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My instinct is to be slightly nervous of the severity of the proposal. I do not understand the legal system enough to understand the precise implications of new clause 6(2)(b) and its reference to conviction on indictment. However,

strikes me as an extraordinarily long period.

We have a scale of relative importance of different offences. To draw an analogy with recent news items, it was suggested that those who take mobile phones off people in the street should face four years, or something like that, in the slammer; at that point, someone came on the radio and said, "But something much more serious was done to me, and the person who did it only got 18 months." No one disagrees that the act is wrong; the question is where it fits into the scale of seriousness of offences and penalties.

Mr. Clappison: I am listening with great interest to the important points that the hon. Gentleman is making. The purpose of setting a maximum sentence is to cater for the worst type of offences. The new clause is in effect saying that offences with such aggravating features are the more serious type of offences.

It might interest the hon. Gentleman to know the current state of affairs regarding those who have already been prosecuted for working families tax credit fraud—an offence that currently attracts possible imprisonment. Only seven people have been sent to prison for such offences, and a written answer that I received suggests that some of those people may also have been involved in offences of another type.

Mr. Webb: I am grateful for that intervention, and I understand that we see only the maximum in the new clause. However, I cannot help reflecting on a dreadful constituency case in which a teenager was murdered and the murderer was given 12 years. I find it hard to understand the relative figures when it is suggested that a fraudster—even a serious tax credit fraudster—should be given 14 years. That is not to say that the offences are not serious, or that the sentences are not serious enough. I just wonder about their relative position in the scale of penalties for offences.

I look forward to hearing the Minister's comments. We all agree that tax credit fraud should be cracked down on, but, in passing, I observe that the proposals about not putting the money through the pay packet would have worked well in the context of the current group of amendments. The ability to pass money through the books of a firm is an open invitation to fraud if the firm wants to collude with its employees. Direct payments to the individual are far less prone to organised fraud of that sort.

I welcome the fact that the Conservative amendments turn the focus to fraud. Regular reports to Parliament would be welcome, but I have some reservations about the extent of the penalties proposed in new clause 6.

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Mr. David Ruffley (Bury St. Edmunds): I support new clause 6. It is necessary because the regime to be introduced by the Bill will make fraud easier than it is under the system to be replaced.

In 1999, the Select Committee on Social Security said that there were

That Committee suggested, and I agree, that a straightforward benefits system was less susceptible to fraud than a tax credit system. I venture to suggest that one of the reasons why the questions asked by my hon. Friend the Member for Hertsmere (Mr. Clappison) about the level of fraud under working families tax credit have not been answered is that those answers would reveal a higher incidence of fraud under the tax credit system than under the family credit system that it replaced.

Why should that be embarrassing to the Government? The answer is not far to seek: the working families tax credit system and the tax credit system to follow from the Bill was an idea of the Chancellor of the Exchequer and Her Majesty's Treasury. The system is manifestly not only more complicated, but more susceptible to fraud.

The questions that I have posed about increased susceptibility to fraud have been borne out by international experience across the Atlantic. The Canadian working income supplement, a tax credit system not unlike the one that the Bill seeks to introduce, has been a disaster. It has resulted in increased fraud and has led the Canadian authorities to the inescapable conclusion that they should scrap it and return to a benefit-based system. Equally, in the United States, the Internal Revenue Service is beside itself at the amount of fraud perpetrated under the earned income tax credit system, which is the key model for the Treasury's working tax credit and, before that, the working families tax credit. The figures speak for themselves. In early 1997, the taxpayers of America lost more than $4.4 billion as a result of fraud in the earned income tax credit system, mainly because of poor certification—in fact, it is virtually non-existent—of hours worked in employment. The Economist observed:

New clause 6 has a clear intention; it will introduce serious penalties for aggravated fraud. The system that the Bill will introduce provides more scope for the fraudster, chiefly because of the annual basis of assessment, which contrasts with the much shorter periods required for income support and the six-month assessment period for working families tax credit. If a claim is made before the beginning of a tax year for the following tax year, the claimant may have to calculate in his annual assessment what he thinks his income will be for the next 12 months. If there is a change in his circumstances, that will not be assessed automatically before the 12-month period is up.

The Institute for Fiscal Studies said that that is self-evidently loopy, as there is no comparable system in any other benefit regime; it does not think that such a period of assessment has previously been introduced without serious reassessment of the claimant's benefit within 12 months. From the Bill, it is clear that the Government seek to get round that by arguing that if there is a change in someone's circumstances, their case could be reopened. If someone gets a lot more money during the year, there will be a reassessment of the amount of

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benefit that they receive. However, within certain thresholds, the Government will choose to ignore any change in circumstances. We are told that there will be a threshold above which certain amounts of increased income will be ignored by the authorities, thus leading demonstrably to overpayment. That is what the disregard in the threshold means; someone will get more benefit under the new system than they otherwise would.

The Institute for Fiscal Studies thinks that that is a bit peculiar, but it becomes even more peculiar when we realise that we have not been told what the threshold is. Extraordinarily, all that we are told is that thresholds will be set by regulation; we do not know how much increased income will be disregarded or, in other words, constitute a benefit overpayment. In those circumstances, there is considerable potential for fraud. It may be argued that there will be powers to seek repayment of overpaid benefit at the end of the tax year, but that overpayment has to be detected. I know that my hon. Friends did sturdy work in Committee, questioning the ability of the authorities to get repayments made when overpayments have occurred in year.

At the beginning of a tax year, when information is given to the Inland Revenue about future income for the next 12 months, there is an in-built incentive to underestimate the amount forecast by the taxpayer. An answer to that conundrum has not been forthcoming from the Government and still causes great concern to the Institute for Fiscal Studies.

What about the ability of the Inland Revenue—not the Department for Work and Pensions any more—to police the new regime that the Bill seeks to introduce? I reiterate the powerful points made by my hon. Friend the Member for Hertsmere, because I fear that Ministers on the Treasury Bench may try to wriggle out of the question. In the letter that the Paymaster General placed in the Library, she stated:

What is the number of cases that have given rise to criminal proceedings as a result of that study?

That is a perfectly simple question. I hope that we will get an answer. During the speech of my hon. Friend the Member for Hertsmere, the Parliamentary Private Secretary scuttled no less than twice to the Box to get bits of paper. Much agitation was evident. I sincerely hope that the Financial Secretary has done his homework and that he will provide an answer to a question that was raised in Standing Committee—an answer that has been asked for twice, including my questioning now, in the Chamber today. It should not be terribly difficult, and it should be something that we have a right to know.

The Financial Secretary may smirk away. Someone once said of his general performance:

which, I think, is a variation on a quote from the Webbs. The right hon. Gentleman should not smirk. He may congratulate me on what he considers to be an amusing joke. I find it not so much amusing as worrying that he can laugh about a taxpayer issue. The right hon. Member for Birkenhead (Mr. Field) said that it is the taxpayer who

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is losing out as a result of fraud, and I suggest to the Financial Secretary that the taxpayer deserves some answers today.

The Government have the technology to calculate the number of cases that have been caught and the number of criminal proceedings that have been brought. We know that the Government can have access to that information because in her letter on 11 April 2001, which is deposited in the House of Commons Library, the Paymaster General tells us that between April 2000 and February 2001 approximately 29,000 working families tax credit and disabled person's tax credit investigations were completed, and about 300 penalties were imposed. If she can find the information for that period, why on earth can she not find it for the 12-month period about which she promised to tell us? Those facts need to be put on the record by Ministers today.

I try not to think too ill of my fellow man, in the inclusive Conservative party that my right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo) has done so much to influence over the past few weeks. I do not want to resort to cheap rhetoric about benefit frauds, cheats and scroungers. We are seeking as a party to condemn a little less and understand a little more. So I want to be very gentle in making my point: I think that it is highly unlikely that the number of serious fraud cases that relate to working families tax credit and in which penalties are justified amounts to only 300 in one year. That is the number given in the Paymaster General's figures, but it seems remarkably low, so I repeat that we need the figures that she undertook to give to us.

In conclusion, I should like to make a more general point about fraud, not least in relation to that which is endemic as a result of having a tax credit system, as opposed to a straightforward benefit system and family credit. Apart from housing benefit, the two most vulnerable benefits in terms of fraud are jobseeker's allowance and income support, which are both folded into the working tax credit and child tax credit that are at the core of the Bill. On 20 December 1999, Lord Rooker, the then Minister of State, Department of Social Security, told the House something very interesting. He said:

On top of that lot, he referred to

Those figures have been estimated to be somewhat on the low side, not least by my right hon. Friend the Member for Haltemprice and Howden (David Davis) when he was Chairman of the Public Accounts Committee. That estimable Committee suggested that, in total, social security fraud cost the average family about £500 a year. That is the scale and magnitude of the problem with which the Government have to grapple. Of course, the predecessor Administration also had to grapple with it. However, this Bill seems to encourage a lax culture in terms of application for the two credits. There is the disregard of increases in income, about which the authorities are saying "Don't worry about that, we'll overpay you." A new regime is being introduced in which the arrangements are more complicated and it will be more difficult for people to get the right answers. It will, therefore, give fraudsters more scope to try things on and

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claim that they were confused—a point that has been rather sagely made by the Institute for Fiscal Studies. For those reasons, as well as that which has already been mentioned—the secrecy with which Ministers are treating the information about the level of fraud in working families tax credit and tax credits in general—I urge the House to support the new clause and the associated amendments tabled by my hon. Friends.

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