition, who thought it would involve summoning innocent people--sending in a friendly local benefit fraud investigator to treat them as though they were potential fraudsters to establish whether they were.

When we introduced the system, we were worried that it would produce a negative and hostile reaction. I am happy to say that it did not. When we set up the panels of 1,000 or more claimants on each benefit, established all the details that we held on them internally and then visited them, often unannounced, they were only too happy to help in the vast majority of cases. The innocent people were happy to help. If they inquired why they were being singled out and what was going on, they were told that it was part of a measure to establish the level of fraud and abuse. They were keen to help because they recognised that if other people were abusing the system, it was their money that was being taken--it was society's money that was being misused. There was virtually no resistance to the area benefit reviews, as they became known when we set them up.

The reviews were extremely helpful and enabled us to establish the aggregate amount of fraud by benefit, by type of fraud and by characteristics of the claimant. Above all, they gave us a benchmark of the level of fraud for each. Once we had set up the system, we could measure the success or failure of Government measures to reduce the growth of fraud and, we hope, to reverse it and bring about a decline in fraud.

This Government have by and large continued those reviews. Apparently, they stopped them for family credit on the assumption that there would be no fraud in the working families tax credit--a ludicrous assumption, since the equivalent tax credit in Canada abandoned because it was found to be so prone to fraud. The Canadians have reverted to the equivalent of family credit. In other areas, the Government have continued regular assessments of the level of fraud--they could scarcely do otherwise. The results have not been flattering.

In his opening remarks, the Secretary of State--hoping that he could bamboozle us--claimed that the level of fraud had gone down. In fact, the figures show that in the past two benefit reviews the level of confirmed fraud in income support and jobseeker's allowance has risen. He was able to claim a fall only by including errors. He is the first person who has pleaded errors to excuse fraud, or the failure to reduce it.

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Undeterred, the right hon. Gentleman then claimed--he is nothing if not brazen--that the fall in fraud and errors was significant. However, the House of Commons Library has produced a report in which it explicitly says that the fall is not significant. The Public Accounts Committee considered the matter and noted that even if the rate is--as the Government claim--edging down, it is not doing so to a significant extent.

The Secretary of State was mistaken on that front, too. It is sad that he is not man enough to admit his error and acknowledge to the House that benefits surveys confirm that fraud has risen. Any fall in fraud and errors combined is not statistically significant. Indeed, although the estimated total of fraud and error for income support and jobseeker's allowance is £993 million, the Government say that the figure is really somewhere between £892 million and £1.096 billion. That is a wide range, so to suggest that a fall of about 6 per cent. is statistically significant is not to use that term as it is normally understood.

If the Government had failed only in that respect, it would be serious enough, they have also missed their targets for identifying and detecting fraud during most of their years in office--indeed, in every year. I think they may have met their recent targets--probably by making them less stringent. They have also abolished, or abandoned, several measures that we introduced to raise the profile and change the culture of abuse.

The Government abandoned the spotlight on fraud campaign, whereby all the agencies in an area combined, in a highly publicised way, to identify and attack fraud to bring home to everyone that we were serious about tackling it. That has gone by the board.

The Secretary of State has downplayed the beat-a-cheat hotline on which people could report evidence of fraud to the Department. As my hon. Friend the Member for Havant (Mr. Willetts) pointed out, the DSS no longer even includes the hotline number on the ill-designed advertisements that supposedly highlight its willingness to tackle fraud. Indeed, it was not until I tabled questions on the rate of response to the hotline that the Government were prodded into reviving some publicity for it, to try to increase the rate.

Overall, the Government show clearly that they are soft on fraud, which is why fraud is rising again. However, because they are above all a Government of spin doctors, they know that they must convince the electorate that they are serious about these measures. That is why they have introduced the Bill just ahead of the election. Some symbolism is required to demonstrate their concern to stop social security fraud. That is also why they are spending a great deal of taxpayers' money on a rather ineffectual--even by their own measures--advertising campaign; it is being mounted for electoral rather than operational purposes. Indeed, I am surprised that it got past the Cabinet Secretary--the head of the civil service--who polices such matters and who would, I am sure, have had words with us if we had proposed heavy expenditure on such dubious advertising just before an election. However, perhaps he knows that an election will not be called, so that is all right.

By contrast, when we were in power, we systematically set about making changes to try to get on top of the problem of fraud. I appointed a senior official who--for the first time--had sole and exclusive responsibility for

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tackling fraud in the Benefits Agency. A specific Minister in the Department also had such responsibility. I set up, by law, an inspectorate with powers to advise local authorities and Departments on best practice in tackling fraud. We laid out a coherent strategy--from one end of the benefit pipeline to the other--to secure the process of delivering benefit against fraud.

We were conscious that it would take a long time to redesign the whole process to make it more secure, but we began that programme. We raised the profile by introducing programmes such as beat-a-cheat and the spotlight programme, by setting targets and, of course, by planning the introduction of the benefit card, to which I shall return.

I want to focus now on the measures in the Bill. In some ways it follows on from the Social Security Administration (Fraud) Act 1997, which I introduced, but there is a difference between that measure and this. My Act covered information that was already in the hands of different parts of the Government. It removed unintended barriers to the use of that information and to cross-checking it between, for example, the tax authorities and benefit authorities. It did not require individuals or companies to make available any additional information over and above that which they were already required to provide to different Government Departments.

The 1997 Act placed no extra burden on business and did not involve any extra intrusions into people's privacy. I did not go that far because I was apprehensive about going any further. I did not rule it out, but I wanted to see first whether the measures that I had introduced were effective, and whether the gains from them were of a magnitude and nature to suggest that we might extend the powers to allow us to obtain information from the private sector as well. I did not go that far initially because I am always reluctant, unless it cannot possibly be avoided, to impose extra burdens on business and individuals or to intrude further into the privacy of individuals and give the state more knowledge about them than it already has.

I shall ask the Secretary of State, who I am glad to see in his place, some questions about his Bill. In calculating the burden that the Bill will place on the private sector, he estimates that the costs could be up to £7 million. That is in some ways quite a modest sum, but I want to know a little more about how the figure was calculated. I understand from the hon. Member for Northavon that it assumed that 800,000 inquiries would be made, and the report says that savings totalling about £180 million will arise from it. That assumes that each inquiry costs about £9 to make and yields £225 of benefit savings. I am open to rectification if my arithmetic is wrong--without a calculator, arithmetic is not my strongest suit. I am okay with algebra, but I sometimes make mistakes in arithmetic.

Is the Secretary of State saying that 800,000 investigations will be made, each of which will find, on average, £225 of fraud? If so, the measure is expected to be extremely fruitful and I should like to know the basis for that expectation and calculation. Is it based at all on any analysis of how the 1997 Act has worked?

I should like to know whether any attempt was made to establish how effective the 1997 Act has been. It seemed sensible, and the whole House agreed that it was reasonable to enable the authorities to cross-check, for example, whether people were declaring income for the

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purposes of income tax but telling the Benefits Agency that they had no income, or whether they were declaring VAT while they were claiming that they were unemployed rather than, in some cases, actually in business and making a VAT claim. Now that we have had three or four years' experience, we should really know how effective the Act has been. Have the inquiries made under it led to savings of the suggested magnitude? I hope that the Government have considered that matter, rather than simply rushing off, plucking a number out of thin air and saying that it represents the savings that will be made under the Bill.

Under the Bill, will it be possible to carry out trawls? Will it be possible to cross-check a category of claimants' information against the information from one of the external sources to which the Government gain access, or will that happen case by case, individual by individual? Do the Government think that, each year, there will be inquiries about 800,000 people, about whom they can make individual inquiries to the banks or credit card agencies, and so on, to establish the reality?

The main use that we expected to make of the 1997 Act was precisely in data matching and in cross-checking categories of claimants who produce information on their income tax and VAT returns and on their social security benefit claims, and in finding out how the figures reconciled. It seems that the Government have said in the other place that they would be very limited in their use of any power to trawl, but I may have misinterpreted what has been said, and I should be happy to give way now. If no Minister wants to intervene, I hope that when they have found out what they promised to do about that, they will inform the House in the winding-up speech.

Without trawls--by which I mean the cross-matching of data--the measures that the Government propose will probably be of only limited use. I very much doubt whether they will achieve the savings that the Government claim in the documents associated with the Bill. The Government certainly seem far more willing to intrude into the private financial affairs of individuals and to make use of such information in the public sector domain than they ever were about the information that they possessed on the hon. Member for Coventry, North-West (Mr. Robinson), when information about his financial affairs fell into the hands of the Secretary of State for Trade and Industry. There seems to be a disparity between the way in which they treat their own kind and the way in which they intend to treat benefit claimants, the vast majority of whom are as innocent as the day is long and are entitled to the benefits that they receive, but who, none the less, may be subject to investigation under the Bill.

How can the Bill be reconciled with the Human Rights Act 1998? I am not a great supporter of that Act. This place should establish the balance between different rights. All rights have to be balanced against one another, but it should not be left to judges to interpret, largely subjectively, a document that is, inevitably, somewhat arbitrary, and the implications of which may not have been foreseen.

Liberty, which has lobbied us, refers to a Swedish case that casts doubt on whether the Bill will be fully

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compatible with the Human Rights Act. It states that in the judgment in the case of MS v. Sweden, made in August 1997,

That seems rather similar to what is proposed under the Bill.

I understand that the Court may have subsequently concluded that it was permissible to invade people's human rights in that way because of the criminal and civil sanctions incurred if any of the safeguards on the use of that data were breached. I am not certain that that would necessarily be the case in any parallel use of the powers in the Bill; nor can we be certain that the courts will not interpret such matters more onerously as time goes by. The very nature of the human rights legislation means that it is left to the judges to develop and create their own law according to the philosophies that pervade the courts at any moment. Therefore, we might find that the Bill falls foul of the Human Rights Act. If it does, we can respond as we think fit and say that the Government have been hoist by their own petard.

Another element in the Bill deserves comment. The "two strikes and you're out" proposal seems to be a severe punishment for someone guilty of a modest element of abuse of the system. He might be entitled to social security benefit, but he might have failed to report the very small sums that he has earned on the side. If he loses his benefit, he will suffer greatly. However, the more serious fraudster--[Interruption.] This is not a debating point; I am talking about people who might face great hardship because the only resource that they can rely on is hardship benefit.

If a serious, professional fraudster, who robs the system of large sums of money by claiming a benefit to which he is not entitled even though he has a job and income of his own, loses his benefit, he will ask, "So what?" He will not lose substantially; it is not a serious punishment for him. The punishment sounds tough and draconian, but it falls harshly only on the least serious offenders.

Will the Minister tell me whether my interpretation is correct? The punishment will not have a serious impact on the professional, multiple claimant fraudster, but it will bear heavily on the small guy, who twice in three years, fails to mention that he did a "bob-a-job" for someone around the corner. I may be wrong because the sanction may apply only to those with a criminal conviction and who have been taken to court for such an offence. In that case, the provision will be limited, because the vast majority of people who are guilty of social security fraud are not taken to court.

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