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Baroness Hollis of Heigham: Yes. By the MoD, I presume the noble Lord refers to members of the armed services and to support civilian staff. This is an income test. First, anyone earning up to £50,000 a yearor even £58,000will receive the family element, which takes in ranks up to squadron leaders or thereabouts. No doubt noble Lords opposite are more finely tuned than I to the ranks in the armed services. Secondly, many families of the ranks with children would be eligible for CTC. I would expect them to be.
The Earl of Northesk: Perhaps we may return to this issue on Report; that is, whether it might be more sensible to consolidate all the fraud elements of the Bill. I would say to the noble Lord, Lord Bassam, that I am not sure that my interruption was necessarily an historical discourse.
I take the point made by the noble Earl, Lord Russell, about the importance of a deterrent. Indeed, that goes to the heart of why we are keen to send a clear message that fraud will not be tolerated. As to detection rates and severity of sentence, that would always be a matter for the courts on a case-by-case basis, within the maximum proposed in the amendment. It is not simply that someone prosecuted within the framework of the amendment immediately would be subjected to the maximum penalty.
The basic point of this is one which I have touched on before: we need to attempt to distinguish between wilful fraud and honest error. Where we want to clarify something as a crime, we should be certain that there is the mens reaguilty intent, a wilful attempt to deceive. When that is the case it is fraud and should be prosecuted as such. But not every erroneous statement made by every claimant for every benefit is necessarily made fraudulently or wilfully. Most of us do not run offices at home. In fact, most of us spend so much time at work that we do not have the time to run offices at home. The only time I ever attempt to do so is on a Sundayand the number of things I can only attempt to do on a Sunday is well beyond the length of counting.
When one is dealing with error in the academic field, one asks whether historians' errors are their own, in that they tend to slant the argument in different directions. Or are they systematic in that they send all the parts of the argument in one particular direction? Where one finds errors to be systematic, one feels a degree of suspicion about that historian's perception of truth. But one does not feel that the errors are casual and apparently accidental.
One ought to look at any error on its own. If they are consistently for the claimant's benefit, one is entitled to a degree of suspicion. But one does not feel that same suspicion if it is perhaps to a greater degree to the claimant's detriment. Not everybody has a record immediately to hand of exactly what their car mileage was on the day they completed their last tax returnrather, it is not the day they completed their last tax return, but the actual end of the financial year. Not everybody has that information to hand.
Where someone makes a return and, with the best will in the world, attempts to get it right but forgets whether or not they received a portion of income in 1994 or 1995, that should not necessarily count as fraud. It should be necessary to prove an intent to deceive.
We have to understand what the effects of the noble Earl's amendments would be. Essentially, they would restrict the penalties to cases where there was fraud or the wilful provision of incorrect information. That gets to the heart of his point about there being mens rea.
The fraud and negligence test is a standard test which is used to establish culpability in the tax and tax credits systems. As we have discussed before, fraud involves deliberate dishonesty while negligence involves a failure to take reasonable care. That is precisely why there ought to be a distinction.
I understand the noble Earl's concerns about imposing interest and penalties on those who have simply made an innocent mistakewe can all understand that. However, that is not what the test of "fraud or neglect" is intended to allow. The long-established test of negligence is applied to those who fail to take the care in making their claim or providing information that any reasonable person would take, and any reasonable person would expect them to take. In making a claim for tax credits, it is only right to expect people to act responsibly, in the same way as the noble Earl would expect people to act in good faith and responsibly when making their annual tax return.
There will also be cases of deliberate intent to cheat the system in which it is nevertheless difficult to show categorically that someone has acted fraudulently. However, in many such cases it can clearly be shown that their behaviour amounted either to fraud or negligence. Restricting the scope of Clause 29 to fraudulent behaviour would allow the deliberately dishonest to hide behind the cloak of negligence, making it much more difficult to tackle abuse of the tax credits system.
The test of "fraud or neglect" is well established and does not allow the Revenue to penalise people who make innocent mistakes, which is the territory about which the noble Earl is most concerned. I hope that that explanation provides sufficient assurance for the noble Earl to withdraw the amendment.
Earl Russell: I thank the noble Lord. I take the point about reasonable care. But, where someone does not have a regular home office, it is quite difficult to establish how many hours you need to spend searching for a piece of paper before you have taken reasonable care to find it and can certify that with the best will in the world you have not done so. There is a question here where one should consider how systematic the error is.
I take the point that one needs to show that some of these cases may be deliberate attempts to avoid, but it is incumbent on the Revenue to show, at least on the balance of probability, that such is actually the case. There is something in the Bill about the way of approaching this matter. Once is happenstance; twice is coincidence; the third time it is enemy action. If the Revenue was prepared to go that far, it would be adopting a sensible principle.
But there is a serious risk of one error made in good faith. Claimants on benefit, especially those who are illiterate, are not always particularly good at keeping records. In those cases, severity can very easily be misplaced, especially when fraud is the panic of the moment. It is always the panic of the moment in which someone will be unjustly accused. It may be quite rightly the panic of the moment, it may need eradicating, but it does not make it any the better for
Lord Bassam of Brighton: I was reflecting on what the noble Earl said. Many years ago I had to make a social security claim and I remember thinking at the time that it was quite easy to give incorrect information. I found that the officials dealing with the caseI am talking about when I was in my 20swere extremely sympathetic and sensitive to that point.
Lord Bassam of Brighton: The rest is history. That is true. I doubt whether they have changed. The important point here is that the Inland Revenue will have to form a judgment based on reasonableness and it will have to positively demonstrate fraud or negligence. As I said earlier, there is no penalty for making an innocent mistake.
I believe that we can rely on the good sense and the good nature of the civil servants who will have to process these matters. They will make a case-by-case judgmentjust as they made a judgment in my case that I was not being deliberately dishonestand I am sure that that will inform the way in which they work. If the Revenue's decision is disputed by the claimant, he or she will have recourse to appeals and will have the facility for the question of their dishonesty to be judged by an independent tribunal. That important failsafe is there. That in itself will inform the way in which the Inland Revenue makes its decision.
With those safeguards, and based on my personal experience, I believe that there is sufficient protection and caveats for the noble Earl to be satisfied on this issue.
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