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The Earl of Northesk moved Amendment No. 197:


The noble Earl said: In moving Amendment No. 197, I speak also to Amendment No. 198. We have already had a detailed debate of the principles underlying these amendments earlier. I do not suppose that the Minister will view them any more favourably than he did previously. Accordingly, I do not propose to detain the Committee for long.

Amendment No. 197 increases the maximum prison sentence available to courts in cases of fraud against the tax credit system from seven to 10 years, while Amendment No. 198 introduces a new clause defining the offence of aggravated tax credit fraud aimed at those who repeatedly commit fraud or obtain large sums from the system.

The principles on which these amendments are based are well enough known to the Committee. None the less, I would like to make two substantive points. First, in rejecting a similar proposition in another place, the Financial Secretary argued that,


    "Dealing with the mischief is not made more effective simply by ratcheting up the national sentence".

He promptly undermined, if not contradicted, that position by alluding to


    "the common law offence of cheating the public revenue: that can and will be used in appropriate circumstances. It allows the court to pass whatever period of imprisonment it feels is appropriate—there is no maximum sentence". [Official Report, Commons, 7/2/02; col. 1109]

In other words—this may be of interest to Liberal Democrats—the regime the Government have in mind for the most determined and serious cases of fraud has no maximum sentence.

Secondly, reliance on the existence of the offence of cheating the public revenue fundamentally misses the point. What is at issue here is the clarity of the message that we deliver to those who have in mind to commit a serious act of fraud against the tax credit system. If I may borrow a phrase from a different context: that message must be "clear and unambiguous". We contend that the most effective way to secure this, as well as achieving an element of deterrent, is to add a specifically targeted offence to the Bill. Potential fraudsters would then be under no illusions as to the consequence of their actions. I beg to move.

Lord Bassam of Brighton: I make the point again that I do not think there is a difference between Members of the Committee in seeking to be tough on fraud. Clearly, these measures and amendments are designed to demonstrate toughness. There is no

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difference between us in trying to get to the bottom of fraud and the way in which it can, subtly and otherwise, undermine the credibility of the system.

Amendment No. 197 relates to Clause 33 and would introduce the specific offence of fraudulently obtaining tax credits. This currently has a maximum sentence of seven years' imprisonment, in line with the criminal offence of fraudulently evading income tax, which was introduced by the Finance Act 2000. The amendment would increase the maximum sentence for tax credit fraud to ten years.

The amendment is unnecessary for two reasons. First— the noble Earl ought to think about this in relation to what a court will in fact do—experience shows that it is unlikely that any court will pass a sentence for tax or tax credit fraud in excess of or even close to seven years. I know it is historical, but I do not remember Ernest Saunders spending a great deal of time behind bars for what many people probably considered to be major fraud offences. Secondly, if there were a case of tax credit fraud that was so exceptional and abhorrent that a sentence in excess of seven years might seem appropriate, it would still be possible for the perpetrator to be charged with the common law offence of cheating the public revenue. This allows the court to pass whatever period of imprisonment it feels appropriate—a point drawn to our attention by the noble Earl. There is no maximum sentence.

I hope, therefore, that the noble Earl will accept that while we support his objectives, the amendment is unnecessary and will add nothing to what is already available.

In Amendment No. 198 the noble Earl proposes a new criminal offence for what he calls aggravated tax credit fraud, which would mean cases in which more than a specified sum of tax credits was at stake or in which there had been a previous fraud offence within the past five years in relation to tax credits or social security. It would open the way to a higher maximum sentence upon indictment.

Members of the Committee will no doubt be aware that our policy on tax credit fraud is, in the majority of cases, to use civil penalties backed up by selective prosecutions to act as a firm deterrent against fraud. Cases in which there have been repeat offences are already part of the Revenue's published criteria for selecting cases for prosecution. Moreover the courts take any previous offences and the size of any fraud into account when setting sentence. However, experience shows that it is unusual for any court to pass a sentence for tax or tax credit fraud in excess of seven years, regardless of how aggravating the circumstances might be.

As I have mentioned, there is an avenue available for dealing with particularly serious cases of the kind that the noble Earl has instanced or in which a sentence of more than seven years might seem appropriate. It is possible for the perpetrator to be charged with a common law offence of cheating the public Revenue. This allows the court to pass whatever period of imprisonment it feels is appropriate.

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The noble Earl may be interested to know that one of the most serious cases of tax fraud in recent years was in February 2001, when Michael Richard Stannard, a tax barrister, was found guilty of cheating the public purse out of nearly £3.2 million. In that case, the judge made the following observation:


    "The profit was considerable and the punishment must reflect such gains. Other aggravating factors are the abuse of public trust by a professional man".

His sentence was four-and-a-half years. No tax credit fraud has ever attracted a sentence that long. Thus, doubling the length of sentence, as suggested by the noble Lord would, I believe, appear somewhat pointless.

The Earl of Northesk: I am grateful for the response from the Minister. If the Revenue are going to rely on the common law offence of cheating the public Revenue, that does beg the question: what is the useful purpose of Clause 33?

Lord Bassam of Brighton: It is not a case of relying on it. The common law offence is there and it can be used. The point that it can be used as a backstop.

The Earl of Northesk: That is somewhat at variance with the comments of the Financial Secretary in another place. However, I do not want to prolong our proceedings at this stage. For the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 33 agreed to.

[Amendment No. 198 not moved.]

Clause 34 [Powers in relation to documents]:

The Earl of Northesk moved Amendment No. 199:


    Page 22, line 8, leave out "serious"

The noble Earl said: I beg to move Amendment No. 199, for one purpose only. Earlier in our proceedings the Minister was wholly resistant to drawing any distinction between fault and negligence. I wonder, therefore, why in this particular clause the word "serious" is used. I should like an explanation of the Government's thinking in limiting the powers of the Revenue to investigate only "serious" fraud, when that distinction is not used elsewhere in the Bill. I beg to move.

5 p.m.

Lord Bassam of Brighton: Clause 34 applies to tax credit fraud and confers two sets of powers to apply in relation to serious tax fraud. The first set of powers involves the production of documents. These powers are applied in respect of all tax credit fraud.

The second set of powers involves the entry of premises with a warrant to search for documents. This second set of powers is applied only in respect of serious tax credit fraud. The noble Earl's amendment seeks to apply the second set of powers to all tax credit fraud.

The powers in this clause are new powers in relation to tax credit fraud. They do not currently exist in relation to working families' tax credit, but we felt that

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they were necessary to deal with the problem of organised criminal gangs engaged in tax credit frauds. These are significant powers which will be used only by specially trained officers from the Inland Revenue Special Compliance Office. The question of using them in normal tax credit inquiries will, we believe, never arise.

However, as with any extension of powers, we have thought very carefully about the justification for the extension. We believe that all fraud is serious, whether it is a tax fraud or a tax credit fraud. To the extent that "serious" adds anything, it limits the powers to cases involving large amounts of money. There are natural limits to any one individual's tax credit entitlement and we do not believe that it would be right to limit the power to require the production of documents to cases of serious tax credit fraud. This is because there may be many factors in an individual claim that are indicative of organised fraud but the actual sums of money known to be in question at the time that the documents are required to be produced might not warrant the tag "serious".

However, the position will be different for search powers. It is clearly much more intrusive physically to enter someone's premises and search for documents than it is simply to require them to produce documents. We have therefore been more cautious about extending these powers. We believe that the powers allowing the entry of premises should apply only if the sums of money involved are such that the Inland Revenue is in a position to demonstrate to a judge reasonable grounds for believing that there is serious tax fraud.

These are not clear cut decisions and this is an area which should be approached with some caution. We have to balance the reasonable rights of the citizen against the need to tackle those who deliberately set out to cheat the tax credit system in an organised way. We feel that the provisions in Clause 34 strike the right balance. For those reasons I urge the noble Lord to withdraw the amendment.


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