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Earl Russell: Taken in conjunction with the noble Earl's other amendments dealing with fraud, some of which we have yet to reach—I hope he will forgive me

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for mentioning them, but they seem to be relevant—his general strategy seems to be to deal with fraud by making the penalties more severe.

We are all against fraud, as it is our money in the end that is being taken away from us, and some of us could, from time to time, think of other, better usage. However, the Minister, who is not an ex-academic, knows perfectly well that over the centuries the need for the severity of penalties has been in inverse proportion to the likelihood of detection. In the days when we used to have the mandatory death penalty—

Baroness Hollis of Heigham: I am sure the noble Earl would like to give way. The penalty was increased precisely because the detection rate was so low.

Earl Russell: The Minister takes the words out of my mouth. I could not agree with her more. When we had the mandatory death penalty for those stealing things worth more than one shilling, it was because detection was a self-service business, as it very often is now in a great deal of petty crime in the local area. How many people are there enforcing penalties for illegal parking in the area where any noble Lord lives? I imagine there are very few who live in areas where there are enough people doing it to act as a genuine deterrent.

In straightforward crime, the late Lord Justice Lord Taylor of Gosforth was constantly drawing attention to the fact that a detection rate and conviction rate of 3 per cent meant a need for penalties a great deal more severe than they would otherwise have been and that the incidence fell in a very random way on a small number of people.

Most of us are much more deterred from crime by the idea that we are going to get caught than by anything else that is likely to happen to us. I hope the Minister may be able to tell us about the number of inspectors available for the Inland Revenue, the amount of workload that she is reckoning on and the length of time it takes them to deal with the bulk of letters that come to them on any one day. All round the public service, including issues such as the enforcement of the minimum wage and the Health and Safety Executive, I observe a limited number of people trying to do more than any human being can possibly do. They make a passable shot at it, but they do not, of course, succeed. Making up for that by the severity of penalty given to the few who happen to be unlucky enough to get caught does not act as a particularly meaningful deterrent, even if it becomes savage enough to end up as a sort of inverse version of the National Lottery. There are probably better hammers with which to crack this nut, but I agree it needs cracking.

Lord Bassam of Brighton: I always enjoy the noble Earl's historical discourses on these matters and we have not been disappointed this afternoon. I want to concentrate on the general approach to this issue and try to answer the points of the noble Earl, Lord Northesk, as well as we can.

Clause 29 introduces a maximum £3,000 civil penalty where a person fraudulently or negligently makes an incorrect statement in connection with a

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claim for tax credit. The purpose of Amendments Nos. 175, 181 and 184 is to apply the £3,000 civil penalty only to cases of negligence, as the noble Earl has explained, and to introduce a new criminal offence with a maximum penalty of six months in prison in cases of fraud.

We all want a compliance framework that is effective against those who attempt to abuse the system but does not deter the genuine from claiming what they are entitled to. We have carefully considered what the compliance framework for these tax credits should be, expanding where necessary the powers that are available to combat non-compliance.

We do not believe that what the noble Earl is proposing will make the framework any more effective than it currently is. Although we share that common intention to be tough on fraud, the noble Earl's approach would probably reduce the options available to the Revenue when tackling tax credit fraud, and frankly the amendments do not offer or add anything new.

Under the powers in the Bill, the Revenue will have two options when it discovers a fraudulent claim. Either it can levy civil penalties under Clause 29, or it can pursue a criminal prosecution under the new offence provided for in Clause 33. Our policy for tax and tax credits is that civil penalties should be used in most cases of fraud, and that there should be criminal prosecutions in cases of serious or organised fraud. We believe that this approach is the most effective and cost-efficient.

Amendment Nos. 175 and 181 would remove the option of civil penalties in cases of fraud. Amendment No. 184 would introduce a criminal offence. I am afraid that it would be a redundant offence. There are no circumstances in which someone would commit an offence under this amendment, but not commit one under the provisions of Clause 33.

The amendments would therefore reduce the options available to the Revenue to tackle fraud. Amendment No. 184 would have no effect in practice, and I hope that the noble Earl will not move it.

The noble Earl asked some questions about the benchmarking study. That study involves examining a representative sample of claims. The results from that will inform further development of the Inland Revenue's compliance strategy for tax credits. The report made it clear that the Inland Revenue is considering the detailed information produced by the study. We will report in due course, but we cannot give a guarantee that this information will be published, as it deals with the specifics of possible frauds. I am sure that the noble Earl accepts that it would be unwise to put that sort of information in the public domain. However, we have made it plain that any appropriate information that we can release will be made public.

We take fraud very seriously and the Department for Work and Pensions is working hard to check that we have a strategy in place to reduce fraud levels. For instance, targets of a 25 per cent reduction in fraud in IS and JSA by 2004 and a 50 per cent reduction by 2006 have been set. Already the Department for Work and

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Pensions has exceeded its first target of a 10 per cent reduction and it is a year ahead of schedule. There is hard compliance work being undertaken.

We believe the measures we have in place are effective. We can demonstrate that from the statistics that are available so far. I believe there is a common approach across the Committee on this, and obviously we will continue to examine and review the way in which we deal with fraud as a major issue, because it is something that we need to tackle to ensure that people have trust and confidence in the system.

Lord Northbrook: The noble Baroness very kindly wrote to me on 8th May, after Second Reading, with some details of prosecutions under WFTC, explaining to me that in the 12 months to 30th September 2001, 387 penalties had been imposed, and between October 1999 and 31st December 2001, 621 penalties were imposed with an overall value of about £350,000. Is there any possibility of a comparison for a similar period for what penalties were charged under family credit contributions?

4.30 p.m.

Baroness Hollis of Heigham: I shall reflect on that, because some of the areas of difficulty have come with the childcare tax credit, which we have some anecdotal evidence about. We are changing the structure of the new system. We think we have billed out any possible manipulation in the new system of childcare tax credits. However, I shall look at the issue. If I believe that the comparators exist and are revealing, I shall be very happy to show the noble Lord.

Lord Northbrook: I am most grateful to the noble Baroness. I understand that we may not be comparing like with like.

Baroness Byford: I should like to put a question to the Minister. Recently, an announcement was made in the press that pensioners who are former employees of the MoD no longer will be able to claim their pensions via the Post Office because of concerns about fraud. What kinds of fraud are causing these concerns?

Baroness Hollis of Heigham: I think that the noble Baroness may be more interested in the question of Post Offices.

Baroness Byford: I understand why the Minister says that, but if it is true, then it is quite a serious allegation; namely, that the MoD is no longer going to allow its former employees to claim their pensions through Post Offices, as was announced in the press.

Baroness Hollis of Heigham: The noble Baroness, Lady Byford, will understand that she has not given me prior notice of this. It is for the MoD to determine how its pensions are paid and thus the matter is not germane to the current Bill. I shall be happy independently to follow up the matter and write to the noble Baroness. If, on reflection, she thinks it appropriate to table an amendment, I be happy to discuss it.

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It would be daft, however, to seek to speculate as to what is happening at the MoD. As I have said, the noble Baroness was not able to give prior notice and as a result I do not have any relevant information relating to the payment methods of another department.

The Earl of Northesk: Before concluding the debate, I should like to return to one issue. Can the Minister comment on whether there is merit in attempting to ensure that the fraud clauses are consolidated? Does the Minister have an opportunity to comment on that?


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