Welfare Reform Bill

Memorandum submitted by Gráinne McKeever (WR 52)

I wish to offer comment in relation to clauses 108-116 of the Welfare Reform Bill, namely those clauses that relate to social security fraud.

Legislative background:

Since 1997, fraud has received legislative attention on four different occasions: in 2001, 2007, 2009 and 2011 (see attached table). The legislation has concentrated on 3 main areas: defining, detecting and punishing fraud. The definitions of fraud – unaltered since the 1997 Act – stipulate two ways in which fraud can be committed. The first, under section 13, is fairly standard for a criminal offence, requiring that the offender must have acted ‘dishonestly’. While this is far from a trouble free concept in criminal law, nevertheless it is well established as an appropriate basis for criminal culpability. The second offence, under section 14, is more problematic, requiring merely that the offender breaches benefit rules without reasonable excuse. The central objection here is that, as a standard of criminal responsibility, this is inadequate in that it blurs the distinction between dishonesty and oversight or ignorance. The detection of fraud has focused on the sharing of data on suspected fraudsters between government departments and private and public sector organisations. This has raised significant questions over the protection of personal data under the Data Protection Act 1998 and under the Human Rights Act 1998, in particular the potential violation of the right to private life under Article 8 of the European Convention on Human Rights. These questions focus on whether there is a legitimate basis to suspect fraud – and so a basis on which a data matching investigation can be conducted – and on the abuse of an individual’s private data even where the basis for suspicion may be reasonable. The most dominant aspect of the legislative focus, however, has been on fraud sanctions, and, as the attached table demonstrates, the direction of travel has been increasingly punitive. The 2011 Bill proposes to increase the current penalties for fraud, introduce a new administrative penalty for attempted fraud where no overpayment has been made, to increase the number of sanctionable benefits and to remove the power to issue a caution for benefit fraud.

Sanctions under the Welfare Reform Bill 2011

In addition to concerns highlighted in my research on social security fraud, [1] I would wish to identify two difficulties raised by clauses 108-116 of the 2011 Bill which would the increase in the powers to sanction those suspected of, or convicted of, social security fraud. The first is that the increased sanctions are unnecessary. The second is that an increase in the severity or use of sanctions is not publicly supported:

1. Unnecessary: according to the National Audit Office, the level of social security fraud in the UK has reduced from an estimated £2 billion in 2001-2002 to £0.8 billion in 2006-2007, [2] while levels of error (including staff error) now exceed levels of fraud: in the same period error has risen from £1 billion to £1.9 billion. The former Government, in increasing sanctions under the Welfare Reform Act 2009, stated that the DWP already had "an extensive criminal sanction regime" by which to deal with social security fraud. [3] No case was made by the former Government for increasing the sanctions regime in 2009 and there has been no case made by the current Government to increase the regime further still, when the case remains that those suspected/convicted of fraud can already be punished severely. The attraction of being seen to be tough on fraud at a time of increased public expenditure on social security should not override the need to justify why additional legislative measures are required to deal with fraud.

2. Lack of public support: While the public perception of fraud has hardened since the introduction of the Social Security (Administration) Fraud Act 1997 there is still a distinction drawn by members of the public between ‘need’ and ‘greed’ based frauds, despite a considerable investment in a programme of public education on the absence of a legitimate incentive to commit fraud. That is not to say that the public do not support fraud sanctions but rather that the general public’s support for sanctions breaks down when the public identify the potential motivations for committing fraud as being based on the financial circumstances of the claimant. However, this public reaction is continually misrepresented. For example, the report of the Policy Exchange in 2010 on reforming community sentences claimed that 52% of the public supported benefit sanctions (in the form of withdrawal of benefits) for offenders who breached community sentences. In fact, 52% of those surveyed stated they felt community sentences could be more effective if there were increased punishments for breaching sentences, including the withdrawal of benefits. The public wish to see those who ‘fiddle they system’ punished but consistently stops short of advocating financial penalties (including the withdrawal of benefits) for minor, individual frauds motivated by financial necessity.

The National Audit Office has acknowledged the existence of ‘need’ as a motivation for fraud, [4] as have a number of independent reports. There is continued evidence that claimants are struggling financially on benefits [5] and, as the claimant count grows, the public reaction to fraud is likely to go one of two ways. Either individuals will wish to see money clawed back in to the social security system through fraud sanctions (and other measures) or sympathy will be extended to co-claimants who are punished for need based frauds as more and more claimants experience first hand the difficulty of surviving on social security benefits. The consistency of public sympathy for needs-based frauds suggests that the latter reaction is likely to grow, undermining the likelihood that increasing the punitiveness of social security sanctions will be a vote-winner.

Detecting fraud

Defining fraud

Fraud sanctions

Social Security (Administration) Fraud Act 1997

Data matching: Data supplied to tax authorities (s.1), government departments (s.2) or authorities administering Housing Benefit/Council Tax Benefit (s.3) may be supplied to Sec of State for prevention, detection, investigation or prosecution of benefit fraud, or to check accuracy of social security information

Where a claimant dishonestly makes a false statement, furnished false information, fails to notify a relevant change of circumstances or causes another person to fail to notify such a change of circumstances in order to obtain benefit (s.13).

Where a person, without reasonable excuse, knowingly fails to notify a change of circumstances or knowingly allows another person to fail to notify a change of circumstance to obtain a benefit (s.14)

Administrative penalty: where there are grounds for instituting proceedings against a person in relation to an overpayment the claimant may be invited to pay a penalty in lieu of prosecution. The penalty is set at 30 per cent of the amount of the overpayment, and is in addition to the requirement to repay the overpayment. (s.15)

Agreement to pay may be withdrawn within 28 days.

Social Security Fraud Act 2001

Data supplied to private and public sector organisations can be given to Authorised Officers who have reasonable grounds to believe a claimant, or family member, has committed, is committing or intends to commit a benefit offence (s.1(2))

The ‘2 strikes’ rule: Where an individual commits two or more benefit fraud offences within three years benefit is withdrawn or reduced for 13 weeks (s.7)

Welfare Reform Act 2007

The ‘2 strikes’ rule applies to offences committed within five years (s.49)

Welfare Reform Act 2009

The ‘1 strike’ rule: Where an individual commits one or more benefit fraud offences – including those convicted of or cautioned for fraud, or who accept an administrative penalty – benefit is withdrawn or reduced for four weeks (s.24)

Welfare Reform Bill 2011

Administrative penalty is set at 50% of the amount overpaid, subject to a minimum of £350 and maximum of £2,000. (cl.109)

Agreement to pay may be withdrawn within 14 days (cl.110)

Where the ‘2 strikes’ rule applies benefit will be reduced or withdrawn for 26 weeks

The ‘1 strike’ rule: on first conviction of a benefit offence, benefit will be reduced or withdrawn for 13 weeks. Agreement to pay an administrative penalty for a first offence: benefit is reduced or withdrawn for 4 weeks.

The ‘3 strikes’ rule: where an individual is convicted of 3 or more benefit offences within 5 years benefit is reduced or withdrawn for 3 years.

Attempted fraud:

Where there is sufficient evidence to prosecute but no overpayment has been made individuals will be invited to pay an administrative penalty of £350 in lieu of prosecution

Civil penalty:

Where an individual fails to disclose information that would affect benefit entitlement and this results in overpayment a civil penalty of £50 will be imposed, in addition to any overpayment being repaid.

April 2011

[1] McKeever, Gráinne: “Detecting, Prosecuting and Punishing Benefit Fraud: The Social Security Administration (Fraud) Act 1997”, (1999) Modern Law Review 62(2): 261-270; “Fighting Fraud: An Evaluation of the Government’s Social Security Fraud Strategy”, (1999) Journal of Social Welfare and Family Law 21(4): 357-371; “Social Security as a Criminal Sanction”, (2004) Journal of Social Welfare and Family Law, 26(1): 1-16; “Balancing Rights with Responsibilities: The Case of Social Security Fraud” (2009) Journal of Social Security Law 16(3): 139-168


[2] NAO , Progress in Tackling Benefit Fraud (2008) p 7

[3] DWP, Impact Assessment of Welfare Reform Bill 2009 , para. 484

[4] Most recently in the 2008 NAO report

[5] See for example DWP Research Report No.313, A Review of the JSA Sanctions Regime (2006)