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Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): I welcome—as did the shadow Conservative spokesman, the hon. Member for Wycombe (Mr. Goodman)—the progress that has undoubtedly been made and which has been outlined by the Minister this afternoon. Progress has been made in reducing fraud in income support and jobseeker's allowance. More broadly, the figures published today suggest that fraud has been reduced to a total of £0.9 billion. I shall not embark on a detailed analysis of the figures because the hon. Member for Wycombe has done that, but I have one relatively straightforward question.

In the Public Accounts Committee report, the total figure for fraud and error was £3 billion. It is not clear from the figures published today whether the total for fraud and error remains at £3 billion. In other words, should we draw the conclusion from today's report that while the amount of fraud has been reduced to £0.9 billion, the amount of error has increased to £2.1 billion? What is the total figure for fraud and error based on today's new calculations? Should we assume that because a more detailed methodology for measuring fraud has been developed, the amount of error is to fill the gap in the £3 billion figure that has been quoted not only for the past year, but for previous years?

I agree with the Minister that despite the evidence of progress, fraud is still at too high a level. Tuesday's PAC report gave ample evidence and analysis of the reasons for that. It said that the Department is still not performing to the standards that might reasonably be expected. There is a long way to go on both fraud and error—losses due to error remain too high.Today's figures suggest that benefit fraud has been reduced roughly to the level of fraud against the European Union budget, which may be a cause for celebration for Conservative Members but suggests that there is still quite a long way to go. Overall, the fact that the Department has had its accounts qualified by the
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National Audit Office for each of the past 15 years, including every year that this Government have been in power, suggests that too little has been done on this issue for too long, and too slowly.

The Government's own pronouncements confirm that there is slow progress. In 2000, the Secretary of State said:

A press release was headlined, "We are winning the fight against fraud." That was on 28 January 2000, five years ago. Reading the NAO report, it is clear that despite the diplomatic language, the tone is one of real frustration. I would be grateful if the Minister let us know what discussions he has had with the NAO about the levels of fraud and error that would have to be reached before the Department's accounts were given a clear bill of health by that organisation.

The Conservatives should not be too critical of the situation, as their record in Government was hardly one to be proud of. They only began detailed measuring of the level of fraud in 1995, 15 years after they first came to office. The dramatic shift from unemployment benefit to invalidity benefit—now incapacity benefit—took place under a Conservative Government, so their record is none too good. Equally, it is a mistake to view benefit fraud in isolation. The tax credit system introduced by the present Government is part of the welfare system, and we know from various reports that in 2003–04 £2.2 billion worth of tax credits were overpaid. The National Audit Office says that fraud and error in the tax credit system amount to 5 to 11 per cent. of the total bill for tax credits or up to £1.5 billion. It has qualified the accounts for Her Majesty's Revenue and Customs, so the disease seems to be spreading instead of being eradicated.

Miss Begg : Does the hon. Gentleman acknowledge that overpayments in the tax credit system are partly the result of the way in which the system is designed? Many of the errors in income support arose from the fact that people had to notify the agency of changes in their circumstances on a weekly basis, which caused a great deal of confusion, heartache and error. The tax credit system is much more transparent and easier to use. Overpayment is part of the system, but it is not necessarily an error.

Danny Alexander: I accept that overpayments in the tax credit system are partly a function of the way in which the system is set up, and I shall return to that later. While figures for fraud appear to be improving, there is little improvement in the figures for both official and customer error. Taken together with the tax credit system, errors in the welfare system overall could reach more than £3 billion a year. That is exacerbated by the problem with record keeping highlighted in the PAC report. The Department could not find records for one out of every eight cases of incapacity benefit selected by the NAO. The report also warned, as hon. Members have said, that plans to cut about 30,000 staff—a quarter of the work force—from the Department

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The complexity of the benefit system gives rise to error among both claimants and staff. In the year to September 2004, errors made by pension credit claimants cost £100 million, while errors made by officials cost £120 million. That indicates the extent of the problem.

I welcome many of the initiatives announced today to tackle fraud, particularly the measures to improve data sharing between the Department and Revenue and Customs. Liberal Democrats have argued for such data sharing, so it is good to see that the proposal has been taken up—and today's report outlines a number of successes. Similarly, the division in the system between criminal measures and customer compliance is sensible. I offer a tentative welcome to the use of credit reference agencies, but I would like to know more about the costs. Will the Department have to pay credit reference agencies for every request for information? If so, what is the total amount estimated to be?

The Minister did not refer to a proposal highlighted in the press earlier this week on the use of lie detector software in the telephone system. It may have been dropped or it may have been too detailed to appear in his speech. I would be concerned about such proposals, not least because American research shows that such systems are only about 24 per cent. effective. However, I should like to know whether they have been considered.

Mr. Philip Dunne (Ludlow) (Con): On telephone lie detection tests, is the hon. Gentleman aware of the increasing prevalence of such techniques in insurance recoveries across the commercial sector? If they work well across the commercial sector, there is no reason why they should not be introduced in the public sector.

Danny Alexander: I am not aware of the increased use of lie detector software in insurance, and, given the evidence that I have seen, I wonder whether it would be appropriate in the public sector.

The simplification of the benefits and tax credit systems is crucial to tackling fraud and error. The Minister alluded to the simplification of the structure of the benefits system, and we may discuss that matter in more detail when the welfare reform proposals are introduced in the next few weeks.

Administration is another area in which simplification could make a big difference. A number of different departments and organisations deal with the administration of different benefits: housing benefit and council tax benefit are administered by local authorities; other benefits are administered by the Department for Work and Pensions; and tax credits are administered by Her Majesty's Revenue and Customs. The Liberal Democrats have proposed that the administration of housing benefit should be moved to the DWP, which would increase efficiency, and I am interested to hear whether the Minister has considered or will consider that proposal.

Liberal Democrats have proposed the abolition of council tax and its replacement by a system of local income tax, which, as a result of its being based on ability to pay, would negate the need for council tax benefit and simplify the system.

Miss Begg: Have the Liberal Democrats decided whether their local income tax would be based on where
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someone lives or where someone works? That point is especially important in north-east Scotland, where many residents work offshore or for foreign companies.

Danny Alexander: As far as I am aware, local income tax, like council tax, would be based on where one lives rather than where one works.

This Government's reliance in recent years on means-testing is one of the reasons why the welfare system as a whole has become increasingly complex—for example, the introduction of the pension credit means that a growing number of pensioners are subject to means-tested benefits. The Liberal Democrats would introduce a citizens pension, which would abolish means-testing for many pensioners, reducing the scope for both error and fraud.

On the tax credit system, we want to re-examine a return to the system of fixed awards used in the earlier form of tax credits, which would reduce errors as well as help to ameliorate the rollercoaster ride currently faced by many of our constituents due to overpayments.

The complexity of benefit forms is a genuine cause of both customer and official error. For example, a disability living allowance application form and notes runs to a total of 55 pages. The latest figures on the disability living allowance show £630 million of customer error and £60 million of official error, which is an example of complexity leading directly to error, not fraud. A big effort should be made to simplify benefit application forms to help weed out more error from the system. Administrative consolidation—for example, the proposal to move housing benefit into the DWP—would also help to make such matters easier by reducing the need for people to supply the same data in multiple benefit applications.

New IT systems can also help. I note that a new e-benefits system piloted in Rotherham has shown early signs of success because it allows people to apply for benefits, including more than one benefit at once, through an electronic terminal, and it would be worth while to roll out such a system.

Some hon. Members have already referred to the telephone hotline. Today's report shows that calls by the public to the hotline help to cut fraud, so it is important that the telephone is answered when people call. In the last year for which figures are available, 80,000 calls to the hotline—nearly 30 per cent. of all calls—went unanswered. That means that valuable tip-offs could be being ignored. I hope that that can be dealt with as the system develops, because if it is as successful as the Minister says, every effort should be made to ensure that every tip-off received from the public is acted upon.

The report highlights as one of the benefits of the advertising campaign the fact that

The Government must ensure that there is no suspicion that spending on a high-profile advertising campaign is mainly a PR exercise designed to give the impression of action rather than generating genuine anti-fraud results.

Greater attention should be paid to sharing good practice. According to the PAC, the Department needs to do more in identifying best practice in local authorities and overseas. I was glad to hear the Minister say that that is being dealt with and I should be
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interested to hear more about it. An earlier report from the PAC stated that if all regions performed in line with the top quartile of local authorities in terms of savings, that would lead to significant overall savings. Encouraging local authorities to share best practice in tackling benefit fraud would have a serious impact.

The PAC report highlights not only the extent of fraud and error but a significant aspect that has not been much discussed so far—the extent of underpayments in the system. The report says that £385 million of benefits were underpaid in 2003–04—money that our constituents should be receiving. The system is failing to get money to many people who need it. It is necessary to simplify the system and to deal with the errors in it, not only to tackle fraud but to ensure that people get the funds to which they are entitled.

The hon. Member for Wycombe referred to the arrangements for the recovery of benefits identified to have been paid out fraudulently. The PAC report notes that in the past three years only £550 million of the £9 billion overpaid has been recovered. What steps are being taken to improve the rate of recovery of benefits that have been fraudulently claimed?

Many of the issues that I have raised should be dealt with by the benefit reform that we eagerly anticipate and I hope that we will not have to wait much longer for the Government's proposals. However, Liberal Democrat Members are worried about the tone in which the debate is being conducted. The Government have chosen to approach it by talking about fraud first, and then reform. That has already resulted in some lurid headlines—for example, the "on your bike" quotes that we saw earlier this week—which may or may not have been the intention. That risks giving the public the impression that welfare reform is principally about dealing with fraud.

Fraud is a very serious issue that needs to be dealt with, and I have outlined some proposals for doing so.

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