Draft Social Security (Penalty as Alternative to Prosecution) (Maximum Amount) Order 2015
The Committee consisted of the following Members:
† Bray, Angie (Ealing Central and Acton) (Con)
† Burt, Alistair (North East Bedfordshire) (Con)
† Goodman, Helen (Bishop Auckland) (Lab)
Hamilton, Fabian (Leeds North East) (Lab)
† Harper, Mr Mark (Minister for Disabled People)
Heath, Mr David (Somerton and Frome) (LD)
McCann, Mr Michael (East Kilbride, Strathaven and Lesmahagow) (Lab)
† Nokes, Caroline (Romsey and Southampton North) (Con)
† Nuttall, Mr David (Bury North) (Con)
Paisley, Ian (North Antrim) (DUP)
† Raynsford, Mr Nick (Greenwich and Woolwich) (Lab)
† Rotheram, Steve (Liverpool, Walton) (Lab)
† Spelman, Mrs Caroline (Meriden) (Con)
† Stride, Mel (Central Devon) (Con)
† Turner, Karl (Kingston upon Hull East) (Lab)
† Weatherley, Mike (Hove) (Con)
† Willott, Jenny (Cardiff Central) (LD)
John-Paul Flaherty, Committee Clerk
† attended the Committee
Eighth Delegated Legislation Committee
Thursday 29 January 2015
[Mr Andrew Turner in the Chair]
Draft Social Security (Penalty as Alternative to Prosecution) (Maximum Amount) Order 2015
11.30 am
The Minister for Disabled People (Mr Mark Harper): I beg to move,
That the Committee has considered the draft Social Security (Penalty as Alternative to Prosecution) (Maximum Amount) Order 2015.
It is a great pleasure to serve under your chairmanship, Mr Turner.
The draft order has a very catchy title—civil servants never cease to amaze me with the catchiness of such titles—but it does what it says on the tin. It increases the penalty that may be offered as an alternative to prosecution for benefit fraud, to give our fraud teams more flexibility in fitting the penalty we impose to the amount of money taken from taxpayers by way of fraud.
The Department’s policy generally is to offer administrative penalties as an alternative to prosecution in cases we deem not so serious that prosecution should be considered in the first instance, and where no aggravating features are present. An administrative penalty allows a proportionate response to such fraud. The claimant can of course refuse to accept the offer of the administrative penalty, in which case prosecution will be considered.
The existing administrative penalty in legislation as amended under the Welfare Reform Act 2012 is £350, or 50% of the recoverable overpayment, whichever is the greater, subject to a maximum penalty of £2,000. The order will increase the maximum penalty to £5,000 so that in future, where an overpayment of benefit appears to be attributable to the act or omission of a claimant and there are grounds for instituting criminal proceedings, depending on the size of the overpayment, an administrative penalty of up £5,000 may be offered. Legal provisions allow for the penalty to be 50% of the recoverable overpayment, so the new maximum penalty will obviously only be relevant in cases of benefit fraud where the recoverable overpayment is £10,000 or more.
For the avoidance of doubt, the penalty is in addition to the recovery of the overpayment and the application of a four-week loss-of-benefit penalty. So people will have to give back all the money they have taken and will have a benefit payment penalty, on top of which this penalty will be imposed.
The reason why we want to increase the penalty is straightforward—[ Interruption. ] The hon. Member for Bishop Auckland says from a sedentary position that we have not been doing enough, but it is worth putting on the record that this Government have reduced the percentage of social security expenditure lost to fraud. In 2009-10, the last year for which the previous Administration had responsibility, 2.2% of benefits
expenditure was lost to fraud and to claimant and official error. In the latest year for which we have figures, 2013-14, that has been reduced to 2.1%. That reduction is of course welcome, but a significant amount of money is still involved, which is why we want to continue to drive down the level of benefit fraud, so that more of the money is left for us to give to those who are genuinely entitled to it, or to enable us to continue to reduce the deficit or taxation. We want to continue to bear down on benefit fraud, which is why I want to increase the scope of the tools at our fraud teams’ disposal. That is the point of increasing the penalty.The change is a straightforward one and I am not sure I need say much more about why we are making it. I have set out our position and am content with that. Members no doubt have some questions, to which, with the leave of the Committee, I will respond at the end of the debate.
11.35 am
Helen Goodman (Bishop Auckland) (Lab): It is a great pleasure to see you in the Chair this morning, Mr Turner.
Benefit fraud is a serious crime and it is extremely important that the Government take effective action to reduce it. It is also extremely important that error in the social security system be reduced. I believe that such error is costing the taxpayer more than fraud, and I am not convinced the Government have taken steps to reduce and prevent fraud and error.
Mr David Nuttall (Bury North) (Con): Does the hon. Lady think the last Government did enough to tackle fraud and error in the benefit system?
Helen Goodman: That is the very point I was about to come on to. One of the last things I did as a Department for Work and Pensions Minister shortly before the last general election was to increase the penalties for benefit fraud, so I am completely happy to support the Minister’s efforts in this regard. However, I am not convinced that the Government have a good overall strategy.
The Government’s objective on coming to power was to reduce the percentage of expenditure lost to fraud and error to 1.7%, but they have not done that; the figure is 2.1%. The Minister can point to a reduction, but the truth is that the amount of error and fraud in the system is costing the taxpayer £200 million more than it did five years ago, so we have some way to go.
The explanatory memorandum gives rise to a particularly worrying issue that I want the Minister to deal with. Paragraph 7, on “Policy background”, states:
“In 2009/10, 7,249 DWP fraud investigations and 7,455 Local Authorities’ investigations resulted in an administrative penalty…in 2013/14, 1,501 DWP fraud investigations and 4,855 Local Authority fraud investigations resulted in an administrative penalty.”
So we are seeing a reduction in fraud investigations, which does not seem a sensible approach to take to prevent fraud and error. Everybody knows that what really deters people from committing crime is not how high the penalty is, but how likely it is that they will be caught. Weak action on prevention is therefore a far more significant factor than increasing the penalties.
There has also been a massive increase in housing benefit fraud and error, accounting for 42% of the problem in the Department. Housing benefit overpayments have risen from £980 million to £1.4 billion. Last December’s Public Accounts Committee report stated:
“The Department must do more to get to grips with tackling Housing Benefit fraud…Underpayments also create difficulties for claimants”
as well as overpayments. The report continues:
“The Department has made little progress in reducing fraud and error despite repeated calls by this Committee over the last…years for the Department to improve its management of the problem.”
What is the Minister doing about that?
Mike Weatherley (Hove) (Con): I am not clear whether the hon. Lady is saying that the penalties should not go up, should remain the same or be increased, which is the question we are considering today.
Helen Goodman: I am saying that the penalties should be increased—we will not oppose the order—but that the most important thing is to prevent error and fraud and to catch people. That is the way to deter fraud, which I assume is what everybody here today wants to do on behalf of British taxpayers. Although 2% is not a large percentage of the Government’s overall spend, this is a big budget, so 2% equates to a large sum of money—money I am sure everybody in this room would rather spend on the national health service.
What is going on with this reduction in fraud investigations? Why does the Department not have a strategic approach? Why do the Government not publish an assessment of where error and fraud appear in the processes for each individual benefit, and then address that? I think the Government have done an analysis of one benefit, but we need a more comprehensive approach. Because the numbers are so large, it is worth expending a bit more administrative effort on the issue.
The third thing, which is alarming, is that the Department is not using the anti-fraud technology that has, I understand, been offered to it. Her Majesty’s Revenue and Customs uses that technology, and it is effective. Will the Minister please explain why the DWP is not using it and what progress he will make on that? It would be nice if he explained what his strategy is and what he will do to reduce the level of error and fraud, but of course, he can only be confident of having three months left in which to do anything about that. We are happy to support the increased penalties, but we are not happy with the Government’s performance on this issue, and I want some answers to my questions.
11.41 am
Mr Nick Raynsford (Greenwich and Woolwich) (Lab): I simply want to ask the Minister a more detailed question. My hon. Friend highlighted the reduction in the number of investigations resulting in administrative penalties from 7,200 in 2009-10 to 1,500 in 2013-14, as set out in the explanatory memorandum. Those, of course, are DWP cases. The reduction in local authority cases is much less marked, and I am interested to know why there is a variation in trend between local authority investigations and DWP investigations. It might help our proceedings if we could hear a little about whether
that relates in any way to the type of investigation or the nature of the offence where an administrative penalty is preferred, or whether there is any other evidence for that variation in trend.11.42 am
Mr Harper: I will deal with the questions that have been raised. My hon. Friend the Member for Bury North made a helpful intervention on the shadow Minister. She was putting on record what she said was effective action that she had taken when she was a Minister in the Department, but from my hon. Friend’s question it came through clearly that that happened right at the tail end of the previous Government. If they did indeed take this matter seriously, it took them quite a long time to get there—and they only just managed to do it before they were booted out of office. It was helpful that my hon. Friend put that on the record. As I said, the percentage of money lost to fraud and error in the system has reduced.
Helen Goodman: But the amount has gone up—
Mr Harper: I do not think the amount of money we are paying out in benefit can be ignored. We have reduced the percentage of error and we are paying out more money in the social security system, and those two facts have to be taken together. We have driven down the percentage lost in the system. I have already said that the figure is too high, which is why we are increasing the penalties. I am pleased the Opposition will support the tough action the Government are taking.
The shadow Minister raised the question of the number of administrative penalties. One of the issues we are trying to deal with through the draft order is that under the current system, the level of administrative penalty is capped at £2,000. In cases where the level of fraud means that that penalty would not be sufficiently tough, a higher percentage of prosecutions take place. It is worth the Committee knowing that there have been more convictions for benefit fraud under this Government than under the previous one. In 2009-10 there were 7,040 convictions for benefit fraud—cases that proceeded to prosecution—whereas in 2013-14, under this Government, there were 7,960 convictions.
Part of the point of increasing the available financial penalty is to enable us to use administrative penalties in cases where the amount of benefit money stolen—it is theft, effectively—is high but there are no aggravating features. At the moment, because the amount is capped at £2,000, in some cases we cannot impose a sufficiently tough financial penalty and we end up prosecuting instead. That is not a proportionate way to deal with the issue. I want to hit such people where it hurts by both extracting from them the money they have wrongfully gained, and imposing a tough financial penalty.
Helen Goodman: Is the Minister saying that it is not efficient to undertake more fraud investigations without higher penalties? Will he repeat what he has just said, because I cannot quite work out what he is trying to say?
Mr Harper: I think the hon. Lady’s point in her original question was about the number of administrative penalties we had levied.
Helen Goodman: I was talking about the number of fraud investigations resulting in an administrative penalty.
Mr Harper: Yes, but that figure is not the same as the number of fraud investigations undertaken—it is the number that have led to an administrative penalty as opposed to those leading to a prosecution for benefit fraud. Part of the point of this exercise is to give our benefit fraud investigators the ability to use an administrative penalty—a tough financial penalty—in cases where, currently, the amount of money that has been taken means that they are not able to levy a sufficiently tough financial penalty and may have to prosecute instead, even though that might not be an efficient use of taxpayers’ money or might not lead to a sufficiently robust financial penalty. As I said, the number of successful prosecutions for benefit fraud has gone up under this Government.
The hon. Lady raised a perfectly fair and sensible point about housing benefit. Although we have reduced the amount of official error, there has been an increase in claimant error. To some extent, that results from a welcome trend. The significant increase in the number of people in work under the coalition Government means that more people on housing benefit are working rather than claiming out-of-work benefits. However, those people’s incomes fluctuate more, so the amount of claimant error is higher.
I did not quite understand the hon. Lady’s question about joint working between the DWP and HMRC. Despite what she said, the Departments actually work closely together. We are using real-time information about people’s incomes that HMRC gets from employers—we started last summer—to tackle overpayment in the housing benefit system. We now have an accurate, up-to-date record of people’s incomes, so we can drive out claimant error in the housing benefit system. Her implication was that the Department was not working closely with HMRC, but that could not be further from the truth. The two Departments work incredibly closely together, using real-time information to match data and look at people who are perhaps stating their income at one level to the DWP but at another level to HMRC. We can now match the information, which is proving to be effective.
I do not know whether that is the tool to which the hon. Lady referred, but if so, we are using it. If not, perhaps she could say what she was referring to so I can try to give her a more detailed answer.
Helen Goodman: My understanding is that HMRC has technology that enables it to look at the veracity of the signatures and information on people’s tax returns, thereby throwing up incoherencies, inconsistencies and so on, but that the DWP is not using that technology. My point about HMRC’s technology did not relate to my point about housing benefit—those were separate.
Mr Harper: I will wait to see whether an inspirational thought strikes me in the next few minutes, but my understanding is that HMRC does share information
on the matters the hon. Lady is talking about. It shares information about people’s incomes, not only from their tax returns, which would often be a full year after the end of the tax year, but in real time. As employers are now declaring employees’ incomes to HMRC in real time—that has been rolled out to larger employers, and will be to smaller ones in due course—that information is being shared with the DWP. I am sure that, at some point, millions of people will know about the Committee’s deliberations, and they should know that we share that information.If people are working but telling the DWP they are not, or mis-stating their income, they are going to get caught and will receive a sufficiently tough penalty. The hon. Lady is of course right that people make a calculation based on how likely they think they are to be caught, multiplied by the penalty they would get if they were caught. Our sharing of information on incomes with HMRC will increase the chances of such people getting caught, and the order will mean that they get a tough penalty.
Helen Goodman: What the Minister says about information sharing between the two Departments is extremely welcome. Does it also apply to information sharing on child maintenance cases?
Mr Harper: Off the top of my head, I believe that some sharing is going on, but I will check and write to the hon. Lady. I am working from memory, which is sometimes dangerous because one could slightly misinform the Committee, so I will follow up on that point.
The hon. Lady made a point about strategy. In this Parliament, the Government have had a strategy on dealing with fraud and error, and we have driven down the percentage of benefits lost to fraud and error. We are putting together a strategy for the next Parliament, and I hope that—electors willing—we will be in a position to deliver it across all our legacy benefits, for universal credit and for the digital delivery of benefits.
It is worth putting on record that there is, of course, a significant strategic change in the benefits system that will make a real difference: the roll-out of universal credit—[ Interruption. ] I do not know why the hon. Lady is laughing. Universal credit will bring together a significant number of benefits. It will save £1.5 billion in fraud and error. It uses real-time information at its core to get an up-to-date feed of claimant earnings in order to calculate what claimants are being paid, so by design it is less prone to fraud and error than the systems it will replace. Strategically, the roll-out of universal credit will help.
The hon. Lady made a point, oft repeated by her Front-Bench colleagues, about the speed of roll-out. I make no apologies for ensuring that the roll-out is careful and controlled. When the previous Government had issues with tax credits, I had constituents coming to my surgery who really needed the money. Time and again, when they had questioned the amount of money they had been given, they had been reassured that it was right. They had spent it on their families, only for HMRC to tell them that there had been a mistake and it had to be given back. I had someone in my constituency surgery in tears, begging me to stop HMRC sending her
money that she desperately needed, because she could not face spending it and then being told that she had to give it back.I make no apology for ensuring that we roll out universal credit in a careful and controlled manner, learning as we go, so that we deliver it in a helpful way and do not subject our constituents to the problems that would arise if we took a big bang approach and tried to implement it across the whole country in one go. That is the right way to deliver it. It has been rolled out fully in the north-west of England, and it will be rolled out in jobcentres across the country from next month. That is very welcome. It improves the incentives to work, and means that work will always pay. It will always pay someone to take a job, and it will always pay someone in work to do more hours and increase their skills and get more money. That cannot be said of the present benefit system, as jobs are often designed to suit the system, not the worker or company. Universal credit will help in that fraud and error space.
On the point raised by the right hon. Member for Greenwich and Woolwich, the DWP has focused on investigating the full range of benefit fraud. Local authorities obviously target their resources on the cases they choose to target. The single fraud investigation service that is being rolled out will look at housing benefit, tax credits and all the other legacy benefits. That will mean a more consistently tough approach across the country. The approach that local authorities take varies by area, depending on which benefits they want to focus on. There is no generic local authority view on how to handle these matters; it varies from one local authority to another.
Mr Raynsford: I am grateful to the Minister for that explanation. In highlighting the difference in trend—the much faster decline in the use of administrative penalties by DWP, compared with local authorities—I was driving at whether, as he pointed out to my hon. Friend, that reflected a greater use of prosecution. Do we know whether local authorities have been making less use of prosecution than DWP? If so, perhaps some action might be necessary to encourage a more appropriate use of prosecution by local authorities.
Mr Harper: The right hon. Gentleman makes a good point. I do not have the figures relating to local authorities, but if the nature and size of the fraud they are dealing with means that an administrative penalty is helpful, that may be driving the balance of the split between administrative penalty and prosecution. I do not have the figures on the exact split, but I will write to the right hon. Gentleman and other members of the Committee with them. I point out that we are looking at more effective mechanisms for dealing with housing benefit, which is administered locally. In fact, we have launched a programme for the remainder of this financial year, and the next, to further incentivise local authorities to work with us to deal with housing benefit fraud. That will lead to a significant improvement.
I think I have dealt with the points that were raised and I hope the Committee agrees to the order.