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Page 160, line 43, leave out from beginning to end of line 2 on page 161.

The noble Earl said: The amendment draws attention to a passage in the Bill on which I would like to hear the Minister's comments before I take my arguments very much further. This is the passage in Schedule 10 which appears to be introducing a cap on the total amount of subsidy in housing benefit that can be paid to any one local authority. In Schedule 10, paragraph 1(7) we see:

    (a) shall by order specify the permitted total of housing benefit payable by any authority in any year, and

    (b) may by order specify one or more subsidiary limits on the amount of housing benefit payable by any authority in any year in respect of any matter or matters specified in the order".
So, if I have understood this correctly--and I am not sure I have--there is an attempt to put a total limit on the amount of housing benefit to be spent in any one borough.

There has been some discussion of such a proposal knocking about since 1994. I have in the past had correspondence with the Secretary of State about it. I thought, if I understood him correctly, that he was of the opinion that such a proposal was impracticable because housing benefit is an entitlement. It is essential to people's ability to work that it should be because one cannot work without being housed. But if there is a way of combining a strict cash limit in the form of a cap with an entitlement, then I have not seen it. If the Minister tells me that I have misunderstood this passage I shall be delighted. I look forward to hearing his reply. I beg to move.

Lord Mackay of Ardbrecknish: I will simply do as invited by the noble Earl and explain the background to this paragraph in the schedule. Local authorities have powers to make discretionary payments in certain circumstances; for example, in cases of exceptional need where a claimant is temporarily without funds or of exceptional hardship where the maximum housing costs allowable under the housing benefit scheme do not meet the claimant's contractual rent. As discretionary spending does not receive full central government funding, the permitted total protects local authority general funds by placing a limit on that spending.

Currently, under the provisions in the administration Act, the permitted total for any year has to be calculated by reference to benefit expenditure in that year. Consequently, authorities can only estimate at the beginning of the year, and as an ongoing process throughout the year, the extent to which they can make payments. The purpose of the express powers which the noble Earl's amendment would remove would be to allow the permitted total for a particular discretion following consultation with local authority associations to be fixed in advance of the financial year. Consequently, local authorities could manage their budgets more efficiently and the risk of inadvertently

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making illegal payments would be removed. The amendment would remove this amelioration, and I must say to the noble Earl that our change has been welcomed by the local authorities.

The noble Earl asked whether there was a total limit: no, there is not a limit. It is only a discretionary expenditure. As I said, the provisions in the schedule are beneficial to local authorities. I understand they are welcomed by them. With that explanation, I hope that the noble Earl will feel able to withdraw the amendment.

Baroness Hollis of Heigham: The advice I have had is that we welcome the new form of the schedule. It gives local authorities additional financial protection. So, as the Minister said, I hope the noble Earl will not press his amendment.

Earl Russell: I am grateful to the Minister for that reply. I must apologise for taking the time of the Committee. That is in part the result of the crossword method of legislation adopted in social security legislation and in part the result of the fact that we are, and remain, an amateur Chamber. When one is reading a Bill, often late at night and at home, one does not always have all one's works of reference to hand. That is the explanation of a misunderstanding for which I must offer apologies. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 255CCB:

Page 161, line 2, at end insert--
("( ) In section 135 of the Social Security Administration Act 1992 (housing benefit finance), after subsection (5) insert--
"(5A) The additional sum mentioned in subsection (5) shall include specific provision in respect of the costs of measures to prevent fraudulent claims for housing benefit.".").

The noble Baroness said: Like the noble Earl, I find trying to piece together the movements between housing benefit and DSS legislation at times extremely perplexing. This is a more straightforward amendment. It is obviously a probing amendment at this stage. There is a serious argument here about housing benefit fraud and how central government may best help local authorities to pursue it, recover it and stop it.

We believe that at the moment the Government's way of supporting the local authorities' tackling of fraud is in some dimensions perverse rather than helpful. I wonder whether the Minister may come to agree as we go on.

I believe that we all accept that social security administration is, as I say, bedevilled by the three interlocked problems of unacceptably high rates of departmental error in paying out benefit, unacceptably low take-up rates of people claiming benefit in fields like family credit and a worrying and unacceptable amount of fraud in areas such as housing benefit. I do not believe that there is any division between us on that matter.

Fraud, as I am sure the Minister will agree, is unacceptable wherever it occurs. Money claimed fraudulently is at the expense of other claimants or taxpayers. Most DSS fraud--not housing benefit

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fraud--occurs where typically the claimant misrepresents his position: he claims unemployment benefit or income support when in fact he or she is in part-time work, or when the claimant, more deliberately, has acquired several fictitious identifies by accessing missing national insurance numbers and claiming benefit for all of them.

Housing benefit fraud, however, is more complicated even than that because it involves three parties, not two: the landlord and the tenant as well as the local authority. Some housing benefit fraud is like most DSS fraud: a tenant, so to speak, falls into it. His circumstances change, he obtains some part-time work, but he does not report the changed circumstances and therefore obtains more housing benefit than he should. It is reprehensible, but in cost terms relatively minor.

The tenant is often fairly poor and the facts are fairly easy to cross-check. It is small-scale, fairly petty stuff. I repeat, I do not defend it, but a six-month rule which applies to family credit, introduced into the housing benefit system, would, I suspect, wipe out almost all tenant housing benefit fraud. I do not know, but it would be worth looking at.

The difficult area--this is where fraud most occurs--is landlord fraud, because for everyone's benefit the Government permit housing benefit cheques to be paid directly to the landlord rather than to the tenant, where the tenant requests it and agrees to it. Many landlords make it a condition of the tenancy that they receive the housing benefit cheque direct. A landlord may request it, perfectly reasonably, because the tenant has an unreliable record of passing on that housing benefit.

However, equally, direct payment is a charter for cheating. The local authority can refuse to pay the landlord the housing benefit cheque only if it believes that it is in the tenant's best interests to do so. Otherwise the local authority has little discretion. For example, local authorities have little right to refuse to make such direct payments even where they may have doubts about the landlord's probity.

Some 65 per cent. of private sector housing benefit payments are made directly to the landlord. It is within that 65 per cent. that we suspect most fraud occurs, because around that fact many rich landlords have built themselves a web of organised crime. I use those words deliberately. I repeat, most housing benefit fraud is landlord fraud. They are crimes of greed. It is widespread, organised and costly and it flourishes. The Government estimate that it costs £1 billion of the £10 billion housing benefit bill. The Select Committee of the other place estimates that it may well exceed £2 billion of the £10 billion bill--a very serious sum indeed.

As I said, I do not defend the tenant who fails to declare some casual earnings, but by far the more serious problem is the fraudulent landlord milking the system of perhaps £100,000 a year by lying and cheating. We know that such landlords claim for tenants who do not exist. They claim for tenants who speak so little English that they cannot contradict the landlords'

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claims. They claim for tenants who have moved to other properties owned by the landlord. Such fraud must be stopped.

Let me give a couple of examples. Hackney checked 1,800 claims. It found fraud in 21 per cent. of them. What is more, it found that up to two-thirds of the managing agents were misrepresenting the claims and pulling in a fraudulent income of about £5,000 a week. Haringey in 1994-95 spent £200,000 on employing nine fraud visitors. It saved over £4 million, most of which of course went back to the DSS.

Until recently, local authorities were under pressure to speed up their payment of housing benefit to avoid the tenant being evicted by the landlord if benefit was not received promptly while at the same time they were penalised because they had to repay to the department if they found that they had made an over-payment; in other words, that they had uncovered error or fraud. Because of the pressure on speed and the penalty for detecting fraud, it is not surprising that until recently local authorities gave priority to increasing take-up and speed and were relatively less aware and did relatively less about the scale of organised landlord fraud.

Since 1993, the Government have wisely given local authorities an incentive to detect fraud. Each year local authorities are set a target of fraud that they are expected to identify. For savings above that figure, local authorities may keep 25 per cent. and the department recovers 75 per cent. Local authorities are, however, penalised if they fall below half their target figure which is set at some £270 million-odd this year.

That is fine, and an improvement on the situation as it was, but the problem is that it encourages one to invest effort in tracking down fraud once payments have been made in order to keep one's 25 per cent. The system offers no incentive to invest resources to ensure that fraudulent payments are not made in the first place. Indeed, one is still penalised if one prevents fraud occurring, because then one is less likely to reach the target of fraud detected.

The amendment seeks to address those perversities. It assumes that it is better and more desirable to have an efficient anti-fraud culture and prevent fraud in the first place than to tolerate less efficient payment of housing benefit and to detect fraud afterwards. The amendment stresses prevention rather detection. At the moment, the Government give a modest subsidy to detection. They actually penalise prevention by cutting the housing benefit administration subsidy. As a result, not surprisingly, local authorities will spend less time on preventing fraud and more time on detecting it in order to receive their reward. That is perverse.

What is even more perverse is that those authorities which have in place efficient strategies for the prevention of fraud, and therefore which have low figures for detected fraud because there is little fraud to detect, will, under the Government's new regime, be penalised for not uncovering enough fraud.

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Chiltern District Council reported on that to the Select Committee. It had invested so much money in preventing fraud that it was not reaching its target for detection and therefore was being penalised for producing an efficient prevention strategy. That is folly.

As I say, this amendment seeks to tackle some of those perversities. It requires the Secretary of State to make specific provision for measures to prevent fraud which would be paid to local authorities, especially in larger cities, so that they may build up specialist investigative teams; for example, to make home visits before a housing benefit application is granted; checking out whether the tenants for whom the landlord is claiming reflect the number of rooms in the property and so on.

The Government have produced £8 million of challenge funding for fraud protection and detection. That is utterly inadequate because £5 million of that has been found by slicing off money from the housing benefit administration subsidy. New money is not being put into challenge funding. What is needed is a strong and improved administrative subsidy to prevent fraud occurring in the first place.

I suggest that this amendment must be sensible. It will not stop all landlord fraud. Local authorities will still need other measures: for example, the ability to prosecute more readily; they should, along with decent data protection, have access to the Benefits Agency's computers and the register of national insurance numbers so that it can be checked to see whether false claims are made. Local authorities need to be able to stop the redirection of giros to false addresses and ensure that their instructions not to redirect are followed. Local authorities still need to co-operate with the Benefits Agency to overcome the hurdles of the finders/keepers rule which encourages each body to hug information to itself and not to work together to check fraud.

If the Government really had the political will to tackle landlord fraud and to work properly in partnership with local authorities, I believe that we could see a saving not of £270 million but of £500 million or more per year. This amendment is just a beginning. But it would encourage local authorities to seek to prevent fraud--at the moment, they are penalised for it--as opposed to merely rewarding them if they detect it after fraud has occurred.

If the Government reject this amendment, we can only conclude that they are soft when it comes to housing benefit fraud committed by landlords, who do so out of greed, while they are harsh on income support fraud which is committed by smaller people who are often doing it out of need, ignorance, illiteracy or error. I beg to move.

6.30 p.m.

Earl Russell: The objective of this amendment is clearly sensible. Prevention is obviously better than cure. If this amendment contributes to prevention, then it may be useful.

I am not quite certain that if the Minister were to reject the amendment, he would do so for any improper motive. There may be all sorts of technical reasons why

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it might not be useful, to which I should listen with interest and care. But I cannot pronounce on that until I hear his reply.

I also recall the noble Lord, Lord Boyd-Carpenter, who I regret is not at present in his place, asking the noble Viscount, Lord Astor, who was then where the Minister is now, how he could know the amount of undetected fraud. The noble Viscount said that, of course, it could only be an estimate. For the time being, all estimates must remain provisional. The disagreement between the Government and the Select Committee on the amount of benefit fraud involved is conjectural and must remain so until we have solid evidence on that.

It is clear that we are all in favour of preventing fraud whenever we can do so. I hope that it is clear also that we are all agreed that because fraud is a crime, it must be proved beyond reasonable doubt. There is always a risk, especially when you find something which may fill a hole in Treasury projections, when a very tight financial argument is in progress, that there should be controls and suspicion.

I take the point about incentives, but incentives can be overdone. I have recently read the Government's reply to the Select Committee on this subject. In paragraph 71 of that reply, the Government expressed considerable doubt about the Select Committee's proposal that there should be incentives to prosecute fraud because they thought that that might tend towards a perversion of justice. On that, I feel some sympathy with the Government and, indeed, I may tell them that there is legal authority for their position in a ruling of the judges in the year 1604 which is, I understand, still good legal authority. I agree with the thinking behind it.

The noble Baroness said a good deal about the situation in Hackney. I am not certain what is the situation in Hackney, and I believe that we would be wise not to be too certain on that point.

The proposal for a team to visit and check whether a tenant in fact exists is sensible. The suggestion that that cannot be financed unless money is made available to finance it is sensible. But I hope that we shall avoid leaping to conclusions that there is a certain amount of fraud or that we should reward prosecution for fraud in a way which might diminish respect for justice. We have more than one objective here and I hope that we shall remember all the objectives.

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