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Lord Grabiner: My Lords, perhaps I may make one or two observations about the proposed amendment. The particular attraction about the provision as drafted is its simplicity. It is clearly drafted. It contains nice round figures that would constitute the penalty to be extracted from the offending employer. I suspect that one of the reasons for the simplicity is to encourage employers who are charged or accused of collusion to come to a deal--for want of a better word--pursuant to these provisions. These provisions are designed to achieve a voluntary deal on a civil basis without the need to invoke the criminal process.
The first criticism I make of the proposal is that it simply introduces mathematical complication, albeit that the mathematical complication can be explained as it was by the noble Lord, Lord Higgins.
The second point is that the noble Lord need not be concerned that the underlying irritation that drives his amendment cannot already be dealt with under the existing common law. In the kind of fraud we are now discussing, if an employer knowingly participates in a benefit fraud which produces the result that money is stolen or has disappeared in an illegal way and it can be demonstrated that he has the appropriate guilty knowledge, he can be made personally liable as a constructive trustee in the civil courts. There the full extent of the loss sustained by the Exchequer can be recovered. Therefore, the imposition of the penalty, which as I understand it is the real driving force that sits behind the amendment, is not necessary because in a suitable case the DSS could bring proceedings against a colluding employer and recover that money in the civil courts. The proposed amendment therefore is not necessary.
The third point is that the amendment unnecessarily introduces into the existing provision the additional concept of the benefit which was defrauded by each employee. At the moment, the provisions in Clause 14 do not require proof of fraud against an employee. It requires a colluding employer who has done one or other of the things identified in the provision. The introduction of the amendment would mean that proof of a fraud by each employee would be necessary in order to recover the 32 times figure. That is not currently required in order to operate Clause 14. The amendment adds an unnecessary complication. That goes back to my first point about simplicity. It would make it unmanageable and complex. I believe that the existing common law position protects the position adequately.
Baroness Hollis of Heigham: I believe so, my Lords. The purpose of Clause 14 is to streamline the lengthy and expensive process of prosecuting collusive employers. It introduces a single fixed penalty for the small-time offender, thereby enabling the department to focus limited prosecution resources on the more serious cases.
As my noble friend Lord Grabiner explained, the effect of the amendment would be to increase the amount of the penalty in circumstances where the employer's act of collusion results in an overpayment of benefit. In addition to the fixed penalty of between £1,000 and £5,000 already provided in the clause, the penalty would also include an amount equivalent to 32 times the weekly cost of the benefit which was defrauded by each employee. As the noble Earl, Lord Russell, said, the amendment would not only be extremely complicated but would hike up the amount of the penalty considerably, depending on the type of benefits stolen.
The clause already reflects the maximum penalty that a court might impose were the employer prosecuted and convicted. As I said in Committee, the majority of small time offenders at which the penalty is aimed are currently prosecuted for giving false information. In those circumstances, the maximum fine a court could impose would be at level 3 or level 5, which carry maximum penalties of £1,000 and £5,000 respectively.
An additional amount suggested by these amendments, which relates to the amount of putative benefit lost, would be likely to take the total amount of the penalty above that which a court could apply. This would essentially remove any incentive for an employer to agree to the penalty, undermining the purpose of the clause, which is to punish small time offenders without going through the process of a lengthy and expensive prosecution. It would also mean that the penalty agreed under such a process by administrative arrangement could and would be higher than the maximum amount that the court would be entitled to impose. Again, I do not think that that necessarily would be appropriate.
I understand the concerns expressed by the noble Lord, Lord Higgins, that any penalty should include a means of recovering the amount of funds that have been defrauded. However, we already do this. Where there is an overpayment of benefit that is attributable to the claimant, we recover the loss directly from that individual, which is in line with the Scampion report. We do not seek to change that.
However, linking it to the size of the overpayment would be unreasonable in that the weekly amount of benefit defrauded is not determined by the employer's action--although I accept that he may have contributed to it--but by the personal circumstances of the employees involved. Although the employer may have assisted in the fraud, he cannot be held responsible for an employee's age--certain benefits are age related--or his domestic situation--he may be claiming on behalf of a partner and children--which could result in certain benefits being claimed. For example, based on the benefit rates from April 2001, it could mean that an employer alleged to have colluded in fraud with a 25 year-old employee who is single and claiming JSA would be offered a penalty of £1,000 and an additional amount of £1,697. The total amount of the penalty would be a little under £3,000. However, if the same individual had a partner and two children, the total amount of the penalty would amount to £4,800. The amount of penalty would fluctuate not according to what the employer had done, but according to the circumstances of the employee, over whom the employer has no control.
The employer's offence is to tell a lie at a specific point in time in relation to his employees. We will get at that, so to speak, by offering a penalty in lieu of a court case. It is very difficult to tie the individual employee's overpayment to the employer because the employer is unlikely to know what benefit they receive. The employer may lie to fraud investigators in respect of one employee's hours of work or amount of wages, which would constitute an offence, but that does not
While I agree that the employer is culpable because he colluded in the fraud in the first instance, the amount of benefit defrauded is not a direct responsibility of his action, although it is consequential on it. The benefits stolen and particularly the total amount defrauded are linked to the claimant's age, his domestic circumstances, for how long he claims and what benefits he claims.
I hope that, on reflection, the noble Lord will agree that this is unfair. The same offence committed by an employer would result in very different penalties being imposed, according to the circumstances of the employee. It could also lead the employer to being vulnerable or liable to administrative penalties higher than those which the courts could impose. Again, that would be unfair. Finally, it would be perfectly reasonable for the employer to choose not to opt for the process of negotiating an administrative penalty--out of a preference not to have a criminal conviction on his record--but would instead revert to the old court system, which would introduce the familiar delays and difficulties of establishing guilt. We would not achieve our aim; namely, to take smaller offences out of court proceedings. In the light of this explanation, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Higgins: My Lords, the amendment seems to have provoked a lively set of arguments, which I should like to take fully into account, in particular the points made by the noble Lord, Lord Grabiner. It is true to say that if such cases go through the normal legal process, they are likely to incur far heavier penalties. We are concerned here with the alternative form of penalty. I take also the point that it might be complicated and difficult to show exactly how much money the Exchequer has lost as a result of various employees seeking to exploit the collusion of the employer.
Having said that, I am not sure, from a purely logical point of view, that I agree entirely with what has been said by the noble Baroness. While it is true to say that the loss to the Exchequer will depend on how many employees engage in the fraud and which benefits they seek to claim, it is nevertheless the case that, if the employer had not colluded, the fraud would not have taken place and the amount, however much it may be, would not have been lost to the Exchequer. I have a little difficulty in agreeing with the argument that the amount lost is somehow independent of the fact that collusion had taken place. If there had been no collusion, then no loss would have been incurred.
However, I should like to consider the matter further. I remain unhappy at the balance struck between the main criminal penalty and the alternative penalty. I should like to think on that between now and Third Reading.